Bloomberg Wall Street Week: Beddoes & Hubbard

we've David Weston on Bloomberg Radio. It all started out so well, a new year with bright prospects for markets and renewed global growth. But even as we began, there was a virus growing in central China that would soon infect tens of thousands and kill hundreds, and so trade and commerce and travel began to shut down, adding the prospect of reduced economic growth to the tragic human toll.

And so we start our program with the economic effects of the coronavirus, where our contributor Zanny Minton Betto, she's editor of the Economist, and Glenn Hubbard of the Columbia Business School, Dr Hubbard served as the Chairman of the Council of Economic Advisors under President George W. Bush. So welcome both of you. Great to have you here. Thanks. Is any gonna start with you? Because last week the

cover of The Economist was rather clever. It was a globe with the surgical mass in the form of the Chinese flag on it. Where are we right now and this what are the economic effects likely to be? Well, we we don't really know, but my suspicion is that they are going to be quite a lot bigger, even than those numbers that you cited. And let me tell

you why. And I'm very struck how little reaction there has been in particularly this week, where I think they've basically kind of shrugged off any any concerns about the coronavirus. And the reason I worry a bit is that the prism through which many analysts are looking at this is the prism of the SARS virus which in two thousand two, two thousand and three hit China and parts of Asia. And the impact then was a very sharp decline in Chinese GDP, but very quick, and then a very dramatic

bounce back the following quarter. So by the when you looked at it over a year, it was a kind of blip. I think there are several reasons why this time is different. One is people infected already a lot larger, It's traveled further, and we aren't anywhere near the peak yet we don't know with how far we are from the peak. But more importantly, China is a very different

economy than it was in two thousand two three. It's much bigger then, it was about four pc of global GDP now it's about six It's much much more integrated into global supply chains. You know now there are huge number of global companies that rely on Chinese supply chains, which is why you're seeing car companies outside of China already having to think about shutting down there. Their factory is well away from Wuhan. And thirdly, it's the Chinese

themselves are much much more mobile. There's much more movement. I was really struck before they shut all the flights down. I think it's two hundred thousand people go in and went in and out of China every day. That's six times more than two thousand to two thousand and three. As Jenny says, the markets just keep going up, and they took a hit for a couple of days, but

they're back up now again. Are the markets getting wrong and our economist getting wrong, our kondomist underestimated and possible fact Well, I think what economists done in the market is focused on the near term GDP effects that you mentioned, and I have no reason to quarrel those numbers, but I agree with Zanny. First of all, China is starting off in a much weaker economy going into this than

was true during Stars. It's, as Zanny point out, four times the share of world output that it once was, and the global connections are important. I also think another casualty here is fueling china skepticism around the world. I think the markets maybe shrugging a bit too much. We don't know where it's going, is any but is there a risk but perhaps the very globalization that makes China a larger part of the world economy. Yeah, I think

there is a risk. And don't forget this is coming on top of what was already a very tandentious relationship between the U. S and China. You know, we did have that Phase one trade deal a few weeks ago, which has made it one sort of heat aside relief, but really underlying that is a shift in both countries to seeing the other as a strategic competitor, a concern about the particularly in the technology sphere that you know that the U S des are to not have Huawei

in five G and vice versa. If this goes on for months rather than weeks, I think you have a really profound impact. People will say, can we rely on a Chinese supply chain? What does it do the economy? Well, I think for the U. S economy will be very modest in terms of a g D effect in the near term. But again, if global supply change fracture, that is a big change for business. And don't forget the Chinese economy itself, internal problem in the Chinese economy or

perceived lack of legitimacy as big global implications. So again shrug is not what I'd be doing. That's another question. What how how does Spain handle this and what is the impact on him? And part of the last few years has been, you know, the very very dramatic centralization of power. It went from being as a collective authoritarianism

to a one man authoritarianism. He's got a huge amount at stake, and I think that very very draconian response, which I think increasing new people are going to question you, is the cost of the response of trying to shut down whole parts of the country sustainable and worth it? And are we gonna do this again and again and again? In fact, we have these viruses come up more and more often, I guess, particularly in part because the human

occupation infringes nature. I mean, you know, for example, in China, people are saying they're living closer to bats now as a practical matter, and so they come into contact with one another. So we're gonna have it more and more often. Zany's got a great question, are we going to take these draconian steps every time? I don't think we can, and I think politically the regime would be in trouble if it did. So. I think these longer term questions

are the one to be focused on. But in the meantime, there are these really interesting kind of butterfly wing consequences. You know, coffee prices tumbling because all the Starbucks is being closed, Chilean exports of wine up to see more of those, Because I think a lot of people aren't really you know, I I certainly am not aware of the very details of these supply chains. So there's going to be really surprising consequences. The world's plastic flowers made

in China? Is that right? I didn't know that. So it's another aspect of this globalization as a pract matter we can't even anticipate. Well, that's absolutely true. And of course right now globalization has skeptics among elected leaders, including in the United States, and so these all feed that skepticisms. Well, it's a fascating point. It's not just among leaders. The globalization has skeptics. You see it in the United States,

you see it in Western Europe. There are a lot of people in the populace who say, I'm not sure I like this globalization so much. That's absolutely true, and I'm interested in this country. What happens. Let's let's just imagine I hope it doesn't, but let's imagine this goes on for a few months, and let's say we have a bigger outbreak here in the US too. What is the president going to do in terms of his relationship

with the Chinese leader and the reaction to China. It's also reinforcing this sense of division between the US and China, So I'm kind of interested. I think it certainly would feed the President's skepticism. And let's remember that the president's opponents in this race or is at least a skeptical

as China, not more so. In fact, he may be the China friend among our contributors will be staying with us, and you can check out what's coming up next week on Wall Street Week by heading to Bloomberg Market's official Twitter account. We're gonna have a poll each week focused on what you'd like to hear from our contributors. That's next. This is Bloomberg Wall Street Week. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. We welcome

now Larry Summers coming to us from Newton, Massachusetts. Zanny Minton, Beddos and Glenn Hubbard are still with us here in New York. So Larry, thanks so much for joining us. I know that you think that basically any of the Democrats would be better on economic policy than President Trump. But among the Democrats, is there much of a variation. Look, I think the Democrats are all much better than President Trump.

They don't have the same truculence, they don't have the same willingness to give away They don't have any willingness to give away money UH to rich people. They don't have the same resisting of alliance. They all recognize that saving the environment is an economic issue, not just an aesthetic issue, and President Trump doesn't understand any of that.

In general, I prefer the Democrats who recognize that inequality and fairness are crucial issues, but not the only crucial issues, and who also understand how important it is to grow our economy more rapidly, because only with a growing economy and a more rapidly growing economy can we afford to provide early early childhood education for all our kids. Only can we afford enough scientific research, make the necessary investments and renewables to lead the world with respect to climate change.

Only with more rapid growth can we raise middle class

standards of living at a rapid rate. So I prefer the more moderate UH Democrats, people like UH, like former Vice President Uh Biden, the candidates whose names begin with B Basically they're less UH names, who recognized importance of having a stronger economy in order to make it possible to do all the necessary public investments and to do all the necessary things to support UH the middle class, and the approach UH frankly taken by Senator Sanders and

Senator Warren that acts like there's no constraint on how much the government can spend, that the government can add up as spending, that there's no limit to how high the taxes that can be placed on affluent people are. That thinks the only issue is tearing down the people who are most successful UH in our country. I don't think that's nearly as productive an approach. You know, there's

an important philosophical question that people have to ask about economics. Yes, no question, our highest priorities standing with the middle class. But do you believe that if we have more massively successful people in the United States that will be good because it will be part of a process of strengthening our economy that will benefit UH everybody, That it will create more exports, that it will create more jobs, that will create more opportunities. Or do you believe that if

we just don't have successful people that's better. Everybody agrees on the Democratic side that success needs to be shared and shared much more than it has been in recent decades, and certainly vastly more than it has been with the Trump tax cuts. But is the objective to really regard somebody who does enough stuff to make a billion dollars almost a criminal? As Senator Sanders sugget, I don't think those are the values of the American people. I don't

think those are values that will help our economy succeed. Okay, so let's turn to somebody who served in the Republican administration. What Larry just said, is that a democratic point of view? Because pro growth for the Democrats, pro growth should be everybody's point of view. It's not a democratic or Republican phrase. Certainly hardened to hear the attacks on what I would call freely extreme views from Senator Sanders and Senator Warren. I would give the president a little more credit in

economic policy. While he has made some steps that I don't agree with, I think by and large the corporate tax plan was very good. Has bent towards lighter, smarter regulation also very good to me. The real frustration in this campaign is that we're going to talk about very big things like socialism yes no, as opposed to really what works? How are we actually going to fix healthcare? How are we actually going to have an infrastructure plan, and how do we prepare people for the modern world.

We didn't hear much about that in the State of the Union address. Ms A. Let me take you on a little bit uh there. There is no evidence of any kind that we have seen any substantial increase in investment because of cutting the corporate tax rate to but we've seen a huge gain two people at uh the

top end. I don't know what the light smart regulation is, but I'm more worried that we'll get ourselves into financial trouble again sometime in the next several years that I have been any time in a very uh long time. So I'm disappointed to see you um while adopting I think a valid of philosophy endorsed the specifics of much of what the President has done. I mean, corporate tax rates maybe expensing maybe in hundreds of billions of dollars more expensive than you thought. I think has Yeah, just

one quick denim, Larry. I think the early evidence from the corporate tax plan was an investment did go up relative to trend. What has happened is a very large increase in uncertainty, some of it frankly due to our own public policies, but the tax plan itself. I don't think it's the problem. So I've been enjoying watching this between the two esteemed former members of two administrations. I might take we can have a long discussion about the

merits or otherwise of Trumpet and own policy. I think, I think there is there are some good things in it, Larry. I think there has been some tax reform that was useful to have. I think some of the regulation was probably sensible. I think, broadly, the size of the fiscal deficit, I'm sure Glenn you would agree, is not where one would want a deficit right now, and the nature of much of the tax cut also left a lot to

be desired. But for me, the striking thing about the Democrats, and we in our cover story this week have called them the repair faction and the radical fact radical faction obviously Elizabeth Warren, Bernie Sanders, the repair oriented moderates are the others. I think it's not just the ones beginning with B. Actually, I think there's probably somebody beginning with

Kay who might might kinda back too. But for me, the interesting thing is, even amongst them, how far the center of gravity amongst what is now the moderates in the Democratic Party is to the left of where you know, certainly President Clinton was and President Obama was in many areas. So the scale of the spending plans, the attitude to trade,

which I think is really really interesting. Trade skepticism is now entrenched in the Democratic Party, and trade skepticism towards China is probably stronger actually there than even at least the strongest President Trump. There's not much daylight there. It would be more desired to work multilaterally, but the skepticism is absolutely there. Many thanks to Larry Summers from Newton, Massachusetts.

We're gonna be back with our contributors, and we should know Michael Bloomberg is also seeking the Democratic nomination for president. Bloomberg is the wounder and majority owner of Bloomberg LP, the parent company of Bloomberg News. This is Bloomberg Wall Street Week. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. And we're back with our contributors now. Z Any Minton, Beddos and Glenn Hubbard are still with us here in New York, so we're gonna ask them

what caught their eye. And I know, Glenn, you were particularly taken by the fact that the British government appears to be changed their position towards internal combustion engines. Yes, there was an announcement of an aspiration to phase out internal combustion engines for sale by instead of and in concert with all the stories recently about stranded assets and climate change, it just strikes one that the pace of this may move more quickly than people think, and it

may be quicker in Europe than it is here. Definitely be quicker in Europe than it is I think. One of the striking things and every time I crossed the Atlantic now is how big the differences between the focus in Europe on climate and here and here it's changing, but in Europe it's really changing. This is absolutely front

and center on the European political agenda. And one of the things I hear timent again is that may may address the fiscal issues in Europe through the green process, that in fact investment will be required and that will actually help the growth over there. That makes sense, I think it does. I mean a carbon tax can also be part of a fiscal reform for the United States too, so we know how to do this. The question is just getting the consensus behind it, but I don't think

the discussion is absent in the US. Many prominent investors like black Rock have really weighed in on this in a very serious way. Certainly is now e s G is I think becoming fo real in boardrooms around the world. I think that's really interesting. How does that translate into sort of meaningful change beyond the financial community? And I think one place to look would be what happens through the financial sector regulation? Is that are the central basa.

Mark Karney, the former government of the Bank of England, has been pushing this very hard that maybe somewhere I think we see will change. The UK is obviously going to be the host for the next cop meeting this year. That's going to be a very very big priority. I think this is your right. This is an area where there's traction. But there's obviously a big difference when you've got a government that is a federal government that is

really not paying any attention whatsoever exactly. That's the big difference. If you look about Europe and the United States. We're talking about the government in Europe doing this private industry actually, if anything, doing despite the government in the face of the government, Can it really work in this country without the government getting behind it. No. I mean, in the long run, we're going to have to have some sort of price on carbon and so no, that's a public

policy matter. Corporations can't solve it. But I do think the American business community is very heavily engaged as our American investors, so I wouldn't count out the political questions. He I think it's less. I mean there's there's some are very very heavily engaged, but I think not everybody on the side of the antea. There's definitely some who think growth is what it's all about. This economy is doing very well, it's dynamic. Those Europeans they're not even growing,

and they're focused on the climate. I mean, I've heard that, so I wouldn't I wouldn't get too complacent about what's on here. There you have it. Many thanks our contributors, Glenn Hubbard, ends any Mint, and Bettos. We welcome now Larry Summers coming to us from Newton, Massachusetts. So, Larry, big news this week obviously is the spread of the coronavirus. A lot of talk about what the economic effects are, what do you make the economic effects out to be David.

No one knows, but I think the risks are very large. Experience suggests that major pandemic events are events that take place somewhere between once every half century and once every century. The fact that this one has gone so far has to mean there's a substantial chance that it's the one

for this half century or this century. And the events that take place that infrequently, the worst of them kill a number of millions, quite possibly as many as ten million people, and they disrupt commerce and transportation and the ordinary doing of business not for weeks, but for many months or even a period approaching a year. So I'm not certainly confident UH that this is gonna be a historic UH disaster, but I think there is a risk that we are still in the top of the second

inning with respect to UH. This tragedy. Some time ago I looked at in some detail with collaborators our research UH paper suggested that every so often they were quite catastrophic UH magnitude, and that if you took the cumulative risk over a century from global epidemics and global pandemic, it was in the same broad range, perhaps less but not less by anything like a factor of TED than UH global climate change, and unfortunately the issue hasn't received

nearly the same degree of attention that global climate change has rightly received, and I suspect that will get repaired uh in the wake of the current tragedy. Many thanks to Larry Summers from Newton, Massachusetts. We're gonna be back with our contributors. Head to Bloomberg dot com for more exclusive thoughts from our weekly contributors, along with full episodes and the official Bloomberg Wall Street Week podcast. And coming up next, Dan's Rullo, his former Federal Reserve Board of

Governors member. This is Bloomberg Wall Street Week. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Over two hundred years ago, Benjamin Franklin said that it was work that makes us happy. But now, for the first time in history, we run the risk of running

out of those jobs that make us so happy. According to an Oxford economic study from last year, the world stands to lose millions of jobs to automation, with China potentially having the most to lose as many as twelve and a half million over the next decade, followed by two million lost in Europe and one and a half million in the United States. It's the lower skilled workers that may take the biggest hit, at least initially, but

none of us should be feeling too complacent. It turns out that those holding bachelor's degrees are particularly vulnerable, and some of the most sophisticated and highest paying jobs may go the way of the buggy whip maker. So the next time you complain about having to roll up your sleeves, you might want to take a look over your shoulder to see if there's some contraption that doesn't need sleeves waiting to take your place. To talk about what technology

may mean for jobs. Welcome up, Daniel Tarullo of Harvard. Dan was the member of the Board of Governors responsible for reguling financial institutions, and our contributors Zanni Mitton Battos and Glen Hubbard are still with us. So, Dan, I know you've taken a real hard look, particularly artificial intelligence, what it means for jobs United States, for the workplace.

What have you concluded? Well, I haven't not sure if concluded much, David, other than to believe that it's an issue that has been underappreciated and under analyzed in public policy terms and I think there are three sorts of considerations here. First is the potential share magnitude of the impact, maybe well be millions, and I've seen estimates that are

not alarmist, estimates that go well above a couple of million. Secondly, that those losses will not just be at the lower end of the wage scale, but could go all the way up to what we now think of as professional jobs, contributing to further hollowing out of the middle in the American and other mature economies. Second consideration is that even if you take a fairly optimistic view of where this all may end up, that is, the technology will end

up creating as many jobs as it eliminates. As has been the case in the past, the transition may be an extremely difficult one. You know, we think transition temporary. Therefore it's kind of okay. But if a transition is long enough, and if it's dramatic enough, there can be permanent scars to the people who lose their jobs. But I think also to the to the economy as a whole. You know, Bill Gates is no technopho. He's the furthest thing from it, but he's expressed concern about the pace

of the change. And the third consideration I think is the intersection of the economics and the politics. You know, since if you go back to the enclosure movement in the early Industrial Revolution in Britain, when there is substantial placement that has a social as well as an economic effect, there is a high correlation with political consequences, including more polarization, more disaffection, uh, more movement away from the center towards

more dramatic alternatives. And I think to some degree we saw we've seen some of that in this country. I mean the we lost almost twenty of manufacturing jobs in the United States in the decade before the financial crisis. I'm from Flint exactly, and I think we don't know for a fact, obviously, but I think there's a pretty good chance that those losses at the pace, the pace of the losses, the sense of of of being displaced, has contributed to the polarization and the disaffection that we

that we see today. Glenn, You've done some more in this area. I have, And let me agree with Dan, I do think this is a huge problem in our political class. Isn't that aware? But let's start with good news to the artificial intelligence movement will enable people to be far better at many of their jobs. It compliments the skills of many workers at the top, uh and the bottom, hopefully not replacing economics professors in the in the middle of that. But we're not really prepared, you know,

Dan mentioned Bill Gates. Bill Gates idea was taxing robots. We don't need to build walls against the future. What we need to do is build bridges to it. And so we need to help people get ready. But our public policies are stuck in a labor market set of policies from the nineteen thirties. They're not ready for today. And there I really agree with Dan, so I this is going to be a very dull conversation because we're

all going to agree. But but two perspectives on this one is I'm struck actually in the last few years about how more, much more slowly this is happening than

people were anticipating. The study you cited at the beginning of this segment had a kind of an earlier version, which I think came out in an Oxford study that caused a huge stu that's I think said forty seven percent of jobs were vulnerable to being automated within the next couple of decades, cited thousands of times, and that and that really started the robots are about to take all of our jobs. Mean, if you actually look what's happened to labor markets in the last few years, we

have unemployment at record lows across the rich world. We have employment record highs in many places. And this is not all you know, gig jobs, it's not all terrible jobs. It's actually sustainable, real jobs. And so I think it's happening much more slowly, and I'm sort of comforted that, as Glenn said in the end, history every time we've had of technological innovation has created jobs as well as destroying them, in fact, more of the creation than of

the destruction. But where you're completely right is that the transition for particular people who don't have the right skills for the new kinds of jobs are traumatic. And we've definitely seen that over the last twenty years in manufacturing in the US and across the advanced world. And so for me that the question is what do we do about it? And the lesson historically is that the US

did it so much better a hundred years ago. In the last big industrial revolution because you had a revolution and education at the same time, you had the creation of universal secondary education in a sense provided people with the skills they needed when they came off the land to work in factories. And we haven't had that revolution and education and training now, and we need it well.

And then it strikes me employments very very high, unemployments ver very low, but wages have not increased the way we would have thought given that employment situation. How much of that is being suppressed actually by technology? Uh, It's surely technology is playing a role. It's surely globalization has played a role as well. Um. I think where I probably disagree some with both Glenn and Zanni is more

predictive than factual. But I'm skeptical about the capacity of public policy to manage a truly substantial displacement, even over a trans transitional period. I don't think we did a very good job at all with trade displacement, and trade displacement itself could be um uh, smallish compared to what happens in technology is an It makes an important point, the tendency towards alarmism, towards getting your tweet and all.

I think it's probably exaggerated certainly the point at which will have a kind of critical mass of job losses and maybe even the eventual magnitude of it. But when you think when it's not just individuals but whole groups of people, whether it's geographic communities or um classes of people, I don't I don't think that a system that's set up more or less for individual assistance is actually going to be particularly applications. At least it raises two questions,

what should we do about it? And how do you pay for it? What you should do about it? I mean this this issue that where David and I started speaking about this issue was exactly around the campaign, with our saying you know what's not being talked about and I Andrew Yang has talked about it, something that the leading candidates have not. I suspect part of the reason is they don't have a great solution, you know, to the degree that it intersects with trade, and it will

intersect with trade, particularly with trade and services. I think that one political response is going to be further constraint on on globalization. But I don't think, you know, how do you how do you deal with a progressive development of AI that is not closing down factories. That's unlikely to be the way it plays out. Instead, it will be within ongoing businesses. You'll have a displacement. Well, I think that there are things that we could be doing.

Austin guls Being, Penny Pritzker and I suggested a block crant for community colleges, which are the workhorses for these training programs, and something I used to be quite skeptical of it. I'm a little bit less so today, place based actually going into communities for income relief, for shoring

up those communities capacity to cope with change. If we don't do this, I worry as d end those that were going to wreck the social fabric then on ju wise change in the golden goose of our economic system. I think I think it is hard to overstate how dysfunctional the US political environment is right now, and thus how unlikely the US is to be a place where this is catalyzed. I agree with you in terms of one of the areas where we have had. Where I also have changed my view is that is the whole

question of left behind areas and place based age. Because it used to be a view that you think what people would move to where the dynamic new jobs were, and I think we underestimated the kind of corrosive impact of a really large scale hit to particular geographic areas. Interestingly, that's actually an area where the UK is now doing a huge, great experiment. Boris Johnson's Leveling Up agenda, which is the sort of big post brexit agenda for the UK,

is very much about helping the regions. So you know, as in nineteen seventy nine, maybe you know Britain will forge some new social contract and we can export it back to you. But the the bit that I think is less likely. I don't think it's going to be well, there's already protectionism in the US. But the area that worries me where I think you will simply see a slowing of the technological change. So, for example, one of the examples, people always uses truck drivers. Right now, you

can't get enough truck drivers in this country. But it is an industry where those people who think robots will take our jobs say, well, within a decade, there will be no more jobs for truck drivers. If that were really to be the case, I think there would be huge political pressure simply to stop driverless trucks and we would just be preventing progress that way. That's what really is. That is the center though I think it's that's the issue on that uh, where the politics may be fought

out in the not too distant future. That is, is there going to be an effort to intervene directly to at least slow down the source and pace of the change, or is there going to be more or less complete reliance on adjustment mechanisms. And that's why I was making the point earlier that adjustment mechanisms, at least in the United States have proven woefully inadequate with trade. We ever done it well, uh not, not in a well organized fashion. No, And what we've done is to put enormous pressure on

the few sets of programs that exist. Its disability insurance was not designed to deal with fifty five year old people who have lost a job and are not totally disabled. But that's the only thing that exists, which is why you have an entire industry of people who are on late night TV saying they can get you a full disability point. Okay, okay, many thanks to Dan, to Rulo, many thanks our contributors. Glenn Hubbard, ends any Minton beddos.

This has been another edition of Wall Street Week. See you next week.