Surveillance: U.K.'s Tories Vs. Labour With Cavendish

Great to see you. Just walk me through what's at stake in the next twenty four hours. Well, it's difficult to exaggerate how important this election is. I think on the whole, elections don't make much difference, by the way, at least UK ones don't, because in the end the politicians do much the same thing. This election is not like that. And on the left and the Labor Party, the leader of the Labor Party is effectively a sort

of Marxist. His right hand man is a Marxist. If they were to form a government, we would have policies in this country more left wing than anything we've ever seen before. On the other side, the Conservatives are going to be much the same as we've had over the last five years. To be very clear here, Roger, that's not an accusation. They are very open about being socialists. They're very open about being extremely left wing. Yes, and I don't support them, but you know, they don't make

any secret of it. I mean, these guys make some US politicians that we all know, like Elizabeth Warren and Bernie Sanders, they make them seem like outright right wingers. We're talking about nationalizing areas of the economy much more than we've ever seen before, perhaps since the nineteen seventies. What's interesting about this particular period of UK politics for me, Roger, going back to the election, we've now had three of them in a round about four years. Ed Milliban was

the leader of the opposition, the Labor Party. They said he was too left wing and then they went further left. What does that tell you about the state of politics right now, that we're experiencing the shift to the extremes, not just in the United Kingdom but in the United States as well. Yeah, I wouldn't actually saying that in the UK we are seeing a shift to the extremes. We are in regard to the Labor party, But interesting me at the same time, the Conservative Party of anything,

he's moving towards the center. Very interesting this, I think the Conservatives, we don't know what exactly what they're going to do if they do get a majority, but in what they've been saying recently, at least in terms of economic policy, they've been moving leftwards towards more public spending,

concentrating on public services. Interesting that. How do you have a stimulus driven, a fiscal space driven conservative that seems impart greg again writing about one trillion dollar deficits in the United States, but in Germany, in France, in the United Kingdom. How can a conservative be pro stimulus? Well, I think it's quite easy for that actually to happen. Of course in the States you've had it in the past.

What about the Reagan tax cuts? How Italy all this was justified in terms of supply side economics rather than demand. But still you had more borrowing, deliberate borrowing by the government, by conservative government. I think over the difference is that

circumstances have changed so much. When you've got a very big debt and the deficits extremely high, and the markets are very wary, a conservative government will be worried about spending and borrowing more, but that's not the position we're in. The deficits down the markets are desperate to lend to the government and I think it's about time that we borrowed more for investment. It depends what you spend the money on. And this, I think is a big going

forward from here. The big, big focus for a lot of people outside the United Kingdom won't just be on the future of austerity. It will be on the path towards brexit. Roger walk me through the kind of different paths that are available to the UK within the next twelve months or so off the back of this election. Well, let's assume first of all that the Conservatives form of majority government. Then we know pretty much that we're going to leave the EU on the thirty one January, so

very soon. But that really, frankly, only sorts out part of the issue, because according to Boris Johnson's deal, he's then going to negotiate with the EU to try to get a free tra rade agreement by the end of next year, by the end of twenty and he said that if he doesn't get a deal then he's not going to seek an extension to this transition. A lot

of people don't believe that, by the way. Now, of course, if that happens, say we don't get a deal and he doesn't get the extension, then Britain's in the sort of no deal territory where we then have to trade with the EU, presumably on w t O terms. Now if if if Labor wins, their policy, by the way, is rather confused on Brexit, but we understand they're going to try and renegotiate Boris's deal with the EU. Good luck on that one, and then have yet another referendum

in the UK. So we're going to have in that case, I think prolonged uncertain The UK has twelve months to negotiate a free trade agreement with the European Union. It took the Canadians about seven years. Can you do these kind of things in twelve months? Well, I think the answer is yes you can. As far as the economics concerned, I think it's deadly simple. After all, we already have effectively a deal with the EU. It's called free trade

plus bills and whistles. We don't have any tariffs or barriers. That's the starting point. So I think given the political world. I think it's dead easy to do actually within twelve months. But that's the big if you know, is there going to be the political will? And I think you're going to see massive wrangley on both sides. Actually, what kind of conservative is the new Boris Johnson? I understand as a foreigner, there's three or four Boris Johnson's that can

be said of a lot of least. What kind of conservative is he? For twos depends what newspaper you read this name, Roger, Well, it's Tom. It's a great question. I think that Okay, there Feral gave me the question that the truthful answer is, we don't know. I mean, you listen to him sometimes and he calls himself a one nation conservative, which I guess is a bit close in the American terms of almost being a liberal pro

public spending. And then other times he's very much in favor of free markets, and he has been known to wax lyrical about the importance of tax cuts and supply side. You gotta come back, Roger Boodle, thank you so much. Thank you, and writing for the Telegraph as well, always interesting and out with an important new book, The A I Economy. Will dive into that here. It's getting some

reve reviews right now. This is fascinating. She writes for the Financial Ties, but far more than that has an exceptionally extinguished resume of not only policy but just thinking John in doing how you change things, and that's rare, to say the least. To bring her in absolutely, Committa camindists join us now, the former head of policy for UK Prime Minister David Cameron. Commit a great to have

you with us on the program. Let's just begin the conversation where we started it just a little bit earlier on this hour. What is at stake with this general election in the next twenty four hours. A lot is at stake, which is why a lot of people are actually going to turn out and vote. Because this election represents two poles. I mean, it used to be said that all politicians were the same. That is certainly not

true in this selection. We have a Conservative Party which is bent on delivering Brexit and their slogan is get Brexit done. And we have a Labor Party which is further to the left than anything we've seen for forty years and possibly for longer, which would impose a Marxist vision upon the state and Cammilla. On top of that, we have this really weird situation in many many constituencies where they are traditional labor strongholds but voted leave. Then

we have these traditional conservative strongholds that voted remain. They're regarded as the marginal seats, many of them. Com How do you expect that to play out as the results start to come through. Well, so this is one of the things that makes it really hard to predict. So the Conservatives are trying to breach what they call Labor's red wall of seats which have traditionally been working class labor held seats in the Midlands and the North of England.

Many of those voters voted to leave the European Union. They're very patriotic. They think Jeremy Corbyn is anti American, anti NATO and is not a patriot, and the Conservatives think that they can win quite a lot of those people back. As you said, of course, there may also be a swap from the other direction, which is quite a lot of remainers, particularly in London and the South, may vote Liberal Democrat or may they may vote Labor.

So how complex does that make campaigning in the last day of campaigning and of course, Um, you know, we now know that. I mean, most parties are doing this micro targeting. I mean it's all about individual seats. They're running slightly different campaigns and different seats. To be honest, Um, there's a lot of social media. The Conservatives have a

lot of money to spend. They are spending a great deal of it today in the last couple of days of the campaign, and their social media strategy I think has improved a lot. Um. You know, the current prediction

is that the Conservatives will get a majority. The main question is how big and how big it is does make a lot of difference, because that makes a lot of difference to whether Boris Johnson can get his withdrawal agreement through Parliament really easily, and whether he can sort of unshackle himself from his right wing If if there wasn't breakfast breakfasts many people call it breakfast. If there

wasn't breakfast, what would be the Conservative manifesto? I mean, is there such a thing between London elite Conservatives and everybody else out there that's not London elite Conservatives. That's a really interesting question which actually most people are not asking because everybody's obsessed with breakit right to ask it. I mean the Conservative manifesto was deliberately written this time to be fairly low key, not give any headlines, not actually give very many clues as to what the rest

of the prospectives looks like. Um, it is quite heavy with spending pledges. So we now know that both parties, I mean Britain is shifting in the direction of spending more money under Cameron Osborne. You know, you saw a serious tackling of the deficit after the financial crisis. Um. We've actually they came out of that in sixteen with

a pretty strong economy and record high employment. Um. But you know, the voters are wanting greater spending on public services and quite a lot of voters are prepared to pay more tax. So we're going to see a more interventionist I think whoever went But you're right to ask the question. You know, kind of what do the Tories spans will be on Brexit. At the moment, their campaign is all about two things. One is get Brexit done and the other one is keep Jeremy Corbyn out and

they seem to think that is enough to win. Let's take it once they're further Cammilla, Who is the party of the working class? Now, have you'd asked me ten years ago, I would have said labor. Similar conversation taking place in the United States at the moment as well, which is fascinating. Who is the party of the working class in the United Kingdom? Yeah, well, it's a your right. I spent a lot of time in the States. It's the same question. Um. Look, I think the Tories aspire

to be the party of the working class. A lot of working class voters may lend them the supported this election, but whether they can hang on to that support in the long term is a really big question. And whether they can, as you say, bridge the gap between the classif question. But look, we need to bridge that gap because whoever becomes Prime Minister needs to govern for the whole country, and we have too many people left behind

in this country. So I do think it is completely plausible that the Conservatives could be the party of the aspiring working class and the loans, which is what Mrs Thatcher was all about. Conservatives in America are having no trouble embracing fiscal space. It's called trillion dollar deficits. Do you perceive that the Conservatives are the Cameron. The Conservatives are a Jansen. The Conservatives are the Conservative of a decade. Now can embrace fiscal space? Well, I mean Cameron was

a fiscal conservative. You know, he bought down on the deficit. The opposition have used that very effectively against the Conservatives because of austerity, uh, you know, which has had some impact act are on you know, people in the lower socio demographic groups. But now everybody is embracing fiscal space. To use your terminology, I mean, you know, you've got low interest rates. Whoever comes into power will borrow a lot. They will fund massive infrastructure spending. And if we're going

to leave the EU, we need a fiscal stimulus. I mean, we aren't going to need to get through this. There's likely to be an economic downturn anyway in the cycle. If you look at you, the economy are slowing. So we're going to have a fiscal stimulus in some form. Commit Before we let you go, I'd like to focus on something that I know you're passionate about. Public health. The NHS is at the epicenter of this election for

many many people. Walk me through how you thinking about that particular subject and your thoughts on how the Conservative Party in its current form of tackled it. Well, you're right, NHS is the next biggest issue after Brexit. We have an aging population, we have huge demand on our service. We have a lot of immigration to this country. We have low morale of doctors, and we have a particular problem about pensions in the health service at the moment, which just means a lot of doc as they're not

able to do as many as they should. Um, there is huge concerns. Actually underneath all of that, there is serious reform going on in the health service where we are beginning in some places to join up health with social care, which is basically care for the elderly, which is the bit that's kind of fallen off and been forgotten about. Um. You know whoever comes into power that if the Tories come to power, I mean, they will spend more money on the health service health haverpending has

been increasing in real time. It's just not very much. What they have to do is also grasp the reform narrative which the insiders are promoting. But you know it's so political in this country. I mean, you have a different healthcare system over there, but our healthcare system which is very precious to us and is free at the point of need, is very very political, and so making any change to it, even if you're trying to make

it better, is fraught with difficulty. Lady Cavenish, thank you so much bearing as Cavenish of Little Venice with us today and of course your at work for David Cameron what seems long ago in far away. Our next guest is one of our most popular guests, because even if you don't get fixed income, you haven't read your Fobos

cover to cover, everybody leans forward when she talked. She just braces it down really really nicely for everyone, and we always get positive feedback when she comes on the program. So guess what we got it back lighttough. Charlie J H. C M, Senior fund Manager, Good morning to Lalie. Good morning. It's very lonely here without you, guys. I'm sorry. We'll be back very soon. I promise a Federal Reserve decision coming up later this afternoon, the least anticipated Fed decision

of the year so far for some people. Larly, will you be going to launch? You're paying attention. If you're paying attention, what to um you know? I think You're right, it is the least anticipated because I think they made it clear that they're going to be on hold from a rate perspective. So I think what will really matter is the commentary. Look, and I think you've seen the b I S report that came out obviously result and

piece has just taken over the internet. I think on what he wrote on the repo um, you know, I think people will focus on the commentary on on that part whether they see any problems or um they and if they see anything where they do something about it. Let's talk about what they're doing in the balance sheet currently. There's a massive debate about this as to whether it is QA, whether it isn't QA, whether the market thinks

it's QA. What are you telling people? How do you characterize the current operations from the Federal Reserve at the moment and that expanding balance sheet. It's not QUI because it's not creating excess reserves UM, so it's definitely not QUE the way it would be q E is they

extended out on the curve um. But at this point, I think Powell has been chairman and Powell has been very clear that he does not see this as Q and I think, right, do you see the market lolly behaving as it if it is q A. I think the market is behaving with the notion that the central Bank put globally is here and it's here to stay. I think that's a very strong narrative. It's an unpredictable narrative because it can change UM. But I don't think

the market necessarily sees it as que. I'm looking at five year five year forwards, which is one gauge of inflation folks out ten years for the United Kingdom, for the United States and for Europe, and I believe the chairman is going to be able to go in and say today global inflation is the word Greenspan would use quiescent. How quiescent do you observe inflation? As you look at all those spread dynamics in the fixed income market UM

we have. It's been more prominent in our company conversations on the labor side UM specifically UM the labor pressure I think has been a que for a whole year now where companies are actually having difficulty UM sourcing labor. And it's actually quite interesting because as you know, you know, typically when the company runs into a challenge whether it's because of tariffs or UM cyclical or secular pressure as

labor goes first UM. But they've been really hesitancy on the part of companies to tackle labor because they're actually afraid that they won't be able to find the labor back, which is fascinating. So I think the companies are on a holding pattern. We're certainly seeing the labor pressure, and I think you're you're seeing it in the financial results. It's it's pressuring a little bit UM and I think that seems it seems like that that's here to stay.

I mean, to me, it's absolutely fascinating that the wage elasticity isn't there this time around. What would happen if companies just raised wages. What would that do to the architecture of our fixed income markets? Well, it depends by industry, so labor is not always a large component of the cost um. So for the labor intensive ones it will it will certainly UM, you know, impact the girl's margins UM and anything that's labor intensive in the services or

in the retail, etcetera. UM. You're also seeing the tariff pressure as well, so you kind of get this jaw impact UM and it would certainly impact. But look, I mean, I think high yield if you're in the secularly challenge sectors, you already have pretty large hurdles. So they will just be icing on the cake. To be perfectly frank about it. Um. And you know, in some of these industries they already create at what I would call to be distressed levels.

High yields returned almost in twenty nineteen. Corporates and investment grade what are they are? Fourteen fifteen day? Unbelievable. Now I wanted to talk to Larne's world right now. Credit just to wrap this conversation up. We've been in this really interesting training range. It's on how you'd spreads of between three fifty and full fifty. We get down to three fifty, we bounced back up to four fifty, We're back down to three fifty again. What does that mean

to you right now? Just where spreads are really really tight the tides of the year once more, where's this going? It just means you go buy some three month treasury bills and keep it rolling it forward. Um. And as actually the beauty of the tight spreads because by going into higher quality you give up fifty or hundred pibs, but you pick up an entire optionality because over six months losing you know, half of fifty BIPs or hundred pips, it's not going to make a big determined determination on

your overall portfolio performance. And if you're right, then we have a volatility event. Then then you have like a huge upside and you're able to deploy cash. I think two twenty. If it stays put where we are, it's very hard to see stellar returns out of credit. And I think most people frame it as a coupon clipping years And I got news for you. Every time somebody says coupon clipping here, it never works. Are you thinking

about being a liquidity provide events? So as speak going into waiting for those dislocations to take advantage of them. We'll wait for the dislocations um and you have to define you know, there's no blanket statement, right. It depends what else is happening in the world and how the world is changing, so high yield, you know. I'll leave you with this final thought. I think everybody focuses on the triple seas and and how bad it is, but it's actually if even if you look at the Double Bees,

which I think is ridiculously rich. You also have another different phenomena from the lack of covenant. Right most people look at lack of convenance and a high quality. They go, why do I care? This company is really good, it's very high quality. The problem is if it's a public company and their stock performance suffers because you know, equity analysts do actually look at EBIT and operating income. None

of this adjusted EBITDA nonsense, which is fictitious. As we talked about UM, you actually take on event risk, whether the company goes private, whether the company actually spins off an asset, and guess what, because the covenants are sold loose, you have absolutely no claim on that cash flow. The high yield market has structurally changed, in my opinion, based on this Lucy Goosey documentation. We've seen a level four, A level five is fantastic. Let's Charlie j s fun

manager lot. If we don't catch up with you, enjoy the holidays, been great, catching up with fantastic. Contribution to this program pleasure, hugely, hugely valuable. This is a joy, not because it's Wendy Show or Brown University. And yes, the topic is impeachment, but because of the authority. It was just a few years ago. She wrote an exceptionally important, weighty textbook, Gateways to Democracy, and at the time it was accessible, you could reach out in actual touched the

fabric of our American political science. It's as if we had to drag gateways of democracy from Ford to the president. What's our gateways to democracy of this impeachment process, Professor Schiller, I mean, if you had to rewrite that classic book today,

what would you write about the impeachment process? Well, I mean that the point of the impeachment process that were the struggle for the House is to exert oversight on the president and basically that there's boundaries, there's limits on executive power, and this president has vocally said I don't

really see it, and he's right. In the Constitution, it's a vague document, you know, He's got a lot of formal power in the Constitution, not legislative, but executive, and there are a lot of things post scribe, in other words, saying you can't do this and you can't do that, and so whatever he thinks is in the national interests, including his own re election, you know, might fly. So I think The point of the impeachment is to say that we have three branches of government and that the

founders wanted the House to have oversight. Whether you think this amounts to removable offense, that's your opinion. But this is structural and if the House doesn't do anything, and the Senate doesn't do anything, and the president does exercise power, you know, there's no control and that it's not the intent of the system, and that's the important message of impeachment. Then what do you do or how do you respond rather to your students in classroom saying why don't you

just wait and vote the bum out the next time around? Um? Because it's it's signal sending basically, right, I mean, it's not just four years. You know. Hamilton's said, let's you know, let's make the president of monarchy, you know, basically a lifetime appointment. What's the problem. And he got a lot of pushback, so he said, okay, how about four years. This is in between the Senate's term and the House's term. It's long enough to do something but not enough damage

and then the people can reelect the person. You know, it seems reasonable, But that's four years with the government of our size with the government of our power, the government can it's a great deal of damage. It's not eighty nine anymore. So that's the point. The point is they also, just in case, gave the House oversight power and the power to remove. And that's the point in a power that's never exercises the power without practice. So

that's the point of it. Whether we think this is you know, worth the time and effort, I think that's what That's what gets decided at the polls. That's what get decided. You know, at election time, Charles House knew that he could be convicted and acquitted. I mean, I'm sorry, convicted and removed. You know, I'm not sure the Democrats would have moved. Interesting, Charles o Iowa emails and says time,

you shouldn't call the president a bum. That's an old phrase, and I was hoping that that's not what you would do it. No, it's an old phrase, and I was thinking of it because Garrett Cole just signed for a gazillion dollars or the Yankees, and sometime this year when he gives up four runs, you know, with no ouse, someone will say that context of it. Wendy, how do we do a distinction. It's a playing electoral politics and defending the constitution. Well, because it's not actually clear that

it's good electoral politics for the Democrats. I mean, I think that's the sort of thing that ansty Polussi has on her side. This is still a gamble. This only rallies their base, but that's it, and it's not clear what the effect will be on independent, particularly suburban voters, and we know that in at least five states they're going to be absolutely key to when you're losing those

states for the Democratic nominee. Plus it puts the Ukraine Biden issue out there for the next you know, eleven months. This is a big gamble. Now there's a Ukraine Biden issue with Hunter. Who knew about that eight months ago? Nobody and now it Biden's a nominee. It just covers

the Democratic nomination process and the general election. So I think it's not at all clear that it's an electoral win for the Democrats outside their base, which is why the argument can stand that there's another reason that they're doing it. Wendy. Just as a final question, that issue is out there for Biden and for his son. Do you think they've done a good job of explaining no, not yet, and if he is the nominee to his own party, doesn't really care. But if he's a nominee,

it's going to be an ever present question. He'll have to come up with an answer, and people may say, you know what, We'll take the person we know at least most investigations are over versus the person who might have four years of investigation, same prom Hillary Clinton. Ad So, I think it's a much bigger problem for Biden than Democrats anticipate. Right now, Wendy, thoughtful stuff. We'll have to

get you back on the program. Brown, the University Chair of Political Science, wanging on the latest in Washington, d c A consideration of the American economy. We can do

that with David blanche Flower. He is at Dartmouth College, with his experience at the Bank of England, but far more Danny blanch Fer has defined labor economics with his classic The Wage Curve of years ago and his recent work on a mirror because under employed, Danny, just to get the Fed out of the way before we dive into your labor work that you've done so well recently.

Is the FED working with an operative theory. There was M one and M two monitorism, and then there was a Phillips curve harketing back to LS in the fifties. Is there an actual codified theory right now or is every central bank making it up as they go? Well?

I think they're making it up as they go. And I went to a conference of Brookings about a month so ago, when all the big names with their banankee and yelling and Krugman and everybody all trying to think about why it is that inflation has been so low and the central bank forecasting is going to rise, and basically you come to the conclusion nobody has a clue.

So I think that's really where we are. And if we look back, remember at eight rate rises from fifteen to eighteen, with an expectation of three rises in nineteen and four and twenty. So that's really reversed itself. Um, and we're now in the position essentially where the central bank just says, we don't know what we do and we're gonna sit pap and we're going to wait for

the data. So the forecast essentially a gone that they do STI don't know how to forecast, So really they're sitting waiting and they're going to respond to something bad hits. I think that's really where we are. Danny, you got this right, Okay, some things you get right, some things you get wrong. I've actually said in your lectures in Hanover, where you have talked about the mystery of what's out there?

Is it technology? I mean, can we just say we have good monitors of all political persuasions, from the late Marvin good Friend and the late Paul Worker out to the very living Krugman and Blanche Flower. Do we just have good people grappling with modern technology? I don't know. I mean, I think we can go back and go back a hundred years and we've totally said the same thing, Tom. I think what we've really got here is that we were hit by a financial crisis, and people have underestimated that.

I mean, we've really had two and a hundred years, right, we had we had the nine crash, and we had the one in two thousand and eight, which seems to have changed everything. And so the sort of standard rules that applied then don't apply that. And if you think vocal Ulcer came into a world of union power, raging inflation, and you and you had to go in there and put a grapple with that. The danger is that people still have that in their head this new world where

actually our problem is exactly the opposite. We can't create any inflation. Same story in Europe, same story in the UK, same story around the world. And the other story is that we also focused not just on inflation. We've focused on our employment as our indicator of labor market slack. And we've basically heard this week saying, well, the reality

is we've got that wrong. As I kept saying all that I've said on your programs so many times, they got the last decade, that's the world that changed, Danny. You've been very good at making labor market dynamic, very accessible for everyone, very simple. So let me ask you a basic question. What is this economy doing producing two sixty six thousand jobs in the latest payrolls report? Where's

that coming from? And what does it tell you? Well, John, I think and I think that's obviously something we haven't really expected around the world. But I guess we should put that in context that if we just look at the employment rate. So let's just you know, you take you take the population of people over the age of six,

you need say what proportion of them are employed. Yes, we've created jobs, but we aren't back for a couple of percentage points below where we were in two thousand and eight, and about four percentage points lower that we were at the thel Be part of the two thousands. So in a sense you'd say this is a slow recovery. Jobs are still being created, but the types of jobs not high paid enough, particularly because people can't get enough hours. They've got a job they'd like to be a forty

hour week that they up twenty three. So I think that's not something we would have expected. But I think I think that we should look back and say employment rates are below where they a decade ago. You did this is critical. Then we can say good very quickly. Good employers can say we got to go to part time or lesser hours because of healthcare and benefit costs and everybody else saying, look we need more full time workers. Do we need to legislate or return to greater full

time work? Would that get it done? Or is that just a dream we sing with offensives for full time work. But I would push back against the it's the health scare thing. I mean, it's many senses. The issue is global. But yes, I think we have the our other. I mean, we've got to give incentives for firms to hire people. I mean, if you think, why why are firms making using technology? The answers are a labor common because the relative price of labors too high. To a simple fix

is to stop this thing. Machines replaced people, lower the relative price of work. Government to hire people. Danny, I'm out of time. We gotta leave it there. We will continue this discussion David Windflower's contribution to labor economic 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