Bloomberg Wall Street Week: Greenspan, Holder, Summers

with David Weston from Bloomberg Radio. Will they or won't they? Stocks fluctuate with the chances of more stimulus while the virus continues. It's relentless comeback. Welcome to Bloomberg Wall Street Week. I'm David Weston. The Justice Department this week did what everyone expected. It brought a massive antitrust suit against Google, claiming it has monopolized the market for Internet search, in part by getting Apple and others to make it the

default search engine on smartphones. Well, if that sounds vaguely familiar, it should. Over twenty years ago, Justice brought a similar action against Microsoft for requiring computer makers to set its web browser as the default on their machines. Microsoft lost its case at the trial level, but it appealed and eventually settled, agreeing to change some of its behavior but not coming close to breaking up the company. Sam Paulmisano, former CEO of IBM, knows firsthand what an antitrust case

can do to a tech company. I asked him whether this case could change the face of tech. I don't think it will. Which changes the landscape is the technologies itself, the evolution of the technologies, and go back to IBM, which was many computers and client servers. Let's go back to Microsoft, which was the OS and the PC versus the Internet and the phone. That that's what drives the technology cycles. Now, it doesn't mean it won't impact a

company specifically. I mean, certainly IBM was impacted for a period of time. Microsoft was impacted for a period of time. They've all recovered, But so it's not a company specific is different than an industry. There are so many smart kids out there today inventing so much technology every day across the United States and across the world. I hardly think that will be the driver in this particular case. At the same time, Google has a very very strong

position in search and Internet search. It seems almost undeniable that they have monopoly power in the area. Do they need to maintain them? And a poople are by paying people like Apple eight billion dollars were told a year to be the default search engine on their iPhones. That's a fascinating question. I've thought a lot about it, quite honestly, and I guess the way to think about if you think of the phone as landscape, or say a media

and you're an advertiser. I mean Google is an advertiser, right. They need to be on the super Bowl because ten million people around the world of view the super Bowl and they're gonna pay whatever fifteen seconds cost. So you have the phones, there's the Android phones, is the iOS of the Apple phone. That's basically the market of smartphones, right, and so therefore they need to be on that landscape.

Now there are there are large of alternatives, as I read the press, so that Microsoft and baying or vying for it. But my view is that from a competitive perspective, you had Google, you have Apple, and you have Microsoft. Certainly very thought very few small businesses are could be impacted by this, and one of those parties decided to write a bigger check than the other. That's called, you know,

a deal. It's economics for whatever sets of reasons. Now, the fact that Google got it and maybe not Microsoft, I mean, Microsoft is a chillion dollar market cap company, it certainly hasn't hurt them because Google got the real estate of the phone. Real estate that the phone is important, but mostly from the view of an advertiser, also from the view of the data, which is a different subject, but both both the advertiser and the data it's very,

very important. So as you say, some paining you have an exclusive deal with someone who is not unheard of in business, it happens all the time. At the same time, if you have a really dominant position, or monopolies of position, it gets a little trickier. And one of the things that I wonder about is that we now have Google saying the reason people use our search engines in which

is because it's better than anybody else's. If it really is better, why did they need to pay that money that was sort of money wasted eight billion dollars a year, unless it was to get a leg up on the competition. Well, I think fundamentally they wanted to be. They want to distribution, They wanted to be the eyeballs, right, So that I think they're thinking about it as they have good technology, but they also need to get it out there, and

the phone is a way to get that technology out there. Now, to your point, the issue around that is really what I would call the tie in sale. Tie in sale has been an issue for IBM in our case and Microsoft embedding stuff in the operating system, also detaching stuff to the main frame. So when you look at this as a tie in sale, if that search algorithm is bias seeing the result to their offerings of their products, or Apple's offerings and their products, that is an issue, right.

And then you've seen this happen in financial services, You've seen it happen elsewhere where. Tie in sales are a problem, but it doesn't seem to be the highlight of the case, at least at this point in time. It also raises the question of remedy. Even if that were found to be illegal, don't you just stop the Talian sale rather than breaking up the company? I mean that's also been going on over in European Commission actually with their competition

proceedings against Google. You're absolutely right. I mean, basically, what happened to IBM, we had to open up the interfaces to the main frame and given to the competition. The same day we announced what happened to Microsoft, they had to open up the iOS iOS they I'm sorry, the operating system iOS is Apple Windows that had opened up and let other people in bed functionality into that operating system. So that's been that's been how it's been settled in

the past. Uh in all those cases, this fact of a structural uh remedy is such breaking the company up has been really has not happened historically. The only time it did happen is a T and T are they tell communications industry where they did break up A T D informed all the baby bells. But if you look at history again, they've reconsolidated down to two or three players. Sam,

you mentioned the data, the importance of the data. I wonder if we're overlooking that a little bit here, because besides their down position in search, through that searche, Google is having access to an enormous amount of data that builds a big motor around their business, doesn't it. Yes, it Thus, I mean this is really the issue to me long term, the issue is the amassing of the data and the uses of the data. UH, and there

are two elements of that. These massive data set's give them an advantage as far as applying intelligence to the data. I would call that artificial intelligence. Are augmented intelligence. So it knows when you're talking to Siri or you're browsing, where you when you have dinner, or where you want to plan for an event, and it'll pain you with ads as you know. That's an simple Lehman's example of that, and there's much more sophisticated things that can be done.

That was Sam Paulisano, former chairman and CEO of IBM. Coming up, Former Attorney General Eric Holder tells us why the stakes are even higher for this year's election than we thought. That's next down Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with Vid Weston from

Bloomberg Radio. Under our constitution, the United States takes a census every ten years and that is used to allocate seats in the Congress among the states, which makes not only who's elected President and Senator, but who's elected to state houses really critical this year as they will do the redistricting based on census. Former Attorney General Eric Holder, who is now the head of the National Democratic Redistricting Committee, says there's a lot on the line when people head

to the polls this year. Yeah, I mean, I understand, I get it. You know, this is an existential election. However you decide that you know you want to vote. This is obviously a very president very important presidential election, but we really have to focus on these down ballot races. We're going to go through a redistricting process in and the people elected this year will be the ones will

help draw those lines. On the head of the National Democratic Redistricting Committee, and we're trying to make sure that the process in UM is a is a fair one and that the lines are drawn not to detect incumbents, but to make sure that elections are competitive. And then we end up with representatives at the at the state level UM who will represent the interests of the people

and not the special interests. And people need to understand, but on on a day to day basis, you're probably more impacted by who serves in your state legislature than you are by the President of the United States. When you're concerned about criminal justice reform, protecting a woman's reproductive rights, UM, protecting the right to vote, a lot of healthcare decisions.

These are decided, as I said, more in the state legislature than they are in Washington, d C. So this comes up because the census, according to the Constitution, has to happen every ten years, and this is one of the ten years. And ironically this time it's worth the presidential which doesn't happen that often. I guess every twenty years.

That happens more or less. What happened ten years ago, well, ten years ago, we ended up with a process that Princeton University UM said was the most gerrymandered redistricting effort of the last half century. Republicans use the power that they got in the only ten mid terms to really draw the lines in a way that favored them, and we had to deal with that over the course of

the last UM ten years. What my organization is trying to do is to make sure that we just have a fair process, one that doesn't favored Democrats, one that doesn't favor Republicans, one that doesn't jerrymander for either party, but just for us the lines in a fair way.

I worked with Arnold Swartzen Ator on this effort. Uh. He and I have a piece that's out in UH in Missouri trying to protect something that we helped put in place there, which was a nonpartisan redistricting commission that will draw the lines, take the power away from self interested politicians and put it in the hands of a neutral body passed by the citizens of Missouri. Politicians there are now trying to weaken it. He did an opted They said, don't do that. Uh, push back against these

politicians and preserve that that neutral body. So er Q took us just where I wanted to go, which was to say, now you're representing the Democrats on this, would you be willing to take it out of the political sphere and give it to a bipartisan commission or is it more a matter if we want to make sure our Democrats control the state houses so that we get to Gerrymander. Now, I actually think that the best way,

the gold standard is to create these nonpartisan commissions. They already exist, UH for some have existed for sometime in Arizona and in California. We were UH instrumental in getting them put into Michigan, Missouri Colorado and Utah, and they will be doing the redistrict thing UM next year. I think that's the goal standard, that is the best way to do it. Politicians, whether a Democrat or you're a Republican, are gonna try to you know, protect their districts, protect

their party. Put it in the hands of these nonpartisan UM, these nonpartisan bodies. That way, you will end up with UM, I think, the fairest line drawing, and you will end up with legislatures that are more UM beholden to the people as opposed to this special interest. And I think if we have a fair process would be very clear. I think democrats, UM and progressives will do will do just fine. But I don't I don't want a jurymander

for Democrats. Let's to let independent commissions do all the lines. Erica. The Supreme Court is very much on all of our minds right now. We have Judge Amy Coney Barrett being referred to the Full Senate for what looks like it will be a confirmation next week to what extent does the does the Constitution limit or the Supreme Court limit the degree of jerrymandering. I know that for some reasons you cannot jerrymander for example, for race. But what about

when it comes to politics. Could that be a limiting factor or could it be actually the reverse of that if we have a six three conservative majority, which is what some people call it. Yeah, I mean, the Supreme Court, in a decision just this past year, and which I think was wrongly decided, said that the federal courts cannot

here partisan jerrymandering cases. The court is still federal courts are still open to hear racial u jurymandering cases, and still, as a result, we've had to bring lawsuits in the state courts using the state constitutions when we wanted to attack um partisan jerrymandering schemes. I think that decision was wrong. I think federal courts are uniquely situated to deal with questions of of jerrymanding, whether they be partisan or racial in nature. So the courts clearly have an important role

to play here. My hope would be that the courts will will stay open to hearing racial jury mannering cases. Uh. My hope also will be that ultimately the Court would reverse itself and recognize that the decision that they made in the Roots Code case was a wrong one. Uh. And open the courts, the federal courts up um to

partisan jury mandaring cases as well. Eric Moore generally, how concerned are you, as formerly our foremost lawyer in the country about legal challenges and disputes coming out of this election? Are we going to have a clean election? Yeah? I

think we are. I mean, I think we've got to be prepared, Um, you know, for cases being the election, parts of the election being decided in the courts, and I think you might see a lot of litigation leading up to the election when decisions are being made about you know, signature matches, on on on votes by mail, how long polling places should stay open, all those kinds

of things. Um. But I actually think that the turnout is going to be sufficiently large, and I suspect the decision of the American people is gonna be pretty decisive. So I don't really anticipate that the courts will play a significant role post election. But it's clear that both campaigns are getting ready have lawyers all around the country and prepared to to litigate whatever might might surface. Yeah. Awfully nice to let the voters decide rather than the courts.

I think we both could agree that would be a good thing. Does it surprise you that Iran and perhaps Russia would be trying to send disinformation to really tamper with our elections? Now, it doesn't surprise me at all. And I think that you know, we had, we need to be prepared for these kinds of intrusions, these kinds of attempts to uh, you know, interfere with our electoral system. Uh. What struck me as a little strange was just the

press conference that was held. Um. The information that was sharing was not particularly um, something that was unanticipated, But to try to spend it as a way as an attack on the Trump administration uh and the Trump campaign as opposed to an attack on the American electoral system, I thought it was just a little a little a

little different and unexpected. That was former Attorney General Eric Holder coming up and going beyond the damage to the economy from COVID nineteen, former FED Chairman Alan Greenspan says, we have even bigger problems coming from the lack of investment. That's next down Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. When we begin to look at the world of the nineteen nineties, I think the United States comes down and

not your two Well, we live worse. I just live not as relatively better. I think not as relatively better. Look, you know, there's a lot of talk about the United States losing it's sort of per capita income leadership in the world. But the real issue is that the average American household that's got the best homes in the world, that's got the best sets of appliance, the best telecommunications, the average American still lives far better than the average

anything else. Trouble is is that the gap, which we used to be huge, is now beginning to narrow. What's going to narrow further? That was Federal Reserve Chairman Alan Greenspan appearing on Wall Street Week thirty three years ago. A lot has happened in the three decades since, and Chairman Greenspan thinks he's seen the US advantage over the rest of the world grow even smaller, but even worse.

He believes our failure to save and invest has meant that much of the developed world is putting at risk future GDP growth virus is creating a major element of uncertainty, and so we have to deal with it. Forecasting it is very precarious. All we can forecast is that it

ultimately wills disappear. It has over the generations. And I say generations because this type of problem, one way or another of the virus has confronted us periodically and there are always a little bit different but I think the later edges of that. But behind that is a more fundamental issue which is likely to really take hold over the period add and that is the aging of the population. Put some numbers around that if you can. What are

you looking at that's telling you about that aging of population? Well, first of all, I have a whole series of data, but the fact that the population is urging aging is very obvious from all of the data that are really available posts for the United States and for the rest of the world. Because it has a fantastically important impact on economic behavior. And the reason essentially is that when the aging in the population is aging, something fundamental happens.

And the major issue is that people start to retire. People don't retire until they basically can no longer function. If you go back, historically, people would work until they would until I died. The issue of pensions, the issue of various different social security benefits didn't exist in those days, and what we're finding now is that has been a very significant expansion specifically and in social security benefits that in turn is creating a major decline or slowing in

the rate of growth and gross domestic savings. Allen explain how that works exactly, because spending more money on old people in itself doesn't sound evil. They spend that money. It can help the economy. But the money has to come from somewhere. Where is it coming from? Well, it's basically the issue of when when. When we're dealing with gross domestic savings, which is a fundamentally what's coming out

of the private sector, we're finding that uh. But the data show actually is that when you've get a very significant increase in social benefits, they crowd out the current demand current supplier should say of gross domestic savings. If you curtailed gross domestic savings, you will also curtail gross domestic investment, which is the key to to economic growth because fundamentally it generates uh, all of the economic anectivity

and every other in the capital goods markets. And when we talk about investment, capital investment and normally the thing we think about is productivity and growth and productivity. Are we seeing productivity flatten out in the United States because of the phenomenon you describe what it is is it's a pattern of productivity growth which is growing up and

then flattening out. And the basic reasons for its flattening out is that the a gentleman significant increase in entitlements crowding out first domestic savings, which is the core of gross business saving business investment, I should say, and that's where economic prose it's coming from. That was Alan Green's band, former Chairman of the Federal Reserve. Coming up, we wrap things up as we do every week with our special contributor Larry Summers of Harvard. That's next on Wall Street

Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio to pull together a rather diffuse week. We welcome now the one person could do it. He's our special contributor. He's Larry Summers of Harvard, So Larry. We always look at the week and there's ups and downs, choppy equity markets. We also look at the longer term trends. We just heard from Alan Greenspan the former chairman of the Reserve, someone you know well, saying the problem we

have actually is too little investment. Now you've talked about secular stagnation. We had Janet Yellen on earlier this week saying there's secular stagnician, there's too much savings. Is there a conflict here? Well, I think Alan would agree, and I would agree, and Janet would agree that we've got too little capital investments and that if we want to grow faster, we're gonna need to find ways UH to

promote investment. I think where there'd be some disagreement is that Janet, from what I understand, has really endorsed the doctor and of secular stagnation that I've been arguing for a number of years. She's expressed a concern about an excessive level of savings, and I think that is a very serious UH concern. Alan's concern, which also has UH merit,

is with the excessive growth of entitlements. But I think right now our priority us to be to support adequate UH spending, and so I would not support cutbacks and entitlement programs. If anything. It seems to me what COVID points up is the importance of expanding UH social insurance so that people UH feel UH safer. And Alan always had his finger on the pulse of the economy when

he was chairman and detected new trends very quickly. And I think if he was there now, he'd be recognizing that there was a sluggishness with respect to UH inflation that pointed to a need to do things to propel UH the right kinds of UH spending. And he would be cautioning us, as he always does, that it's not just a matter of more spending, but it's having the right kinds of spending. And I think that's got to

be a preoccupation as well from the new administration. Let's talk about one specific form of investment, that's investment in corporations. We had Tesla earnings out this we need Tesla beat all the expectations, fifth straight quarter of profitability. But one thing that really jumps out at you is the market cap of this company. I actually looked up the price earnings ratio comparing it to General Motors. For example, their forward price earnings ratio is one fourteen compared to seven

for General Motors. There's been a lot of concerner about short termism in terms of investment, but I guess when it comes to a Tesla, it's a long term investment. People are being very patient. Look, I think there's a nonsense idea out there that somehow our stock market is driving all kinds of short termism. I see just uh the opposite. I see what Tesla is worth, and what the rest of the automobile industry is worth. I see what PayPal is worth, and I see what many of

the major banks are are worth. I see what Palatier is worth, and I see what various consulting firms are worth. I see what biotech companies are worth, and then what standard pharmaceutical companies are worth. I think it is really very very clear that for companies that have real, credible, visionary growth strategies, the market swoons and puts an enormous

multiple on their earnings. And so there is an incredibly strong incentive for anybody who can point to a credible growth strategy to do just UH that some people can't. That's why General Motors has a price earnings ratio of UH seven. General Motors had a price earnings ratio that was low for the whole decade of UH. The knots

at the beginning of this censuring. We're always jabbering about how the market didn't give them space for the long run, but in fact they had to be saved from bankruptcy because they invested uh too much, not too little, and they invested too much, too uh wastefully. So I think the great one of the great strengths of the American UH system is our venture capital industry, where people can raise half a billion dollars before they buy their first

suit or even their first uh tie. I didn't One of the great strengths of our system is that we've got a market that is willing to go heavily with people who have the chance to create the really, really big thing. And I think it would be a terrible mistake, whether frankly it was Larry Fink, or it was political leaders, or it was the business roundtable, if we were to push our system to be one where anyone who said the word long term was able to invest a lot

without being subject to uh discipline of from the market. Yes, there can be UH pressures for the short term, but some of that is just pressures for accountability. And I have to say, when I hear somebody complain about pressure for short termism. I hear somebody who's not passing tests of accountability and is facing pressures from UH the market, and those pressures are often valid pressures to take the capital out of the company and let it go somewhere

where somebody can put much much better. UH use to it. Not always. We certainly have excesses coming from activists corporate UH raiders, but I think we need to recognize and the testless story that you tell is a rate example that a big strength of our country is that we've got capital markets that can really bet big on growth prospects, which means betting big on the long term. We always end our week with la as Summer says, the rapid

fire around here. So let's go through a few because we heard this debate this week between the two candidates for president a lot of talk about COVID nineteen. One of the things we heard was President Trump saying that we are about to turn the corner on COVID, even as during this week we set a new record of eight new cases in the United States. When do you think we're gonna turn that corner on COVID? From here,

this speedway has got a long straight away. My guess is when winter ends in March will be about when the when the corner comes, will likely have a new, more competent administration. By then, a vaccine might be starting to come on stream. By then we might start having more appropriate um uh face face masking and more appropriate and large scale uh testing. So, my guests, is we turn we make a real decisive turn of the corner

in about March. So, still on the subject of COVID more or less, one of the other things we've heard a lot about in the debate is reopening the economy. How we do that safely? We've got a big jobs problem. We still have eleven million more or less people unemployed that we're employed before the pandemic. What is the best way to get those people where I employed? Is it to open up the economy? Now? Wrong question. We need to test, we need to mask, We need to disseminate

um the cures as uh best we can. We need to be ready to get the vaccine out there as fast as possible. If we can test, mask and trace, we can let the kids come back to school. We can let the students come back to the campus. We can let the people go back to work, and we can have COVID in decline as long as we frame it as a choice between having an economy and having our health, we're losers. That's what we need to do.

And the last one, Larry, I'm not sure you can grade in a curve when it comes to a global pandemic. But if you were grading, what grade do we give the United States versus the rest of the world, And how we're handling COVID nineteen Right now, there's all you need to know. The mortality rate per million people in the United States is about twenty times as high as

it is in Pakistan. If we can't respond to a problem better than uh Pakistan can better than most of the country's in the developing world, that's got to give us some real pause about our government, and frankly, also some pause about our institutions. I think this is the biggest failure of American government, quite possibly uh, in my lifetime. And that's gonna be the last word. Thank you so very much to our very special contributor on Wall Street Week.

He is Larry Summers of Harvard. Of course. Finally, one more thought. You get what you pay for, or do you? This week we've watched a different sort of World Series. It took us only sixty games to get here instead of the usual one sixty two. We've had none of the traveling back and forth between the two teams home field. All the games have been played at the Texas Rangers Stadium in Arlington, nowhere near either Los Angeles or Tampa Bay.

And beyond the drama on the diamond, we got to see another sort of contest, a contest of business models between a consortium led by some Goggenheim Financial wizards and a former managing director of Golden Sacks, between a club, the l A Dodgers, with the second highest payroll in Major League based ball, and the Tampa Bay Raised with

one of the lowest payrolls. In a normal season, l A will pay its top three players, Clayton Kershaw, Mookie Betts and Kenley Jensen, seventy million dollars as much or more than Tampa Bay pays all of its team. So at a time when so many businesses, so many households, are looking at where they can cut back in the time of the coronavirus, maybe baseball can help us all focus once again on what we truly need instead of simply what would be nice to have That does it.

For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.