Leaving NAFTA Makes No Sense, Frenkel Says

one theme. Lord Tyson needs no introduction to anyone within our economic academics and particularly within public service. She is a former UH Chairman of the President's Council of Economic Advisors UH and is also teaching at the University of California at Berkeley School. With this each and every year, it seems at Davos. Maybe I think that's correct. Is Kenneth Rogoff His book of last year, The Curse of Cash,

was my book of the year. I make a joke that the next effort will be the Curse of Bitcoin. But to have the two of you here with your academics, I want to clear the air on the debate at the end of two thousand seventeen, which is do tax cuts drive economic growth? The center points of this was Kevin Hasset, Professor Tyson, who has your job now at the White House, UH chairman of the President's Council of Economic Advisors, and the Lori Paul Krugman of Princeton. I'd say,

driving the dialogue with many others. Kens, as we saw Ken out of Opsfield, Rogoff out of your other work over the years, is there as certitude that tax cuts can drive permanent economic growth? Well, okay, I mean lower attacks rights. If you could somehow magically produce the government spending in revenues you need from oil or something else, sure, but you know, in the long run, UH, you have

to pay for government services. And by the way, in this stage of inequality, it's just really hard to imagine how government services and transfers aren't gonna rise over time. It's I do think, you know, I I certainly see the case that tax cuts do benefit, you know, have a benefit compared to UH government, you know, some something

that raises taxes a little long run. But I have enormous respect for Kevin Hassett, I think, but the figures were very optimistic on what the growth would be Professor Tyson, you're nodding your head. I think of Rick Michigan and Colombia, and you is linking in core economics into Okay, we're in the room in Washington, and now we have to affect policy. How do you respond to the certitude that Kevin Hassett has to deal with from Trump supporters and

from frankly direct White House officials representing the president. So I would say, first of all, it's important to recognize the role of the Council of Economic Advisors, which is to give objective, unbiased advice. And I think one of the criticisms of the of the work that was done by the c e A UH is that really it was a selective choice of evidence. It was the most optimistic evidence. There's plenty of evidence that tax cuts will

generate growth. I think what was actually off scale there was the magnitude, and particularly the magnitude for wages, because essentially, I would say, look in the past, we already know that productivity enhancements have not been turning into wages already. UH, We've now given a major tax cut to businesses. I supported that, I actually supported that, but I think we there were ways to pay for it. We chose not

to do that. Other countries that have cut tax rates for business to increase investment, have increased taxes on the owners of capital, have increased value added taxes, have found another revenue source, a carbon tax. Why why not say, okay, growth from cutting some business taxes, we gotta pay for it, otherwise it's going to defeat itself. One of the great things about Davos is I can see Peter or zegg in ten minutes later see Douglas Elmendorf, And they're the

ones that have worked at CBO over the years. Does Laura Tyson having her head the percentage deficit to GDP that is a trip point for the president or three points something? And there's a great certitude at trillion dollars here on going dirks and and you can a trillion dollars. There is there a point where you worry? Is it five? Is it six? Is seven? Look? I I don't, I think, and I think I should get ken here as well.

I think the general of you that I've thought about is, you know, a projected deficits in the three to four percent range right now. The global capital markets and the way they're behaving and US investors and behaving that is sustainable for the US. We're talking about a long term we we have fundamentally now reduced the taxation share of GDP to a level which just does not match the long runs sustainable. That's classic, That's classic Tyson linkoln and

policy Ken. How do you respond to it? With all of your research with Carmen Reiner? Do you worry that we're going to trip the deficit to GDP? Are we gonna be talking about twin deficits in a few years here at Davos? Well? No, but I mean I think the reality of the debt rhetoric in Washington is that whoever, whichever party is uh out of power thinks that debt and deficits are bad because the party in power spending it on their priority, their friends, their base, and so

you go back and forth. I mean, maybe the Republicans talk about it a little more, but if you look around the world, a lot of the conversation about debt is really, hey, wait a second, I might be in power in four years and you're spending my money. If you're doing the spending, I won't be able to do as much. But no, I mean, I said the US has enormous borrowing capacity. The dollar has become more powerful than it was under Bretton Woods. But you are spending

future money. It is so hard. Obviously it's going to be harder to raise spending at taxes. Remember that was Ronald Reagan's rationalization for why he was doing the tax cuts. I think that's the rationalization. You know, I was listening to this issue of closing down government. One way you can gradually close down government is just a denuded of revenues. And so there was a significant part of this momentum for tax cuts coming from the group of people who

want to significantly reduce the size of government. And if the money is not there, you're gonna have to reduce the size. So we've heard from people saying the next step is entitlement reform. That is the next step is going to be work requirements on everything to kind of reduce the amount of spending, not to mention things like spending on basic science or infrastructure. I'm waiting with bated

breath to see the infrastructure plan here. Absolutely you wonder where it is, And yeah, I guess you could also wonder why it hasn't shown yet. Ken one final question if we could, and that is on what kind of economy we should be studying. Paul Krugman has talked about a wistfulness back to John Hicks in nine and people say, wait a minute, that was a different world, a different economy back than You can't use those models. Now, what's the model that works for America within the unique America

that the president is going to talk about? Are we a big, giant open economy? Are we more closed than we think? We're not more close than we think. We need to look to the future, and I, yes, we have problems that were better in the past, but I don't want to look to tired old solutions for dealing

with them. For example, I think we need better education, But does that mean quadrupling the number of state collegists like Bernie Sanders has or does it in you know, digital education and finding new ways to reach broader audience as adult education. Many examples like this. We can do things differently and better, but that doesn't mean like this is what Bloomberg surveillance is all about. Thank you so much.

This was done spur of the moment, folks, with Professor Rogoff and with Professor Tyson and just wonderful to both of you with your public service and academics with us today. She is from the High School, University of California, Berkeley. He is from Harvard University. Mr Frankel's a former governor at the Bank of Israel. He works for a gentleman named Jamie Diamond. Jacob was out on the roof saying,

get that helicopter away, Get that helicopter away. He is the chairman of JP Morgan International and truly provides economic person active to the clients of James Steamond and all of JP Morgan. Of course Mr Frankel doing a little bit of economic research a few years ago at Chicago. So Dr Frankel, though, you don't put your power point away, faying yesterday of China had his power point out and

it made worldwide headlines. But John Jacob Frankel is the one guy who he's the one guy who doesn't need a power point when he talks to Bloomberg Surveillance. What I would suggest, UH, Professor Frankel is, here's the money question of the day, and it comes from one of our sophisticated UH listeners who is a currency manipulator. Now that's a loaded question, isn't it. It is a very loaded question, And the truth of the matter is, it's

extremely difficult to answer that question, even in theory. You know, when you have a picture that he's hanged on the wall and then it falls, who is the Who is the fault, the world's fault, the pictures fault, the nails fault, the combinations thereof. Now all not, of course, not all analogies are good enough to explain the complexity of this question. Because the truth of the matter is, when monetary policy is becoming very, very loose, naturally, the value of the

currency that is being printed and supplied is diminishing. That's the reason why prices go up, and that's the reason why the currency depreciates in the foreign exchange market. Now, was this a currency manipulated? The normal answer is we need to know what was the intent. If the intent was to boost the economy, then people will say it is not a currency manipulator. If the intent was to depreciate the currency, then it is. It is only an

example why it is complex the question. The point of the matter is, I really think we should achieve the discussion from nominal exchange rate as as is being now discussed into real exchange rate. Namely, what are the factors the determined the international competitiveness of a country, not of a currency of a country, a country that is highly productive.

President Trump taking away our international competitiveness. President Trump has not yet started doing what the what the president is put terms and you know little things like that, I know you don't. I don't. I can tell you I am in general against anything that may look like a trade. Mr Diamond said there as well. Yes, but I want to say that I rather have a discussion rather than shooting the guns. I want to tell you that I think, for example, that the US threats of living after makes

no sense to me. I think that that the fact that the US did not sign at T T P A, etcetera is not good. The fact that both candidates for presidency, Hillary Clinton and Trump were so protectionist in their rectoring is not good because it basically gives a message also to the American people that somebody is there to deprive us. We are not. We need to compete and we need

to improve. If you're just joining us for FoST Jacob Franco, whether US from JP, Morgan Chase, we welcome all of you worldwide to our studios in New York with John Farrell and Tim Keene of the World Economic Form meetings and Daphos. Dr Frankel has been incredibly generous with this time. Today, I'm looking at the Bloomberg terminal and whether it's a fancy guy like me or our most basic listener currencies around the move, How does a pro like you define

sean country chees brutal moves? What does that really mean? And are we in the middle of a brutal move right now? If the brutal move means a large move, then you it's in the eyes of the bill the what is very large, very large, very very very brutal, etcetera. Again, I think that what we should do is create a situation. Well,

sharp moves of the currency do not have sharp effect. Namely, developed the mechanisms to protect investors from shout moves, developed the futures markets, developed the forwards market, developed the hedging approaches. And not everyone needs to be speculated in the phone exchange market. It's too complex. Within that is the corporate response. You know, we all learn the J curve out of David Beggs classic textbook or during Bush Fisher Stars and

the other basic textbook. Does the old style currency trade dynamics still work or we do another regime where Maurice Hobs fell and Ken Rogo got to go write a whole new book. Is it a new world? Well, the world has evolving, and do you know what, in many many areas, new chapters are being written. My only advice as an old time is to say, don't throw the old textbooks away. They have a lot of wisdom to teach us. Yes, do learn from the most recent experience

by adding chapters, but not displays the old textbooks. So I believe that we have a cumulative experience that comes from many, many years, very few countries who were able to gain competitiveness through currency manipulation. And I want to make very clear her folks that that I call him Professor Frankel still from his iconic research of years ago. He's in a delicate position. He's with JP Morgan Chase International. Obviously he's vising Mr Diamond. He can't talk about that.

That's what you do at banks. And at the same time, as a former governor of a major central bank, he really doesn't want to talk central bankers. So let's do that right now, Mr Drug, Mr Corota, the current governor of the Bank of Israel. They have to respond to that minution headline. I mean, I remember responding seeing people respond to Brazil's currency univentions of years ago. How do the players like you respond to a Secretary of Treasury

suggesting a weak dollar policy? As I say, I did not here, I did not hear what the secretary actually said. What I can say is something in principle, you do not gain sustainable long term competitiveness by just weakening your currency. It will be eroding, eroded very quickly. On the contrary, it can be counterproductive because it will deflect the attention from the deeper issues of how to improve long term competitive work. This is what Davos is all about, folks.

And Frankly Bloomberg surveillance. The honor of being here with Jacob Frankel and earlier Ken Rogoff really speaks to my team and what they do to drag these people away. As uh Mr Frankel was with his colleague Mr Diamond, this is a wonderful visit. And and folks, this is about healthcare. It's about the profitability of healthcare, and it's such a large part of all of our lives. I just really can't say enough about it. Joining us now

is a gentleman of great extinction. He uh says, we may live to a hundred and twenty and he is cutt and chiseled at the august age of sixty nine years old and holding is well, how do you do it? You walk in here, Michael Neidorf, And you know, is that the air in St. Louis is? Is there something about the Midwest and you're working healthcare that makes you look the the the youth that you talk about when

you're on panels here. I think it's the travel and talking to people like you, Okay, you know what I mean, people that are young and aggressive. Yeah, I mean, I mean we'll talk about St. Louis here in a bit, but I have to talk about a stock that is and there's the highest accolade, Dana her like. You just continue to make money in the last ten years. Your stock is going up per year, and yet you're in a business that I'm told doesn't make any money. Healthcare

is terrible. Nobody makes money. How do you make revenues and profits that generates that stock performance in an industry that never makes money. How do you do that? We've maintained that the highest quality of care is at least expensive.

We work hard. We have great medical management systems that help to ensure that the doctors have the information, and most importantly, we have systems that are becoming predictive and allow you to be interdictive, so that if you if you know somebody's potas team is going up, you know he's a whisk for a heart attack, you can get ahead of the curve. So it's really all about determining that somebody has a condition before it becomes a major problem. We just had in the president of the leader of

New York University's wonderful hospital in New York. I'm gonna ask the same question I asked that physician. How do you do the revolution we're all having in healthcare and keep the doctors and nurses happy. I believe they're the providers of it, aren't they? Yes, well, I am view. We have always viewed doctors as our product, not a partner, but our product. And you, if you're smart about it, you take very good care of your How do you do that to incentivise them with salary? Is it tickets

to the St. Louis Blues. I mean, what do you do? You know what we do is we give them information that allows them to be more effective and more productive. We pay them fairly, not excessively, not under paying, but we can try to pay them fairly, and we try to provide information that just generally helps him understand what we're all trying to achieve together. Where do we stand in this nation with healthcare? Your knee deep in it?

You have decades of experience away from the media hot air of the Affordable Care Act and the eight tangents off of it. Are you happy with where we're going? Well, I'm I'm hopeful. I think the the Affordable Care Active Voice we've done very well with with the largest provider, and we goose significly in January with the And it's just about putting units through the door. I mean, the the Affordable Care Act gives more people more coverage, which

puts more units through the door. And we need that. We I mean, it's a it is an entitled when this country healthcare, So we work on that and that's that's very important. But I am I am optimistic that systems and the approach over time, ring the cost under control. I want to uh completely switched gears on you to your exceptional leadership to the St. Louis Symphony Orchestra. How do we maintain classical music in this nation? I asked Gary Park, with all of his relationship with the New

York Philharmonic, the same thing. How do we maintain orchestras for kids on YouTube? How do we let them know who Mendelssohn is, Tchaikovsky is? How do we let them know the more modern classical music? What's the path to the future. I think you have to do several things. One, you have to do things to encourage him to come into the hall and hear music. You started with youth orchestras, but you also have members of the orchestra go out

into the community in small groups. And what the appetite of youth we uh My wife started a program, she's on the executive game now and she started a program Experienced the Music and other programs that get children engaged at a very young age with what music is all about and leaves it to life. Do we need a Leonard Burnstind that gave us that magic that all I do and we we had Leonards acculate in St. Louis.

That did a lot of that, and it takes that kind of conduct, takes that kind of says Zaha in Boston or whatever. Then David Robertson, who's just stepping down the next year, that they have that magic. Very good. This has been wonderful, my cold, Thank you so much. She's a senting, of course, a science uh in healthcare and of course out of St. Louis. I'm Tim Keenan Dabos. And now what does an annual visit? Was? Somebody who I think has had three or four occupations or jobs

in each of his annual visits. Anthony Scaramucci used to play for the New York Mets, and he joins now on a most interesting and historic day for the Trump administration. Of course, Mr Scaramucci was a former communications director for the President. I believe he was in the media last year a little bit. But here comes the President, of course, Secretary Monution today driving dollar weeker with a week dollar policy. We'll get to all that. Let's clear up things first.

I have heard a little bit of percolation that you may rejoin the administration. Is there any truth to that? There's no truth to that that that I'm aware of. I mean, i've I've I've heard that as well. You mentioned the number of jobs that I had. You should also mention the fact that I don't have any w two so many of those jobs thom because I did all those jobs without making any money. That's pretty cool. Okay, amen, right, I guess that's good news from my my account. Within

this is the idea of advising the president. Have you spoken to him or his small entourage coming to Davos to give them best Davos practices because you and Mr Kohona I was suggested the two with the most experience. Yeah, listen, I I obviously have a very close personal relationship with Secretary Manuchin. We worked closely together on the campaign, know each other a long time. Gary and I know each other from Goldman. But they didn't need any advice or

from me. I mean, obviously they're gonna do great things here. I saw Governor Perry or now Secretary Perry this morning. I I think the President's message here is going to be a very interesting message in this following sense that people, uh won't predict what he's gonna say. He is by nature, he actually has a duality to his personality. He wants to engage in the global system and he wants to be part of global growth and prosperity. Uh, that's not

really the media narrative. At the same time he's doing that, he wants to put American workers in middle class and lower middle class families first. And so, how do you handle how do you handle the President United States? Or you or I'd say you're adversary, General Kelly or all the good people of the administration get a script written and he goes off script. Is that the biggest Trump risk of the speech? I actually think that is the benefit of him being president? And I I would say that, Uh.

We we found in the campaign, I found in my life experience with him. Letting him be himself, UH is where you really see the true creative, disruptive nature of his personality. Reigning in mand trying to box him in UH hasn't worked. Won't war Uh, And we'll probably lead to uh people Uh either they'll adapt because he's not going to adapt to them. Either they'll adapt or he'll have to help. He'll have to get help from elsewhere.

I can see you in the room with Mr Khan and a few other selected worthy saying, Okay, there's two audiences, Mr President, what do we want to say to the global audience, the doubles elite? How does he speak to the people in a happy valley? Well, listen, I I think it's a I think it's the same message. The messages is that helping out? So he has the same message to the global elite. Did he does to his

court constituency. I think so, because explain that. Okay, So I'm gonna explain it, because if you're here with the globally, you say, listen, my goal is to help middle class and lower middle class families in the United States with my policies that will lead to more disposable income and more opportunity. If Saudia, if IF China, as an example, is the Saudi Arabia manufacturing in many ways over the last seventy years since the Second World War. The United

States is a Saudi Arabia. Consumerism, more aggregate demand for people in the United States will lead to more global growth, more global opportunity, and more global prosperity. And so I actually do think it's an identical message, and I don't think that's a threatening message. To quote unquote globalists if anything. Um, he's leading the charge here with the largest delegation uh

that the US government has put together. Well, he's got he's got ten members of the Cabinet and members of the White House here in addition to himself, I mean meaning ten senior members in addition to all their understaff. And so I do know it's the largest general delegation that we've had in history as it relates to an American delegation here in Davos. So so to me, again,

that's refreshing, that's unpredictable. Uh. You and I did a show here a year ago, A lot of people here would have said, okay, uh, you know, no chance that the president will President Trump will be here in Davos anytime soon. His last two preda sessors did not come to Davos. Uh. And so I think the first opportunity that he had to be here to make a statement, give a speech, uh, shows you who he really is and the character and the quality that he has as

a person. And Neil Ferguson has the best say FC and so far in the Washington Post writing about this, and he gives a president great credit, and he gets it right up top is well where he says the president exemplifies the ugly American. Davos will accept him anyways, Why will they agree with the president's issues. Is it just about less regulation and more growth or is there something more subtle than that. Well, listen, I mean I probably is a close front of mine. I probably don't

agree with the whole ugly American comment. I would just say, wait, I'm the ugly American. Be careful what you said. You're you're an ugly American. I mean, you're a tall, ugly American. Okay, your listeners can't see how all you are. My dad, I need four phone books to stay here. Uh here here, Here's what I would say. Uh. If there is subtlety, the subtlety is that we're going to cooperate in the

global community. The subtlety is we're going to engage in the global system and the world's uh organizations, the broader world's organizations like the u N World Economic Form, et cetera, to help maintain, stabilize and increased global peace and prosperity. But we're not going to leave working class families and other people behind, which, unfortunately, when you analyze globalism that

has happened. I want to ask one last question, and you're not gonna like it, but you've done so much for charity on Wall Street, I'm gonna bring it up. There is a Davos stunned field today about the cover article in the Financial Times Madison marriage over a charity dinner at the Dorchester in London that wasn't very nice.

It was about charity guys and all that with hired hostesses and that, you know, the uproar in the United States over vice and Emily Changing of Bloomberg has this important new book coming out on social You've always been known for running class stuff. Is this stuff over? Is the is the sleaziness of some of these charity events?

Is it just over? With this FT article today? Well, listen, unfortunately appreciate you saying that because I really try to, I really try to do this stuff straight up and and and honest and with high integrity. I think so

because I think I think it's over. I think I think it's over because I think what's happened now is the world of social media has put a magnifying glass on everybody, and I think that some of the seediness, Uh it's going to be exposing that magnifying glass and and raid out like the way we used to do with ants when we were kids. Anthony Skerm, which you, thank you so much to your update here. He'll be a little occupied over the next forty eight hours. Thanks

for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple, pot Cast, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.