Davos Special: Trump Has Picked Smart People, Dalio Says

Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com and of course on the Bloomberg We don't speak to one of the truly great voices and important voices of the meetings of the World Economic Forum, and that is Ray

del Yo. You may know him among any other things, including someone who has given generously an interview time to Bloomberg Surveillance, but far more for running and investing money over the years in all different conditions and of course strapping it over from Bridgewater to an analysis of economics. I want to get to an in a moment, Ray Delia Daio, good morning, Thank you for being with us.

How was the year for Bridgewater? Can you can you say given the cocopany out there, the systemic risk, the challenges of epsilon. Can you go into this year with the momentum? Well, last year we're up, depending on the account, somewhere between a couple of percent and about twelve percent. It was a lot better than others. Well that's not the best point in comparison, but anyway, it was a social year. Let's get to the panel, Francie Laqua holding

court as you and any number of people disagreed. You know, I say, folks, the elite me degree. Well, that didn't happen with Ray Deelio. It's your panel. Professor Summers talks about a time of economic creationism, the new economics of the President elect. Where do you and Mr Summers disagree most in America's economics? Um, I think it's about populism. Um that the possibility that this can be effective, the

possibility of bringing about economic revitalization business. It's okay to make a lot of money by bringing in businesses from other countries, I think the United States. There's a lot of positives in this. I think the big question is whether it will be well navigated. There's a populism going on. So let's let's label this around the world as a phenomenon called populism. It exists in Brexit, it existed in the thirties. We have to understand what it is. It

represents a population that needs to be represented. The question is whether it's done intelligently or not intelligently. Now the words the revitalization of of of making money. So I think that this could be very good. It'll stimulate growth where the growth where there was a malaising growth before. The question is whether it's done thoughtfully and intelligently, whether this is going to require an engineering exercise. I love that idea, and this, of course uh comes from your uh,

you know, your middle class upbring. I guess I would call it within Long Island years ago. Within that radio and within the need for engineering is the idea that we get a frontloaded benefit that dissipates one year out or three year out. Is that a tangible risk. I think that this could be sustained or it could be nothing, depending on how it is. Let me tell you what I think it is. I think we're in a period that's very similar to nineteen eighty transition between the left

and the right, between more government and less government. Um, it was a time him when Ronald Reagan it would be more like supply side economics. It was a period that's quite like that, but different in that we don't have the capacity upboard capacity to grow in the same way because we were in a deep percession then, and

we don't have the capacity to lower interest rates. So the new growth that could take place by new investment and new animal spirits um has to be very well engineered to find out where the capacity lies to invent invest correctly to make this To pull this off is going to require engineering, and I think the real question will be whether there's the skill and the patience to engineer a unique recovery when the economy is where it is. Let's bring in David Gurr in New York City. David

Gurrow this morning with Ray Delio and Davos. Do you have a better sense of what the blueprint is going to look like? You've written about trying to understand how that the leverages will be moved in with the outcome of moving them is likely to produce. You wrote that shortly after the U. S presidential election. Are we any closer to getting a sense of what that engineering mechanism is going to look like? I think we know all the broad senses, and I don't think we know any

of the details. When when you think that like the devil is in the details, I mean, I think we know that there is going to be UM more protection, is more UH capital investment, more tax benefits for companies, more changes in tax rates. We know that there's going to be uh a lot of things, but we don't know how it's going to be paid for, or how it's where the capacity is going to exist with the tightness in capacity. We don't know how it's going to

be financed. We don't know even how those decisions are going to be made. We don't know the particular people and their interactions. We don't know a lot. We don't know what. Most importantly, I think we know that Donald Trump UM is a businessman and aggressive businessman, And what we don't know is whether he's going to be aggressive and thoughtful or aggressive and reckless. This is going to require a surgery, uh and whether there's good surgeons and

executing this well. To pull off the sort of environment that we had from nineteen eighty to ninety five when Ronald Reagan came in is going to require skilled talent. We don't know yet how that will work. Again, I draw back to to what you wrote after the election. You said that the craziness factor may have been overestimated when it comes to to Donald Trump. He might be a less erratic leader than than many feared now a

few years, a few months. Hence, do you feel do you feel the same way you see the tweets as we do every morning here, do you get the sense that that he's changing as a leader. I think he's chosen people around him who are buying large, thoughtful, respectable, intelligent people. Um. I think that's telling. And again I think that we don't know how those interactions are going

to be. That's the uncertainty that's out there. Has Bridgewater had to adjust its investment stance because within my theme, we're living within uncertainty amid and uncertainty. How do you deal with it day to day? I think the important thing is to know what you know and you know what you don't know. Most of my success has come from me knowing what I don't know and how to deal with it. So we've been basically trying to be neutral to this whole thing. So we've been positioned pretty neutral.

E in other words, is a way to diversify yourself away from this. I don't want to take bets on on this right now, Ragelio, thank you so much with Bridgewater this morning with us here at the meetings of the World Economic Forum in Davas, David Kerr in New York. I tell keenan Davos, Switzerland, the meetings of the World Economic Forum. And now a quick annual visit with Michael

Porter of Harvard University. He took aerospace and mechanical engineering degrees at a school in New Jersey a few years ago, and it's of course held court at Harvard Business School. Uh, you came out of a school in New Jersey, darkened the door in Cambridge and you're acclaimed. Professor sent you a note and said Mr Porter joined the conversation. Speak up, young Porter. Is there too much conversation nowadays? Do we have a president elect who's just perhaps talking a little

too much? Well, Tom, I I I hesitate to judge whether it's too much or too little. I think it's the wrong kind of conversation, it's the wrong tone of conversation. I think, Uh, the president uh is going to have to learn how to be a leader. Um, and leaders inspire leaders. Uh, bring together, not divide. Uh. Leaders build confidence in the future, not fear. Uh. Leaders um also think about people as human beings and neighbors that are

gonna coexist together over time. And uh uh you know, we have a we have a program that we do for major company CEOs at Harvard. It's a boot camp and and we talk a lot about what makes an effective leader and uh we one of the poignant moments in that program is we uh it we go back to Aristotle and and it turns out that the Greek's society was the first society in history where actually leaders had to had to motivate people and bring them more. Before that, it was all power and military and birth

right exactly. And um, great communication and great leadership is the combination of three things. One is logic, or what they call logos. Uh. Uh. You've got to be logical. It's got to make sense. Uh And frankly we stretch that in today's society, a lot of this stuff actually isn't logical, but most citizens really don't understand it isn't. The Second thing that great leaders have is in a sense of emotion. There's an emotion of of hope and

opportunity and a little bit of nervousness. And but but you can't have too much fear. Uh, you have to have some sense of hope and opportunity. You've got to put those two together. And and then third, and the most important of all is UH is what's called ethos. Values. The great leaders get across values that people aspire to and want to be part of it. And I think

the conversation now is missing the point. Can this administration take porter one oh one, which we just heard, thank you for laying it out so nicely, and retain their core American audience that wants an angry populism right now? How do you do both? I don't. I don't. I kind of reject the idea that that America wants angry populism. I think America has been taught uh to want angry populism.

That's the political discourse that we've evolved and and it's grown and grown over the last ten or twenty years. We've been taught that to get something you want, you have to punish or dismiss what somebody else wants. UH. We're looking at almost every issue in society in a simplistic way. It's not that we want trade or we don't want trade. You know, we we want the nice combination of the good parts of trade, but we want

to get away from the best parts of trade. Uh. It's not that we want, you know, small government or big government. We want an interesting combination of getting government in the right place at the right time, with the right resources, focusing on the right thing. So I think what's happened is we've we've had a societal discourse that's been I think led by our political process that is

educated people. Uh, that that populism has any legitimacy. I mean, I think in America we were the uniquely the country where people got along. I mean in my colleague David Gore in New York City, David very quickly here. I wonder if the more as of how we regard leadership stand to change here with Donald Trump in office. I think of how carefully executives cultivate their social media presence and profiles, and we see what the president elect is doing.

Do you think that's gonna perhaps a liberate executives in some way the expectations will change that they'll have to be seen as more straight shooters than they have been. Well, I think that that's a very hopeful, positive interpretation. And I do believe that all leaders of complex enterprise or complex the society's have to now communicate in more ways

than they did historically. UM. You know that said UM, I think that the fundamental uh problem that the Trump administration has is um, they have to ultimately be perceived as a an administration for America and for a good society and for a better place to live, and for a better place to work and raise your kids. And a society where everybody's yelling at each other and thinks the other guys the enemy down the street is not a good society that ultimately is going to motivate and

and uh and succeed. We would be honored to speak to you again at one hundred days of this new administration, because if I know one message from this valley, nobody knows where we're gonna be in a hundred days, white set of opinions. Michael Porter of Harvard Business School, I can't say the benefit he has created over the years here, Boy, have I been looking forward to this as as Mr Gurry in New York, he is a four star Admiral of the U. S. Navy. He is out of the

Fletcher School tuss University. But far more than that, he's served a tour of duty for four years with NATO. James Travitiz has given us so much value in the recent years and joins us here in dubas Admiral. When you NATO to me is a concept to most of our listeners. When you where do you walk into NATO when you walk in the door. Is it in Brussels? Uh?

The NATO political headquarters is in Brussels, tom and what you would think of as the pentagon of the NATO is about an hour south in a small town called Mons. That access from Brussels to Mons is the heart of NATO. So you get the pointed. Is the leader the commander of NATO? The brass is shined. What happens when you walk in the door. Is an American running NATO as

the supreme Allied commander. You ought to remember you are an American, but your deputy is a brit Your chief of staff is a German, your deputy chief of staff is French. All twenty eight countries have senior positions across the Alliance. So there's American leadership, but it's not American

direction or American hegena. What does Mr Trump want? How do you synthesize the comments of the last fourteen days You've been out in the me you but I want you to say for the surveillance audience now, is NATO ancient? Is it an artifact? Not at all? And I spent about an hour with President elect Trump and Trump Tower on December eighth, so just a few weeks ago, and I made the case and I think he accepted it to a reasonable degree, that NATO is good return on investment.

As Bloomberg listeners would think of it as follows. US spend six billion a year, China spends a hundred and fifty billion a year, Russia spends eighty billion a year. But the rest of NATO, European NATO tom spends three hundred billion dollars a year, more than Russia and China combined. We would not want to walk away and leave that

money on the table. It's a good investment. Yesterday, the Vice President Joe Biden delivered a speech in Davos calling on the preservation of the Liberal order, talking about the relationship between the US and Europe, a very passionate speech about the importance of that relationship. Do you get the sense that we're going to hear the same kind of passion from this next administration. I think that's not likely, but I do think there's a kind of a grudging

respect by President Trump. He actually said to me, as he said at the tail end of his NATO is obsolete comments, that NATO is very important to the United States. He understands that. And I'll tell you who really understands it is General Jim Maddis, who is the new Secretary of Defense designate, assuming he's confirmed. He will be a very strong advocate for NATO. He's saying during his hearing, if we did not have NATO today, we'd need to create it, I believe. Let me ask you about something

we heard a few moments ago. Jonathan Bernstein, one of our bloom Review commentators, talking about how many jobs are yet to be filled and watched in DC. There have been reports of how in the national security space in particularly, there are a lot of jobs that haven't been filled. How worried about that are you? How worried are you about how this transition has been proceeding, especially when it comes to filling jobs in the Pentagon and the State Department,

the National Security Council. Let's say I'm concerned, but I haven't quite hit the point of deep worry as yet. Let's give him about another month. If they don't start at filling those second and third tier jobs, particularly at Defense, State and the NSC staff, then I think it's time to worry. David. I want you to jump in here, but I've got to cut in and and make this is such an important question. Do you have any indication that oldline Republican foreign policy people want to work for

this administration. I think they are willing to do so, and I think that maybe part of what's at delay here is the Trump transition team is obviously cognizant of people who signed petitions never Trump, or if people were unsupportive of Trump but maybe didn't go as far as signing the petition, etcetera, etcetera. So there's a little bit more I would say, internal vetting going on Tom and that's probably slowed it down a bit. I'm sure there's an old home quality to going to the World Economic

for manual meeting. You're probably running into people that you knew from your tour of duty as the Supreme Allied Commander of NATO. What are they saying to you about the the alliance there? You don't have to name names, but generally speaking, what's the tone, what's the temperature of their sense of of of the strength of that relationship. Right now, I would categorize it as very hopeful on the European side that we will see continued strong US

support in the alliance. And I did a panel here on the future of the Transatlantic Alliance and the question was is the Alliance at a tipping point? And my answer is no, but we might be at a slipping point. In other words, I don't think it's gonna fall over and collapse, but we need to be careful that it doesn't slip down in importance. We're all gonna know more in about six months when we see the first set

of policy positions that the new administration takes. I think a theme to our conversations this week has been about the future of multilateralism, and I'll ask you who's going to make the case for that going forward. I think you have a lot of people who are disillusioned with multilateralism. There is a tendency now to look more inward than we have in the past. Who's going to take up the mantle, who's going to make the case for multiladeralism

going forward. Well, I'm hoping, despite some rhetoric coming out of Washington, that the US will continue to do that because it's fundamentally in our interest. But I think two other nations that come to mind, one in Europe and one in Asia are Germany and Japan. And it's interesting to note that these are both not quite superpowers but certainly uh well established players in the international field who

are emerging into the geopolitical world. Both of those leaders, Shinzo Abe and Angela Merkel, talk a great deal about multilateralism. And then I don't think we can completely overlook President g who came here and effectively signed up to multilateralism as the foundational piece of the world order. But critically, if he came here and addressed multilateralism, can that be

affected with a communist society. Well that's the billion dollar question, Tom, and I think that my own view is that China can be a multilateral actor, that they can participate in all of these Internet sational forums despite having an internal political system that is one of communists as a base philosophy. But we like to say in the United States politics ends at the water line. Perhaps that will be the approach from China. Did it end of the waterline in Wisconsin?

The main Mr Trump was elected by a body of people who are distrustful of domestic China. In the application I would suggest Asian particularly to the United States. I agree with all that. And in addition, there is enormous Middle East fatigue in the United States. So I think those are the twin pillars of challenge for the Trump administration. How do you square the circle with China without breaking

the global economy with a trade war? And how do you take a leadership position in this very fractious Middle East despite enormous fatigue in our country. David jumping here with the one more question with animals to Venus because they had a navy question. Just a quick question about this transition and how different it is from the ones that we've seen in the past. You have a lot of positions that are can go un filled. We read

the stories about how ambassadors are being pulled back. There's not going to be any continuity there until the replacements are found. Is there a risk there and having such a clean break to you understand why the president elect is doing that. I think there is risk in the timing. Every president, in every administration has every right to withdraw

the old and in place the new. But the sooner that happens in national security, the better, because the whole world is kind of waiting on pause, and the longer you wait, the greater the spread of risk. And now almost vitus. It is a first Bloomberg surveillance that we're honored that you were us. He's out of uniform today, folks, he's styling in the Patagonias silver vest in the bright

pink tie. Uh, Admiral, have you ever visited with a Swiss navy They have They have aquarious class patrol boats Type A D that are actually a serious flotilla of their lake bordering other nations. I have been aboard the Swiss Navy craft in Lake Geneva with Lieutenant General Andre Blautman, the chief in Defense of Switzerland. I have nothing but admiration for the Swiss military. And here's another one time. Did you know that the Swiss military has a bicycle regiment.

They have some unique features. No, but this is from from before World War Two. There exact clara here it is and as universal conscription terrific. Must thank you so much for the clinic on the Swiss Navy, 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 feder In Smith Incorporated, Member s I p Z. It is an important interview in Davos with someone from Laffyette, Indiana, who demanded he would not come on surveillance till the Cubs won the World Series. So finally we welcome Christopher

Ice Gruber. He was the twentieth president of a college in New Jersey called Princeton University, and all celebrated upon his UH sainthood here because of the path he has taken as an undergraduate at Princeton, including a Rhodes scholar working at Chicago Law and ample career UH and teaching of the law. The real reason that Dr Ice Gruber is here today is reported by Kristin tout Uh Kristen Tout of the Daily Princetonian. A sewer oder mistaken for

gas leak at the First Campus Center. I suspected gas leak at First Campus Center was really a smelly sewer drain, and the president said, I'm getting out of dodge, so he came to know. It's never a dull moment on campus, is tom Uh, No, it's not. It's uh. It's always exciting, whether I'm on campus or off campus. And it's a pleasure to be here with you. And how much time do you spend raising money versus talking to undergraduates to motivate them forward? Yeah, you know, I'm on the road

about sixty days a year. Some of that's talking to alumni, some of that, uh, fundraising, some of it's the kind of outreach we're doing now when I'm on the campus, which is the great majority of the time. A lot of it's talking with our undergraduates, are supporting what they're doing and what our faculty is doing. I want to go to our theme today, which is the can't out right now that you don't need to go to college. Peter Till greatly associated. Let me bring this in and

have my colleague David Gura jump on it. Mr Till would suggest for many students, college is a waste of time I have trouble with that. They don't care what I think. Please address that that topic. For any student who can get a four year degree, a college degree, a four year college degree is going to be almost certainly the best investment that they make or that their

parents make in their lifetime. So this is a financial news, uh network of the compounding return on a college degree, and we're talking now, any for your college degree is estimated to be somewhere between around seven and a half percent. That's at the low end of the spectrum to for most students, that's gonna be the best investment of their lifetime. And that's taking into account the tuition payments that they make, the room and board that they make, and the foregone earnings.

And that's looking only at the economic value. So there may be some kids for whom it's not a good idea to go to college, but in general, that's the wrong advice to give somebody who is not going to Princeton. You'd like to see go to Princeton. Not talking about David Gurray here who couldn't hack it, But you've got a lot of people who want to go there. They're applying, they're getting in what what part of the population is not applying. Even it doesn't know to apply to Princeton.

How are you gonna get them to apply? Yeah, you know are One of our major efforts over the last uh decade or so has been to increase the socioeconomic diversity at Princeton. I'm very pleased that we have a twenty one pel eligible population on the campus. Those are students eligible for federal pell grants going to the least well off students. That's triple what it was about a decade ago. So we want to see more socio economic diversity,

and uh we also want to see geographic diversity. You've got your your colleague at Yale talking about expanding that campus. There is so many students who want to go they're gonna build two colleges, I believe, to new colleges. How much do you think about the size of Princeton and preserving that and how do you balance that with the need to educate more and more people who want to go to college. David, I actually think it is imperative that we expand as well. Princeton expanded over the uh

last decade or so. We began an expansion in two thousand and one, Uh add a hundred and twenty five students to each class, so five hundred of the overall undergraduate student body. Our board of trustees last year, with my enthusiastic endorsement and support, announced that we two would build an additional residential college once again and expand the number of basis. But even that's not going to meet

the demand um for high quality education in the United States. Uh. And I'm very glad to see Yale and Stanford both expanding right now too. You were a pioneer. Princeton was a pioneer in offering need based aid, need blind aid, making it so that you could go to Prince and not pay a dime if you fit into a certain demographic. Are you surprised that hasn't been replicated more? There's a lot of talk of the size of endowments and a number of colleges in the in the US. Why hasn't

that been replicated more? Do you think? Well? I? I actually think David, that while we're very proud to have been the pioneers on that, we did see people uh follow us over the last decade or so. UM. What you rightly say is that Princeton went to a financial aid policy that was all grants, so that nobody is required to take out a loan, and we don't consider

home equity in determining student need. And the consequence of that is that at Princeton now sixty six zero percent of the student body is on financial aid, and the average scholarship is roughly equal to the tuition price. So of our students are graduating with zero debt or so take out alone voluntarily, and they end up graduating with

a medium debt of under six thousand dollars. I would suggest many parents of many different schools will look at you and go, you've got rocks in your head because most of the schools don't have such a program. Why are you looking at and be like yeah, Rachel, oh, personal experience, David, I want to point out that the

Princeton women's hockey team tied Big Red Hockey. Let me finish up here with the most important question, how do you retain faculty like John McPhee, How do you retain faculty in this day of price war for stars within the faculty? How do you do it? Yeah? So, uh, it's a great question because one of the things that I and uh my dean of the faculty. Debbut Prentice worry about on a daily basis is literally daily, right, that is what there are. We've got a terrific faculty.

And that means that when other places are looking at whom would they like to lure away, gonna look at Princeton University and a and a few of our peers. And some of that means making sure that we pay competitive compensation packages. Even more important, I would say, is making sure that we are providing the research support that our faculty needs so that they're able to do what they need to do in order to produce great scholarship or in the case of someone like John McPhee, great writing.

And we feel supported in the classroom. And then we need community that make community that keeps it together, keeps it together. Christopher Ice Cuber is the Prince President of Princeton David Curry in New York on tuck Keenan Davis and joining us now at these meetings of the World

Economic Forum is Nicholas Stern. That is, without question and name of debate within the environment, within our climate, but far more than that is his contribution to economics and of course his work for many years at the London School of Economics. Lord Stern, thank you so much for coming by this morning. It's a pleasure to be with you again. Tom. You gave a panel here which made immediate headlines and the tinge of this is an adapting

climate policy in Washington. The world can cut emissions and double gross domestic product in twenty years. Since Nicholas Stern, if you were to say that to President Trump, how would you follow up to convince him that we could double GDP in twenty years? I'd say, how you do it? But I'd also put in front of that that this is the growth story. This is about strong, sustainable infrastructure investment.

And President Trump's in favor of infrastructure investment, and we assume that he means modern, clean and small infrastructure that boost your output. Over these next five years or so, you trigger a tremendous wave of innovation and discovery, much of it on the way, but it could go much faster, and that will take you through twenty years of strong growth, and it will be cleaner and quieter and safer, and we'll have cities where you can move and breathe. And

how do you do it? Well, it's renewable sources of power, strong dose of energy efficiency. We can do much better. You expand your electrical system so much more. The transport is electrical runoff of course clean electricity. You move some coal, most your cold to gas, and you're much more careful with your forests. That's how you do it. You have enjoyed with a Stern Report of years ago, very large criticism that it was much more of a political document

than an environmental or science document. How do you update that and respond today? Not to climate deniers, but people that just go, wait a minute, I sort of like the internal combustion engine and it's working for me right now. How do you respond to that group of beauty? Well, first and foremost, the Stern Review was ten years ago, and I think it's absolutely stood the test at time. In fact, the science there that we reported on, if you look how that's changed over ten years, it looks

still more worrying. Most of the effects that we were talking about have come through faster than we anticipated, so I underplayed the costs of inaction, and technical progress has been faster than we anticipate anticipated, so I underplayed the costs of action. So the costs of inaction will higher and the costs of action in a sense a much lower because so much more is possible. So absolutely, I

think it stood the test of time. If you're wedded to the internal combustion engine, well, the great engineering forces, much of them United States, have made enormous progress with electricity, and electric engines are much more efficient than the internal combustion engine. Bring my colleague in New York, David David,

let's try. I was lending an ear to the confirmation hearings in Washington yesterday and Scott Pruett, who's up to be the head of Environmental Protection Agency, was testifying, and we can we can talk about his politics, but let's just talk about a broader theme he introduced. He said, we must reject as a nation the false paradigm that if you're pro energy, your anti environment, and if your pro environment your anti energy. Let's take a step back.

Using that as a as a jumping off point here, how are you going to get people who aren't interested in climate change, aren't interested in caring about climate change, maybe don't believe in climate change to care about it, to believe in it, how do you how do you bridge that disconnect? Well, I think Mr Pruitt is right in that we have to break the relationship between energy and output on the one hand, and things damaging from the environment on the other, and we know how to

do it. We know how to do things in much more efficient, cleaner ways. So I really think we can overcome that in a very direct way because these things are so attractive. They give you cities where you can move and breathe. And in the United Kingdom we kill twenty more twenty times through air pollution that we do from road accidents. This is a story which is much

more attractive. So if you want to see your economy more productive, who want you see your cities better places, use your energy, organize your transport in different ways, and then you break that relationship. So in a sense, Mr Pruitt is asking the right questions. When we talk about trade, we see the Transpacific partnership follow the wayside, and we wonder what role China is going to play in multilateral

trade going forward. How about in the climate space. It was a big deal when China came on board with that Climate accord. Is trying to taking a leadership role going forward here to you anticipate that they're going to continue leading when it comes to climate change, or was that a one off old China has been I've been working in China for at thirty years now, and the way China has moved in the last five or six years is quite remarkable. Coal peaked in China about two

years ago. At the end of last year two thousand and sixteen, China put on hold a hundred gigawatts of coal fire power station construction plans, some of which had already begun. They're investing enormously in renewables. They're taking energy efficiency very seriously. They worried deeply about pollution and congestion in their cities, and they actually have got quite good at producing the products which give you this more efficient,

cleaner world. So the Chinese commitment, because they see the problems of their cities, because they see the problems of climate change, and though they're very big, and because they see the attractions and making the new goods that people are going to use in this new economy, their commitment is long term and serious, and it gets ills longer. Lord Stern, you had the privilege of studying with Merlis. I've heard a number of pronunciations James Merliss of Scotland

a long, long time ago. He owns the modern study of incentives. How do we incentivize people in policy to do what you and others are talking about. There seems to be a massive reluctance to use intelligent incentives to change behavior. How do we do that? If you will excuse compliments to the interviewer, that's the first time that my PhD supervisor has been put to me in an interview. So we do with surveillance. He's one of my heroes.

He is the Marres sent and it was a moment he was He was absolutely terrific in his work on incentives. I was working with him at the time that he was doing that work which got him the Nobel Prize. The incentives are at the heart of this thing. And I was with a Mantrees sent on Monday night at the LC where we would talking about democracy and responsiveness and public discussion and persuasion. So those two things are part of my answer. Tom. The first thing is to

get incentives right. There are various things you can do. Carbon pricing is important at the moment people emit and damage their children's future and their grandchildren's future through greenhouse gases. They do it mostly for free, and we need good incentives so that markets works are carbon price is one story,

but regulation is also very important too. We need to continue this discussion in London, Lordstern, thank you so much, Nicholas turn Nick Stern, the London School of Economics, David Kerr and New York and Tom KENA Davis and not joining us is a woman with one of those storied careers in economics. Of course, her work with Kenneth Rogoff this time as different as what people talk about what

they don't talk about. As he showed up from Havana, Cuba with three suitcases a few years ago, went to a two year school in Florida and moved on without blinking an eye to the top levels of American economics. Carmen Reinhardt. Carmen, your expertise as a dollar, it's front center. I've never heard a president elector a president say we want a week dollar. How will Trump strong dollar policy be unique and original? Well? Uh uh President elect Trump has uh made it very much a point that he

wants to restore US manufacturing. At the same time, Uh, the dollar has been strengthening steadily and we're reaching a point where one may wonder, given the prospects of UH interest rate hikes, UH, how long be for it? Elicits a reaction, and by a reaction, I mean possibly something we haven't seen in years, UH intervention in the foreign exchange markets. Dude, this is a present electro for better

worth worse wants to see immediate results. And of course he did mention the dollar in a tweeter to this week, as Tom mentioned, how much power a basic question here and how much power does the president have to influence the strength of the dollar. We we understand the dollar, The dollar, any exchange rate is difficult to predict and even more difficult, possibly to control. But what UH is

driving this dollar strength? UH is a double whammy. It is the widening and spreads owing from changes in monetary policy UH, the U s tight tightening at a much faster clip UH than any other major UH central bank, and number two, expectations of a rebound in US economy. So what control can a president have? Look? As I said, the US has been a committed floating exchange rate country

since the breton Wood system broke down in the early seventies. However, when it has felt that the dollar has UH gotten far out of UH control or far out of alignment. UM intervention has been a tool, and it the tool is widely debated among academics and policymakers whether it's effective or not. But it's a signaling device, that's about all you can say. It's signals UH that maybe we're willing to do more on whatever margins we have UH to

turn it around. Tom will often invoke the Plaza Chord on this program, and I wonder if you think that we're headed for something like that, a new Plaza chord. What's different, very different this time, is the Plastic chord was all about policy coordination. The US didn't go at it alone. Alongside UH cooperating was Japan and Germany. Now, I would argue and have argued, that the conditions for

that kind of cooperation today are just not there. UH. In the case of Japan, UH ebonomics is very much entwined with trying to weaken the end and get inflation expectations up and try to move Japan out of deflation. So UH an agreement of a stronger yend doesn't seem plausible. Now we could turn to Germany and say, look, Germany is recording record or near record surpluses in its current accounts,

so it could be poised UH to tolerate a stronger currency. However, the Bundesbank is no longer the what's in control here, and the e c B worried about still a very fragile perifer. Europe can't can't commit what is your belief instability or instability right now? And I say this totally different than I would have a hundred and eighty days ago, and that my theme today is there is an uncertainty

within the uncertainty here at Davos. If I've got that level of uncertainty and first derivatives of uncertainty, do you believe we're in a stable environment or are there just some significant instabilities out there? I think there's tom I

I couldn't agree with you. More uncertainty has been I think the theme that I have taken away from from from this UH World Economic Forum because you could have potentially, potentially UH a fairly favorable environment in which the rhetoric on protectionism doesn't quite materialize in its most negative form. The US has a growth boost, and the economy, we're

global economy marches long and even picks up momentum. Um, then you could have a really extreme on the other side, in which UH China and the US UH confront and this sends the protectionists whistles around the world and UH trade, which as you know, is already never really recovered from the global financial crisis. I would point out that if you look at the couple of decades before the global financial crisis, world exports were growing at six percent. Since

the crisis has been growing at three. So it's already you know. Brexit and the trade war, of course, are what brings the possibility of the very worst outcome that leaves you with uncertainty. Dad, I can't help but look back on a worry we're last year around this time, especially with regard to the Chinese currency, and I wonder what your observations are at this point of how the Chinese government is handling its currency right now here in

two thousand seventeen. I'm so glad you asked that because I mentioned Japan, I mentioned Germany. I did not mention the elephant in the room was which is China? And um the Chinese right now? UH. If if you were to ask this question not a year ago, but three years ago, when reserve accumulation was still the mode, the REMEMBER was on a path of strengthening, they had capital inflows. I would say they would have been poised to make agreements uh to allow the Remember UH perhaps to strengthen.

But right now what the People's Republic Bank of China is doing is fighting a depreciation. If they haven't, if they hadn't intervened as massively as they have, right we would have seen a depreciation. And so the capital flight that's going on there is not entirely in their control. A story to continue, Carben Ryner, thank you so much, of course, with the Kennedy School at Harvard. Thanks for

listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio m H brought you by Bank of America Mary Lynch, Dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world.

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