Bloomberg Wall Street Week: Murphy, Barra, Summers

most influential voices. Larry Summer is the former Treasury Secretary Bryan Wynahan a backup America, Will Smart, CEO of Charlie Sharp. Bloomberg wool Street Week with David Weston from Bloomberg Radio. Be careful what you wish for the economy rebounds, earnings beat, but now we have to worry about all the pressures that come with that. This is Bloomberg Wall Street Week.

I'm David Weston. This week we got more signals that the economy is roaring back from indications of GDP growth over ten percent for the quarter and maybe eight percent for the year, expecting growth to be at a better rate than what we have seen so far, and earnings that were so good that they raised questions about the analysts who underestimated them, driven in one way or another by the authorities opening economy back up. Broadway tickets go

and sale today at capacity for theaters. The show's open September four teeth. But then the jobs numbers for April came in way below what anyone was expecting. Under normal circumstances that would be a great month. We still have a steep, steep clime. We still have ways to go, which may be a blip, but there were other storm clouds on the horizon with supply chains overwhelmed. We're having regular conversations with the administration and members of Congress to

find the right solution. Growing fear of increased taxes and the ever present fear of inflation, made worse by Treasury Secretary yelling suggesting we might just see higher interest rates. We've been through a year long health and economic crisis, putting pressures on our governments like few have ever seen. But things appear to be coming back, and now we have to think about how we're gonna pay the bills.

New Jersey is one of the states hit hardest by the pandemic and already has one of the highest tax rates in the country, So we asked its governor Phil Murphy, what paying those bills may mean for taxpayers. Listen, we we presented a budget six weeks ago that had zero increases in taxes and fees. We want to protect the middle class at every turn. We are the quintessential middle class state, UH, and we want to regain that mantle.

We believe we're America's number one state to raise a family, and that includes making sure that the value proposition works for families, particularly young families who are considering moving here or staying here. I was gratified to see the census numbers last week. We were the number one state in America in terms of the amount by which we exceeded the estimate that was put out last year. That's for a reason people are coming here to raise their family.

We've got to make sure that we continue to have the number one school's quality of life, great transit, but also that the value proposition works in the senses. It just came out there was a migration towards Florida, towards Texas, towards some lower taxing states. How conscious are you of that as you set your budgets? How concerned are you that New Jersey could really lose some of the more affluent, in particular to places like Florida. Well, listen, New Jersey's

population grew over five percent over the course of the decade. Again, the space we occupy is that that moniker, which we don't take lightly. America's number one state to raise a family. We have the number one public education system in America, top handful of healthcare system, a location second to none. We're fixing transit um. The quality of life is exceedingly high. That's our value proposition. Some states come at you so listen, we want you to move here because we have low

taxes um. That's that's there. That may be their value proposition. Ours is a much more holistic and broader one. Governor. You've identified specifically sixteen municipalities in New Jersey of over ten thousand people that you're below, led by a New Brunswick city. As you look at those, it looks to me, you know the states so much better than I do, But it looks to me like they tend to be lower income and yes, minorities. What are the specific ways

that you reach those populations. Yeah, you're absolutely right. I don't know that every one of the communities are our majority communities of color, but they are largely and we didn't put that list up to name and shame. This is just to give people a sense of what the remaining challenges. We have too many people right now declaring victory. Our numbers have gotten a lot better, but we're not there yet. And so it's a variety of things. It's

role models getting vaccinated, it's mobile vans, it's houses of worship. UH, it's it's getting to homebound individuals, homeless folks. UH, it's a whole of initiatives, federally qualified centers. There's no one magic wand UH. As it relates to equity, we are still on a journey. As we say often, the pandemic didn't create the inequities, it's laid them there in Our vaccine program is a good example. Uh. It is a

work in progress. Governors, you know, well, there's a push on to get people to go back into their offices. We had golden sacks just say we want people back by a date. Certain as that happens, that's gonna put pressure on some of the transportation systems from New Jersey's people commute into Manhattan right now, as I understand it, the public transit is really being avoided. Your down something like sevent in your capacity. How do you respond to that?

First of all, financially, you can't run those transit authorities very long down capacity, can you? Financially? There's a number of questions that are Number one, the federal help, whether it's prior coronavirus relief funds or American Rescue Plan money, or or perhaps in this debated right now infrastructure plan. We desperately need that help. Secondly, and J transit UH, when we got into office, it was broken. It's fixed, and we've used the pandemic to fix it even faster.

So I think folks are going to find a clean, safe, reliable system. Thirdly, you didn't ask it, but one of the ways we're gonna get to vaccination is to get our business community UH to be proactive, just as we are at the state level. In fact, we had a good call with the Chamber of Commerce on this topic this morning, getting businesses to be just as forward leaning into this as we are being as at the state level.

I think the transit commuting reality will be slow to recover, but I think when folks come back and actually participate, it will be a positive experience. That was New Jersey Governor Phil Murphy coming up, Big tech has more to worry about than just inflation and supply chains, as the antitrust challenges just keep fond coming this time for Apple. That's next on Wall Street Week on Boombo. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

Apple's ten year relationship with Epic Games is unraveling in court this week. It's all about Epics claim that Apple is using its market power to charge it too much for selling its games and Apple's claim that Epic just doesn't want to play by the rules. Apple says, if you build an app for our platform, first of all, you can only distribute it through their store. They don't allow all competing stores, and that's totally un American and uncompetitive.

In two thousand eleven, Tim Cook used Epics game Infinity Blade two to show off Apple's new and powerful iPhone for s, but Apple's relationship with the GameMaker went even deeper. In legal documents, Apple said it's spent more than one million dollars marketing games for Epic and even added round the clock tech support for the GameMaker. The app store

isn't just a store. It's like a studio, stock with canvases, brushes, and paint the tools that artists need to create their works, and it's a gallery where they can display and sell their creations. The relationship began souring in two seventeen with

the release of epics blockbuster hit Fortnite. After that, Epics CEO and founder Tim Sweeney began publicly criticizing Apple's payment system, in which the company took as much as thirty of sales and blocked many developers from using other payment methods to avoid the fee. You can't have a tech monopoly dominating all all interactions between consumers and businesses on a scale of billions of users. The final blow to the relationship came when Apple removed Fortnite from its app store

last year after Epic activated its own payment system. Analytics firm Censored Tower estimates the app store generated twenty two billion dollars in commissions last year for Apple from the seven two billion dollars users spent on their devices. Who are absolutely going to see some form of legislation or additional scrutinary, So in the case of Apple, it'll be probably regulating the App store Apples and trust problems aren't

just in the United States. EU regulators have accused Apple of violating competition laws by imposing unfair rules and fees on music streaming services that are on the App Store. We need any trust regulation to return to what it used to be when we protected markets so that no one could dominate and block new entrants, no one could

compete against people operating a marketplace. And so this week we saw the start of a three week courtroom battle, complete with the Apple and Epic CEOs themselves taking the stand, along with a whole lot of experts and no less than the fate at the app store hanging in the balance. But former Antitrust Division had Bill Bear and blue Berg intelligence senior and a trust litigation analyst, Jennifer Ree. It's an uphill battle for Epics David to beat Apple's goliath.

They need to prove first that Apple is a monopolist in connection with its App store and its requirement that you download through the app store for the iOS devices. And then they need to prove that the requirement that you go through the app store actually is an anti competitive requirement as opposed to what Apple says, which is something that is necessary to protect security and privacy of its ioas usage. Jen, can you ever monopolize your own product?

I mean that's in a sense what the claim is here, right, Yeah, it's iOS, we invented it, we have it, so yes, we have all of it, you know, and this is part of their uphill battle. I mean, you can, but there are very very few court cases where that actually was considered the an appropriate relevant market. It just it rarely is, and that's going to be very difficult for them.

And you can see that because in the again beginning of the trial, epic is really hammered on competition, uh, and the lack of competition and the reason that all the other substitutes are different in our true substitutes. Bill, how much of this you think might turn in the end on Apple's claim as I understand that we need to do it this way for security purposes, there's a really legitimate business justification even if you find we have

an apply power within our system. I think that says that exactly right, because being a monopolist is only one step in the process of finding in any trust violations, you need to show to show that requirements that that Apple is imposing on on app developments are unreasonable for any competitor. Really served no legitimate um justification. It does strike me, jen that quite a few what we would think of a tech companies have weighed in on the

side actually of Epic Games. Maybe the David in this battle, uh, including Facebook and Microsoft is saying, we find it really difficult as well. We've tried to get in Spotify. Would that have any effect on the judge as a practical matter? You know, I think first of all, you know, in my mind, you have to think about the fact that

Microsoft is a big competitor to Apple. You know, in many ways they're they both they compete in the sale of computers and they have opposing you know, operating systems. So you know, Microsoft has something to benefit if Epic

wins this trial. And what Microsoft and some of these other tech companies are providing is really anecdotal evidence where they do or don't compete, and the difficulties that they've also had in negotiating with Apple to get their own game stores or their own game streaming into the Apple App Store. So it's anecdotal evidence. You know, at the end of the day, I think it has some influence,

but but not significant. Bill, give us a sense of what the expert witnesses are gonna be testifying to, because, as I understand, in most antitrust cases, really the economics driving off a lot of it. The expert witnesses on either side and the judge is really gonna put a lot of emphasis on that. What are they gonna be testifying to. Why they're going to have this uh disputed visions of what the market looks like? UM is UH is Apple by virtue of UH controlling what apps are

downloaded to iOS users, iPad iPhones? Uh? Is that actually just one way of competing in US broader market where there are lots of ways of getting apps to other devices, there are lots of way for gamers to play games. Whereas the epic view is going to be no, no, this is a restrictive, narrow market, UH, where Apple is able to control the environment for anybody who uses this DIOS system and basically ties the iPad and the iPhone

two downloading software at at commission rate. So they saw for developers only through only through Apple's platforms, So they will present economic governance that will suggest Apple has pricing power that is suggested from an appoly power. Apple's econosts will talk about all the other ways in which people can play games, or download other apps, or use your PC or your your map to to compete, thanks to Bill Bear of the Brookings Institution and Jennifer Ree of

Bloomberg Intelligence. Coming up, just when the auto market wants to come roaring back, the lack of microchips reins it in. We hear from GM CEO Mary bar On what she and her team are doing to manage the problem. That's next on Wall Street Week on Bloomberg. This is bloom Wall Street Week with David Weston from Bloomberg Radio. GM announced its earnings this week and they were strong, very strong, as the company sees demand for new cars come back

stronger and faster than anyone anticipated a year ago. But there was a catch. A combination of a surging economy and a huge uptick in demand for consumer electronics has led to a dire shortage of microchips. And it turns out you can't make a car these days without some pretty sophisticated computers built right into those cars. We asked GM Chairman CEO Mary Barra, how she's managing a problem that will caused her up to two billion dollars this year.

There's not a lot of transparency between the different automakers of what's happening. We're focused on GM and I think what's been incredible is the work that we're doing with our purchasing group, our engineering group, are manufacturing group in

sales and marketing and working with suppliers. You know, we've been working to build strong relationship with our suppliers for many, many years now, and there's just a t that is looking understanding what chips are we going to have access to, how do we allocate those to our highest demand and and products that we have limited or no ability to

recover because there's just such strong demand. We run those manufacturing operations around the clock and they're they're just being creative and doing what engineers do of problem solving and and in some cases re engineering to get the chips to the right products and to just um find every opportunity we can to build a car, trucker crossover and get it to the customer. So it's a mixed question not just of the vehicles you sell, but also where

you direct your chips. It sounds like you want to direct it to the ones that really are the most important.

Are you getting more chips? Do you think than you would have expected, because if you're purchasing department, well, again, there's not a lot of transparent to say more than you know, we were very clear last year of what we thought the demand was going to be this year and the chips that we had ordered, and so you know, we're continuing to work with the supply base on that and UH again, but it's I think it's looking for every opportunity and managing it centrally and also working hand

in hand with our j V and China, so across the board, we are just really being I think the team is being really scrappy and finding ways that we can build the vehicles, not only full size trucks and SUVs, but also our electric vehicle programs. And I think it's important to note that even with the challenges of the semiconductors UH shortage, there is no impact on our electric vehicles, on our autonomous vehicles and the growth initiatives that we've

been talking about this first quarter. That was one of the questions I had, both for the Hummer that's coming out later this year and then the lyric which is coming at sometimes the first happened next year. Is there going to be any delay because of the chip problem? Absolutely not, And I can tell you those vehicle programs are on track, and uh, I'm really excited to have customers get in those vehicles and drive them because I

think they're going to be amazed. This problem isn't going away in the sense that as you go forward, you're gonna make more and more cars, they are going to require more and more chips. What is the longer term solution to this so we don't have this sort of problem you have this year? Well, I think we are going to see recovery. We think Q two will be the weakest for the year. We'll see some recovery, recovery in Q three, Q four. Uh, And we're working on

a lot of long term strategies. I don't have anything to share right now, but there's a a you know, a whole um menu of things that we're working on, processes that we're changing. Um. So more to come later in the year of how we'll make sure we're never in this situation again. But believe me, we have a dedicated team working on that as well. When it comes to batteries, you've sort of vertically integrated, as it were, where the joint venture where you're making your own batteries.

Is there something like that perhaps that would make sense for GM. You know, I'm not going to take anything off the table. We're going to look at what what we can do to make sure that we have the right number of automotive grade chips UH and that we it it doesn't constrain our growth because we see huge opportunity not only with the product portfolio we have today, but with the strong electric vehicle products that we have coming.

We hear some in Washington, both the Commerce Secretary and also I talked to one of your Michigan representatives, Haley Stevens, who suggested perhaps there needs to be some co investment from the government as well as the private sector in chip production. Does that make sense from your point of view? I think making sure we have a secure supply chain um for the growth that I think we're going to

see it. I think it's something that we all have to work together on, and we're having regular conversations with the administration and members of Congress to find the right solution and we'll continue to do that. In your presentation today, General Motors really lays out a fairly robust program to really go to electric vehicles and to really deal with greenhouse gases over the longer term. You have very specific targets you're setting out there. How do you hope to

achieve those? Well, I think it's making sure there's a whole ecosystem that when a customer looks at can I buy an electric vehicle, they say, I'm going to have a better experience when I buy an electric vehicle. It's going to be a beautiful vehicle. It's going to be in this segment that I want to purchase because we can't you know, person if they want an suv or a crossover, they're not going to buy a sedan. It's

to meet them in the market where they want. But then it's also making sure there's a robust charging infrastructure, and we're working on that as well, and that will

be not only what we're doing. For instance, we're putting charging in our workplaces, but also working with communities and then working with all the startups that are in this business connecting those We just made an announcement that we have now We're going to provide access to sixty chargers across across the country to really give confidence to customers as they buy an e V and if even if it's their only vehicle, that they're going to have a

robust charging infrastructure. And I think all those things combine, you know, beautiful vehicles, meets their needs, the right range, and then charging available, customers are going to move to e vs. That was GM chairman and CEO Mary Borrow. Coming up, we wrap up the week with our special contributor Larry Summers of Harvard. This is Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. We welcome now our special Wall

Street Week contributor, Larry Summers of Harvard. Larry, welcome, is great to see you. So, first of all, start with these jobs numbers. They were so surprising to so many people. Two sixty six thousand instead of one million. Some people are we two million? Did they tell us anything beyond this one data point? I think it's hard to interpret.

My senses that it's got a lot to do with the emerging labor shortages that we're hearing about almost everywhere that managers in many different places are talking about and worrying about it, and if people can't find workers, employment can employment's got to go up. Evidence for that is that we really had an extremely strong average hourly earnings print this month. Now it's only one month, and they were down UH last month, but they were up at

a nine annual rate UH this month. And probably the figure was our officially held down by the fact that most of the new jobs were in low wage sectors like restaurants. So I think what we're seeing is more and more evidence of labor shortage, and maybe that will prove to be transitory. Maybe it will turn out that as people go back to school um more and more people come into the workforce and will lose that sense

of labor shortage. But as I look at the data, I see much stronger evidence that people who retired over the last year aren't coming back. I see more and more evidence that people who in one way or another have changed around their lives aren't coming back for a while. So I expect that as the economy grows rapidly, as everybody thinks it's going to over the next few months, that that labor shortage problem is going to grow. That that's gonna be putting more and more pressure on wages,

and that's ultimately going to move into UH prices. So I actually think there's reason to think that inflation might even accelerate from where it is this summer, rather than the deceleration that the Fed and the Treasury are so confidently predicting. You know, it's further evidence for that view to look at the housing market. You see the prices of housing UH rising at incredible mid you know, double

digit rates in the teens. That probably is telling you that rents are going to be going up before long. That's why people are buying these houses in part. That's certainly why private equities buying up a large amount of houses. And right so far rental factor has been holding down the inflation in this season. That's about to change. So between the inventory issues, the labor shortage issues, the rental UH issues is UH. I have to say that my

concerns about inflation are increasing. Are we contributing to it in part by keeping people on the sidelines because of how much we're reimbursing them for being unemployed. That's something that both President Buying addressed this week and Secretary the Treasury yelling did They were both asked pointedly, you're paying people a lot of not to work. Is that making the situation worth Both of them thought, that's not the problem. I think it's more a matter of having to stay

home to take care of kids or elderly relatives. What do you make of that, respectfully, uh, I think it is close to self evident that the fact that people are being paid more to stay at home than they would be to work, in millions of cases is reducing the available supply of labor. I think the fact that the fraction of the unemployed who are getting unemployment insurance is it record highs is contributing to people being more picky about jobs. You can argue that it's really important relief.

You can argue that it's really important insurance that we're providing. But I don't see how one can plausibly say that paying people more to not work than to work is having no effect on the availability of UH workers. And I think we just need to recognize that it probably was the right thing to do when we really wanted people to be very careful to stay home and not spread COVID. But I think it's very hard to justify

and rationalize them. Uh, right now, Larry, as a macro economist, are you concerned at all that our models might not really let us know where we are if we're driving the car too fast? Is the sphenometer working? Because we haven't seen this sort of phenomenon perhaps ever in the history of our economy. And let's be frank, the jobs numbers came in very different from what econdoms thought there were gonna be. At the same time, we never saw the kind of go down that fast come back that fast.

And goodness knows, with all the monetary and fiscal stimulus, do we really have a model that tells us where we are and where we're going? Look, I don't. I don't think any of us can predict with great precision, and I think over confidence is a real Uh is a real problem. That's why I've always framed my prediction probabilistically. There's a one third chance this will all work out well.

There's a one third chance that we're really gonna push the inflation rate up in the way we did after Vietnam, during Vietnam and into the nineties seventies, And there's a one third chance that we're gonna have some kind of fiscal monetary collision. So I think you gotta recognize that there's uncertainty. I think you can discern sort of broad structure and trend of the way things are moving. And I think the law of supply and demand is more

reliable than most other economic laws. And it sure does seem like demand is rising relative to supply, and that certainly points towards UH rising prices and some acceleration of inflation. So I think that's the tendency. But you're absolutely right, David, that there are both wild cards that come from the outside and there are doubts about UH internal dynamics, and those are things that absolutely have to be UH factored into UH the analysis UM in a in a clear way.

You know, another thing to look at, just because they reflect act a large number of views, and certainly one shouldn't always assume they're right, because they're often wrong. Is

what's happening in markets? And what we're seeing in markets is that because the FED is so clear about its reluctance to raise rates, UM, you're seeing very little movement in nominal rates, but under the surface, you're seeing a reduction in real interest rates and an increase in the inflation premium that's priced into the difference between nominal bonds

and uh real bonds. And we haven't seen a three or four month movement in inflation break evens that was as large since these markets got invented, since these index bonds got invented many years ago. The FED made me very clear about that, but the former FED chair who is now the Secretary Treasury, Janet Yellen, wasn't quite clear.

This week. One of the big issues for investors was when she came out and said in response to a question, she said, well, look at and then we may get to a point where the market's heating up enough so that we actually have to increase rates. She came back out afterwards. I said, well, I really wasn't trying to predict. At the same time, would you make of what she had to say? I felt for Janet. I've I've been there.

People make comments, they get interpreted in a certain way, and the markets get very excited and see strategy where there's only um innocent economic commentary. I don't think that is a big deal. On the other hand, what she said was self evidently true that if the economy gets going sufficiently strong, and there starts to be inflationary pressures. As part of containing those pressures, interest rates will be raised.

I don't see how a reasonable person could disagree with that statement, and the fact that that was so alarming in markets to the point where she felt it necessary to provide further clarification of that. I think points up what is really quite dangerous in our macroeconomic strategy. Between monetary and fiscal policy, we're creating a sense for markets that it's always going to be let the good times roll.

And I think when people get the idea that the punch bowls never going to be removed until they're actually people staggering around drunk at the party, it makes it more likely that the party is going to get out of control. Okay, thanks so very much to our special Wall Street Week contributor Larry Summers of Harvard. Finally, one more thought, adding a new letter to the C suite.

First it was CEO, then CFO, and c I O and CTO, oh and c d O, but what about c h O. It's all about climate these days from President Biden, putting climate at the very top of his agenda. Two companies like a b in BEV, linking how much interest they pay to whether they accomplished greenhouse gas emissions goals to investors like Sam Zell just not investing in oil and gas anymore at all, because the risk reward

has shifted in the wrong direction. Pretty much everyone agrees that we're seeing and feeling the effects of climate change in the weather, and it turns out that the biggest source of death from weather in the United States isn't hurricanes or tornadoes, it is heat, which takes us to that new member of the C suite, the Chief Heat Officer. Miami Dade County has just appointed its first ever c h O, and Athens in Freetown, Sierra Leone are soon

to follow. Jane Gilbert is Miami Dade's interim c CHO, working on ways to protect the most vulnerable populations from heat, creating things like resilience hubs where people can go to cool off when they need to, and working with the employers to protect workers out in the noonday sun and fields or in construction sites. She even wants to start naming and ranking heat waves the way we do storms, complete with early warning systems. So maybe coming soon to

an eyewitness news near you. We may well have the Doppler three thousand heat map that does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.