Surveillance: Science Is The Key To Progress, Romer Says

it now, I couldn't get a straight answer. And this goes to the tension that Gideon Rose tries to find in Foreign Affairs Magazine is all of you know, I'm a huge fan of a print subscription too. Were in fairs you throw it at every smart mouth college graduate and says, shut up and read this, Gideon, who will run the world? What did you find out? Well? Uh, the it's an interesting question. And what I will say is there's a big debate going on UM and it's

not just about whether China will overtake the US. It's if the US UH can get its act together to desire and reinvigorate its international leadership and there's everything there from somebody who says the fight is over, China has one to arguments saying no, the United States can reinvigorate the liberal international order post Trump and keep it going,

and not all of us can be right. And the really interesting question is, like those year end summaries about what the market's gonna do, all you can do is look at the logic and try past predictions or no, and performance is no guarantee of future results. What's going to happen in the forward looking balance of power? Is anybody's game? Well, Gideon, I always think it's valuable to talk to you into a distinction between ability and willingness.

The discussion that we often have about China and leading the world, it's about their ability to do so. Do they have the willingness to take a global leadership role? Um no, Yes and no. So the interest that there's a fascinating piece in the issue by um orienta mastro American China expert arguing that what China is going for and has already largely achieved, is essentially exclusive dominance in its sphere in Asia and a contestation with the US

for global uh leadership and power. More there and so the uh, they're playing a regional game and a domestic economic and economic growth game as well as a global leadership game. But in something like strategic affairs, they war want to push us out of the Pacific than organize an entire Okay, it just goes in my book of the Summer, Robert Cappel and the Return of Marco Polo's World. And one of your advertisers and foreign affairs is stravits

is Fletcher School as well. What's the Gideon Rose scorecard on the South China Sea? Is it China one US zero? This year? Uh, there's no question. Well, things are drifting in China's favor. Essentially the United States with Brexit and Trump, the anglosphere is taking itself out of the geopolitical game and so essentially, uh, the normal operations of global order maintenance continue, but nobody believes that anymore because the United

States really doesn't have his heart in it. But China isn't actually taking advantage to make new moves forward, and they're obviously weak and have been pushed back because of the trade policies. The question is what's gonna happen next? And that's anybody's investador Hosses. In the issue, Greg Mankeew of Harvard Allen Blind to the former vice chairman at Princeton, I'm gonna go to Senate Warren. Good Morning one or

six one FM Boston. Elizabeth Warren's strengthening democracy at home and abroad, and she says the urgency of the moment could not be overstated. It sounds like she's running for office. So you can't have any other candidates. We would love to feature all the major candidates in the next cycle. We've already had. We've had John kay sick in, we've

had the president. What is a president written in? I say for you, the president has not um a Secretary Pompeo, where we love to have the administration and we we pride ourselves on being open to all voices. Uh. And we've had a Secretary Pompeo in last issue. So uh. And we want the Republican candidates as well as the democratic ones. Democracy is the new inWORD. You know, it's

like we're taking a journey. Okay, we're doing democracy. What does democracy mean to Gideon Rose, Well, that's a great question because there's no as people have been pointing out in many respects, the populist movements are majoritarian democratic movements. There's a real sense in many of the countries we're talking about, from from Turkey and Russia all the way to Eastern Europe and elsewhere. There's no question that there's a lot of popular support for certain kinds of policies.

But that doesn't necessarily mean that the liberal democracy and the rule of law and some of the things that we think beyond simple majoritarian You get to decide what happens. That stuff is under threat, and the really interesting question forward is whether not democracy will succeed, but will liberal democracy succeed? Gideon Rose, thank you so much, John Say

thirties six percent. You know they've got these little things in the magazine, and the answer is for the price of one point three six beverages of your choice at Hemmingways at the in Paris, you you just get in brilliance for Christmas? Is that think you know, human well, that Bill's already got one you're going to get would be that it's a small price to pay not just for new information, but rather for the context that allows

you to organize the information you actually have. You got a ton of data all the way through your terminals through everything, and what we provide is a way to contextualize that and fit all the data into some pattern that is intellectually I think, yes, Gideon, Gideon, the Foreign Affairs is thick and heavy. You throw it at the smart mouth college kid and say shut up and read this.

So I actually have one of those smart math college kids myself this year, and so I wrote the lead issue because I felt like I needed to do the next generation what to think, and I wasn't sure that anybody else could do it. So I went out and did it to my college kids son in the pages of n Affairs. Gieon Roal, thank you so much. Foreign Affairs at Magazine don't leave home without it. It's not Joining us for a quick chat from London and Retail.

Andrew felstaed Uh joins us. Andrew, good morning. Your article this morning is on the crushing disappointments of Brexit United Kingdom Retail. Can you take it worldwide? Well? The interesting thing was, I mean we were all expecting Christmas to be bad in the UK because of the uncertainty of a Brexit, asas also mentioned France and Germany and said, um, things were quite tough there too. Well, things are quite tough there too. I mean these are these are real drops,

aren't they. I mean, there's no other way to put it, that's right. I mean we were all expecting, you know, Christmas to be taff and Germany had quite a poor autumn because it had really unseasonable weather. And I mean retailers are always blaming the weather, but actually it does matter. Because you have a hot spell in sort of September, Rocktome, then no one actually wants to buy a coat coat. So your high value items that you rely on bolstering

your profits, that's not happening. It's quite bad. New the blur I saw. I mean, and I can't name Laura Ashley since time begin with the X number of stores are shutting down. I mean, come on, the one word in your report, I mean Amazon is global and it's beginning to have an effect across all retail, right, that's right.

But don't forget that a sauces online too. So if anybody was supposed to be well set up to compete with ours, and it's as Nasals often been touted as an Amazon acquisition target because one thing that Amazon hasn't really got right is fashion and whatever you say about as it has got fashion right for the young shopper, well are they going to take I mean it's they're enjoying it. Our shares on sale today it reduced, I mean exactly. I mean, are you announcing the effect of

this transaction? No? No, no, but but but Asace should be a challenger to Amazon, the challenger for me is your from me. He throw on, you're driving in and they're on the right side as you quietly got by his Herod's. And then there's Harvey Nichols and the rest of it. What's the state of fancy London shopping? That's so many of our listeners are aware of. Fancy London shopping is doing pretty well because the pound is still weak,

We've still got lots of travelers. A fancy London shopping shouldn't have any problem, and neither really should bargain basement London shopping. You know, when we spend we all want to barking. Where there is real trouble is this mid market where they're not cheap and they're also not aspirational. That's where the real trouble is. But I think fancy London shopping no problem. Let me bring in my colleague PIMPM and it's a real retail turm wail, whether it's

UK or here. Yeah. Well, I was just going to go through the list of retailers that have actually shuttered some of their operations. Debenham's, House of Phraser, Home Base, Marks and Spencer New Look, John Lewis Patissary, Valerie, and of course all the Toys r Us stores were forced to close because of that. And I'm just wondering, does this mean that there's going to be an excess of real estate coming on the market. Yes, there will be.

The I mean the other thing, all those shops closing, all things being equal, they should have started to benefit the ones that are left. You get a last man standing effect. But you know, the uncertainty over Brexit has really overshadowed that, and it's also overshadowed the fact that people actually have more money in their pocket. The fundamental was a good it's just everybody's worried. You know, they stopped spending because they're worried what's going to happen in March.

Do you believe also that there's gonna be a clamor for staffing because many of the people that work in retail and in many of those kinds of jobs on the high Street, and indeed in logistics and so on. They come from countries outside the United Kingdom. That is certainly a problem that that retailers and and those restaurants

and coffee shops have all alluded to. So it depends what happens in March, really, and also we've learned that drivers, you know, just people that are driving the lorries the trucks throughout the the United Kingdom, that there is a shortage of over fifty thousand drivers because recruiters, well, new immigration rules are going to make it more difficult for them to get those people. And that's going to hit online. That's another challenge to online if if things can't be delivered.

Do you get the sense that people are spending money in order to stock up on food and essential items? Those are reports that we've heard in the news meeting, No, not at all. I get the sense that everybody is worried. It's it's a bit like sort of two thousand and eight, really two thousand and nine, when everyone was worried about the financial crisis on what was going to happen, and they held off from spending. One retailer said to me, it's as if somebody switched the lights off in October.

Everybody I talked to says October November has been very difficult. This is this isn't some excuse for portraying that this mood on the high street is real? Do you find it also that inventory levels stark scarcity has also been a factor that they just don't have enough on the shelves because of these issues. Well, no, not because of Brexit.

I think some retailers have bought very tightly because you know, they knew things were going to be pretty tough, so they've bought quite tightly, and actually Marks and Spencers had the opposite effect. They've actually they've struggled with their fashion views and they had some great fashion this season and probably is it in are enough of it? So they did have some shortages of the great stuff that they had. I can tell you scientifically at the Keen household, this

is a great comment. They're sold out of everything, not enough things to spend. Because you're a retailer, there aren't any prizes for overstocking. You know, these retailers kind of monitor consumers many they know things are going to be tough, so they think, you know what, I'll just order in a bit less. What's gonna be the global the global losses? I mean, can you judge yet the margin compression that we're going to see? Um, not yet. I mean one

thing that we will see. I mean was saying they did off on Black Friday and that wasn't deep enough. Other people have been doing much bigger savings. So if people are discounting like crazy, that means margins will be hit. So we know that, Um, what we don't know is the extent yet. I gotta say a source shares right now, the online retail are down near to day. One thing about a SOOCE is it it's always been quite a strong It's always had quite strong growth. It's always been

a bit of a market favorite. So you know, when you do have bad news from a company like that, it does become compounded because people have been used to them performing and they stopped performing, and so there's an outside effect. So it was always bound to be a big hit for them. Andrew Felster, thank you so much, greatly appreciated today. What do you see in the stock market? I see that this is going to be a pretty

quiet week. One of the big issues to talk about initial public offerings and is there enough money in order to soak up all of the new issues that are either scheduled to go out between now and the end of the year and coming up a lot of money. What I find extraordinary is besides the FED meeting, we're in a holiday mode. I get that, except I'm seeing

a tape deteriorates for the morning. We started out FED dead and all of a sudden negative futures through to yields you know, coming you know, we're just sort of it's a new g market into the FED meeting. Well, I mean, I think there's also the issue, as I said, of cash. Right, unless there's new cash that comes into the market, you don't see stock prices move higher. And if you take a look at the flows, particularly the equity flows, you've seen people come out out exactly where

are they going? Just going to cash and people either cash maybe or people got to spend it things, you know, Despite the CPI numbers that come out on a regular basis, I find that people tell me things are more expensive. Insurance is more expensive, utilities and more expensive. Taxes are going up, and many people have not necessarily saved for the tax bill. It's going to come in twenty nine when they find out that they're not able to deduct all those property tax Well, that's a very New York

City kind of thing. No, no, no, sir, This is this is California, New Jersey, Canna. This is everywhere. What I'm hearing is the mystery about taxes for this year is permanent. Throughout every accounting practice, every single customer, every walk of life is in the same panic about Okay, what what are my taxes really gonna look like? Well, and also you end up figuring out that you work more than half the year in order to pay your taxes.

Very good our interview already on this Monday or interview of the week, and I would say, what a wonderful way to set up two thousand nineteen for all Americans. He is Paul Romer, He is out of Colorado. He is someone who did mathiness at Chicago and then I went on to an extinguished career in economics at a number of institutions and the Laurea Jones. I can't remember if I've spoken to you some Stockholm in the blur, I can't remember it. All, what was it like? Is

it young Turk to work with George acre Love? If you wrote a paper he did a co write with acre Love, were you trembling as you did this? No, George, George is a very modest guy. And Mr Yell I I love. Yeah, Harry's married to Janet, you know, and that's right, um, and Janet's great too. But George is very easy to work with and it was just a joy to write that paper with him. You came out of Chicago already known there for just a complete ability to grab the Mathew Nous of economics, and more than

anyone I know, you've somewhat stayed away from it. Are we at a better point in Matthew Nous now where we're not slaves to the model? You remember when Harry Truman was reputed to have said I wanted one armed economists because he gets sick of this. Well, on the one hand, this and the other hand that. Unfortunately, with math, that's a two handed problem. Some math can be very helpful, it can really clarify our understanding, but too much of it,

or Matthews the wrong way, can confuses, can exclude. And so what we need to do is get to that Goldilocks use of just the right amount of masks to zoom in on the things we really need to understand. I want to talk about the path from nifty seven. I mean the folks on the Modern Ears seven Samuelson textbook The Clouds part for solo at M I T and N seven ish, and then the entire issue of how we grow moves forward and what you canonize is

innovation and folding it into what's called indogenous growth. How are we doing? Are we growing within our system? Now? Are we making it up? But actually, let me let me tell you the story. When I tried to explain to my son what I do at work, I said, well, I'm trying to understand why it is that your grandparents, when they were your age, didn't have these great things like a video cassette recorder. He looked at me and he said, Dad, that's obvious. When nanny and granddad were kids,

the VCR hadn't been invented yet. Is there anything else with your work that I can help you with? No? But but but the other place, it's sort of been obvious to everybody that innovation is really what drives standards of living, What and you know, Solo recognized this. What I did, though, was say we can understand it. We don't want to just say innovation happens. We need to understand what causes it, and then what policies can we use to increase the rate of innovation, to increase discoveries?

Raise is your Paul Romer is your world? The fault of this gilded age in that we've applied the innovation to the benefit game of a gain rather of a modest or narrow segment of the American population, and everybody's flat on their back and a luddite America because it hasn't benefited that. Yeah, I think that, you know, people like me who have been advocates for innovation really need to be held to account. The first problem is it doesn't seem like everybody's getting a share of the benefits.

And moreover, we're actually in a period where people have less confidence in science then they used to have twenty years ago. And that's the thing that troubles me the most because science is the is the key to progress. It's what it's the greatest thing humans have ever invented.

And if we lose our faith in science, you know, where are we going to get the extensions of health and life, and pim Fox has comes to American exceptionalism and that that is is Professor Rohmer says that that loss of confidence, Well, my question would be indeed art if that loss of confidence exists, but you still have a cadre of scientists and technicians that are able to figure out what really goes on. But you have of the population basically putting on the brakes and making it

more difficult for those innovations to reach the public. What do you do. You've been involved in smart cities. What can you physically do well. I think what would be a terrible mistake is for the say the scientists, to say we're smart. Just let us make all the decisions. We're in control. Just just let us do our thing. Um, people in science, people in the government. We need to

be accountable to the public. If the public doesn't understand what we're doing, why we're doing it, that's on us, and we need to do a better job of explaining it and rebuilding that kind of faith in what we do and belief in the idea that facts are our friends. I think one of the mistakes that we have made is we've fed this kind of doom and gloom scenario that there's that there's no hope for the future. And you know, for example, fun climate change. We can solve

climate change. We can manage that problem, just like we've managed every other problem. The only question is how do we decide to move forward. But we've got to be careful not to make everybody so pessimistic and also make sure that they see benefits in their own lives if we want to keep this consensus for more discovery, more change, more growth. Granted, but it reminds me of Daniel Patrick moyna hands comment about people are entitled to their own opinions,

but they're not a title to their own facts. If not, if we're not are all looking at the same fact based situation, how do you even take that first step? But one of the things I've been talking about recently is having a sharper separation between the people who established the facts and then the people who have to make decisions based on those facts. And often those decisions involve compromise.

That's just the way of the world. The people who are providing the facts should not be thinking about compromise. They should not be thinking about who wins who loses. They just need to say facts or facts here they are, you figure out what to do with it. And sometimes frankly, in the academic community we kind of pretend we're acting like the facts people. But then we started staying you should do this, you should do that, And that's that's mixing the roles in a way that I think isn't helpful.

They celebrated Rome couple of years ago the and I find him phenomenal Chad Jones explaining the growthiness in English. Chad has done a great job. And he talked about rival non rival products, which is fancy economic talk, which is our thinking and our ideas are not the same as accountable item like a pencil or a bow tie. Okay, fine, help our audience with the threat that all this intellectual mumbo jumbo is only the purview of the wealthy and

the haves. What do they have nots? Do ye? Well? First? Um if I mean, they'll be put in a plug for my lecture. And in Sweden, I actually avoided the use of that term non rival because it's a little too jargon e and really just try to explain what we really mean, which is that when you codify knowledge in a in words or in math, then you can share it with everybody. So conified knowledge is very different from like a pound of of copper, because you can't all use the copper at the same time. You can

all use the knowledge at the same time. Now, on this question of how everybody gets to share, we have two very different systems for producing new codified knowledge. One is the the system of science and open, transparent exchange of ideas. The other is the market, where there's some control a way to make money on ideas. We need to decide as a society, where do we draw the line.

Where do we draw line between say that ni H National Institutes of Health, which is fund discovering new farmancy coals, Where do we give it over to the to the pharmaceutical sector. And one of the things we can do is if there are too many people capturing too much of the profits is just used to Do you have an optimism, professor rumor quickly, because we're gonna have to go, Do you have an optimism that our political system could

clear this market and get to a better technological outcome. Yeah, I'm I'm just a incorrigible optimists. So my view about people is like Churchill's view about the US. They always do the right thing after they exhaust all the alternatives. So we'll eventually get back on track on these big challenges.

Thank you so much, and congratulations again on Well, it was just assumed that work him Fox was so penetrating decades ago that we almost take it for granted, this idea of moving on from solo fifty seven to where are we going and how do we grow? And that was before the video cassette recorder or I was gonna say, professor is optimistic for no other reason than he needs congratulations for his marriage. It was a laureate marriage, right Sweden,

You didn't marry an Austrian economist. No, no, no, no, I'm married a French literature professor. That's that's that's that's why optimists. That's more rationalistic. Tell Mr mccron right now on the markets, Douglas cast joins us. We're in our Bloomberg Interactive Brooker Studios. Mr cass in Florida with Sea Breeze Partners. Doug abut your positioning right now. First of all, following Um Paul Roma a Nobel laureate, I am not

worthy Um, I would say I exist. I'm usually considered something of a Cassandra tom And and Pim and I'm following Paul Roma, who is, by his own admission and incurable optimists. So I have no better person to quote than Woody Allen, who may be the second most pessimistic in terms of the state of the economy and the

state of the market. Um Woody Allen said something in an op ed in The New York Times back in nine It was entitled My Speech to the Year's Graduates, in which he wrote, more than any other time in history, mankind faces a crossroads. One path leads to despair, an utter hopelessness, the other to total extinction. Let us pray we have the wisdom to choose correctly. He went on to write. The trouble is our leaders have not adequately

heratus with this mechanized society. Unfortunately, are politicians are either incompetent or corrupt, sometimes both on the same day. So that's where basically I spend clear markets. And there's a fair amount of gloom out there right now with a good correction as well. In your history, how do you call bottom? How do you get back on board? If you're cautious. My approaches us an old Ben Graham um approach back in the nineties who wrote the book Security Analysis.

And I tie all my investment decisions, whether it's buying or shorting a stock, or buying or shorting the indices to the difference between the current share price UM and the intrinsic value or private market value of a company, or in my view, what the market is worth. And that's how I do it. So when the prices UM sell at a discount to intrinsic value of the buyer and when they're at a premium to intrinsic value on the seller and um UM today we have we have

a number of problems. John Farrow and the About an hour ago mentioned that in the past we've had monetary options, we've had a functioning G twenty. Today not so much. And we're in a flat and increasingly an interconnected world. It relies on coordination and cooperation. And although there are still some living in the sixties and endorsing policies appropriate for a day gone by, we do live in a flat and interconnected world. And I've mentioned the past three

questions that keep me up at night. Um. Firstly, in a paper listened cloudy world? Are investors and citizens as safe as the markets assume? We are? A second in a flat world? Is it even possible for America to be an oasis of prosperity and a driver of engine or engine of global economic growth? And finally three, with the g H GEO political coordination and roll time low, how slow and a nept will the reaction be if

the wheels do fall off? I think the reason I want you to remember these questions is that the answers might serve as a valuation buster in the full fullness of time. We have this uh, We're living in a connected world. We have lack of cooperation between the superpowers. It's problematic and more impossible than any other time in the past. My bottom line is, at best, we're in a period of substandard returns, more likely a period of

steady strikeouts. By Ahead Doug cast, the SMP five hundred is down more than eleven percent since the first of October. Today we get a note that Goldman Sachs says they have a solution to high uncertainty about the stock market next year. Is that yeah? They say, now now is the time to get defensive. After the markets down, still plane dumb? So why do they bother? I mean like, I mean, when does the does the emperor really have no clothes? We all know the off repeated Buffet comment.

Be fearful when others are greedy, and greedy when others is fearful. If you stick, if you rely on price momentum, if you're a passive investor, you're in uh E T S or risk parity quant strategies that are agnostic to balance sheets, income statements, and intrinsic value. You will be negative like oldman Sacks when prices are going down. I always say the changing market structure has produced an environment where sellers live lower and buyers live higher, which is

antithetical to Ben Graham and Dodd and Warren Buffet. And I'll stick with those three because they've done pretty well over time. Um So I have said for some time that the markets are under pricing and underappreciating risks, and that the markets would be ancuffed by a number of factors. We're gonna run out of time. Let's let's come back with Douglas asked. I want to talk to him about some specific ideas, particularly his vocal, vocal statements on Twitter

through the years as well. Mr Cast of CBS Partners. This will be out on our podcast with Paul Romer as well. I think it's pretty cool Romer than casts on your podcast. I mean, you know Romer and Cast. I mean there's a certain balay to it. Paul Romer and Doug cast back to back. Where else can you do that? Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, 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.