Fed Will Face Questions if Inflation Stays Low, Konstam Says

what you expect to see tomorrow. Gonna get some new data on inflation here in the US, so much of the conversation centering on inflation expectations where inflation stands. What are you looking for tomorrow when those new data come out? Um, well, I mean the views of the official view is pretty much consensus. Uh, sort of slightly better inflation days than we've seen. I guess in my heart of hearts, I'm sort of concerned that we're going to see perhaps some

broadening of the weakness. There's means some focus on the service sector inflation being a weak relative to the good side inflation, and that's in some sense more important because services are much less volatile than good. So if you get some sort of weakness there, you're going to be

wired about a more persistent downdraft inflation going forward. And behind the sort of month to month data, we have this sort of underlying concern that inflation is just generally going to be sort of drifting lower or closer to one percent than the Fed two percent targets. And that's our kind of new inflation equilibrium concept that we've been focused on. Tom, How do you process the divide within

the federals on this issue? And in particularly have the Fed cheers saying this is transitory, these headwinds or transitory. We heard from Jim Bowler of the St. Louis Fed yesterday saying he's not optimistic we're going to see any market rise in inflation anytime soon. How problematic is that divide among policy makers? Well? I think that the central banks of a real problem because you know, in general, and it's not just the FED, they've all struggled to

meet inflation targets. H And the importance of the inflation target for any central bank is that it obviously gives them the anchors, you know, kind of what they do. Uh, And it's because inflation is generally considered to be driven by the expectations of inflation. If you have a target that's supposed to be driving expectations and you don't meet that target, then you have to It begs the question

what does create inflation? H And that's the kind of idea whereby if inflation is being created by some other process, and it could be structural, that could be do with technology, it could be to do with demographics and all these other sort of structural things that is really outside the remit of a central bank, and then it almost becomes redundancy what their inflation target is, and it may be

challenges their whole kind of policy framework. And I think that's the that's why the the FED has to in any center brank has to still say things are transitory. Inflation will go up, won't it, Because otherwise otherwise what are they doing? Well? Here in I guess the two thousan seventeen what's the the utility of the use of the Phillips curve at this point? How do you regard that tool? Well, we know empirically it's been a disaster. So if you look at five year rolling regressions of

the wage inflation versus unemployment gaps unemployment rates. Obviously, empirically it's broken down, it's flattened and as shifted lower, which means that the average wage inflation rates for some sort of unemployment technliberum is much lower, and the sensitivity of wages to change his unemployment is much lower. So empirically it's become a problem. I think that there is a camp, obviously, and it's a consensus camp. There's just a matter of time.

We have to be patient. This is the natural consequence of a major financial crisis and economic downturn. It's all going to come good, and I think that's the sort of consensus within the FED. My concern is that there are reasons for why we've noticed this this collapse in the Philips curve, and they are not to do necessarily with cyclical forces. Are to do with these structural forces

such as demographics. For example, the older people, the fifty five year old plus generation, they've seen the biggest shift in Phillips curve relatians is some of the younger generations. And because though that that that that group of that age cohort is becoming more and more dominant in the labor force. I don't think this thing is necessary going

to change over the next five years or so. We're waxing single equation this morning with the Philips because so we said, good morning, David Gerin, Tom Key, Bloomberg Surveillance Dominique. One of the ideas here is a Phillips curve, a single equation solution. What a conceit? Come on? This thing comes out of Lse forty years ago. I get it. And there's been adjustments by guys a lot smarter than me. But please tell our audience wire supposed to hinge where

we're going on. Frankly, a rather simplistic algebraic function. Well I can. I couldn't agree more. And and it's sort of incredibly sort of backward looking in some sense as well.

Um so, no, I I think it's a there's a it's a it's good it's a good thing that sort of isn't working because it makes you think about you know what exactly, and I mean Bob Schuller's world folds over under this, and that there's not only a behavioral construct that you overlay on a simple algebraic function, but at the heart all of these equations are based on some forms of Gaussian Bell curve distributions. It's I think

we learned in the last ten years. It's not a Bell curve world, right, Yes, And I think I guess if you're going to defend anything, I suppose what you do as you say that at least when things break down, you still understand why you've been so wrong for so long sort of thing. And I think that's going to be the case with some of the central banks. I'll realize, you know, they'll understand what they got wrong based Is it just because they don't have a new theory to

go to. I mean, that's a that's a very valid thing to ponder here, and I mean, really good papers is summer Frankly, I mean they're driving in the dark to some extent, and uh yeah, I mean it's been partly because we're in this world of let's say, creative destruction and huge structural upheavals, whether it's globalization, technology or the aging populations. All of these things things and make it very hard I think for anyone to have a

lot of confidence in the in the future. I mean, David gurd did, do people understand that four months of the year, it's like we live in Greenland. You drive to work in the dark, and you come, you go home from blue exactly treasure these few several months, there's no there's no sund surveillance. I'd love you ask you that you explained that there could be a linking between

low inflation high growth via what we're seeing inequity. Just spell that out for you, so if you want, well, I recall very well the late nineties early two thousand's where we saw strong growth and low inflation, and obviously it was associated with a real investment boom. It was to do with the dot com bubble at the time, etcetera.

UH and extray markets were doing very well. And there's this concept of Tobin's Q, which is basically the market value of ecuties versus replacement costs, which is investment, which is the investment side of it. So companies basically started issuing a lot of equity instead of buying back their stock. And and I know we know that the capital laborat show the amount of investment relative to employment in the

US in particular is very very low. Now, so there is this sort of case for saying we want to see much higher real investment relative to employment and that would raise productivity. And so clearly one way to do that would be to have companies stop buying back their stock uh and invest and UH the actual market going up another sort of thirty percent would be equivalent to

a kind of what happened in the late nineties. And so rather than being worried about equity bubbles and the idea that you know, interest rates are going to go up and and and that that the actually market may have to come down, so that as part of that, just maybe the outlook is to say interest rate is going to stay very low because inflation is going to stay very low, and interest rates will only rise when real growth is a lot stronger. But in a way

that has to come after equities go up. What is what is that We're going to come back with you, but very quickly here what is the catalyst to jump start real growth besides the hope and a prayer from smart guys like you. Well, I mean, I think we've had a lot of buybacks in the extray markets. Sort of we know that there's been a lot of buybacks. There's a sense whereby that's maybe shifting towards more m and A activity and in the grand cycle of things.

Is possible that we could shift to greater net equity issuance at some point once valuations in the epting markets encourage companies to sort of think about replicating themselves rather than buying someone else. So the cast lists would have to come from, you know, from the financial markets to some extent, and without doubt, a strong ectually market I I think would encourage real investments and that would raise productivity. You would be adding capital to labor right now. The

capital laboration shows growing is pathetic. It's growing around for three or four percent if you're lucky. It used to be. It's been as high as eight percent, and on average it should be six percent. I find it interesting that the President of the United States is retweeting a Bloomberg Markets church. I saw that. I haven't brought it up.

I did see that. Yeah, Mr Trump, if you're listening out on the golf course in the early morning sun, all I can say is our team led by when M. Bloomberg would love to visit you and move a terminal out to your many bed men stars today he does he understand he could have a Bloomberg log in and have a terminal in bedstory in Florida. He could have one at the White House when he's there. Can he have one on the golf course? I think he can use the professional app Very good, continue to continue to

hawk this product. That was a word by our sponsors, folks, But we thank the President seriously for retreating show Chandra's great work at Bloomberg Markets dominy constant with us. He knows about the Bloomberg terminal dominic. One of the great minds of investment was Phil Currey, enjoying a life well into his hundredth year, a great student of solar eclipses. As we have the clips coming up in August, and Phil kay always talked about the bright lights of inflation

under the constant theme there aren't any bright lights. How in the dark, How in the shade are we going to be with a lack of inflation? Well, um, I think it ultimately comes down to how low nominal growth is because of the lack of inflation. So this is why if we can, if we can make something out of low inflation in terms of higher real growth, it won't be so dark. So that's the kind of key issue I think initially though, if inflation is going to

stay somewhat disappointing. UH, and we're not going to get a big rebound or see the data obviously on the PPI front today and UH and CPI tomorrow. But if initially we don't get any sort of meaningful bounce back inflation, then obviously it's going to look a little bit dark because people are going to question what the FED is

actually doing. You know, obviously they're they're on on course to do their balance sheet reduction, and they're talking about hiking possibly in December, and all that's going to look a bit sort of you know, what's the point of it? Okay, So within your research, note, I don't think there's a fiscal response. Well, all the infrastructure is the other father role?

Is that? I mean my yeah, I mean my view on fiscal is to distinguish the sort of the two kinds of fiscal One is obviously fiscal stimulus, and stimulus is fine if in some sense you can sort of unleash some sort of multiply effect. But there's always a danger that the FED kind of responds to that by saying, okay, because of our models on unemployments and we think that Phillips curve is gonna work. We're gonna just you know, snuff out the extra stimulus by a raising rates a

bit faster. So it could be a sort of a zero some game if the FED kind of offsets the fiscal fiscal reform though, is that actually kind of raises potential growth is much more interesting because and obviously you can sort of shift out your supply curve effectively. Uh and um, what's the scope for that? Well, it doesn't look so good now because they've obviously dropped some of these are more outrageous type policies that what some people

thought were outrages, such as the border attacks. Uh. And but those could have had a more meaningful impact I think on potential growth. And David part of the debate here as you've got to move the needle. I mean, in the seventeen nineteen frillion dollar economy, it takes a lot of fiscal part really to move the needle. You declare volatility dead, and I'm sure there are many investors

grieving that. How do we move past that? What what do you what do you see as the wavefward when it comes to this this low volatility environment, Well, it doesn't he doesn't do the hedge fund again. Yeah right, I mean that that. I mean that invol's dead, I think for a couple of reasons, or has been dead

for a couple of reasons. One is, obviously interest rates are very low, and when interest rates are very low in general volacities, he's going to be pretty low in the rate market, and that's sort of, um, you know, maybe infects some of these other assetment class as well, because's not just rate vol that's obviously very low. Um. The other reason, though, obviously, is the central banks are such big players and the financial markets through countit of easing.

So even though the FED no longer is doing quey and it's going to start winding down the balance sheet very slowly, uh, the CB and BOJ are still massive buyers of securities and that see other sort of reason than affects it. So I think the way in which you eventually get out of it will be some combination of raising nominal growth and as we said, it's not

likely to come from inflation very much. It'd have to be a real growth story eventually, but also getting the central banks sort of out of the financial markets, and the ECB is probably gonna taper again later, we'll announce the tapering later this year, perhaps as early September. And obviously fed's doing their thing on balance sheet and the b J is going to be a long way behind.

But then eventually they may do something. So if all goes well, you know, slowly, slowly, slowly, maybe we can bring back higher, higher rates on the real side and somethng. You have been more than generous, as I say, folks, the problem with Domini because you have to read as length theory, search past word by word. Sure we protect the carpyright. I've already had a couple of emails. No, we're not going to mail out Deutscha Bank's work. Please

contact Deutsche Bank for doctor customs. Brilliant, uh, David, I guess we should wax politically here. That seems to be the season with a qualified candidate, the former governor of Oklahoma. Oklahoma's outside of the three zip codes we work within, David, it's the rest of America. We second morning to our listeners there on serious ex im one nineteen. If Frank Keating joins us now, as you say, former governor of Oklahoma with a long history with the FBI as well.

He governor Keating. Great to have you on the program once again got us up to speed on what you're watching here as all of these investigations unfold. Given your background, what's most interesting to you? Where do you see the most interest when it comes into the Russia investigations. Well, I, of course, as a citizen, UM was not surprised, but certainly as a result of my background that the Russians and others have been interested in American politics and American elections.

Have they been, um doing everything in their power to disrupt them or to change the outcome? Well, I suppose they would try if they could, But de Nited States does the same thing. They are we are very interested in what's going on in countries that are our adversaries, and I'm sure and I know that in the past there have been efforts made to change outcomes of elections.

But that said, UM, I'm not friendly to the concept of an independent council, a special prosecutor special council, because if you have one victim and you have an armory of investigators, have an army of prosecutors, you're going to get your victim, whether it's spending on the sidewalk or whether in for example, the Trump case, UM it's a deduction that wasn't warranted, or you in a limited um partnership value a property greater than its real value was,

and all that's of course arguable, but that's what worries me. The Independent Council himself, Bob Mueller, I think is a very fine person, very sharp person. But again it's the concept itself and where it goes with anybody's guests. But I would imagine they'll find something, and I think that's terribly destructive to a free society. How does somebody like Mr Mueller, the agents who are working these investigations, how do they tune out the political noise surrounding all of this.

We've seen some criticism direct and indirect of Mr Mueller, for instance, uh speculation that he might be be removed, etcetera. When you're working investigation like this amid all of these political pressures, how do you tune that out? Well? I was U S attorney in in my state, and I share the U S attorneys. I was number three at the Justice Department and supervised versually all of the federal

enters and establishment at Treasury and in Justice. We had pretty strong rules that we didn't get engaged in politics unless there was a real issue, I mean, a very very dangerous um challenge to legal, challenge to the process itself. I remember one time, as a young agent in San Francisco, I interviewed Mayor Alito, who then was under an investigation. I don't recall at this juncture what poor And he said, well, you're just here because of Richard Nixon told you to

come here. But they average fbigent. You know, he has cases open, he's assigned to lead, he interviews people. He is totally a political and he is you know, totally professional at least that has been my experience. So where this goes is anybody's yes. But as I said, I just hope that it's not another kem Star. We moved from white Water to the staining dress and the President rying about having it's We're going to turn things in

your head. That's what we do. In August, here David gurin, Tom Keene with us, the governor of Oklahoma, the former governor, Frank Keating, of course, with his public service with the Federal Bureau of Investigation, talking here about Mr Mueller earlier in that Frank, let's talk Anna Langthorne. She's head of the Oklahoma Democrats. John Sparks a Senate leader, Scott Inman the House leader. The Democrats owned the state from nineteen o seven to nine, when the Commies known as the Republicans,

took over the state. What do the Democrats need to do to get that traditional Democratic voice back? Many would suggest that the Secretary of State lost the election rather than Mr Trump won it. Do you have any worry that the Democrats actually get their message organized and they

take back Michigan or they could even take back Oklahoma. Well, you know, Tom, it is uh anybody's guess right now, because I was the first Republican governor of my state since the sixties, the Democrats in control of the House and Senate forever. And my whole theme was why are we for capita income? There's no reason for this. When I left office, oil was never above eighteen dollars of barrow. We were concurty seven and per capita income. We put

right to work in the constitution. Today, the highway system, the turnpikes, made the kids take carter course in school, you know, charter choice. All that stuff. Got rid of welfare through a Democrat House and Senate. It can be done. But what's important is to have Republicans realized. To be the party of Lincoln, they have to win Lincoln agendas, and the Democrats to be a party of Jefferson, they have to win Jefferson agendas. But both of them are

American agendas. Come together, let's work it out and do what's necessary to make America great again. As the President says, So it's not that difficult. It doesn't really take a a PhD in economics to figure out what America? What ails America? And this tax thing, I think is going to be watched very carefully with all those trillions abroad, and we're gonna fix the system and bring that money home. We'll see. But it does take leadership, and it has

it takes humility to get stuff done. You can't like it, you just can't take the view con that it's my way or the highway. Where's that humility? Where's that leadership going to come from? As you mentioned, we're all watching what's what's happening We're going to happen in Washington when it comes to tax reform. Where do you do you see a real leadership in humility? Deficit in Washington and what's going to fill that Well, obviously Donald Trump, there's

not a whole lot of humility there. But he wants to win. He wants to be a successful president. I know the vice president feels the same way. Think of the good men and women who are willing to serve in the administration. They don't want to leave a wreckage of a legacy. I mean, they want to win. They want to succeed as well. And I really think the Democrats. My grandfather was a bank owner in Illinois, but he

was a Democrat member of Congress. Your father, my granddad was, but he I mean he really thought deep these issues and he wanted um during he was a member during the depression. He wanted to make sure that small towns and community banks were listened to and looked at during the course of the recovery from the from the depression. And you know, but it does take, you know, the president's leadership, and he needs to send up ahead of the table, bring people from both sides in and say, look,

here's how I see we ought to go. What do you think can we count on you to help us? And you look at the Democrats, how do you hike camp for North Dakota's um Joe mansion from West Virginia. Those are conservative people. There are Democrats that are up for reelection from states that the President won. Those individuals are talkable. I mean, they're not completely fanatical for the

Democratic Party. They are fanatical to be reelected, and I think there's an opportunity here to address their concerns and address thecerns of concerns of the country and solve these problems. I just I'm puzzled, as a former executive of the state, why this is so difficult. I just don't understand. How far does does that distance between Oklahoma City and Washington Field today? But does it does it feel farther than it has? Well, it's interesting when our members come home,

and they're all good people. When they come home, they're convinced that things are going to get fixed and things are gonna move forward. But they, as I I'm sure David, you and Tom as well, aren't sure what kind of leadership the president is going to provide. Because he is analyst, this is not his area of expertise, but he wants

to win. So what's important is for the vice president to take a much more private role with the President, and hopefully this lunch today will help in that direction where the VP says, you know, we're all going to look like fools so we don't get stuff done, and here's what I suggest we do, and hopefully they'll do that. A great point to David's wonderful question. I got the map out here, folks, and you know I've driven some

of this. I've had the privilege I had parents, Frank, who just put you in the car and said let's go. And there's no air conditioning. You know you I'm out of Oklahoma, and I mean, I know you take the Keating family Gulf Stream, but the answers you to go. You go south and drive through Nashville, or you go north and drive through Mike Michael Pence Indianapolis. I mean, there's there's two arcs to drive from Oklahoma to Washington. What does that group of Republicans say about this president?

Whether you take the southern arc through Nashville or the Interstates through Indianapolis. You've got a lot of people they're baffled by this president. Is that right? Or am I wrong? He's Does he have that much support out there? Well? I think everybody uh wants him to succeed. The people I talked to of all walks of life want the president to succeed, but they're not sure what that means to him. I mean, is that something he feels he has to do to wom in public policy, not just

in pr and I think those are important distinctions. Most people know he's the only president we've got. We can't vote for him or against him for a few more years, So why doesn't he win? I mean, let's win some of these races, meaning political legislative races. Let's win these issues and then move on, and then everybody lives happly ever after. People wanting to do well, they're just not

sure if he will. But frank I mean again, I know you take the Keating goulf stream, but if you were to take Ice seventy through Michael for the vice President's Indiana and if you passed Brazil Indiana, I'm gonna make the assumption Brazil is west southwest of Indianapolis. I'm gonna make the assumption the good people of Brazil Indiana probably went Republican. Those people put you in office. Are they still going to vote for this president? Is Frankly,

some of the polls say yes they will. I think most people are only loyal to their wives and half of their marriages in the divorce. So now I mean there are probably and this is our challenges the as the Party of Lincoln an African American community that is solidly Democrat, and that disappoints me. But obviously we've got to work to open up the opportunity for those folks in the convincing to vote Republican. But I think most people will vote against Trump just as fast as they

voted foreign. If you think, did you have an attorney general that's going to get you back to the Party of Lincoln, well, you know, I the reality is I Jeff and I have been friends. Jeff Sessons and I've been friends back when we were U S attorneys together, And you know, I think that like any of us.

For example, when I was nominated to beyond the Tenth Circuit Court of Appeals, one of the Democrat members of the Judiciary Committee in the Congress said, well, I'm very concerned about, you know, your issue as to how you handle as General Counsel of HUD issues that aginally had

racial overtones. And I said, I said, sender are you where I was State Council of the mule a CP in Oklahoma, and then immediately changed the subject because if you're a quite male Republican, you're supposed to be a racist, which is a complete libel. And I think I think that Jeff is a good man, doing the best you camp. This has been great. Frank Keating, always inspiring. Thank you so much. Always love the conversation with Governor Keating. I've got to do, Ah, I've got to do an apology

to David Guru because I'm a monopolis for conversation. As Frank Keating got me going on, we'll have him back. Can we book the sixteenth President? Can you try to get a Lincoln in your Frank Keating joining us from Oklahoma City on our phone lines. What are we gonna retire?

General Mark kimmittt. He's former Assistant Secretary of State, former deputy assistant Secretary of Defense, someone who can give us some invaluable perspective here on the war of words, the rhetoric that we've heard you're regarding North Korea over these last a few days. He joins us from our Note one studios in Washington, d C. This morning. Great to

have you with us here. Let me let me start just by asking you to react to what we've heard thus far on Twitter, in comments at Bedminster, and through Statan's UH from the Korean Peninsula as well. What do you make of what we're hearing right now? General, Well, two things. First of all, I think the comments that came out of the President have been sort of amplified down here in Washington, d C. Which is more of

a function of the political descent between the administration. More important is what Secretary Madison Secretary Tillerson had been saying. Secretary Tillerson continues to believe that diplomacy is the right way to handle this, but Secretary Maddis put out in an extraordinarily tough statement yesterday UH in effect threatening the North Korean regime that says, if you come after us, we will destroy your country and we will destroy your people.

That's about the toughest writer work I've heard on this situation, UM since I can remember. Yeah, I wanted to ask you if if the rhetoric and risk are matched up here. We listened to Secretary State Rex to Luison asked he flew to Guam yesterday. He said Americans should be sleeping sadly, etcetera, etcetera. Is the risk as great as the rhetoric would lead

lead lead one to think. I don't think so. Um. The only risk that I'm concerned about is the risk of miscalculation that somehow, in this war of words, somebody makes mistake, somebody says something uh that is interpreted by the other side the wrong way. And what has gone then from a rhetorical battle to something a little more significant? How much has as as this conversation changed. Of course,

we've seen now two tests of intercontinental bistic missiles. There's the reporting by the Washington Post and others that have they've managed to miniaturize a nuclear weapon. How much has as the circumstances changed here over these last few years. Well, that really is two questions number on how has the

rhetoric changed. Certainly it's become a lot tougher because I think this administration recognizes that they speak softly and carry a big stick philosophy which is guided our diplomacy with North Korea over the past fifteen years, has done nothing to limit or slow down the nuclear development of North Korea. So I believe the rhetoric is a little bit tougher. In fact, it's considerably tougher. And I think at this point that the answer is not only carry a big stick,

but also talk in the language that this guy understands. Jena, Kimmy, you have, as all generals and animals do, a most interesting path through your military. There are all sorts of wonderful ribbons. The Army Commendation Medal, the Global War on Terrorism, expeditionary metal, your service in Germany, your master parachutes wings. Do you get a ribbon for having a Chartered Financial Analyst designation? Did you get Do I get to wear

a ribbon because I have that? I mean, what was it like in a c f A under the guise of military education. Well, it was very interesting. I'd gone in that long period of time between captain and major. After you've commanded, you have a significant amount of time. I went back and taught at West Point. Frankly, my alma mater, Harvard Business School, I felt did not have

a strong finance program. So I actually wanted, oh I know, I actually wanted to learn more about the tough part of finance, which was going through a revolution in the eighties. As you remember, the rocket scientists were coming out. The derivatives were now being calculated. You didn't get there at Harvard, We didn't that that's tough to the school up the Charles River that maybe could along the way. No, that's

exactly right. M I T and Sloan really got hard on that, as did Wharton at Carnegie Mellon and exactly and and being an engineer by background from West Point, I really wanted to learn the math, and God bless my holma mater, but that was general management, and I was teaching finance, and I just felt it was important to know much more than my students. Well, Mark, Tracy, Patrick, Kimmit, Kommas c f A. Let me. I'm gonna get to

the gossip. I can't think of anyone more qualified to pick up the pieces of the White House press room than you. We have a president who has an affinity for people with eagles and stars on their shoulders. We've had a Donnie Brook. Whatever anybody's politics within the press room, have you been contacted by General Kelly to take over the things you are experienced at, which is communicating with the press in the public, Well, I haven't, And I've

got the greatest respect for John Kelly. I've served side by side with him before, but I think you said that there are a lot of generals there. I spent a year as the spokesman in Iraq, and uh, that's enough for me see that cold silence days. Why don't you after I just destroyed the conversation, I want to get your sense of of how cohesive you think that

the national security team is within the White House. Now, there was all of the palace intrigue at the beginning about some people want to go one direction, others wanting to go another. Tom mentioned some of the principles involved in all this. Do you feel like it's it's cohering, it's working as a team today, Well, I think we're going to go through another round of departures. John Kelly again is enormously talented. He knows how to be a

chief of staff. He doesn't brook gossip, he doesn't brook leaks. Some people I think are going to try to testament and they'll probably find themselves on the other side of the street. Um on the issue of national security, I think is more important. We probably have the most talented, experienced group of national security professionals handling this crisis right now. And I don't mean Ivory Tower intellectuals. I don't mean cruise missile liberals. I mean people that understand not only war,

but understand the cost of war. In that that significant group before Maddis Dunford at the Pentagon, Kelly McMaster at the White House. Those are the people I want helping to make the decisions because they're sober minded enough to know what the real costs are of going to war in Korea. For goodness sakes, and God bless him, John Kelly lost his son in Iraq. These are experienced professionals that don't look at war as a theoretical construct. They have fought it, they know the cost of it, they

know how to fight it if necessary. So I think the President has the opportunity to get the best advice in the world on this issue. With regards to Korea. I know that you worked on plans and strategy at sent Com and and there's a lot of conversation here about how we resolve this crisis on the Korean peninsula diplomatically, get folks back to the negotiating the table, but help us understands militarily how this might be playing out behind

the scenes. That We've seen the rhetoric on Twitter about how equipped, how capable that the the US forces are in terms of military traategy. Where do things stand? Do you think? Well, first of all, I think everybody needs to start breathing through their mouths and their noses and just relax a bit and understand the center of gravity of this fight is Kim Jong il's desire, Kim Jong UN's desire to maintain and perpetuate his regime. He may

be a little bit crazy, but he's not suicidal. So in my mind, we have got to recognize that what all of this acting out on this part and all this nuclear development is for one reason alone, and that's to keep the Chinese out and keep the Koreans, the South Koreans, and the Americans out. So if you start from that premise, you realize that you've got to meet him not only capability for capability, but also word for word, and hopefully that will put him back into a position

where he is no longer a threat uh to the region. Uh. Do you do you think that that's likely? I mean that the principles of all changing, We've got a new present, there's a new leader in South Korea of course a new leader in North Korea as well. Are you optimistic that we can get back to the negotiating table. Well, well, I am, but I think we've got to understand we're

taking a different negotiating tone. I mean, the fact remains this speak softly and carry a big stick has done nothing for the last fifteen twenty years to halt his development. He's violated every agreement that he's ever UM signed up to, and frankly, I think we just have to take a different tack. I think it's important to recognize that this rhetoric of the president was not simply meant for North Korea, it was also meant for China as well. And the

message is clear and simple. You want me to handle this or do you guys want to handle it? General, thank you so much, Mark Kim and General kivin with us today. We greatly appreciate from our studios studios in Washington. This is always a joy. He is the most interesting pedigreed to wander his way to the White House and within that out to boost school in Chicago through Milton Academy, through UM. Thank he did, okay, and then on on

the m I t as well. Austin Gelsi joins us now on our phone line, Austin, wonderful to talk to you. Our our theme here today has been our labor economy. You've lived this and particularly with your council to President Obama, there is an individual streak across all of America where the individuals we do it alone, lazy, freer, free market. We don't need institutions to help us. Where do we stand on that in two thousand seventeen, Well for having

me back, I saw you ment. I've wandered through the labor because I got a job and uh, and then I had to come back and refine that job when I got out of Washington. Uh. You know, I think that we still have a major cultural push toward that individualism and the rise of the gig economy and working part time, filling in scratches at it's a little bit. I think that's why there's there's more taste for the for the rise of the gig economy among workers maybe

than than among the press, let's call it. But as you know, the economy has moved a little more to teams and teams teams and joint work are are a bigger they're bigger factor in the economy now than uh, certainly than they have been in recent times. Maybe if ever, and we've had a little bit of devin to adjust to that. I had some time to adjust to that.

I wonder if'gotten any better at measuring it. We talked to Alan Krueger from time to time on the show your former colleague about his work on the gig economy. How how much better are we at measuring the effects on the labor economy of part time work of these new gigs. Yes, and we're not great about measuring it, partly because the people themselves working those gigs don't think of them as regular jobs. The elective and so then the current population survey, which is the big survey where

we get the unemployment rate every month. They've gone back and looked at the administrative records, and Alan Krueger and others owned them. Specifically, their own research shows I think a quarter or a third of the people who are working those gig jobs that when they're asked do you have do you have a job? They don't count those as their jobs. So so our measurement is not perfect. Scares a little bit here where we've got to both

both Houses a Congress on recess. Right now, the President up in Bedminster, Uh, enjoying so much as you can a seventeen day working vacation. They're gonna come back and have to deal with the dead ceiling. And you've been in the White House as all of this unfolded, the now regular debate over how to raise it, when to raise it, if to do it cleanly or otherwise. What's your counsel to this new administration about how to go about this, how to speak with a unified voice on

that issue in particular. Look, the thing is, we have never been in the circumstance that we're about to be in. And by that I mean there there have a few times been fights over the dead ceiling, but never when the party of the president and both houses of Congress are the same. Because normally they're on the same page and they can pass a budget. They what they look, They see that the dead ceil. Fighting over the dead

ceiling doesn't really make any logical sense. Congress itself has already passed the laws that they're then trying to say, no, we won't pay the bills for these laws. So normally, if they're all the same party, they just quietly passed an increase in the dead ceiling, and they attached it to a build that's building a bridge of something. Then this let no one ever speak of it again and they move on. And so I thought that's what they

would do. And I guess my advice to the president would be would have been just go talk to Mitch McConnell behind the scenes and be quiet about it and just get it done. Uh. I guess I don't understand the logic that while you're on vacation you would come in and just do a little bit of Twitter and attack Mitch McConnell and say that he's a hypocrite and can't get his job done. And um, because now when

they come back, you need him. You need him to quietly go change the change the rules and raise the dead sailing. Austin goes a minute here, and then we want to come back and dive into other themes. How critical is it for Kevin Hassett to dark at the door at the White House? I mean, this process is Look, you and I are friends with Kevin, and I disagree with Kevin on a politics, but he's a reasonable guy. He's sensible, you know. I think the bigger issue will

be that they should pass him. They should put him in the White House. Boy, did the president should start listening to him? Um, I don't know that that he's going to but you know we we can all keep our fingers in Austin. Now we go in August where

parents dare to tread. We consider your pedigree. Milton Academy dare to be true a member of the debate team, the Massachusetts Forensic League, the National Forensic League, the Catholic Forensic League, and the Debate Association of New England Independent Schools. This is the time of year Austin where parents lean across the table and say to their children, you know, you really ought to join the debate team. Help us

with this, Austin. What was the first state like at Milton Academy when young Gulsby walked in and what's going to debate? How scared were you? Well? I did? Uh? I mostly in high school did speech events, uh, rather than debate events. It was still nerve racking because you gotta you gotta memorize the speech. They gave you a thirty minutes, they gave you a topic and you had to write and memorize the thing speaking. But you know

the thing is, boy, I'm glad I signed up. I can't even remember how I ended up in that, but but it ended up being good for life, you know, just being able to express yourself in a way that's clear, making argument. The society never gets tired of that. Well, and then you took a step to the artificial intelligence and the robots they still haven't figured out how to replace. Then Austin, you took a step down academically. You went from Milton Academy to a small school in New Haven, Connecticut.

So you go to Yale and you're doing the debate thing and that How does being on the debate team line up your brain? What? What is the process when you're a kid where that debate or speech experience helps you line up things in your head? Well, you're getting you're getting deep on me, Tom, Well you're the chance that one look you come on, you wan the whole

thing organized. You gotta be organized, you gotta be logical. Uh. It turns out that one of my main iv ols uh in debate when I was in college, that we would beat regularly, I might add, was none other than Ted Cruz. This editor from Texas and uh so I got a lot of funny stories about him. So you know, part of part of any event like debate, I think is getting your mind ready logical and organized, but parts also the people you work with. You know you're working.

You spent a lot of time working on that. But you know, high school, I probably spent more time working on the speech and debate stuff than all my classes. Uh and you know, I don't know if if I probably should have been doing my homework more. But yeah, I know you slept off. Would you stop at Austin? You're killing me? He went on. Folks to the m I t or Stan Fisher said, yeah, we'll give you a PhD. Okay, why not David here into the lecture on critical thinking skills in August? Why don't you bring

us back to something more useful Austin. You you came in a government after a career in academia. We've got folks in this administration now, a lot of whom have not served in government before. What did you learn about that relationship between the executive branch and the legislative branch? About working with Congress? How how hard was it to learn your way down Pennsylvania Avenue up to the Capitol. Well, you know, they usually wouldn't release me without an escort,

you know, over a tigress. But that that's okay. Um. I think presidents can take different approaches and the uh

toward Congress. Some like President Obama are very policy oriented and they come up with a lot of specific ideas that they have allies and Congress and they say, look, here's the president's plan for a B and C. Others have followed a model that I thought Donald Trump was following, which is the White House itself doesn't really have any details or doesn't have that that many and so they would be more reflecting what Kyras. Kyras would put up the details and they would they would sign bills or

or you know, focus more on management. Um, I was wrong about that. They haven't managed the White House very well and they haven't put forward policy. And I guess my summary is I don't think that the White House realizes that most everything that you're gonna be able to do happens in a pretty short window right at the beginning, and then as you get to the first midderm, I think they're gonna find the same thing Barack Obama found

and George Bush before that, and others before that. You come to the election and the president will say, hey, why don't I come down and help your campaign? And then the people in starts saying, oh, no, you know what, we know are really busy. Why don't you not come down here? Why don't you in fact, don't tell anyone you know me and don't save my name because they all read the polls the same as we do. And after the first year, I think it's hard to do anything.

And I don't think the White House. Yeah, I don't think that White House has factored that in fully. Austin Austin who goes we know debate. We enjoy having you with us. He is from the Bush School in Chicago. Austin goesby, thank you so much, this wanting. He's a former chairman of the President's Council of Economic Advisers. Thanks for listening to the Bloomberg Savannas podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

you prefer. I'm on Twitter at Tom Keene. David Gura is that David Gura? Before the podcast? You can always catch us worldwide. I'm Bloomberg Radio