Bloomberg Wall Street Week: Brouillette, Toone, Dube

with David Weston from Bloomberg Radio. Winter comes to Texas, but the markets look past higher oil prices and keep their focus on earnings and interest rates and getting back to business. This is Bloomberg Wall Street Week. I'm David Weston. Different experts have different views on what caused the Texas power crisis and what needs to be done about it. The Secretary of Energy under President Trump, Dan Briette, says, the fundamental problem is moving too far and too fast

toward renewable energy. There is a fundamental flaw in our policy inow system here in the United States. Obviously, the weather is having an effect on the energy grid, but it's important for us to remember that the weather is not the actual cause of the rolling blackouts that we're seeing across Texas and other parts of the United States. You know, it used to be, David, in the in years past, we built the utility systems in America to provide energy when people needed it when they needed it,

like right now. And what we've done is we've moved away from that. That's what I just described is known as baseload power. We've moved away from that to a more intermittent and frankly sometimes less reliable form of energy in the sense of wind and solar. And when people may need the energy like they do today, the wind may not be there and the solar may not be there. So what we've done is we've moved away from that that energy security that we used to have here in

the United States. And further, David, we've exacerbated the problem by in some cases making the baseload power. And what I'm speaking to are the pipelines and natural gas pipelines dependent upon this intermittent form of energy. So when those windmills didn't blow in West Texas, that means the compressors on those pipelines didn't work, and that natural gas perhaps didn't reach those natural gas utilities in other parts of Texas. So we've got to address this very squarely and have

a very honest conversation about renewable energy in America. Until we can reach the point that we have grid scale storage and battery technologies that allows us to rely on this energy, it's important that we not we not put ourselves into situation where we're dependent upon it. Well, and Dan, that was gonna be a question how much of this

is a storage problem. If we had the storage problem fixed, would it take care of things like solar and wind, Well, it would, David that that's really the challenge, you know, Um Today, renewable energy does not have the ability to provide what we refer to as grid scale storage or seven storage. So in that sense, it is dependent upon natural gas, nuclear and coal in certain instances to provide

that backup power. But if you've made the backup power also dependent upon the renewable power, you've got a real challenge. And that's what we're seeing in Texas today. So to what extent is this irrevocable in the sense that coal has become increasingly inefficient, monetarily, economically not so feasible. So we have to move away from coal. And if we move at coal, where are we going. Well, I think we are going to eventually end up, you know, with

very clean forms of energy. It will be things like fusion nuclear fusion technologies, smaller nuclear technologies that have zero carbon emissions. We're gonna see a lot more solar energy, a lot more wind energy. That's the transition that the world is moving toward. The challenges. If we moved there today without baseload power, we're going to continue to see the problems that we're seeing today in Texas. Again, I'll state the point, it's not the weather that's the problem,

it's the policy that's the problem. And what about the grid, because I also have heard in the last four hours some talk about the Texas grid being different from some others, that it's more independent, that it's not is easy to transfer power from Texas outside of Texas to surrounding states. Is that true? That is true? Texas is run the regulator there is known as ar COOT, that's the grid manager within Texas. And yes, they are somewhat isolated from

the rest of the country. There are instances. For instance, during the hurricane season in Louisiana where we were, I issued an emergency order to allow electricity to move from Texas to Louisiana to help the good folks in Louisiana recover from the hurricane. But those are those are are are unique events. By and large, the COOT system, the Texas system is independent from the rest of the country. Is it possible in a short term basis to redeploy

some of the energy? And the things that I've learned because of this crisis is the extent to which Texas and particularly reply and relies by natural gas as opposed to fuel oil for their heating system. Is it possible to redirect some of the natural gas that otherwise we'll be going to len G facilities to be exported. Yes, you can. The question is, you know, can you get those pipelines? Can you get that infrastructure permitted in the

United States? Intrust A pipelines in Texas have been somewhat easier to permit than other places around the country. We had a unique problem up in the Northeast where we couldn't get natural gas out of the Marcellus shale in Pennsylvania. An enormous resource for the country. We couldn't get it to the Northeast, which wanted it desperately, because the state of New York would not permit a pipeline to allow that gas to travel through its state. It's those types

of challenges, David, that we face today in America. It's not just America, I think, Mr Secretary, we see problems in Japan, we see problems in Europe because of extreme weather right now and the effect way it affects energy and the power grid. What can we do to anticipate extreme weather because it doesn't seem to be going away anytime soon. Well, I think it goes back to what I said earlier, David. You know, we used to build utility systems in America with security in mind and have

it provide energy when people wanted it. I liken this to a national defense. You build an army to protect your people when the enemy attacks. So what you want to do is provide a utility system that provides energy when people want it and need it. What we have today in America is exactly the opposite. When people really need the energy, our response is to tell them to

turn the heat off, turn the lights off. That's exactly the wrong approach the energy policy, in your opinion, Might this phenomenon we're watching right now in Texas and through much of central United States? Might it affect at least the timetable of the Biden Administration's plan to go to clean energy. Well, I hope it does. I hope that there are some lessons that are taken from these types of events, and it's such as Texas. We saw the same thing in California last year as well. Look, I

think everybody has the same goal here. Everybody wants clean air, everybody wants clean water. The question is how do you do it? And that's an important conversation for the Biden administration to consider. That was Dan Riette, former Secretary of Energy, coming up what the freeze deep in the heart of Texas may tell us or not about the move to clean energy from Eric Tune of Breakthrough Energy Ventures. That's next on Wall Street Week on Bloomberg. This is Bloomberg

Will Street Week with David Weston from Bloomberg Radio. A snow storm and brutal cold hit an unprepared energy system and left nearly five million customers in Texas, North Dakota, Arkansas Louisiana and Mississippi in the dark. Power companies in affected states had to resort to rolling power blackouts to save their networks from collapsing, leaving households and businesses without power and heat. What is our priority for UH for

keeping the lights on and the heat on. Really do need to have a very broad mix of power generating sources. That's Ellen Walled, Senior fellow of the Atlantic Council. In recent years, power grids have come to rely more on wind and solar power to meet increasing electricity demands. But the alternative energy sources can sometimes vary with the weather.

And this weather was severe enough to hit both wind and gas fire generation in Texas, and there wasn't enough reserve power to keep the lights on, or the heat or even the water in some places. Here's Ken Molis, the founder and chairman of Molus Company. You cannot force a government mandate on certain things that aren't ready to supply the basic needs of people. To make things worse, the winter storm crippled US oil and gas production, reducing it by more than a third in the Permian Basin.

Major producer Occidental told customers it would be forced to curtail oil deliveries, while chevrons shut some wells in the region. More than twenty refineries were disrupted by the polar blast, sending gasoline futures surging. This is a timely reminded for a wake up called really in saying that, yeah, we absolutely need fossil fuel in the mix, it's about how we get in greener. That's Amrita sent chief oil analysts

at Energy Aspects. Temperatures in Texas were low enough to freeze oil and gas liquids in pipelines laid on the ground. Just as the cold caused demand to jump. Liquefied natural gas terminals were shut down to reduce their power and gas demand in response to emergency declarations. Here's Jim Right, Texas Railroad Commissioner. As we hear in Texas have said

that renewable energy has priority on our grid. We've discouraged the people coming in and building car plants that run off of natural gas, which is more of a reliable source than than as everyone knows when and uh sun is.

This energy crisis is severe, but not new. Almost a fifth of the power capacity in Texas failed in February two eleven during another cold snap, and California suffered blackouts during a heatwave last August, not to mention multiple wildfires that in recent years have been linked to its power grids.

Here's Paul Sanky, lead analyst at Sankey Research in The situation for me is very reminiscent of park in Katrina, where if you recall on the Monday after Katrina, that was sort of an attitude that, uh, this hasn't been that big a deal, and then over the course of the following week it's suddenly emerged as a as a horrendous disaster. But others say that it is wrong to blame the problems in Texas this week on wind and so or energy. There's a more fundamental issue of energy reliability.

According to Eric Tune, he's managing director of Breakthrough Energy Ventures, we should instead focus on the underlying weakness of the Texas approach to its energy policy. Fundamentally, what you need to achieve reliability and electric grid, which is what we're trying to do here, is some combination of electricity storage and electricity transmission, and those two things sort of play

off against each other. If you had infinite storage, if you could store all the energy you wanted at times of surplus, so that you had it at times of need, you wouldn't need any transmission. If you had infinite transmission, so at times of surplus you could ship your electricity to places that didn't have as much, and at times of need you could report it from other places. Then

you wouldn't need any storage. So those two things you need some combination of storage and transmission to achieve reliability. And electric grid has a very specific set of problems. First of all, at the transmission level, Texas has a grid is limited to the state of Texas or cott is unique among electric grids and that it's only for the state of Texas, so they have very limited transmission. And then they have virtually no storage. Unlike other states,

Texas doesn't store um natural gas. They basically take it straight out of the ground and put it into the pipeline. They don't store energy that's produced by winds at times of surplus, so it's available at at at times of need. And so what happened here is everything went down simultaneously and fundamentally the problem was water freezes. Water freezing is

what caused the turbines to stop. Water freezing is what stopped natural gas coming out of the ground because natural grass comes out of the ground with with hydrocarbons and with water that froze up. Water freezing is the problem. That what caused the nuclear reactor to go down, right, That was that was a cooling line. So fundamentally here the problem is water freezes. That's an unusual event in

Texas that had ramifications for generation across the board. Across the board, renewables, natural gas, even nuclear and with no storage and very limited transmission, reliability goes away. So that's fundamentally what happened. Water freezes, and it has impaired some of the turbines. Although a lot of turbines down there is I understanding. At the same time, you can winterize those things, can't you. I have read that some of the Northern States and Canada do a better job than

Texas is doing. You absolutely can't. I mean they run Look, they run turbines three sixty five days a year in Greenland, and Greenland is certainly colder than Texas is today, you know.

But but here you you you pay money to build reliability into those generating assets, and you can decide whether I want, you know, a grid that's nine reliable and it's going to go down once every ten years, or I can you know, build one that's nine percent reliable and it's going to go down once every hundred years, or ninety nine point nine that goes down, you know, once every thousand years. And that costs money, and and and that's a decision that a society has to make

about how much it's prepared to pay for that reliability. Well, and that raises a question in my mind a least whether this is a technology issue, a climate issue, or a business model issue. Is in fact the case that Texas largely has decided to run their system way to maximize profits, which means you don't spend as much in overproducing having excess capacity and storage. I would say that that the business model is a significant part of the problem.

Texas also doesn't have capacity markets. Um. Electricity markets are very complicated things. You you have markets where you pay people to produce electricity, but you also have forward looking markets that pay people for capacity. Texas has not used capacity markets in the past, and I think it's something that they they want to look at, especially if they're going to keep an isolated grid ERIC over the longer term.

We're moving towards renewables. It's pretty clear across the country, and the Biden administration wants to move us there faster. Does the Texas experience tell us anything about how fast we can and should move, and particularly when it comes to storage, because as I understand, there remains some real issues with storage from renewables. Well, you know, I think that that we have to think about reliability, you know, as as we move to an era of electrify everything,

and that's absolutely where we're going. The size of the grid is going to grow, so you have to think about what new generating assets that you're gonna put on to supply that power. That was Eric Tune of Breakthrough Energy Ventures, the organization Bill Gates founded to invest in sustainable energy. Michael R. Bloomberg, founder and majority owner of our parent company, is an investor in b EV. Coming up, the President Biden insists he wants the federal minimum wage

raised to fifteen dollars an hour. But will it cost more jobs when we still have almost ten million people out of work because of the pandemic. We ask economics professor A renderjitz Dubai of U mass Amherst. That's next down Wall Street Week on Bloomberg. This is Bloomberg Wall

Street Week with David from Bloombird Radio. The federal minimum wage has been seven dollars and cents an hour since July of two thousand nine, and Democrats have been calling for a national increase, even as twenty states couldn't wait and raise their minimum wage on January one. But will some employers hire less people if they have to pay them more? Economics professor or Renderjit Dubai of UMSS Amherst has become a leading expert on the subject, and he

has his doubts. So a little over a year ago I conducted a major review of the evidence for the UK Treasury about what minimum wages do to jobs. Overall, the most up to date body of research, in my opinion, points to a relatively limited effect of minimum wages on jobs in US, in UK and other developed economies. At the same time, it's significantly increases wages earnings at the bottom, so overall, I think that ends up lifting people out

of poverty and being a relatively good thing. So the Congression on Budget Office has done more than one study on this, and I've read at least the summaries of them that concludes that on the one hand, what you said is exactly right. You raise a lot of people out of poverty. On the other hand, you lose jobs. Last estimal myself was like one point three million or one point formula if you go to fifteen dollars an

hour minium, which across the entire country. Yeah, so I think it's you know, it's sometimes it's hard to interpret what that one point four million means. The top line numbers, that is it big, it's strong. The way they think about it is this the CPO analysis suggests there will be job loss one point four million fewer jobs um.

At the same time, wage games are far larger than that, and so as a result, it ends up lifting people out of poverty and actually increasing earnings overall for working people. Having said that, let me also say that I actually think the several analysis is more pessimistic than what I found. Um In my review, I used a somewhat broader set of evidence, and I also paid close attention to some particular data points. And here's a you know, going a

little bit into the weeds here. But the CBO analysis really basically they uses eleven studies and um, what the problem is that some of those studies that there's a few studies that find really large job losses, and one of those is this study from University Washington that looked at Seattle minimum wage. It just turns out that that that that study actually was um one where they found really large job loss, but then it turned out that

it was actually almost certainly incorrect. In fact of subsequent analysis by the same authors found job loss that was one tenth as large from the same minimum wage increase, and that was not included in the CBO report. I can go more into the weeds, but I will say that overall, I think that one point for milion is you know, almost certainly too large of a job loss. But the overall tenor is that I think minimum wage increases raise wages. There may be some just fewer jobs.

On the other hand, there's a lot of other waves that actually the economy absorbs the minimum wage increase. What about a differential effect on larger businesses or medium business as opposed to small businesses. One of the things we hear is it might be affordable for some companies, but when you get to the really small businesses which are hurting right now during this pandemic, they can't afford it.

So I think there's some evidence that the minimum wage increase does lead to reallocation from lower productivity to higher productivity firms. Right, So that means that you may have some more employer and more workers working at larger businesses than smaller businesses. That's a possible cost. On the other hand, one could also see that as a possible benefit, that

you're actually allocating workers to more productive enterprises. Now we hear from some executives like the CEO of Walmart, who says fifteen dollars an hour it makes good sense in some parts of the country, but not across the country because the cost of living very so much across the country. How do you respond to that, Well, that's interesting because Walmart has a minimum wage. It's eleven dollars an hour.

It actually is the same in all states. And so that's an interesting point because they actually chose the national minimum wage, which was voluntary but was binding exactly the same way. Same is true for Target, which is a fifteen dollar minimum wage exactly the same across all states in the United States. Same is true with Amazon, a fifteen dollar minimum wage. The same across every state. So I think they're Look, they're they're different pros and cons

for having a set wage. Here's the way I think about it, that the federal minimum wage is the floor. Beyond that. Thirty states currently have minimum wages that exceed that. Okay, forty plus cities have minimum wages that exceed that. My guess is that's going to keep continue to be the case in the future as well. So the question becomes, then for us, what floor should we have at the

national level? Right? I want to squeeze just one more in here, and that's the earned income tax Credit, because some people say, if the goal is to bring people out of poverty, a better way to do it is the earned income tax credit, because that's a tax on all Americans, not just people who employ other Americans. Yeah, so I think earned income tax credit is a great policy that should be expanded. I'm glad to see there's proposals out there. Here's the thing. I think the earned

income tax credit and the minimum wager compliments. They work well together, not substitutes. Here's a simple reason why their income tax credit actually does a good thing. It encourages people to work. But when more people are looking for jobs. It tends to push wages down somewhat. A minimum wage can stop. That isn't the way they can play well together. That was economics professor Aaron Dubai of U Mask Camp. Coming up, we wrap up the week with our special

contributor Larry Summers. This is Wall Street Week on Bloomberg. This is Bloomberg Will Street Week with David Weston from Bloomberg Radio. We cannot end a week on Wall Street without turning to our special contributor, Larry Summers of Harvard. So, Larry, welcome back. You've been outspoken on this program and elsewhere saying that you have some concern about the one point nine trillion dollar stimulus package, that it might overheat the economy.

From what you're seeing, are you more concerned or less concerned than you were before? Probably a bit more concerned. The Atlanta Fed this morning UH said that it's now cast for first quarter g T is nine and a half percent of growth in an annualized great. That's higher than most other observers. I guess it's too high, but it does say that there's likely to be substantial spending, substantial growth and purchasing power. I think there are a lot of reasons for it. But bond else have backed

up considerably in the last several weeks. You've got a treasury ten your treasury in UH the one point three range. I think there's a growing UH sense of concern. I don't think that the data in the last three weeks should change anybody's mind profoundly. If you thought you shouldn't be worried three weeks ago, I don't think there's been

data that would UH convince you. But as someone who's concerned about UH overheating risks someone who's concerned that if we do all this transfer payment, we're not going to have room for the public investment to expand the economy's capacity we need. Certainly the data flow has been broadly consistent UH with my concern. Well, let me pick up on that, because I think some people may have not fully understood, as you say, you haven't that we don't

need a lot of support for the economy. And even though't you just spent a lot of money, in fact you've said, really given interest rates, it makes sense, But it's a question of what the money is going for. Is it for consumer spending or is it for investing in the economy, and let's connect that with jobs, because j pology know has been very concerned about jobs, has even talked about federal jobs program. What do we need to get jobs? Because we're still almost a ten million

people unemployed today who had jobs before the pandemic. So you raised a couple of very important issues there, Uh, David, I'd rather see us UH investing money that expands the economy's UH capacity than simply making transfer payments. What's remarkable is that the advocates of this program, like Paul Krugman, when you put to them that it may overheat the economy, they say, no, no, it won't. People will save the money,

and people will use it to pay down debt. And I can't imagine a lower priority use of federal resources than improving consumers balance sheets, rather than repairing the country's infrastructure, making tests available for people to be UH vaccinated, starting investments in a green economy, doing things for pre child education.

So the defense of the program that claims that what it's gonna do is begin a process of consumer balance sheet repair at a moment when, by the way, consumer credit is extremely strong, I just don't relate to that as a central concern as well. God knows, David, job creation is really crucial, and we've got to have job creation. But I think it's much better that we put the emphasis on the task that need to be accomplished and then figure out how to put the unemployed workers to

work accomplishing those tasks. Then we frame the problem in terms of make work jobs. And that's why framing it in terms of a job guarantee seems to me to

be uh so problematic. So I I believe it's hugely important that we work on preparing people to be ready for work, that we work on supporting employment in the sectors that employ men without who have not made enormous cognitive investments where they work with their hands, repairing uh the infrastructure, installing energy efficient systems of insulation, and solar

collectors in homes. There are plenty of asks that are vitally important that we can make public investments in, but we give up all of that if we put the focus on transfer payments. We also don't help employment any when we pay people more to not work than they

were making to work. And what we are going to legislate is an unemployment insurance program that for the substantial majority of its recipients, is going to give them significantly more money when they don't have to commute to work, when they have all the time to take care of their kids, to do what they need to do. Because they are not working, they are going to get significantly more take home pay than they did for working. And

that's just not a pro employment policy. Lay. One of the things that struck me this week was the CDC coming out with numbers showing that the life expectancy of the average American has gone down by full year and disproportionately according to race and ethnicity. What do you make of that? Is there a larger story there or is

it just the one off of the pandemic. Look. Life expectancy is formed from eight specific death rates at each age, and they obviously went up this year because of COVID, and they obviously went up more for people who were more disadvantaged in groups that were more disadvantaged. So this

year's statistic is driven by COVID. The digital performance of life expectancy in the United States, and particularly the life expectancy of less educated men that's driven by opiates, that's driven by substance addiction, that's driven by as uh angerst Eton and in case put it by despair, and that speaks to a very broad social challenge that we need

to address. You know, I find it ironic and pathetic that the progressive wing of the Democratic Party, people like Senator Warren and Senator Sanders, are all excited to give fifty dollars or more of debt relief two young people who are working at Wall Street investment banks making six digit sums of money, rather than focusing on the needs of the high school dropouts, the needs of those who are graduating from high school but not going on to

college and need US specific training. And so I hope that progressives will disconnect from the elite concerns of id elite college graduates, of those with graduate degrees and focus on the people they should be representing, on the people who have been left behind. So let's wrap up the week here with a quick round of Summer says. Let's start with the Texas energy crisis. We've all been watching it. It really it's been awful. What's happened to those people

down there? Do you think that that crisis will speed up or slow down President Biden's quest for green energy not much either way. Maybe it will encourage some more renewable UH investment. On the other hand, solar power wouldn't have been working that well in Texas this month. When do you think the FED will raise interest rates sooner than they think and sooner than the market things. I'd expect great hikes to be underway by the end well underway by the end of well. It's hands be forced

essentially by inflation. I think a combination of inflation and perhaps an overheating economy and UH fiscal policy the on fire. Particularly if we actually UH build back better and look returning to more normal interest rates could be okay, but it's going to be a very challenging transition. And I must say it doesn't seem to me from the fed's comments, which are all on the side of resisting deflation, all

on the side of promoting social equality. I think the FED is not recognizing the era that they're headed into, where they're going to face the kinds of challenges that the FED faced in the nineteen seventies. The FED failed in the nineteen seventies, and I think if the FED wants to not fail, they're gonna have to start recognizing the reality of those challenges, and that's going to mean

a significant change in their tone. Okay, thank you so much to our special contributor to Wall Street Week, his Larry Summers of Harvard. Only one more thought, how do you kiss a baby virtually? If you're not sick of zoom and FaceTime and all those virtual ways of meeting, you just haven't been paying attention the lighting that's never quite right, being muted when you don't want to be, and praying that you're muted when you think you are.

And what is with all those elaborate virtual backdrops we see? But if you think you're struggling with our new virtual world, pity the poor politicians. Their life's blood is pressing the flesh and looking your right in the eye and getting

a feel of the room. Just about none of that is happening these days, even as New York moves towards choosing its next leader in the fall, which means there's a large number of contenders roaming the five boroughs day and night without leaving their living rooms or their dens, or their closets or wherever. The good news is they never need to go anywhere. The bad news is, they really have no excuse to miss a gathering anywhere in

the city, no matter how small. So this November, the voters of New York City will get to choose their leader, a leader they hope will lead a city badly in need of recovery. But it's not the first time this city has had to come back when some have counted it out. And as Westmore of robin Hood Foundation says, you don't want to bet against New York. That does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.