Surveillance: Biden's Budget With Ramamurti

He's also a member of one of the most distinguished Indian families in America. I'm not going to go through the details because of time, but Barad had been dying to talk to you. No pun intended in the tragedy of Tamil Nadu, so close to Ceylon, so close to syrit Lanca. Your parents came in from there. What have you heard from southern India in the last number of weeks with their pandemic challenge. Well, look at uh, it's

tragic what's going on in India. A lot of my family is still there, especially a lot of my older relatives. So you know, we're on pins and needles hoping that they make it through. Okay. I know that the United States has taken steps to assist India in uh dealing with the pandemic, including sending oxygen which is badly necessary there, and of course taking the steps that it did um on on the vaccine patents, and so I know the administration is looking at all we can do to help

our brothers and sisters abroad, including those in India. I would be pleased to talk to you about this further, but just because of time in the news flow today, we cannot let us go to our economy. Republicans will say this budget will break America, that is nondoable, the taxes can't be had. Responded, well, Actually, I think that the budget demonstrates that there's a fiscally responsible way of ensuring long term, sustainable economic growth in the United States.

What the budget calls for is a series of investments in our infrastructure, as a series of investments in our families and in four additional years of school, all of which are about improving and increasing the productive capacity of our economy over the long term. Consider the fact that thirty million Americans don't have access to high speed internet right now? What do you think it does for the economy to go ahead and connect those folks in rural areas,

on tribal lands and elsewhere. Right now, there are four hundred thousand schools and childcare centers to get access to water through lead pipes, even though we know that that poses a danger to the long term health and safety

of our children. The Presidens plan would call for ripping out and replacing all of those pipes, which not only creates good jobs in the short term, creates long term success in the economy, and the budget lays out a physically responsible way of paying for all of these investments, such that from year fifteen onwards, the deficit and the

debt actually starts to reduce over the long term. So I'm not going to take a lecture from the same Republicans who voted for a two trillion dollar tax cut a few years ago that had no discernible impact on business investment, and that exploded the deficit by between one and two trillion dollars. But there is a question, though, especially if you're counting on this plan to start to pay for itself with respect to economic gains, what role

the Federal Reserve plays in keeping borrowing costs low. A lot of people talk to the servicing costs of the US government dead say it's pretty low because of how low interest rates are. How much you're relying on the Fed to be an active player in keeping rates down. Well, look, the budget assumes a certain level of interest rates over

the long term that I think is entirely reasonable. The other part of this is that there are new tax revenue coming from large corporations, uh and from wealthy individuals. You know, the effective tax rate paid by US multinational corporations was eight percent, and compare that to the tax rate that small businesses pay. Compare that to the tax

rate that your average middle class family pays. There's clearly capacity for these companies to pay more in taxes to help finance the investments that, by the way, are going to be good for those companies in the long run, that are roads and bridges, broadband internet and so on. This is a win win scenario. A lot of people say that higher taxes leads to slower growth. What would

you How would you respond? I just don't think that there is a strong empirical case that the taxes that the President has put on the table when paired with the investments that he is proposing, are going to have a negative effect on growth. In fact, quite the opposite.

Uh the independent analyses are shown that they produce more economic growth in the short term and the medium term, They create more jobs, and that they also create high quality jobs, which is central to the President's message here. If you listen to his speech yesterday, his main point was that we should start looking at the health of the economy. We should measure the success of our economy

based on how working families are doing. Are they getting a wage that allows them to support themselves in their family, Are they able to work at a job with dignity, do they have choices and they enter the labor market.

That's the kind of economy the President wants to build, and that's the kind of economy that we are starting to see emerge coming out of this pandemic thanks to the President's Actually, so, then do you dismiss I guess some of the more normal metrics that a lot of people would look at with regards to debt, to GDP ratios and deficit financing. Is that not part of the

calculus inside the White House? Well, I think it's relevant to look at the interest payments that the United States is going to make as a as a proportion of g d P. If you look at that metric, it's

clear that by historical standards, were actually very well positioned. UH, in part because interest rates are low, as as you noted, and so from our perspective, this is the right time to make these investments, not only because of that factor, but because we have a unique opportunity as we are emerging from the pandemic to rebuild certain parts of our economy that are gonna need rebuilding anyway. And I would just make one one final point here. Our international competitors

aren't holding back. China is making enormous investments in its infrastructure. The EU announced a significant investments in its infrastructure. Japan. UH, there is a race to win the twenty one century. The other countries are starting to run. We can't just be sitting on our hands. Brought. The messaging that we've gotten from you and other folks at the White House has certainly been compelling. I'm curious, do you guys have a clear ally on Capitol Hill to actually shepherd this

through a powerful ally. Look, I think that there is broad bypartisan support for many of the elements of the plan that we are talking about, first and most importantly among the public, where the President's plans are pulling consistently at sixty or sevent And I think that many of the elements that the President has put into his plan emerge from existing by partisan legislation. So, for example, the President has proposed investments in affordable housing, there's broad bypartisan

support for expanding tax credits that promote affordable housing. So, uh, if folks are going to be consistent with their previous positions, I think that there should be a lot of by partisan support for these provisions. Broad Thank you so much, Rama Murdy of the National Economic Council, Deputy Director. This morning from the White House. The only one in the room that remembers Anna Kon of Copper besides me, would

be Edward Morrise. Of course iconic. It's City Group. Dr Morris on oil, on the mecroeconomics of geopolitics of oil. But this morning we focus on commodities at Morris. It's not in the headlines, it's not above the fold in the New York Times or the Washington Post, but it is China ascendant we see, are you want making a jump condition? Do you want strength? Does it signal finally a commodity boom? Well, there is a commodity boom. I don't know whether that's signaling it. I think what's really

signaling it is getting out of a recession. We're having the most remarkable recovery following the most remarkable recession given the pandemic, and all recoveries are commodity intensive and the demand side, and this one is especially so. Give the depths to which demanded fallen last year. Tell me the inventory rebuild that's out there right now. It's always a mystery in China, but they loaded up. What's the dynamic of inventory of copper, iron, and the rest of it

in China? Right now? Inventories are really low. Whether you look at iron or or steel or copper or aluminum, inventories are really really low. And the question is how low can they stay in for how long? And it looks like they will stay low for a long time. We look at the scrap market for steel, the scrap market for copper, and their their their record levels. So that's an indication that the inventory of things that go

into those products are just not available. Taking a step back, just to sort of dovetail both of Tom's questions together. There is a question of how much pricing power China still has over the commodities complex, Goldman Sacks coming out and saying that they've lost that power, especially as developed markets the US Europe engage in infrastructure spending. Do you agree, Uh, yes, I do agree. And we've seen it in the Chinese

effort to damp down on speculation. Uh, they announce they're going to damp down on speculation, They announced that they're going to damp down on volatility. Prices go down, but then the real inventory situation, the real supply demand balance picks up. So China is looking for lower, lower priced commodities and they don't have the power to do that. There's also a question of whether you can have a commodity supercycle, as many people have been calling this, without

the participation of oil. And could you have the participation of oil if you have such pushback by investors on likes of Exxon and Shell on becoming a greener operation, on adapting to a world trying to flight fight climate change. What's your view on the outlook for oil given that backdrop, well, First of all, I agree with the view that you can't have a supercycle for that oil being part of it.

Uh And all the supercycles we've seen have had massive disruptions and oil supply as a real kicker U. And the reason that is important is that all commodities are energy intensive to a dramatic degree, whether you look at eggs or metals. UH. Any you pick a commodity and it's going to be energy intensive. Aluminum is particularly energy intensive. But then we look at the horizon and there are two things that are fighting each other. One is demand

is not growing the way it used to grow. Yes, we're in a we're in a recovery, and that's a very robust short term phenomenon. But we look at and the big debate is how far away from the historical growth level and demand? How far down is it going to be? And then we look at the supply side, both medium and longer term. We have we have opeque countries, Saudi Arabia and the UA in particular, that are doing

what they're increasing their production capacity. We have a ran off the market teetering maybe at the at the at the cusp of an agreement with the United States, they have one eight million barrels a day of oil offline. It's coming back at some point between now and a year and a half from now. Uh, And then we have oil oil everywhere and the prices lower because of the technological revolution that took place with the last supercycle. So I wouldn't say that this is gonna be right

off of oil. Depends on who has it, where it is, and no matter where you find it, it's going to be fairly easy to produce. So it may not be a right offul oil here. Ed. But to Lisa's point that she was making in her question as well, with regards to the pressure that is now on a lot of these fossil fuel companies, UH, the idea that they should be pivoting more to renewable energy in some way, or at least kind of edging their bets with regards

to the outlook for oil demand. Is it a little premature now for these companies, for those companies that have traditionally sort of relied on fossil fuels and made their profits off of fossil fuels, to make that pivot, Well, it's not. It's not premature to make the pivot to decarbonize. How that decarbonization works is another matter. But we we have massive amount of capital going into carbon capture and sequestration, decarbonizing what's needed, and fossil fuels are needed. It is

a uh, it is it is uh uh. You know, it's wishful thinking to think that the world is going to grow power generation that's non interruptible based on renewables. That's not going to happen in the next ten or fifteen years. So we're in the world where we have to live with fossil fues whether we like it or not. And at the moment, the unfortunate part of the way things are pricing is that oil is pricing below its

social contribution. Yeah, definitely with regards so though the push into more renewable forms of energy, and particularly all of the talk we have here about e v S, part of the commodity boom that we've seen as of late has been if I'm not mistaken, directly tied to that, particularly with some of the industrial metals and minerals. Undoubtedly, uh, the demand for power generation is ubiquitous. You take the three largest economies in the world, the European Union economy,

the U S and China. They're all moving towards that, that evy world in a in an accelerating way. Uh. And that requires more power generation. And what do you need to do that? You need batteries, and what do you need to make batteries? You need an array of metals. You need nickel, you need lithium, you need copper, you need aluminum, you need UH, cobalt and manganese. So it's a it's a commodity intensive environment, particularly metal intensive, right

for most. I got one question, and this comes off for an important interview with Andrew Force, the giant of Perth in West Australia, on green hydrogen. He's got more money than God and he's putting it into green hydrogen. We're gonna crack ammonia and come up with a free launch here. Do you buy, as a carbon guy, the future of green hydrogen or is it a myth? Oh no, it's by no means a myth. The question is how quickly when we see the cost structure coming down? There

are two major cost structures there. One is the cost of renewables. They are going down and we're seeing what about but the electricalizers the other one and UH and The big thing that we're waiting for is economies of scale. Uh. We're seeing electricalizers really made by they're not quite mon Poe companies, but we haven't seen the build out of the economies of scale that are required. Uh. And that's

going to be there. And then the question is going to be location, location, location, Where is it going to be the combination of electricalizer availability and non interruptible when non interruptable solar in Australia is very well positioned on the renewable side. Edward Morris, thank you so much. With City Group, we look forward to speaking to you as

we launched through the summer a commodity boom. There is a question of does this data matter or do we just really have to wait until September, October, November to determine whether this is transitory or not. Stephen Stanley has been passing through all of this. Mhirst pier Punt, Chief Economist. Does it matter that the PC deflator, the key indication of inflation that the Federal Reserve looks at, came in higher than expectation at the highest levels in a year

over year basis since the ninety nineties. Good morning, li So yeah, I think it does matter. I mean, I think you're right. The FED is going to try to wait it out. And there's no question if you look at the detail of the April data that most of the uptick in inflation is what the FED would call temporary factors. Um, but that can get embedded in the

in the fabric. And I think you rightly highlighted those University of Michigan inflation expectations numbers because it was pretty shocking a couple of weeks ago when the long term inflation expectation number ratcheted up quite a bit. I think the FED is confident that inflation expectations aren't going to move, but you know, we haven't seen these sorts of inflation rates in a very long time, and I think it's you know, the reaction of people in the in the

economy could be very unpredictable. Stephen, could you talk a little bit about why inflation expectations are so important in determining the true path of inflation? Right, Well, I mean, if people expect inflation, then they're more willing to accept it, and they're also more willing to demand higher wages to

make up for it. So, um, you know, back in the seventies, we had what economists called a wage price spiral, where every time prices went up, workers demanded more higher wages, which in turn forced inflation higher, and it just kind of fed on itself. And we haven't really seen anything like that for several decades, and the FED is confident that we're not going to see at this time. But again, I in my mind, we're kind of in virgin territory here.

We haven't had an economy like this where uh supply is being outstripped so severely by demand in a very long time. We'll talk a little bit more about that us being in virgin territory because when you look at sort of the past pressure economic pressures that we've been through here really hasn't come as much from the supply

side as a has this time around. And I'm wondering if at some point that does actually start to rear its head with regards to wages and put that upward pressure, that may actually cause some concern for investors right absolutely, And I think you know one thing that's going on right now is for a combination of factors and and certainly the extra underplant benefits have been cited by a lot of folks, and and it's probably an important reason, but people at the lower end of the wage scale

UM are very hesitant to go back to work right now, and firms are raising wages pretty significantly for those types of jobs, and it's hard to take that back UM. And certainly many people would look at that and say, hey, that's a great thing. People are getting paid more UM, and that's that's well and good. But then how does that get UM adopted in terms of how the companies tend to price. So you know fast food restaurants have to pay three or four extra dollars per hour for

their workers. Does that mean that your dollar value mail becomes a two dollar value mal um. That's how inflation gets started. So that's I think what the fet is going to be watching is how much pricing power do firms have UM and does it look like consumers are more willing to accept those price increases versus where we've been over the last twenty years, where consumers have been

very resistant to those sorts of price increases. So I gotta say, Tom, when you take a look at what we're seeing, you do have to wonder at what point people look at this and they say, we have to look past the noise, and we are looking to something that is longer in its nature at least. So what's so important here is Michael mcketh points out, and folks

a job. Mike cas to look at this wall of data that comes out and he sifts through it and he really mentions their finally declined in the savings rate. Stephen Stanley, you are claimed at nailing the market economy. I assume you've never seen savings rates like this explained to our radio and TV audience. Why guys like you are riveted on a savings rate of twenty whatever percent down to fourteen whatever percent. Well, it's important to remember

that the savings rate is a flow. And the savings rate went up a lot in March because there was, as Mike said, there was this massive influx of rebate checks. So the savings rate goes down in April simply because income is not as high because you don't have that artificial boost from the stimulus checks. But it's still above ten percent. I mean, in normal times, you know, savings rates in the mid single digits. And so what's happening is every month people are putting away more money than

they normally would. It made sense for that to happen in the pandemic because people simply couldn't spend on everything they wanted to buy. Um, now that the economy is reopening, households have a tremendous stockpile of dry powder that they can deploy. And the question is really does it get spent all at once or does it get meted out over time. I think it's likely to be the latter, which is why I think the consumers can have a

lot of staying power for quite some time. Well. Actually, and this is important, and Michael McKee highlighting this as Tom just said that we did see that personal savings rate come down to fourteen point nine percent from twenty seven percent. It seems like people are out there spending in force. At what point, Stephen, do you adjust your expectations for GDP, for inflation, for JET, for activity in

the economy based on the savings rate coming down so rapidly. Well, we'll see what it does once the impact that the stimulus checks uh starts to you know, once out of bates and may or be the first clean month that we've had in a while on that front. Um, But look, all through last year, the savings rate was still running much higher than normal, and so at some point I would expect the savings rate should go down, and if anything, it should go down to a below normal rate, right

because people are are kind of flush right now. They don't need to save um. They you know, they're probably gonna want to be spending. So we're hearing all this pent up demand for travel and all the fun stuff that we haven't been able to do over the last year. So I would expect that as we get later in the year, the savings rate will actually go down dramatically. Fascinating Steven Stanley, Thank you so much, really interesting economic data,

and more to come. What's interesting into the Memorial Day weekend is the domestic debate over vaccinated and unvaccinated. That debate, no doubt will continue into the summer. The new debate, or rekindling of the debate is the discussion how did this begin? Where did it come from? And Lisa, it's really really come up in the last number of days on the lab leek theory. Yeah, that theory that was rejected initially as conspiracy theory or just hearsay, is increasingly

gaining some credence. The US is examining uh some intelligence that has not yet been released regarding this, and there is a question of how much this is significant and how much this could change the conversation around the coronavirus pandemic. Andrew Pekosh has the actual science behind it, which will

be helpful in framing our understanding of it. JOHNS. Hopkins, Bloomberg School of Public Health, Professor and hiologists, Andy, is your sense that there is plausible proof behind this theory that the coronavirus COVID nineteen did originate in a Wuhan, Chinese laboratory. Well, I think the important thing to understand here first is is we wanted to differentiate where the pandemic started from versus the process that got this virus

into humans. So I think it's clear that this is not a virus that has been engineered in any way by humans. Um. It seems to be a natural isolate And we think that the way it became a human pathogen is because it went from bats into animals and then from animals into humans. And I think what the debate right now is about is that last step. Did that last step happen because of a person coming into contact with one of these intermediate animals and then launched pandemic.

Or is it a situation where a laboratory was working with this under unsafe conditions there was some sort of a lab leak and that caused the pandemic. You know, working on these viruses for over twenty years, I can tell you that the safety concerned, the safe the precautions that have to be put in place are really quite high, um and so the likelihood of a lab release is

really very very very low. However, as you've mentioned, there does seem to be some movement on the political side today and and talk about information that hasn't been released yet, which is I think the big question mark right now. Andrew vette Bill emails in he's watching the show this morning. Good to see that the dog is watching the show, Andrew, pet cars everyone listening with pets, including France and Liquix.

Can it go the other way? If we get covid, can we give it to our pets or for that matter, to animals of the agricultural persuasion? Yeah, excellent question. There is evidence that uh companion pets, cats and dogs can be infected with stars COVID two and that's probably a result of their owners being infected. There's not much evidence of the virus moving in the other direction. So UM. So that's I think one good thing when it comes to animals, I think we've seen that there are a

number of animals that can be susceptible to infection. UM. We haven't seen huge outbreaks in those populations, but those are populations that we have to worry about. The ming farms in Europe and here in the US for one example of that. UM. And I think we have to pay attention to those kind of things because anytime this virus enters another host, that gives it a whole new area to adapt, and the virus that comes out of those hosts may or may not be better at infecting humans.

And it makes sense, UM that coronavirus that started at a market in Wuhan might have come from the coronavirus lab down the street in Wuhan. UM. And it's also understandable why you wouldn't wanna immediately discuss that. I mean politically it's difficult for China, and UM, there's no reason to rock the boat. How important is it to scientists to find out where this virus came from. Oh, it

is absolutely critically important. And that's why I think you're hearing some scientists saying we when we approach this issue, we want everything on the table because we don't want to rule something out for political reasons, or because we don't want that to be the reason the virus emerged.

I'm simply saying that the critical thing here is going to be understanding how that virus went from bats into some other animal and into humans, and that's gonna tell us something about the pathway in which viruses can enter the human populations, and that's going to help us prepare better for the next pandemic if we can find ways to limit that exposure. Again, if it happened through a laboratory,

then that's something we also have to understand. But even if that was the case, it was probably adapting before that to written in fact humans, and so we need to go even deeper than that to understand how the ecology of this virus resulted in a in something that can cause such a tremendous pandemic dr petckage. As we head into this Memorial Day weekend, a lot of people are saying if they've been vaccinated, they don't have to wear masks. They can be with other individuals without worrying

about getting sick or infecting others. Is the risk of getting ill or possibly fostering some sort of additional variations pretty much off the table if you have been vaccinated at this point, uh, I would say that if you're vaccinated, you certainly are are protected to a great degree. We've had some tremendous data coming out, especially over the last four to five months, that shows how good the vaccine is working at preventing severe disease, at preventing a symptomatic disease,

and even at preventing transmission. Now nothing is and what I really worry about is the of the population that isn't vaccinated right now we're in We're in a situation right now in the summer that the virus is not spreading as efficiently as it did in the fall and winter when people were inside. So I don't want people to get a false sense of how low the infection rate is because we're seeing a combination of vaccination and

poor try mission conditions driving these low rates. Come the fall, we may see another surge of cases, probably won't be as severe as they were last fall in winter, but we will see a surge of cases if we don't get more people vaccinated and are very valuable, particularly there on the Beasts of Surveillance Andrew Peckhouse with John Opkins, Bloomberg School of Public Health, of Professor and of course one of the nation's great virologists. This is the Bloomberg

Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten AMI Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine AM for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene and this is Bloomberg