Alan Blinder Says the Fed Isn't Dysfunctional

Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg I'm show to day two former vice chairs at the Federal Reserve, Alice Rivlin and Alan Blinder, will join us and we'll get market insight from Brian Jacobson of Wells Fargo. But first we welcome James Sweeney, chief economist and co head of Global Economics and Credits, with here in the studio with us, New York.

Great to see you. Thank you. Let's start with your your outlook and a phrase that stood out to me that is that we're looking at a new narrative here, not a new normal. Give us a sense of what you're looking forward to here in the new year. Well, it was really trying to think through what will the market be focusing on. And I think this era of of low interest rates, deflation, fear, central bank obsession, that's giving way to talk of protectionism, higher inflation, full employment,

fiscal policy, tax reform. It's a long list of new things. So the narratives are in there, the specifics are not exactly filled in for the moment but um. But in our view, you know, growth is okay for the for the moment um. We are monitoring the political situation for for what comes next. We're not fearing high inflation um. But I think the market will have an inflation scare this year. I think it'll have a growth scared this year. I think we'll have a protection scare. This year, might

have a geopolitical scare. You know, there there's a there's a house, there's a decent list. Our. Our outlook this year was it was a series of essays rather than the usual kind of data focused here, here's what's happening in the world. And I think that's by necessity. You mentioned protection is um and there was so much conversation during the campaign, during the transition about the prospect for tariffs. Now it seems the conversation has shifted to this border

adjustment tax. Are they one and the same as one provoke more nervousness for apprehension than the other. Well, I think the border adjustment tax in the in the context of this destination based cash flow tax with border adjustment is really a totally different thing from from a tariff or or just a border tariff, a punitive border tariff on on firms or on companies. So it would be helpful if if people just started separating them altogether. Um. The um. I think the border adjusted tax in that

corporate tax reform context is actually fake protectionism. It's not real protection him. Um. I think if you had that kind of policy, you know, it's going to give be a big move in the dollar, it's gonna give you a lot of chaos in the market. Um. But it's it's not necessarily protectionist. It may even give cover to not do some of the other things, because a more idiosyncratic protectionism through actual tariffs, I think is a much much bigger problem and more likely lead to tip for

tat type you know conflicts. You're right, an optimistic sheet. What is GDP for the United States? What? What is what are you framing? If you will for Mr Trump as we move forward. Yeah, we see GDP running in the sort of two and a quarter to two and a half range right now, that's not three percent. How does he get at the three percent? I mean, I think you could get it to three percent for a minute, with with with with a surgeon investment at some point. Um,

a pent up surgeon investment appears to be due. But dollar strength at the moment is getting in the way. Um. You know, some of the energy bust for a few years ago could could reverse. Um, getting persistent real GDP of three would be really difficult with the with the demographics of of the US. And that, David, is what is missing in a lot of the media frenzy is the time function of growth popping it for what a quarter? James, Yeah, but not for a year or two years to get

to the mid term elections. Is the conversation over about whether or not we're going to get an infrastructure package or fiscal stimulus. Are we going to have a conversation about the economic grounding for for a plan like that? Well, Um, so much as there is economic grounding, I suppose, But I mean I I think there is some economic grounding

for for both ideas. UM, well really all three ideas if you separate the personal income and corporate income tax because they're really very different things but probably need to be done together. UM. I think really, and now it's just the politics, it's just the horse trading in Washington. Can you get to these um reforms? I mean, we know there's a fair amount of democratic support for infrastructure there,

there's some Democrat support for corporate tax reform. UM. Corporate tax reform might not even be stimulative, it might not even reduce revenues tax revenues from the corporate sector. Personal income tax reform I think is a little more of a partisan issue UM with less Democrats support, And I think the economics of stimulus from that are are a little more of an open and there are a different question. But basically, you know, I think take off all three

of these things separately and have the long discussion. I'm happy to have it, but but I think it's it's difficult to encapsulate the three together into into a short summary. Really, each of them is complicated. If you'll indulge me, I'll quote once more from your your outlook. Another great line here. Markets overreact to political rumors and underreact to political facts, which thinks a bit of enthusiasm here during during earning season.

But do you think that the market is now beginning to reckon with some of the facts the political fact, Well, I mean what I meant by that is is um, you know, forget Donald Trump himself and exactly who's running

the administration and all that. If you just told someone a few years ago that in late January two thousand seventeen, the focus would be on US disengagement from the world and a significant increase in protectionism pushed by the US UM, I think people would say, wow, markets, you know, equity markets will be much lower. Um. You know, they would think this would be a time of great risk aversion. And you look at the markets and it's it's not the UM. I think the fact of of US policy

intentions has changed. UM. The markets haven't really reacted to it, UM in the expected way, or at least maybe the market is reacting to the expectations of lower regulations and stimulus and and so you know, we've had we've had that short term rush of of positive and and and we're sort of waiting to see maybe there's people are not really believing that genuine toothy protection is m is coming.

When you look at the intersections of politics, economics in the markets, are are there historical analogs that jump out at you or or we had an unprecedented time here, or have we seen things like this before? I mean, I think there are periods in history that offer interesting UM parallels, and I don't see anything that's perfect. I think the mid eighties, the time of um of of of rising interest rates, of a strong dollar, of real

angst in the US manufacturing sector is interesting. You know, there was a point in the Reagan administration where basically the Treasury Secretary and the chief of staff switched jobs, and you you ended up with UM. You ended up with a concerted effort to weaken the dollar and to UH and to really go after UH. Some Japanese protection is um um through some some tariffs of our own.

That was a big shift. And the last time the US had kind of broad tower is actually in the early seventies when when we left the the gold standard UM. I read that the the equity market actually rallied on shore on on that initial policy change in foreign stocks sold off. So sometimes protectionism could be good for the

local companies who are being protected. Um, and then others are going all the way back to Smooth Holly and talking about, you know, it is just going to cause the Great Depression Part two and which gets a little over the top. I mean, the evidence is not that clear that Smoot Holly was a major driver of the depression in the first place. But um, but history helps,

but history doesn't offer a clear, clear precedent. Let's continue with James Sweeney loves to talk about maybe we can look at his arch theme of well, there's a deflation scare and it's going to be a inflation scared. Would you help us, James Sweeney with trade between the United Kingdom and the United States. Prime Minister May gave a speech in Davos polar opposite of what I'm hearing from President Trump. So they meet on Friday, what will you

listen for? Well, I think, I mean, I think, in from a geopolitical perspective, the tone remember the shoulder to shoulder comment by Tony Blair year years ago. Um, can you maintain that that tone of of of a special relationship in the first place under the current conditions. That's I think interesting. But I think in terms of economics. Um, you know, if if brexit, if this is a hard brexit, Um, does the does the UK want a special bilateral trade

deal with the US? And then if the US is willing to to expedite a process leading to such a trade deal? Um is that you know? Is that going to be done on generous terms or is that going to be done in a in a kind of confrontation to It can't be done until she straightens out all her EU activities. I mean, I mean your Trump can't say let's wrap up a trade deal by Christmas. Well with so many of these things. When we say it can't be done, what is the it? You know? What

is the protectionism? What is the deal? A deal? And investigation? Um? You know, I I I think a lot of this stuff is very fuzzy. It seems to live in a publicity space rather than on a on a page with with with details. And this is not this is not especially clear what what kind of document will learne from this? Let me let me pick up off of that. Your forecast and the outlook is for the dollars that continue

to be strong in two thousand and seventeen. The outlook written before Donald Trump tweeted about the strength of the dollar, his his his wish or his concern here that it's it's not weak enough. That's kind of unprecedented and of itself. Um, does that change your your sense of where the dollar will go? Are we seeing the end of the strong dollar policy? Do we have a better sense of what the dollar policy is going to be here this president? I could tell you somewhere in our lengthy outlook was

was a comment about dollar twe it or policy. Um, So that was actually part of our expectation, was that we would get some comments. Um. You know, I I, as I said earlier, I think the dollar. I think the level of the dollar and its move over the last couple of years is an issue. Um. It is an issue for manufacturing investment. And we have sluggish exports, and we have sluggish investment, uh in manufacturing. And even I'm talking about the last two years, I'm not talking

about the longer term terms. Even compared to the last fifteen, you can see that the dollar is having a little bit of an effect. Um. You know, there's a lot of narratives looking back favoring the dollar, growth differentials, interest rate differential, stimulus from the US, maybe there's a shortage of dollars overseas, there's a great demand for dollars rather than R and B in in Asia. Um. All these

stories have have helped the dollar to rally. But now when you're talking protectionism, when you're talking change in the US role in the world, some people are talking about you could you see reserve managers you know, consider lowering um, their their dollar holdings older over time in response to some of this. You know, there's there's a lot of two way risk on the dollar. But to me, the bringing it home to kind of markets and and really

relevant fact based stuff. Um. The the issue is basically, if the dollar continues to strengthen this year, UM, it's gonna get in the way of President Trump's objectives in uh in improving the short term outlook for manufacturing. And I wonder could that be part of the calculus in choosing the new James Sweet thank you so much with credit sweets, David gurn Tom Kane Worldwide, Coast to coast, This is Bloomberg. Brian Jacobson with us right now from

Wells Fargo. It's almost a relief to talk to Brian Jacobsen because I'm not going to ask you any politics other than to say, Brian, do I change what I'm doing with a little bit of wealth I have because of all of this noise going on around us. Well, it's a good question. I appreciate not having to talk too much about politics. I think we've gotten a little

weary about that. I did to our client event yesterday, which was a lot of fun, but as you can probably imagine, it was discussing the political environment, and I think it is on the tops of a lot of people's minds. My encouragement to everybody is to just not let politics affect your portfolio. Try to focus on your goals and make sure that your allocations are in line with those goals. It's too easy to get caught up

in the latest tweets or the latest report and panic. Uh. And as many people have oftentimes said, many people smarter than I am, is that we are oftentimes our own worst enemies when it comes to investing, and that overreaction can be very detrimental when it comes to trying to achieve those goals. Bearing that in mind that there are the tweets, there is the short termism. I wonder though

here I here. I tried into politics a little bit if if you if you are able to extrapolate, you know, I recall after the election, people were getting into utilities. They thought that there was going to be big infrastructure spending for this. There are macro themes here. Ignore those

as well as you ignore the tweets. You know, I would look at the macro themes, and it's always it's difficult to sort of susce out the difference between what's an economic trend and what's sort of a political development that you should react to, because politics clearly do affect the economy. But the economy itself, even though it's not a machine, and I really hate using like physics analogies, but uh, the economy develops its own type of momentum.

And right now I think that really what you saw back in July was the economic momentum beginning to shift a little bit towards a slightly higher pace of economic activity. You know, the labor market is continuing to improve, wages are picking up, purchasing manager and disease are looking pretty healthy, not just in the United States but even globally. Now policy can affect that, but oftentimes policy has very long

and variable legs. So if they do some sort of like let's say infrastructure plan yesterday it was floated, then there might be a one trillion dollar infrastructure by the Democrats. Well that works out that's one billion dollars per year, right, so you have to take that and divided by ten because of the way that they do their math, and they don't believe in the time value of money, so they think that billion dollars event ten years from now is the same as a hundred billion dollars today. So

you know that this stuff takes time to build. David be could you explain to Brian that we adore physics references just you don't care, you know. I'm sorry. We're all Newtonian. There you go, We're all Newtonians. Think that the surveillance bumpary sticker. You if you are weary of politics, as many are, Brian, you want to look overseas. Are there markets right now where it is less of a player, less casting, less of a shadow. Uh for those who don't want to have to weigh or or think about

or try to figure out the latest political moctinations. Well, one of my favorite areas to look right now are some of those where I think from a longer term value perspective, there's some decent opportunity and I see that

in a lot of emerging markets. But the problem is this, you know, politics is casting quite a dark shadow across a lot of the emerging markets, the uncertainty about what's going to happen as far as on the trade front, what's going to happen with commodity prices, what's going to happen with you know, China's growth slow down. So there

are a lot of dark clouds. But that is actually where I think there's some good opportunities because, uh, you know, valuations, when I look back at some charts that you know, based on price two expected cash flows, emerging markets are trading at a rather significant discount relative to their developed market peers. So, you know, I think you can look

at emerging markets for longer term value opportunities. Keeping in mind that emerging markets it's a plural not a singular noun, that there are you know, all sorts of differences between say, what's going on in Turkey versus what's going on in India, with both of which are emerging markets. And you know what, we love to have you on because you are truly in the trenches of standing in a room with ten or one hundred people or more frankly with their hands

up in the air saying excuse me, sir. I mean, you know, some of the real concerns that are out there. If we make the statement this is the most unloved bull market, ever, how does this moment of January two thousand and seventeen change that idea? Do we go to effervescence or are we even less loved than we've been since early two thousand nine. I think some people are

loving the wrong parts, you know. As as far as looking at expecting that we're going to see continually rising interest rates, I did anticipate that will probably see you know, the tenure Treasury and the year at around you know, two point nine to three something like that. But then how much higher are we going to go? Maybe three and a half percent. So a lot of people are hating on fixed income, a lot of people are hating on the emerging markets, and I think that's where to

represents the best opportunities. So there are pockets where people love it. Look coming out of the election, you know, small cap stocks did well. I think justifiably, so they tend to be more it can deal with the regulations quite as well. They also tend to be higher taxed than what the large cap stocks are, so and some

of that increase in price I think was justified. But some of the sector uh that people were focusing on, as far as what say, the infrastructure build out, I think that any infrastructure plan that we get is going to have to be paid for to get it through a Republican controlled House and Senate. They don't want to blow up the deficits. So um. You know, maybe some of the run up that we saw in some parts of the industrial material space was a little bit overdone.

So you know, if people I think we're kind of you've you've got this mix of euphoria and a mix of pessimism, and it makes for a very interesting market to causes all sorts of sector rotation. And that's I think going to be one of the big themes for two thousand seventeen is you'll see periods of time where one sector is sort of you know, charging ahead for you know, a month at a time, but then suddenly it's stumbled. And that's why it's so important to just

keep it diversified. Don't try to get over your skis with any particular one sector. Bet Bryan Jackson, take us into that small world. Uh, what's attractive in it to you right now? Well, I think that in the small cap stocks, you know, it's it's just like the emerging markets. It's a it's a it's a very diverse set of

entities that exist in there. And one of the areas that I think people really honed in on after President Trump or at that point it was, uh, you know candidate Trump became president to lec Trump and now he's President Trump, was that a lot of small cap stocks. They tend to be more domestically focused as far as with their revenues. They also tend to have a higher

media and effective tax right. But one of the problems with just looking at okay, well they're more heavily taxed and therefore they'll benefit more from corporate tax cuts is not all of those small cap stocks are profitable. As of the third quarter two thousand sixteen, for the smallest two thousand stocks, only about of them were actually had taxable profits. So actually kind of like more MidCap stocks in this environment. As far as who might benefit from

corporate tax reform. Seventy eight percent of MidCap stocks were profitable and the at quarter two sixteen effective tax rates of around twenty nine, so they could be decent beneficiaries. So I would actually kind of shift I think more from small cap into mid camp, but even within as a looking at mid and small relative to too large.

A lot of that people are expecting to, say a repatriation tax holiday or repatriation changed to the tax code in general, and if that money does indeed come back, where businesses invest in property equipment, that's probably small and mid cap stocks are likely going to be the ones who build out that type of property, plant, and equipment. We're going to continue this discussion. One quick question Brian Jacobson, if I could, do you buy international through US multinationals

or do you now have to go abroad? Well, I think going abroad might be a better way to go. It's just a wider opportunity set. If you do it through the US, you tend to get a lot of geographic concentration. Uh. You know, our biggest trading partners Canada, Mexico and Europe. So you know, if you really want to have a globally diversified portfolio. I don't think using US multinationals as a proxy is really the best way to go. Brought you by Bank of America, Mary Lynch.

Dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections. Mary Lynch, Pierce Federin Smith Incorporated, Member s I p C. Here is the interview of the day. I guess you could go back to well President Clinton, where she was a vice chair. I think back then she was vice chairman, but now she's vice chair. Or you could go back to when she was thirty director

of O M. B Are. You could go back to I think it was Hamilton's, but it may have been Madison where she sat at the budget for Alexander Hamilton. Alice Rivlin, wonderful to have you with us today. I am sure was terrific. I am sure from the leafy uh leafy groves of Radcliffe a few years ago, you didn't expect we'd see what we're seeing right now. Speak to the people across this nation listening of how you are developing rivelin patients. Given the news flow, how are

you staying cool? Calm, and Alice Rivlin connected, Well, I've seen a lot of upheaval in Washington. This one is quite unusual, and the news is coming fast and furious as you as you know. Fortunately, though of the economies in good shape. We're not in a crisis. And actually a lot of the news is about things that are important but not central to the economy, of the wall and so forth. But um, it's quite a kaleidoscope of crazy things happening. How's how difficult is it to filter

out that noise? It sounds like you're you're regarding that as noise conversation about the wall and what may or may not happen with regard to UH, to infrastructure, when you when you look at the health of the economy, how easy is it to factor out the political noise right now? Well, I think you just have to concentrate on what's important. What I've been concentrating on recently is what in the world is going to do about the Affordable Care Act. That's pretty big, both economically and in

people's lives. UH and the President campaigned on it was a terrible law and we have to repeal it. It promised to replace it with something great. Now they've got to do that, and they're finding out that it is very, very difficult, in part because a lot of people have insurance that they don't want to lose, and institutions like hospitals and and the doctors are dependent on getting their bills paid. So it's not so easy to change this law. And Republicans themselves are not united on what to do.

Former HHS Secretary Micha Levitt was with us earlier in the week and he said that it would be dangerous to do a repill without having anything to replace it there at the ready. Is there growing consensus about that in Washington? Yes, I think there's a growing consensus. Uh, and it probably includes President Trump. He has said, well, not probably, it definitely includes President Trump. He has said several times that replacement must come along with repeal. That's

very sensible. He doesn't want a political catastrophe on his hands in his first month in office. The trouble is that replacement is hard, and different parts of his own party have different ideas about it. Yesterday we saw an entry from Senators Collins and Casting, which I think is the sort of a promising opening of a conversation, but it basically said, let's states choose. Uh, they can stay in Obamacare if they want to, or they can do

something more republican. Uh. That's something more republican isn't very well defined, but would involve health save these accounts. Uh, confederal contributions to health saving these accounts. And that's a that's the way to talk about it. Help us here with our collective wisdom in this a historical America that we have. When people talk about high inflation, to a person, our guests suggests three, maybe a little bit higher inflation. Maybe you lived that what I call the Walter Heller

inflation of the sixties. Robert Samuelson is wonderful on his folks at the Washington Post. Do you see any framework where President Trump could stumble into a larger inflation? No, Inflation is very low on my list of worries. Uh, it's been hard to get anywhere near. Uh. The federal reserves goal for two percent inflation. Inflation has been too low, not too high. I think it will not be a high on our list of worries. The economy is much more flexible, it's much more global. Uh, and Uh, people

don't expect inflation. Uh, nobody under the age of fifty has ever experienced inflation, so they don't think about it, and I don't think it's a big worry. See how she did that, David girl, She put me right. Those those youngsters under help me, Alice, on your list of worries? Where is Where is the FED? When you're having lunch in the fabled Brookings Institution cafeteria, there maybe been bernanke

Is grabbing a sandwich as well. Do you talk about the role of FED is going to play this discussion about a rules based FED? Are there concerns about what might happen if there is more political involvement with the FED reserve? What's your sense of its future? How worried about it? Are you? Well? There are All of those conversations have been going on, of course for quite a while, because, uh there the Republicans in the House particularly have been

very anti FED for quite a long time. I'm not sure that that will carry over into the new administration. They were fussing at the FED for not raising interest rates faster. Now that they're in control, are they going to want interest rates to go up faster? I don't think so. Uh So, some of that may die down. I do think that threatening the independence of the FED would be a big mistake, and in the end, I

don't think they'll do it. Tell me, with the migratory patterns of deficit hawks, I associate you with the OMB, with the FED Reserve, and also with a movement to while back to tackle the deficit. You and Mind McInnis at Committee for Responsible Federal butget worked on that with Senator Mark Warner and others. Amid these conversations about tax reform about the Affordable Care Act, do you think we're gonna see serious opposition here from people who are saying, look,

we've got to consider the deficit. Well, I hope so, But I hope it's sensible opposition. It shouldn't be opposition to UH pro growth spending on the grounds that it increases the deficit, because you do need the economy growing faster, and what matters is the debt to GDP ratio, and raising the GDP is a good thing. But uh, I am an unreconstructed believer that we need to do two things at once. We need to grow the economy faster and we need to get our long run debt on

a stable path. That means entitlement reform sensible entitled reform. Uh. And it means tax reform that increases rather than decreases revenues in the long run. I think we can do that. We I was on the Simpson Bowls Commission. We had quite a good plan. Uh. And my old friend Pete Domnici and I cheered a bipartisan group that came up with another plan. Plans exist. They are good sensible things to do. Uh. And I hope we get back to

that conversation. Vest Sherman, thank you so much. Elise Rivland, of course of cbo O, M B and the Fed with us this morning with terrific perspective. Look for her writings, particularly uh Brookenza in edition of his classic textbook. He does what Alan Blinder always does. He tries to make you think ideas for beyond the final Exam? And I love idea one. And this is like eight thousand page. It's like sort of like the Old Testament combined with

a New Testament. How much does it really cost? Professor Blinder of Princeton, wonderful to have you with us this morning. Is President Trump able to get out beyond the final exam in our nation's economics. It's hard for me to imagine that he would pass a final exam, even if it was set by a highly conservative free market economists. Can Glenn Hubbard and Martin Feldstein support I guess their candidate after what you've observed the last four fight? Well,

I don't think actually he was their candidate. Those two gentlemen are conservative compared to me. Uh, their lifelong Republicans, but they certainly did not support Donald Trump. How much energy do you put into trying to define what Trump and omics is in light of what we've seen? Uh, there's been a lot of whipsawing here. Are we any closer to having a definition of it? Is it worth even trying to pin down? I think it's worth trying to pin down. Once the economic program has taken greater

shape than it is, we know the broad outlines. There's gonna be tax cuts for individuals, certainly for corporations. Probably, there's going to be something that passes for an infrastructure plan. They'll most likely be a defense build up. There will certainly be an evisceration of regulations but in everyone, and there will be something to replace Obamacare, we think, But

in every one of those domains. We don't really have much of an idea concretely about what's going to happen, but that kind of idea should start taking shape within the coming weeks and months. Let's talk a little bit about the Federal Reserves and an institution that you know, well, there's the conversation growing on the hill about a more rules based approach here. There is a conversation that started during the campaign about the politicization of the Federal Reserve.

To what degree is the fedting to stand up for itself more than it has? The expect that we'll hear more from the FED Chair here in this yere um. We will to the extent that some of the things that are bouncing around in Congress that threatened the independence of the FED to come up again and again, and the Chair needs to respond. But the truth is that, for better or for worse, and I think it's mostly for better, the Federal Reserve is not a very political institution.

And the people that need to stand up for the FED are the politicians, Democrats and Republicans that see the importance of the Federal Reserve as a pretty technocratic, non political organization that, by the way, works, I mean One of the things that got Donald Trump elected was the Republican success in making the government look totally dysfunctional. The Federal Reserve has never looked dysfunctional. It's not dysfunctional today. Many people in Congress understand that, and they have to

stand up and be counted. Help me here with another one of Blinder Boma's ideas, uh trade is a win win situation. Mr Trump doesn't agree and is frankly a lot of Americans. I don't know if you saw Brad Delong's essay Professor Blinder, but he just killed it on the mathematics of how NAPHTA W t on T t P don't play that great apart in the debate? Help us trade? Can it be win win? Trade is win win when you go to the level of the nation, which is what that point is about. Every country benefits

from trade. The problem is that it's not true that every citizen in every country benefits from trade. When trade moves economic activity from one place where it lacks a comparative advantage. This is the term David Ricardo introduced two hundred years ago to another country that has a comparative advantage. So, for example, those two countries could be the US and China. People will lose their jobs, Capitalists will lose their capital in the industry that contract. The opposite will happen in

the industries that expand. And it's demonstrable that in total, the winds exceed the losses. But that's very small constellation to the losers. And the truth is that we in America and also people in other countries have not done nearly enough to compensate the losers. Blinders, Chapter eighteen, page three seventy one. Can protectionism safe free trade? With a grizzled view of Williams Sapphire, That's what you get in Blinder's textbook. Wonder if a more lucid explanation could have

saved a free twade? Looking back on the way that Ambassador Mike Froman tried to sell this to to the Congress and via them, the American public, I'm not blaming him in particular, but but do you do you think that more could have been done to explain the role of free trade, what benefits it does have, and who indeed it would benefit. I think a little, but I don't think that would have been enough of a force

against the demagoguery. We could have done well. I have said innumerable times that this is a failure of economists. For two hundred years we were all well, most of us weren't alive. Then those of just there two hundred years ago were instantly converted by David Ricardo. And the economics profession has never changed its mind on this, but it hasn't really carried the message very well to the public.

Part of it is a failure, and that David is the part that could have been done better to explain to people how, for example, all those cheap things they buy and applying stores and at Walmart are products of free trade and they'd be harder to get a more expensive or not for freedom. Let's do this, Professor Blinder, Let's come back. Allen Blinder is going to continue with its very generous of his time. Uh, Professor Blinder, it

is an historic day of doubt. Twenty thousand. I was trying to look back alan to where I sort of remember the Dow, and I used that one moment in history so for so many Americans, not Pearl Harbor, but for my generation, the assassination of the president, and it was a dow seven hundred eight hundred and we're now at twenty thousand. We had the Carter malaise um not directly associated with President Carter, and whether it's up six percent or up nine percent, equities are an awful good

way to make money. What happened to our spirit of capitalism while we migrate ever hired to an unimaginable You know, I hear all things about that, but I don't see it. I mean, if I look around our society, the spirit of capitalism and of entrepreneurship in particular is flourishing. I mean it's not just in Silicon Valley, which is the most obvious, but you know, you have Silicon valleys in New York and lots of other many Silicon valleys in New York and and lots of other places. You still

have Americans opening businesses against the odds. Most of these small businesses fail, as you know, but that's part of the American dream to start and run your own business. So, you know, when people talk about things American needs, I see some things like infrastructure, which is falling apart. But it seems to me casually anyway, that there's lots of entrepreneurship. There's there's lots of entrepreneurship, and I wonder here, a Professor Blinder, UH, if there's a way for the government

to kick start more of that. In other words, is the focus misplaced? UM? I think there are ways to kick start some of that having to do with UM reducing red tape. A good example, by the way, is licensure. We require licenses for all kinds of things. Now, some of course you want to license. You want your doctor to be licensed and so on, but there's lots of other things where you know, barbers and hairdressers and things like that. Thence we we need the kind of licensing

restrictions that we have. So that's one thing. People talk a lot about capital gains treatment from h startup businesses. I think there's something to that, but you've got to be careful about that. Imagine that we gave a tax free capital gain to Bill Gates when he started Microsoft. By the way, he didn't need such an inducement to

start Microsoft despite the taxes that UH or were in effect. Then, so you need to be careful about things like that, Professor Blinder, one last question, if we could this morning you end your exceptionally well done textbook. No Nation no Nation is an island, page four ten, When you wrote no Nation is an island? Editions ago? Did you ever think we'd be here today? And what do you say to the nation is we look at our present political

economics and might they might be here today? You mean with the president that thinks we should go back to uh, isolationism? Well I did not. I did not. If you mean by that then I think we were going to be in an increasingly globalized world. Sure I did. Now did I know the details of it then? Of course, not not even close. But the forces of history, including technology, uh, push only in one direction. You know, they's a history,

these arcs towards globalization. And you can rail against the future the way the Luddites in England did against the technology at the early part of the in the beginnings of the Industrial Revolution. But it's not gonna do you any good. Uh, it's not going to stop the forces of history. Very good, Professor Blind, not a nei Luddite, Alan Blind, Alan Blinder, thank you so much a mess. You appreciate it. Thanks for listening to the Bloomberg Surveillance podcast.

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