Bloomberg Wall Street Week - October 11th, 2024

This is Wall Street Week. I'm David Weston bringing you stories of capitalism this week, the new era of populism and what it means for global economics, plus failing into space, how competition shapes innovation. But first we begin with a story about tough love a local government, private sector leaders, and city residents making hard decisions to fight off a troubling trend.

We can't have more people die of overdoses in our streets than were affected by COVID. I mean, this is crazy, and the numbers continue.

Amik Mogadam is the CEO of Prologists, the largest logistics real estate company in the world. He founded his firm in nineteen eighty three in San Francisco and has seen the cities ups and downs as a businessman and as a resident.

San Francisco was a very different place in nineteen eighty three, but it was not all great. We were just coming off of the assassination of Mayor Moscone Harvey Milk, and the eight epidemic was raging at that time. So we always remember the good old days, but there were certainly problems in those days as well. What was different was that the San Francisco business community was much more engaged

For San Francisco, as for many other major cities. The trend that began years ago was made far worse in twenty twenty.

I remember right up to the pandemic, I mean, downtown was so booming you literally couldn't walk on the streets so you know, the vacancy rates on the offices for high tech companies was you could barely find anything. So we were absolutely booming. Now that said, though, I think that boom it kind of covered up some glaring problems that we weren't facing.

Chris Larsen is a lifelong San Francisco and has founded several Silicon Valley startups, among them the digital payments company Ripple.

San Francisco really suffers from sort of being a representation of a certain way of life in America, so it gets it's a little bit of a pile on that goes on right, whether it's Trump or whether it's some of the local folks that are trying to run for mayor here, there's sort of some glee and sort of trashing the city.

For many years, San Francisco was a magnet for people and businesses, growing from one point eight million residents in nineteen fifty to three point two million by two thousand. But then the growth leveled off and actually turned negative during the pandemic, driven by a range of factors that can lead to what economists call doom loop.

The idea of an urban doom loop is that it's a force that feeds upon itself, that we have a decline in urban property values, that then perhaps leads to a decline in local tax revenues, which leads to a decline in the ability to pay for public safety or maintain other amenities, which then wraps around again and pushes prices down further, leading to lower tax revenues.

Economist Ed Glazer of Harvard has made a study of urban doom loops and what leads to them.

You can take it to be sort of a larger metaphor for the way in which things start to fall apart. When things start to fall apart, so by which I mean in general, people move out of an area, It becomes less attractive for other people to move in that area, it becomes it has higher vacancy rates. All of these things then continue to push people away. So again it's the idea of something that feeds upon itself and becomes almost an unstoppable wave.

Public safety also looms large in the potential decline of any city, and it's been a major issue for San Francisco, which saw a jump in shoplifting and commercial burglary from twenty nineteen to twenty twenty two. Since the pandemic. Stopping criminals and punishing them has become a subject of rising tension.

We have policy on the books that if you steal less than nine hundred and fifty dollars from a store, you basically get a parking ticket. It's a misdemeanor. I mean that has encouraged a lot of theft in the city and that needs to get changed. There was a gross receipt tax that was enacted that really is a burden on business. So the list goes on and on.

In June of twenty twenty two, a Mogadam was mugged at gunpoint when two armed men stole his Patek Philip watch in broad daylight while he was outside of his San Francisco home. Afterward, he wrote a letter to San Francisco mayor London Breed, saying, quote, I recognize we live in an urban environment, but the level of crime, including violent behavior, has become absolutely unacceptable. But beyond endangering people, crime also has very real economic effect.

I think there have been various estimates that something on the order of three or four trillion dollars a year if you add up all of the different direct costs to victims, as well as indirect costs in terms of just our sense of fear when we walk around a neighborhood and not wanting to go to certain neighborhoods after there's been there's been some crime incident.

Jennifer Doliak is the executive vice president of Criminal Justice at Arnold Ventures, where she studies the economics of crime.

I think, in general, mayors would be best served by thinking about this in a way that takes a more scientific approach. Perhaps I am a researcher, after all, that's going to be my advice, but focusing more on promising to find a solution rather than claiming to have a solution upfront. The reality is a lot of these problems

Increasing the odds of catching criminals necessarily means better policing, and for San Francisco that's become a key challenge in recent years.

And I think we're today operating with sixteen hundred cops, which means that there's a lot of overtime, and lot of our officers are overworked and they're getting frustrated, and that's leading to more of them retiring early. And actually we have been bringing fewer cops into the system from the academy than they've been retiring. So the problem is going has been going in the right direction. And you know, it's not a matter of pay. I think we pay.

Technology can be a big help here. So a lot of city like London use surveillance cameras around the city and that that has a big impact on being able to catch offenders when when they do commit a crime. Other technologies like DNA databases help us match DNA from crime scenes to offenders that are in the database, and a whole lot of new technologies that are being invented every day now here. The trade off often winds up being between the big benefits, the big crime reduction benefits

Crime gets a lot of the attention, but it's not just public safety that can make a city less attractive. It's also whether people are moving in or moving out, and the occupancy rates, particularly for commercial real estate.

Our traditional measures of urban growth and decline are things like population growth, housing price changes, income changes, and I like to look at permits building permits as being a sign of how much people actually want to move into the city. I think all of those things are useful metrics. So in our list of fifty metropolitan areas, where we just form a sort of naive statistical index of those four measures. San Francisco was last out of fifty metro areas.

I am less optimistic about the few of downtown San Francisco that will take some effort, some serious effort. San Francisco has a lot of fintech and a lot of technology companies. Those are the companies that actually lend themselves to the work from home phenomenon. And you know, this is a difficult downtown to commute into. You've got to basically cross a bridge, go through a tunnel, or come down a very busy freeway to get in here. Very few people actually that worked in San Francisco lived in

To thrive, cities also need to be attractive to business, and that means having economic policies that balance supporting the population without imposing too heavy a burden on employers, particularly through taxes.

I think it's incredibly important. I think you've got you know, that's where the resources come from. The resources come from the businesses, the resources come from the taxpayers, right, and you need to make sure you keep the city to being an attractive place for them, just as you use them as a resource to take care of the poor.

There's no doubt that San Francisco has had its share of challenges, but those who know it best are often the first to point out how much it still has going for it and how much its past strengths give it a strong foundation to build a brighter future. Up next, the rise of populism and measuring its economic impact. That's next on Wall Street Week.

You're listening to Bloomberg Wall Straight Week with David Weston from Bloomberg Radio. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

This is a story of populism, what the people want, what the global economy needs, and how the two can fit together the interests of the people. It's been the clarion call of populist leaders through history, and one we've been hearing more and more often in the United States, in Europe and elsewhere. But why did it happen and what does it mean?

Populism to me is the alternative when an individual or political parties actually capitalize on individual situation where they don't really have a visible path for economic opportunity and growth.

As the former US House Majority leader Eric Canter watched as populism grew among his constituents in Virginia and across the country during his thirteen years in Congress.

You look around America today and it's an amazing country, very dynamic. There are pockets of extreme growth and innovation and prosperity, but it's not equally dispersed across the country. And I think in many ways populism serves as a substitute for individuals who aren't necessarily accessing that tremendous growth engine.

Populist leaders might seize on major geopolitical events like pandemics and mass migration to justify their calls for dramatic change, but they come against the backdrop of longer term trends like large parts of the population getting left behind. While some of us recover from setbacks. For decades, inequality in the United States and parts of Europe has been on the rise as more money has become concentrated among fewer people. In the nineteen seventies, the top ten percent of earners

There comes a point in time where you've been abused enough. You have to stand up for yourself. And this is it. This is our our generations defining moment. Either we turn this around now or we're going to be in big trouble down the road.

Our fight is with these foreign owned carriers that have made billions of dollars on the backs of longshore men and women for too long.

There's nothing new about populism or it's appeal. In the United States, it's at least as old as Andrew Jackson, seventh President and champion of farmers, mechanics, and laborers, people who distrusted national institutions like the Central Bank because they felt left out of the progress being made by others.

We have seen that the the roots of populi is, you know, the factor behind the better success, are very much related to the consequences of a number of shocks that they've been hitting our economies. So first of all the great recession of two thousand and eight, in two thousand and nine, and then also the pandemic.

When I was in office, that the populism of the day was the so called Tea Party, and this was I think the initial surge and what we now have on my side of the Maga movement. And these were people who really had otherwise not really been involved in the political process, had come into it largely due to social media and the ability to gather together much more quickly and to identify each other's commonality.

And back then.

The Tea Party, if you remember, it was taxed enough already. We discerned that maybe that was due to the overarching reach of government, and that government had gotten too big and we were spending too much money in Washington, and so our prescription to respond to that was to try and really stick to a course of fiscal discipline, try and return the fiscal imbalances back.

To some prudence in Washington.

I think what I have seen since being off Capitol Hill is that notion that somehow there was a philosophical underpinning to the rise in populism really wasn't necessarily what was going on.

It was just some real anger.

In Europe, like in the United States, populism has deep roots going back in time. Agrarian groups have supported populist ideals for centuries, but modern day populism gain support in Europe after World War II. In France, the populist torch has been taken up by Marine Leapenn and her National Rally Party, campaigning against immigration and for greater security. Even without being elected, her party has changed the landscape of French politics.

Back in two thousand and seven, Nicola Sarcuzi actually won the presidency by campaigning on Lupin's themes immigration and security, and this was probably the first time that politicians realized by really adopting and embracing their themes they could win.

In the most recent elections, President Macron out maneuvered miss Lapin, depriving her of the ability to take over control of the parliament, but the populist wave swept the European Union's parliamentary election in June, giving her National Rally party a surprisingly good showing, while Germany's far right party Alternative for Germany entered parliament for the first time with fifteen seats. Historically, the economic track record of the most extreme populism has

I think for a long time economists have not done this too, the cultural.

Roots of populism.

The fact that beyond their message and their popularity, there was a very much as claim to preserve the national identity, the national values. These are things that economists have started really looking at carefully. Only the last ten to fifteen years.

If our experience with populism has taught us anything over the years, it's that it's not going away because it is based in part on legitimate concerns of large segments of the people who feel they have been left behind. The question is whether this question for greater equality of opportunity can be melded with other political forces to come up with some better answers.

Look what's going on in Europe.

I mean, there are political senstences of being torn apart by the rise of some of these parties on the right.

And the left.

And I think those who have been success or have been able to merge and tap into this anger that is fueling the populism. And we'll see whether they're able to merge that with the more traditional if you will, commitment on the right to physical conservatism or to national security, versus trying to say we're just going to focus on here and now and the fact that America is the global superpower that we are doesn't really matter, and we're

To arrive at a new consensus, going.

Forward, still Ahead, creative destruction, and the decision that revolutionized the modern space race. Here on Wall Street Week.

You're listening to Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

This is a story about competition, competition between private companies, and competition between private companies and the government, all for the ultimate prize of space travel. At one.

By a flint and about nine.

Going into space is unbelievable. It was a yellow sun on a black sky, floating in zero G. He was just an extraordinary experience.

And investor Victor Voskovo went to space on Blue Origin's New Shepherd twenty one mission, putting him in the Guinness Book of World Records as the first person to achieve what's been dubbed the explorer's extreme trifecta, a trip to space, to the top of Mount Everest, and to the bottom of the Marianas Trench.

And I've just always been drawn to exploration and seeing what's on the other side of that hill. And when I was three years old, my father plopped me down in front of the black and white television, and I saw Neil Armstrong walk on the Moon, and I am convinced that had a pronounced impact on my desire to explore to eventually go into space.

When it began, the space race was between governments, the United States and the Soviet Union, the only two entities in the sixties and seventies that could handle the cost and complexity of sending a human beyond Earth's atmosphere. That competition pushed them to innovate faster and to spend more.

When government does things, they can do very large projects, but they're not necessarily the most efficient. They can build the Panama Canal, they can build the Apollo program, but it won't necessarily be the most effective or the most efficient. I dealt in the and I still do in the aerospace and defense industry for many, many decades. I have companies that are still involved in defense acquisition. And when you involve the federal government. There are all sorts of

Since its beginning, NASA has worked with businesses. Its relationships with Boeing, Lockheed Martin, and Northrop Grumman span decades, but until recently it oversaw every aspect of the design, construction, and operation of spacecraft, which by the twenty first century led to ballooning costs, missed targets, and ultimately relying on Russia to get US astronauts back into space. All that came to a head in twenty ten.

We could go into why we're doing this, but you can read numbers as well as I can, and I don't think I need to dwell on that. You know, when you have a program that's just going to cost a fortune to resurrect and schedules are getting harder to make without much more money than wisdom says, you'd pick a new course. And so that's what we've done.

All three engines up and burning after thirty years of service, NASA retired as Space Shuttle and launched the Commercial Crew Program, its goal to bring competition back to a system that had grown unwieldy and unsustainable. Boeing and the others would still be in the mix, but there would be newer, smaller upstarts. The gates were open, and no longer would NASA draw the map and give companies directions to follow.

On a lot of late nights, a lot of early mornings, a lot of very stressful situations that we went through, but in the end it was all worth it.

Laura Crabtree was part of the race at the ground level. She worked at SpaceX as a crew operations and resource engineer and was among those charged with answering NASA's call to take astronauts back to the International Space Station on board a US craft. Over a period of nine years, what began as a competition among more than half a dozen firms came down to just two, SpaceX and Boeing.

I think healthy competition is extremely good to keep people pushing boundaries without the competition with Boeing. I don't know if we would have all been as invigorated to get to the space station in twenty twenty. As you know, a lot of things happened in twenty twenty, and there were a lot of hardships for each and every one

Liftah the Falcon Line are Driver. In the end, of course, it paid off. In May of twenty twenty, astronauts flew to the ISS on a craft built company that hadn't even existed when the space station first launched.

We have Bob bankin from SpaceX demo to mission entering the International Space Station.

The moment was symbolized by the recovery of a small American flag that had been left behind in the space station by some of the very same astronauts. A modern day version of that old game we played as kids called Capture the Flag.

This is the flag that we left here almost nine years ago, and at some point after the end of the Shuttle program, we decided we would have a little friendly competition to see who came up and got this flag. In congratulations, SpaceX, you got the flag.

I mean, there was a lot of relief. There was a lot of joy. All of us were up there sitting on the floor surrounding a couple of monitors that was at one of our cubicles and just waiting until they opened the hatch to get the flag that had been left by the last Shuttle crew.

As for Boeing, it would be four more years before it could get a crew to the space station. In fact, in the time it took for one crewed Boeing Starlinner mission to reach the ISS, SpaceX sent up no fewer than nine crewed missions, and they're doing it for far less money. The latest figures from NASA show the estimated average cost per astronaut for SpaceX was around fifty five million dollars for Boeing ninety million dollars, and that's assuming things go according to plan.

But they haven't.

NASA has decided that Butch and Sonny will return with Crew nine next February and that Starliner will return uncrewed.

Boeing Starliner couldn't complete its first mission and in September it returned back to Earth without its crew. So to bring them back, NASA turned once again to SpaceX.

What has been incredibly striking is just how much more rapid and more cost effective and even more capable the private sector rocket industry is compared to the legacy government contractors in government itself, like NASA and Boeing.

Wow.

So what has made SpaceX more successful than Boeing. There's no one answer, but at least part of it comes down to culture, to the way the company not only learns FA failure but cheers it on.

Everyone here absolutely pumped to clear the pad and make it this far into the test flight, its first integrated light of the baser and the starstup vehicle.

Starship just experienced what we call a rapid unscheduled disassembly or a RUDD during asset.

But now this was the development tests.

There's the first test flight a starship and the goal was to gather the data.

And I think what's fascinating is how exemplified by SpaceX and El and Musk is that they're willing to have rocket's blow up in order to learn faster, and there's no question that it does. But I think that the culture of say a NASA or a large government contractor like Boeing would not exactly want to see their rockets

And if you look with that SpaceX's relationship with NASA, it's been very different than the traditional contractor model.

Ron Epstein was an engineer for Boeing in the nineteen nineties and today he's managing director at Bank of America covering aerospace and defense.

The old model was, hey, we want this vehicle, here are all the specs, build it to this spec, will buy it. Where SpaceX has more of a launch it, build it, try it, fix it, build it, try it, fix it right. I mean you know on social media, their you know, their rocket launches when they fail, get a lot of airplay, but they learn a lot and they move forward.

So what you see with the Falcon.

Nine landing itself and who would imagine that that that could happen, and they do it now on a regular base. It's it's almost boring now, you know. I say that tongue in cheek. I mean, it's always fascinating to watch, But who would imagine you'd have rockets that can come back and land themselves very accurately. Well, SpaceX figure that out. Build it, launch it, try it, break it. Build it, launch it, try it, break it, and then you get there.

Our spec, build it, deliver it. Oh it doesn't work.

Fix our spec, which turns out to be far more expensive, and I would argue probably doesn't.

Get you there as quickly.

For its part, Boeing has head its own share of problems, besides falling behind in space. After multiple Senate hearings surrounding the company's seven thirty seven Max crisis, CEO Dave Calhoun stepped down, Kelly Ortberg took the helm. In August, Bowing has a new CEO. If you were going to advise him about what to do with Boeing Space OP, what would you tell him?

Yeah, it's a good question. Decide if he really wants it and if you really want to invest in it and attract that talent lift off.

The United States has never known a space program without Boeing, and its absence could reshape the competition. But explore and investor of Victor Vescovo says today there is no shortage of companies fighting to find new and better ways to send humans back into space, whether it is with or without Boeing. Vescovo still believes that America's story and outer space is just beginning.

We are explorers, we are human beings, and there is something about the connection of human beings walking on the Moon that touched us at an almost spiritual level in the way that the first lander on the Moon did not. The first person to walk on Mars will be a seminal event for humankind in a way that is probably orders of magnitude more profound and affecting to people in a positive way than the first Mars lander. And finally, I do believe that at some point in the future

Talk of becoming a multiplanetary species may sound far fetched, but maybe no more far fetched that when, as a nine year old boy, I heard President Kennedy say that the United States would go to the Moon before I graduated from high school.

We choose to go to the moon, and this decay and do the other things not because they are easy, but because they are hard.

Far fetched, which made it all the more surprising when only seven years later I watched the black and white images of Neil Armstrong taking that one giant leap for man kind. Beautiful view. That does it for us. Here on Wall Street Week, I'm David Weston. Join us again next week for more stories of capitalism.

You're listening to Bloomberg Wall Street Week with David Weston from Bloomberg Radio.