Bloomberg Wall Street Week: Rattner, Prasad, Boulud

coming out of Congress. One of the big questions I think on investor's minds inflations through the eyes of the most influential voices, Larry Summers, the former Treasury Secretary, Bryan Wynahan, a back of America CEO of Charlie Sharp. Bloomberg wool Street Week with David Weston from Bloomberg Radio masks off. Taxes up and the Fed stays put. This is Bloomberg

Wall Street Week. I'm David Weston, And as the Dow Jones Industrial Average indicates, investors sold stock up to the very last day of nineteen six to beat the higher capital gains tax that takes effect this year, and then started buying stock again in seven. It was, in fact the first time in five years that the Dow had risen on the year's first trading day. That was Lewis Ruckeys. You're talking about our rise in capital gains rates over

thirty years ago on Wall Street Week. This week, the topic was back in the news as President Biden proposed doing away with them altogether, raising house of protests from Republicans about what that would mean for investment and for growth. But it's time for corporate America and the wealthiest one percent Americans have just begun to pay their fair share.

Steve Ratner knows a thing or two about investment, managing the personal and philanthropic assets of our founder and majority owner Michael Bloomberg, and Steve has a more nuanced view of what President Biden's proposal would mean in the real world. As you know, there's been an extraordinary amounts of wealth created over the last year in chain the market was up eighteen and a half percent last year, it's up

a good bit again already this year. Yes, that is absolutely wealth, but I think I think irrespective of that to some degree, the right question is how do you think about taxing labor versus capital? And we've done it in a lot of different ways. If you go back to the late nineteen eighties, after the nine six tax with format, we actually tax labor and capital at the

same rate. It's when the eight resentless the top rate my recollection, and then they spread back the parting and we've had capital gains as the lowest fifteent there now up to twenty three point eight when you add in the Obamacare tax and so on and so forth. And you go back and forth about it, but I think the President's basic point is that why shouldn't capital be taxed as much as work as tax and um, I'd

love to have someone tell me why it shouldn't be. Well, the rationale I understanding historically has been we want to encourage capital investment, and if we give you a break on your capital investment, maybe you'll you'll invest more. Certainly, that's what we're hearing from some Republicans that if you do this, you're really going to discourage capital investment that

will ultimately really reduce productivity gains. I want to be clear that I'm not necessarily advocating that you take the capital gains all the way to ordinary income, and I'm not even sure honestly that the Biden administration expects it. I think it's going to be a bit like the negotiations that are underway over the corporate tax, where the Biden administration come out of a pretty aggressive ask. Republicans and moderate Democrats will push back and will end up

somewhere in the middle. So, if you want to guess, my guesses ends and ends somewhere in the middle. But to your basic question about discouraging investment, I don't quite buy that argument, which is right now. First of all, we have excess savings. We have a huge amount of savings in the system slashing around. What we don't have as much of is demand for capital by businesses that want to invest. They're not the ones who pay the capital gains tax. It's the people like you and me

who actually invest the money. And so my response to this would be, Okay, fine, you raised the capital gains tax rate. What are the savers going to do differently? Are they going to say, well, ask, are they going to put the money under mattress instead of investing it.

I don't think there's any historic evidence suggests that whether the capital gains rate was down a fiftent or there was any material difference in the amount of of savings being offered for investment that went on in this economy. What about the other aspects of the personal taxation, which is increasing the top rate up to thirty nine point six percent, which I believe is actually what President Clinton did with like a ninety three if I'm not mistaken.

What effect would that have? Do you think? I think yes, I think you're right about that. But I've been working as you have for forty some nine years. I have paid. I've existed in marginal tax rate environments as high as fifty.

I've existed in marginal tax rates environments I think as low as twenty eight, which we just talked about, and it has not affected my appetite for work, my willingness to work, my desire to work, and frankly, watching friends of mine, people that we all run into in our lives,

I haven't detected much change in their work ethic either. Again, I don't I know of no historic evidence to suggest that people work less at higher tax rates and at lower And sure, at some point it obviously creates the sort of behavior and tax shelters and all this kind of stuff. But we're talking about difference in thirty seven and thirty nine point six. I think it's really a tiny, tiny difference that without any measurable effect on the economy

other than raisings and revenue. Steve take the other side of the ledger. We've been talking about how we pay for it. Let's tay about what we're paying for. President but said he's going to make an investment, and that is both infrastructure, uh and in a broad sense of infrastructure, but also help with things like childcare and elderly care and things, and all of that will be an investment in America that will make us more competitive internationally with

a really fundamentally help our economy. How do you assess that argument we shouldn't care ourselves about this, David, This is the greatest science experiment ever conducted in the history of economic policy. We are talking when you combine President Biden's other two plans, let alone the things that we're done under President Trump, you're talking about over five trillion dollars a year over some number of years of additional spending. That is something like six or seven times what the

Obama stimulus was. The federal government's annual outlays and now it's one year versus a number of years are four trillion dollars. So you're talking about an expansion in the scope of scale government that we've never seen before. I've tried to look back at FDR as time. It's hard to get the numbers to really be understandable. But I sus fact, this is faster and bigger than even what FDR did in the early days of his presidency. And

we're an uncharted water. We're uncharted water about inflation, We're an uncharted water about the debt and the deficit. And to your question, we're certainly an uncharted water about where the all this will work. And if it doesn't work, if it doesn't work, if it doesn't deliver for most Americans, then I worry it will set back the cause of progressive government for another generation. We've had forty years of essentially what I would call restraint government, starting with Reagan

and really going even through Clinton and Obama. The idea was restraint, restraint, restraint. This is a full throated return progressives and because the last fourty years haven't gotten that well for a lot of people, but the next five or ten years have to go really well, or again we're going to go back to another kind of solution. That was Steve Rattner, chairman and CEO of Willed Advisers,

coming up the pandemic ravages India. What does it mean for the country's global economic ambitions from each war Preside of Cornell. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Larry Summers calls it a tale of two worlds. The United States is lifting COVID restrictions, Europe is getting ready to open its borders to vaccinated Americans this summer, and bars and restaurants in Great Britain are open for

business again. But countries like Brazil and India are just now facing the worst of the pandemic. Here's Nara Trehan, the chairman of Medonta. This has happened around the world. I mean, what do you estimate and it exceeds that, then n actually the system starts creaking. I mean, it happened in New York, it happened in many cities of the United States, it happened in Italy, it happened in

many cities off of Europe. Brazil has now recorded more than fourteen million COVID cases and three nine thousand deaths, but President Bolsonaro opposes lockdown measures and has tried to reverse restrictions imposed by local authorities. Brazil's Congress has launched an inquiry into the government's handling of the coronavirus pandemic.

These are places where we have to have a global community, because we also have to understand that the viruses that are present there will eventually move out and enter other parts of the country. That's Andy Pecosh with the Johns Hopkins Bloomberg School of Public Health. It's a similar story in India. Until March, India was recording fewer daily new cases than countries like Germany and France, but now a giant second wave makes India the world's hardest hit nation.

Here's Pawan Munjal of hero In. The situation in India right now is, shall I say, a dire all across the country. India is breaking world records with more than three fifty thousand new daily infections and more than three thousand deaths per day, but officials estimate that the number could be ten times higher than that because of lack of testing outside of big cities and were reporting. Prime Minister Modi's leadership is coming into question with the surging caseload.

He and his top ministers encourage vast gatherings of unmasked people at Jumbo election rallies, and in a month long Hindu festival that brings millions of pilgrims to a small town on the Ganges. Here's Ramanan las mineraian of the

Center for Disease Dynamics. I think there was a perception that that COVID had been done and dusted back in January February of the sea and everything was opened up, the rallies, the the you know, the the gatherings, the weddings, the cricket stadio, and I think obviously that was never a good idea at that point a time, and obviously,

given the situation right now, it was a mistake. The in the story is first and foremost one of human tragedy and what can be done to minimize the losses, But it also raises real questions about how these losses will affect the world's fifth largest and one of the most important emerging economies. For some answers, we turned to Hua Presade, Professor of International Trade policy at Cornell and

senior fellow at the Brookings Institution. Now, before this newest wave of the pandemic hit India looked like it might be one of the three major economies in addition to the U S and China that could actually recover back to its pre pandemic level of GDP by the end of twenty one, and in fact, India would have been one of the major economies to possibly register double digit growth, of course, coming off a significant contraction in twenty but that now looks a little less likely, I think if

you're going to start seeing business and consumer confidence being affected by this, and there are some signs of that already, and that will certainly hurt business investment, although consumption seems to be holding up quite well among foreign investors too. So far, things have been relatively come The rupee has

taken a bit of a dip. It's down by about two to three percentral if to where it was a month ago, but there hasn't been any substantial decline in the value of the currency or in markets more broadly. So so far, at least, things are relatively more placid on the economic front than they are on the humanitarian front.

In the United States and elsewhere, a lot of the economic effect was because of a shutdown the economy, which we had virtually an entire shutdown for a period of time in the United States, which really hit the economy badly. What is the approach right now Mr Modi in India. It doesn't seem that he's shutting it down entirely. What

happens if he does. He does seem to be somewhat ambivalent about how seriously to undertake lockdowns at this stage, given the economic cost of the previous lockdowns last year. But I do hear from my friends and associates in India that I speak to regularly, um that there is a great deal of concern even in places where there isn't a lockdown, So economic activity is beginning to see a significant crimp um if things cannot be brought under

control reasonably soon. I think it's hard to imagine that there wouldn't be a more significant set of shutdowns, which in turn could affect economic activity, and that would certainly make it very difficult for India to achieve the growth potential that I think it has for this year. What is the likelihood that this terrible tragedy manager tragedy could actually change trend growth lines because people thought India really

was one of the promising emerging markets. That's right, in the short term, I think there is the respect of reasonable snap back. One of the interesting things about India's growth is that a lot of it has been powered by household consumption rather than private investment. This is of course similar to what has been happening in many other economies around the world, but even investment was beginning to

come back up earlier this year. The problem is that in the short term, India does not have the sort of luxury that an advanced economy like the US has to unleash monetary and fiscal policy to such an extent that it can support short term growth and also boost

long term productivity and growth. UM. The interesting thing is that over the last year, even while the pandemic was coursing through the economy UM, there were some significant reforms of the Modi government did undertake, including labor reforms, reforms in terms of foreign capital influence and foreign direct investment, which I think are going to be far more important

for long term growth. But I think the real concern for India right now is whether there is confidence both among consumers and businesses that the government is going to get policies right and it's going to get the economy out of this dark spotted tis in right now. Whether fair or not, Certainly investors in the West tend to think about India as an alternative to China in Asia

for possible investment. Does what's going on right now the pandemic actually comparing contrasting it to what's happening in China, Does it make India fall a little bit further behind China in that race? Certainly, the fact that China has been able to control the virus very effectively, while India, um while initially seeming to do so, has now stumbled very significantly will color both domestic and foreign investors views

about prospects for the Indian economy. But still I think India does have enormous potential um and given some of the structural reforms that are referred to earlier than the Modi government is undertaken, if measures can be taken in the short run to get the economy out of the spot it's in right now, I think there are pretty good prospects and we can see that investors do seem to be holding on. As I mentioned, we haven't seen big evidence of plant is in the market or huge

amounts of capital outflows. But to sustain that confidence will take some work on the part of the government. Thanks of Cornell coming up, the hard hit restaurant industry is finally in a position to make a comeback. But will the lack of workers get in the way of work now that COVID restrictions are coming off. We ask fame restaurateur Daniel Balloud. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from

Bloomberg Radio. Restaurants were just about the hardest hit when the pandemic shutdown businesses a year ago now with estimates of more than one hundred thousand forced to close permanently. But financial help is on the way from Congress, and restrictions are letting restaurants reopenly slowly. But it turns out that there's a new hurdle, and that's getting restaurant employees

to come back to work. We talked with restaurateur a chef, Daniel Balloud, creator of a stream of high end and very successful restaurants around the world, including the Two Missiles Start Danielle here in New York, about how bad the

problem is and what can be done. You're and a few months ago I had to prolo about seven people people or most eight hundred people, and to that we have really higher more than two hundred and thirty at this point, and I just hire another seventy people for the new restaurant I'm opening the Pavillon, which will happen in early June. Yeah, this is a fish restaurant, isn't that right? Seafood restaurant. Yes, so we will be up at three hundred some employees three fifty so it's almost

fifty back. We should have fifty percent back by September with reopening other of my restaurants. But uh, there was also a decision on some restaurant not to be up in as well. Yeah, I'm sorry for that. That's happened to so many of There are estimates as many as a hundred thousand or more restaurants in the United States

have permanently closed because of this. One of the things that I've talked to some people in your business about is some difficulty in reopening, not because the restrict of the restrictions those are coming off now, but because actually it may not be that easy to get all the employees to come back. The wait staff and others like that are you having that difficulty. Well, I think everybody is facing their challenges because there's definitely been a shake

up in UH and the industry. But at the same time, because I still had some employees furlough, I also brought some back. It gave me a chance to buy opening a new restaurant also bring back more people. And um I believed, and a lot of people want to learn about the hospitality and the three restaurant business is the most exciting business in the world, and not a young people want to learn about it, and we're looking forward

to train also some young people into that. So I believe, yes, it is hard, but also after the summer, definitely people will come back to work and resume their position wherever they were. I believe that's something I've heard also from some people who run a restaurants. And I wonder if the after the summer is just a incidents that I

believe those supplemental unemployment benefits expire in September. Is it possible that some people are saying, I just as soon stay away from the summer, collect the unemployment and I'll come back in the fall. It has to stop. It has to stop, and people have to go back to work. The office have to bring back people in the office. Of course, it's all gradual, and I think a lot of office already are trying to bring back people sweet as a week and they will bring them back to

five I'm sure. I mean not only the city need that, but the businesses need that. Remote working is uh not for everyone, not for every company, and I think it does also keep the industry going. What about we also, I'm sorry, wages well wayes of course. Uh, despite the fact and minimum wages that fifteen, I think we have to offer also competitive wages in order to attract talent as well. That is imperative, and uh we do that

of course. Are you finally need to pay people more in order to encourage them come off of the beach or or the shelf wherever they are. Yeah, of course. And we have been very fortunate. I have been open not all my restaurants, but at least two of my restaurants,

Danielle and Bubby and Epic three. But we have been open now since almost June last year, and so almost a year ago, and we have been doing well considering it's it's imitation that you know, we have been able to keep people employed and having them well paid and almost earning their salary normal salaries. So I think we are very happy with that, and we think that it's

only going to get better. So, Chef, what about the supply chain, because as restaurants closed about a year ago now, there was concerns that some of the supply chains might go away and not come back. Are you have any difficulties getting the supplies you need for your restaurants now? The supply, I think the supply is fine. We are back to normal with that. You don't matter if it's a fisherman's or farmers or UH suppliers in general. No,

we are good with that. And I'm sorry, go ahead, yeah, go ahead, No, No, and and and we we had tremendous support or so for initiative we have taken to bring back staffs, such as creating a foundation Food First Foundation with sl Green Marc Holiday, and we re employed hundreds of employees in thirty different location restaurants in New York.

With this foundation and those foundations, those employees were making meals to be gifted to many charities and food pantry in New York, including also City Meal, who was also a large recipient that have been producing about that foundation. Is does that continue today or is it starting to ramp down? Yes? Oh, yes, no no. We continue today and and serve the five as well, accluding city Meals.

Thanks the restaurant were Chef Daniel Baloud. 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 bring in now our special contributor Larry Summers from Harvard, as we do every week to really finish the week with us. So Larry, we had. The big event perhaps of the week was President Biden's addressed to that joint

Session of Congress. What did you make of it? Big event of the week, It may have been the big event of the year. I think it was probably the most consequential first address to Congress by a president since Ronald Reagan declared a redirection of the country in UH. The president is betting on a very different role of government and in American lives. He's betting on a very

different UH economic philosophy than we've had UH before. Whether it succeeds or whether it fails, this is hugely consequential. My own view is that the impulses behind it, that government can be a constructive force, that we need much more public investment, that we need much more social protection for middle class families, that we need to strengthen institutions like labor unions that stand up for working people. I

think all of that is correct. I am concerned that progressives have a tendency to overreach, and that you can you need to be progressive, but you also need to get the arithmetic uh right. And I am worried that this program could overheat the economy with some potentially serious economic consequences and some serious political consequences down the road

for progressives. David, I think, uh. The biggest news for me since I started expressing these concerns two or three months ago is that I think we're seeing rising evidence of uh labor shortages. UH. You can see that in small business surveys, where where at record levels in terms

of difficulties in finding labor. You can see that in terms of the data on job vacancies, which are at near record levels, levels that usually would go with three and a half percent unemployment, not with six percent unemployment. You can see it in a large number of anecdotes that people are telling you can see it. Maybe this is the best measure in the fact that workers are quitting at rates they usually quit at during booms, which suggests that this isn't just a sectoral thing, but is

a pretty pervasive phenomenon in the economy. And if we're having that kind of job shortage at a time when the economy is still in front of what almost everybody thinks is going to be a very substantial bloom over the next six months, I am concerned about inflation and inflation expectations. Well, Larry, on that point, what about the law of unintended consequences? Did we go too far? And

some of the relief, particularly the supplemental unemployment benefits. We had Daniel Blud, the chef and the restaurateur on who said, look at he's trying to get people to come back for his restaurants, and they're all saying, talk to me after the summer because, by the way, that happens to be when those benefits go away. Did we go too far? Yes, Um, it was a unemployment insurance is hugely functional, but and it's hugely important and it was the right thing to

strengthen unemployment insurance. But we know that if you ensure people's houses for more than their worth, some people will burn down their houses. And if we give people more money for not working then they were getting when they were working, then people are gonna stay on the sidelines. And unfortunately, for probably a majority of the people on unemployment insurance, they're getting more money on unemployment insurance than

they were getting when they were working. And that's just misdesigned UH policy, and it's kind of an unforced UH error that is having consequences. And I hope that when it expires, will continue to be reforming unemployment insurance. But I hope and trust that after September we're not going to have these kinds of a both replacement of UH

income rates. I hope also we're gonna look at eligibility for unemployment insurance and make sure that the people who are getting at are people who are really ready and willing UH to work. We did what was probably necessary a year ago at the height of the COVID paddocks, so I'm not second guessing UH that, but going forward, UH, we're gonna need to be normalizing with respect to unemployment

insurance and some extent with respect to benefit payments. UH. More generally, Lauren, I want to come back to your analogy to Ronald Reagan in one to oversimplify Ronald Reagan. Basically, I think at a message that basically we need to get the government out of as much as the economy as possible. I think that isn't wasn't a heat that said government is not the solution of the problem, it is the problem. Are we in danger of going to the other side now and saying the government is the

solution to all problems and not so much? Is a matter of political philosophy, But as a macroeconomist, does history teach us anything about the proper role and limits the role of government in the economy? David, I, I'm actually pretty sympathetic to most of the area is helping kids, paying for community college, doing R and D, supporting UH green UH investment. I'm pretty sympathetic to most of the

areas that the president is proposing big expansions. So I'm not with those who believe this is a kind of creeping socialism. I'm more concerned with UH the pace, and I'm more concerned that we try to both improve the rate of the way we spend as well as increasing necessary spending. So if you take an area like infrastructure,

yes we need to spend much more. And I was really glad to see the President UH talking about it, but I wish you'd been talking also about doing infrastructure more inexpensively, about accelerating the sighting of UH infrastructure, about involving the private sector UH in UH infrastructure. I think that we need also, in addition to expanding the scale of government, make sure that government is doing its work as effectively and as efficiently as possible. Let's wrap it

up with a lightning round. As Summer says, Number one, cryptocurrency going forward three years, five years will be a larger function of the traditional economy or smaller. I've changed my mind about this. I think it's here to stay. I think more institutions will be UH engaged with it. I'm not going to predict the price of bitcoin, but I think crypto and digital digital payment are going to be a larger deal in all our lives than they've

been historically. We got the first quarter GDP numbers this week. UH. Did they indicate the economy as stronger or not? Quite so strong as we expected. I think it's an economy on fire. You know, GDP was in the was in the sixes. And on top of that, you had massive inventory decumulation, which will be made up next year. You had an increase in imports. So if you looked at the change in spending, the increase in spending domestically, that

was close to being a double digit rates. And I think that's gonna be with us for some time to come. So my senses that the economy is even more fiery than I had supposed. Okay, Larry, thank you so very much. That is our special Wall Street Week contributor Larry Summers of Harvard. Finally, one more thought, the more things changed, the more they stay the same. This week we witnessed

grand tradition in US politics. It is the presidential speech delivered to a joint session of Congress, usually called the State of the Union speech, but not when it's a new president, and it comes a bit later on the counter to give him a little time to settle into

the job. This year, much of the focus was on all that was different, the relatively empty hall, the masks, the fist bumps instead of handshakes, and perhaps most consequential, the presidence of two women on the dais behind the president, Speaker of the House Nancy Pelosi, and Vice President Kamala Harris. Something President Biden featured right at the very top of his talk, thank you all, Madam, Speaker, Madam Vice President's. No president has ever said those words from this podium.

No presidents ever said those words, and it's about time. Some would say that the President's speech itself went beyond what we normally here, building on historic government action to support the economy already in his first hundred days, Mr Biden doubled down, laying out another four trillion dollars worth of programs. That's why I proposed the American Jobs Plan, once in the generation investment in America itself. This is

the largest jobs plan since World War Two. But for all that was new, there was so much that was

familiar and welcome, for the continuity that it signaled. The presidential motorcade making its way through the Washington night to a gleaming Capitol building, the sergeant at arms announcing the president the President of the United States, the ritual handing up of the copies of the speech to the Speaker, and the Vice President, and of course one side of the aisle repeatedly standing and applauding wildly, while the other side sat pretty much with arms crossed and sour faces.

All happening in a hall that less than a hundred days ago was being stormed by a mob, with Capital Security drawing their weapons to defend some of the very lawmakers listening to Mr Biden's speech. This week, we'll see how much of the President's ambitious agenda he can get through the Congress. We'll see whether all those taxes come to pass, and if so, whether they dampen economic growth.

But whatever comes of it, whether we like where things are headed or not, can't we all celebrate that despite the setbacks, despite the challenges, we keep going. That does it for this episode of Wall Street Week. I'm David Weston. This is Bloomberg. See you next week.