Bloomberg Wall Street Week - June 21st, 2024

This is Bloomberg Wall Street Week. The global push into infrastructure, breaking the IPO logjam in text, the financial stories that sheepe are work cutting inflation without losing jobs. Do we need rate cuts and if so, how many? Investing in a time of geopolitical turmoil.

Through the eyes of the most influential voices.

Ten Rogueff economists at Harvard former FDIC had Shila Bert ge CEO, Larry Kulp, San Francisco FED President Mary Daily Bloomberg.

Wall Street Week with David Weston from Bloomberg Radio.

Markets hold their breath for snap elections in France and Great Britain, China braces for the US elections, and Generative AI continues to drive the US stock market higher. This is Bloomberg Wall Street Week. I'm David Weston. This week Glenn Hubbard of Columbia Business School on dissatisfaction with incumbents.

We need a good dose of classical liberals like Adam Smith brought back to life.

And Ian Bremmer of the Eurasia Group on Russia filling a power void in West Africa.

The more that Russia is on the ground, the Russians are going to end up also having control over some critical nodes of the minerals that are necessary for a transition energy revolution.

We start with the US economy and some signs that the consumer may be pulling back has seen this week in the retail sales numbers, and we welcome down our very special contributar, Larry Summers of Harvard. So we had the retail sales numbers which came in lower and expected by the housing starts were really down substantially. Are we seeing a slowing economy?

We may be, and it's certainly not at the pace that it once was. I think it's a real question whether we're really seeing a profound slowing or month to month fluctuations. My guess is this is still in the world of month to month fluxus situations with an underlying picture around continuing growth. But you can't be sure, and I'd certainly agree that the data has been more on the slow side for the last month or two than on the rapid side.

So last week we spoke. We talked about the possible economic policies of a Donald Trump if he were returned to the White House, because he had floated the idea of maybe having tariffs replace some or all of income taxes. You were not very enthusiastic with that. Since then, he's responded to you very specifically on a podcast called all In where they asked him about well, how he responded to your thoughts on tariff's and he said he respected you.

I don't see the evidence for his.

Belief. First of all, the tariffs he proposes are going to be levied against Canada, They're going to be levied against our traditional European allies. If they are a tool of power and intimidation, it seems to me they should be used much more selectively than he has proposed. Second, when you launch attacks, then others respond and the whole thing can spiral. The classic example of a major tariff policy in American history was Smooth Hawley, and it contributed to making the depression great.

As I look.

Around the world at countries who have seen tariffs as the center of their economic strategy to make a nationalist point vis a vis other countries. The examples look like places like that, like Argentina and a number of places in Latin America where it has not been so successful.

So I'd like to see what.

The case.

Is.

But this is a case where it's about as universal among economists who study these things that you shouldn't pursue systematic across the board tariffs for long periods of time.

Let's talk about change, because there's an awful lot of things that are changing around us right now. Whether it's climate that you've talked about at fair amount, geopolitics, the global economy, there are a lot of changes going at the same time. Are we going through a particularly tumultuous time of change right now? Do you think around us? Or has it always been?

Thus, here's the sense I have, David. I was fortunate enough to welcome baby granddaughter, Francis Joanne into the world when my daughter had my first granddaughter, about ten days ago. So I've been thinking about her life and it made me think about my grandmother. My grandmother lived from nineteen hundred to nineteen seventy four. She saw indoor plumbing come. She saw electricity come. She saw a first telephone, then radio, then TV movies come. She saw air conditioning. She saw antibiotics,

Is going to be can we manage it so we avoid.

The catastrophes that were also part of my grandmother's interval on this earth.

Larry, thank you so very much for being with us again this week. That's our special contriitor. Larry Summers of Harvard Markets took a day off for the Juneteenth holiday this week, but in the four days of trading, the S and P five hundred continues upward move, adding another six ten percent to end the week at fifty four to sixty five, which happens to be just above the new median level of fifty four to fifty that our Bloomberg l's are predicting for the end of the year.

So, you know, what I find really quite interesting is what markets didn't tell us, in the sense that, now it's been a couple of weeks, we're actually seeing I know that, you know, we talk about big sellers, big rallies. We're talking about three basis points, four basis points relative to what we've become accustomed to and fixed fixed in markets. The last week, week and a half actually has been pretty stable, you know, despite the fact that we've had

We're largely going sideways here.

So we heard from Lurie Summer's just now saying he's not sure he can see a trend yet. The numbers do seem to be a bit softer. We certain retail sales housing starts this week. But do you agree that is there a trend you can discern so far?

No, I would agree with him.

Here's the thing. There are two things. One is that it is too soon to say that we're seeing a trend. The second thing is, even if we are, we are coming off an incredibly strong economy, we need to cool down a little bit. I would say that the type of cooling we've seen so far is probably generally welcome for the FED. We have been growing beyond potential now for a while, and we've had more infasion than we need. We've been growing above potential, and unemployment is coming off.

Forty year loose. We can't expect to stay there.

So you know, this is.

Some slowing, but I repeat.

I'd say it's probably somewhat welcome to those people making decisions at.

The FED so soon as you know so well. Here at Bloomberg we pay most attention to FED. What's the FED good to think about the economy? We taking a thing about the numbers? Is there any message you think going forward to the FED right now? As we keep waiting, but are they going to cut it? They're not going to cut When are they going to cut?

You know, honestly, at this stage, the market has accepted that the FED is not going to give it the outrageous number of cuts that the market was demanding at the start of the year. We're looking at still less than two cuts. It's around one and three quarters so far.

Shock of some kind, I'd say, and it's not my baseline.

Right now, but of course things happen, and I think that's really important right to think about where the market is today and where it's come from.

So what about data coming from outside the United States? We sid tend to focus on economic data here what's going with the FED, but we also have, for example, elections coming from France and the UK. There are a lot of things going on around the world, and I.

Think that's actually something.

It almost feels the combination of summer and the calm before the storm in some ways because You're absolutely right. We are seeing we are seeing political volatility over the pond, without a doubt, and I think the one area where we are seeing it is probably in the dollar. The dollar strength probably does reflect a certain amount of anxiousness

So now, it's always great to have you with us, Thank you so much. As Sanadasai of Franklin Templeton coming up the economics behind the hostility to incumbents around the world with Glenn Hubbard of the Columbia Business School.

People are disaffected with the status quo and with the fact that status quo politicians, whether it's in the United States or in continental Europe, are just telling them, you know, like life is fine.

That's next on Wall Street Week. I'm Bloomberg.

This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

This is Waltreet Week. I'm David Weston. As we move past elections in Europe, India, and South Africa and toward them in France, the United Kingdom and the United States, the one constant seems to be large portions of the population very dissatisfied with their economic circumstances. To help us, don't understand where the disaffection may be rooted. Welcome back now,

Well, it's a great question, and I think the American people are looking for more than come on, man from the White House, that they're looking for an explanation. And I think it's the numbers are right and they're not being fudged. But under the hood, let's start with inflation. So many people say, well, economists say, inflation rates are coming down, but the prices of things I'm buying are still higher than what I'm used to and my wages

At the same time, Real wages are going up at this point in the United States, aren't they. People don't seem to appreciate that.

Well, I think they finally are, but only modestly. And I think people are fearful about the future as well. We're being offered policy platforms, frankly by both the major party candidates that don't really have growth at the center.

Well, what would it take to get growth?

Well, I think it focuses on getting productivity growth and getting people able to work productively in the economy that we have, and productivity growth is about promoting investment, but it's also about promoting innovation, you know, rather than massive industrial policy subsidies, why not a lot more money for basic research for the new technologies of tomorrow.

Where was the last time we had real productivity growth in the United States?

Well, right now we are actually experiencing productivity growth. But the real booms in productivity growth were the period after the Second World War to the nineteen seventies, and then again in the mid nineteen nineties to about the mid of the first decade in the two thousands. There's no reason we can't have better productivity growth, particularly with all the encouraging news about artificial intelligence.

But with both of those booms that you've described after World War Two and then in the mid nineteen nineties, how much of that was technological so almost it was actually changing the way we made things, which made it much more productive.

Technology played a very big role, particularly in the second episode. But we're on the cusp of very major possibilities from artificial intelligence. The question is do we have the political will and skill to prepare people for that world because the pace of chan is going to be very fast.

You understand economics so well, but also understand it from inside the White House where you were. How do you bridge the gap between what good economics would give you and what the people want? How do you make them want good economics?

Well, I think it's a couple of things. First of all, you need to understand why people feel the way they do. A good politician, and I would argue a good economist is out there visiting with people, trying to see what's on people's minds. And you have to pose economics as the solution to a real problem. You know, when economists love markets and I love markets. The reason to love markets is not because markets are great, it's because what

Where is that being done well around the world today, If anywhere.

Gosh, it would be hard to find. We have done it in this country before. We did it in the nineteenth century, we did it in the middle of the twentieth century. We have done it.

I would argue we need.

A good dose of classical liberals like Adam Smith brought back to life.

That's fascinating to what extent is the problem because we've subsidized so much of industry. I mean, we had the Great Financial Crisis, and I think most of us agree there had to be some intervention there. We had the pandemic. I think most would agree something had to be done about economy was about to a standstill. At the same time, we have the government playing in the game a lot more than just refereeing. At this point, it's a big problem.

I mean, the clinical answer is that risks misallocating a lot of capital. But the more fundamental answer is government is not good at two things. One picking winners, which is what this is about, and more important, letting go of losers. The fear is that these subsidies become quasi permanent entitlements from the state that dull competition. You know, decades ago, people like Hayek, great economists, Nobel Laureate had this figured out and his essay on the Use of knowledge.

As we look at some of the expression, I would think of satisfaction, maybe even anger. In Europe we had with the problem intary elections. Some of what we're seeing in polling here, is it because people think that they see a better route or they're just so unhappy with the current one they'll take anything because it's not clear to me always that there's a cohesive theory of economics. On the other side, that makes a lot of sense.

It's a great point.

I think people are disaffected with the status quo and with the fact that status quo politicians, whether it's the United States or in continental Europe, are just telling them, you know, life is fine. I don't really see articulate plans. On the other side. The idea that we would replace mushy industrial policy with tariffs is like, we're going back to a mercantilism debate from the eighteenth century.

And we talked about some of what's going wrong right now. But you have a piece now out of National Affairs talking about sort of economic models different of the years and why maybe we need maybe a new model take us through what we have been through and where we need to go.

Well, you know, the historical debate over mercantilism is one we're living through again today. The traditional response from economists is you need to focus on markets. Yet as economists, we often make that sound very abstract, and why should you care about markets? The reason is that they are delivering the best outcomes for all of us in the economy. Now, markets don't always work perfectly. The title of the piece I wrote was markets for the People. When would you

Focus, and there are massive slowdowns the Great Depression, I mean the Great financial crisis, I assume where you would say, yeah, the government does need to step in there. You can't just let the markets bail us out of that.

Well, correct, But let's go back to the intuition and economists like Cain's had at the time of the depression. It was it's really the notion of the state being a kind of actor of last resort in a true crisis, you know, really awful events, the state steps in. But now the state keeps stepping in. When does the state not step in? That's not what Caines had in mind. And it's not even a question about budget as much as it is dulling the competitive senses of the private economy.

Is it a question of democracy as well, ironically in the sense that once the people see that they can get bailed out, then there's sort of an impetus to have their elective representatives bailing out. And people want to get re elected, so they say, let's make sure we smooth over all the rough patches.

Exactly so, except the problem is we can't do it. If you look ahead in the next twenty years of the nation's fiscal policy, we are going to need to spend more on aging Americans. We're going to have to raise spending on defense. No one seems excited about raising taxes. This math doesn't work.

How do we create a society where we have equal opportunity without guaranteeing results?

Great question.

I think we need to have a right to opportunity, much as we have property rights in markets. But a right to an opportunity is not the right to a result. So, to be specific, a right to an opportunity could be much more support for education, for training for places that have been left behind, for the government supporting much more in the way of basic research. All of that's very different than a system that says results only matter.

How do you converensate for very large differences where people start out in the process. I mean, we all differ of where we start out in a matter of where we went to school, where we grew up, whatever. But there are some huge differences here where some people are well behind in terms of their wealth, in terms of their background. How do we make sure that they have an equal opportunity that compensates for what they've been deprived of for generations, for example, the black white divide.

It's a great question. There are a lot of reasons we have black white wealth differentials, some of which sadly come from public policy errors over decades. I don't think we can fix that overnight, but I think what we can do very quickly is make sure that everybody has access to the same opportunities and have a system that encourages work, encourages wealth building for anyone who wants to do so.

Glenns through so much of your work, you often come back to education and education, not just getting a Bash's degree. It can be trade schools, you have various education You talked, for example, about land grant schools in your book The Wall and the Bridge. But whenever we have money to spend We don't seem to spend it on the education. We find all sorts of other things. We can have wars we spend money on. We can spend all sorts of money on infrastructure, which is a good and useful thing.

We've done it successfully at least twice. So the land grant college movement was a decision by political powers that be that the country needed a different set of skills. We were going from an agrarian economy to a manufacturing economy after the Second World War. The GI Bill was

Top of the list.

Unfortunately, in the twenty twenty four campaign, I'm not hearing it.

No, I don't hear it either. That's right, But let me ask you about that, because higher education in this country right now is under a microscope. There's a lot of criticism of it from all sorts of different directions. Would it make sense to write a big check for higher education right now without reform of higher education because not all of us think it's heading in the right direction on its own.

Completely agree with that, but I don't think elite private universities are the problem or the solution to what we're just talking about. Rather, it's community colleges, it's vocational training. That's where we need to be spending a lot of money writing big checks to the Harvard's and Columbias of the world from the federal government. I'm not sure it's

It's called an admission against interest. On your part, coming from Columbia business schools say yeah, exactly. So are you seeing any movement and it can be just an intellectual movement right now, not even a political one in a direction you think is constructive in the United States. Is anybody taking a leadership position saying some of the things you're saying.

Besides you, you do see it in Congress from individuals. Even in the presidential campaign, Governor Haley had a lot of these themes, both from her personal experience as governor of South Carolina and in campaign themes. Whoever wins in November is going to confront these challenges and is using a model that needs reform. So I'm very hopeful of these ideas and ideas like them come to bear.

Do you think that it would have any appeal to the masses.

I think yes, because this actually works. You can actually raise people's living standards, in their flourishing in their local areas. Tariffs aren't going to do that, mushy industrial policy isn't going to do that. People are going to look for something different.

Thank you so much, Glenn, It's always great to have you as Glenn Hubbard of the Columbia Business School. Coming up, what the turmoil in France and in its former West African colonies could mean for investors. We talked with Ian Bremmer of the Eurasia Group.

It's not as if the United States is competing with Russia for influence over these governments. Rather, these are governments that the Americans would rather see out of power.

That's next on Wall Street Week on Bloomberg.

This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

This is Wall Street Week. I'm David Weston. When it comes to geopolitics, we tend to focus on you or Gaza or Taiwan. And when it comes to powers rival in the United States, we focus most often these days on China, but sometimes overlooked our developments in West Africa, where increasingly the rival is not China but Russia, with potential economic as well as security implications for the United States. To give us a status report, we welcome now Ian Bremmer.

Yeah.

Well, I mean there are almost no journalists on the ground, but that doesn't mean it doesn't matter, and this part of the world does matter. It matters in particularly because there are a lot a lot of resources that are very important for industrial processes, especially as we turn to transition energy away from coal and towards you know, batteries, and they were I here a lot of what we get out of the ground from these countries. But governance

And you know the best country for that at scale, that's Russia.

Well, and to speak of that, I mean it's I guess a reconstitution of the Wagner Group now called Africa Corps that has moved in. They actually reportedly have some troops on the ground that displaced some US and French forces.

That's right.

You know, in many of these countries they have told the Americans the French to get out after the military has taken over the leadership of the country and they want to have the need paramilitaries, they need advanced military equipment, and they're willing to pay for it, and if they don't have hard currency, they can give you a percentage or control or an interest in state controlled companies on the ground that have access to these minerals. And the

Let's come back to where you started with the possible ramlocations Economically, particularly when it comes to energy transition because of some of those raw materials that really exist those uranium, certainly lithium, baux side others. One other rapiplications for investors. If in fact Russia's influence continues to grow in West.

Africa, well it's going to be a greater cost because again, these are countries that are going to have resources that will be exploited in illicit ways, in legal ways, using child labor for example. They're not going to be welcomed in supply chain by many advanced industrial democracies in the world, and even when they are, the Russians are going to have a preference to ensure that the supplies are first and foremost given to friends of Russia with preferential long

As you mentioned in Namibia.

Right now, the United States still gets uranium from Russia, and Congress is trying to stop that. They're trying to actually ensure there's money to increase production in the United States and with friends so that if the US is going to start building reactors again. You've seen the Bill Gates announcements on your own Bloomberg that they don't have to get it from Russia.

And West Africa has traditionally historically been a zone of influence for France because they colonized it. At the same time, mister Macrone right now is distracted with a few other things closer to home, where this snap election he's called less than three weeks way. Now give us a sense of what apossible ravocations of this are.

You know, Macron's own party Center Party lost historically seventeen points under the national rally far right of Marine La penn and so on the back of that really embarrassing, much larger than a spected loss, and by the way, historic over fifty percent of French registered vote is turned out to vote in this European parliamentary election. That doesn't sound high, but for a European parliamentary election with not much at stake, it's by far the highest that France

And the idea for mccron being if he wins.

Because you'll have seventy percent turnout for a parliamentary election as opposed to fifty for the par European parliamentary elections, that suddenly his party will do better. He'll be able to scare people away from voting for the far left or the far right. But the left wing parties have all come together and they are working to not run candidates against each other in parliament.

So that's a big problem for the Center.

And the average French citizen doesn't oppose, doesn't believe that La Penn and her party is a threat to democracy. Only forty percent say that she is that they are compared to eighty percent David twenty years ago. So look, anything can happen. But right now these were only a week and a half away. These elections look very bad

And it's always so helpful to talk with you. Thank you so much. That's Ian Brenner of the Eurasia Group. Just when you think it can't get any worse, it can, so, wrote Nicholas Sparks in his two thousand and five novel At a First Sight. But with no disrespect to mister Sparks, it's a cinement I expressed often and in just those terms when I ran ABC News starting in the late nineteen nineties. At the time Good Morning America, that was

We had good businesses, good people, good initiatives, but at the end of the day, the stock price lagged. There are some things that didn't work.

Just when it looked like things could not get worse, Ge turned to Larry Kulp, who, instead of trying to fix the company as it was, decided to sell some parts of it off, pay down debt, and split into three strong businesses centered on aerospace, medical, technology, and energy. Those three companies now have a combined market cap of nearly two hundred and seventy billion dollars.

I've long believed that you're far better off being strong rather than just big, and that was a little bit of the evolution of our conversation.

We're not going to be an all singing, all dancing GE going forward.

It's not just television where you can go from bad to worse pretty quickly and requires some radical moves. The Washington Post publisher was concerned with where the newspaper was headed and decided to change the editor abruptly, replacing a veteran female journalist from the Associated Press with a British male investigative reporter whom he promised would restore an even

Now it's the movement for Britain to choose its future.

To decide whether we want to build on the progress we have made or risk going back to square one with no plan and no certainty. And not to be outdone, President mccron of France has now called his own snap election in the aftermath of his parties being routed in European parliamentary elections.

He's kind of got a reputation in the past for having taken enormous risks. He took an enormous risk in running for president without an established party. It has left open a wide range of outcomes.

But then again, maybe in politics, sometimes things can't get worse, thing can actually work. Here's then candidate Donald Trump on the campaign trail in twenty sixteen.

Over three thousand people have been shot in Chicago since January first of this year, three thousand people. There's a shooting on average every two hours. To those suffering and hurting, I say, what do you have to lose? I'll fix it. Vote for Donald Trump. I mean that, what do you have to lose? It can't get any worse.

Despite his pitch, mister Trump didn't win over too many of those black voters by saying they had nothing to lose. He won only eight percent of their votes in that election. But then again, we have to remember he did win the election. That does it. For this episode of Wall Street Week, I'm David Weston. See you next week.