Bloomberg Wall Street Week: Yergin, Altman, Summers

with David Weston from Bloomberg Radio. An uncertain economy meets the promise of a vaccine, and markets pretty much take the over on that bet. Welcome to Bloomberg Wall Street Week. I'm David Weston. Twelve years ago, President Obama came to office with a struggling economy and fought to get a stimulus package despite the political hurdles. Austin Gouldsby was a key Obama economic advisor and saw from the inside what it took to get that done. He's now a professor

of economics at Chicago's Booth School. There are some parallels in what we're seeing right now with a struggling economy, the need for stimulus. Every seems to agree on some political difficulty in getting it done. How can what advice would you give to the incoming administration about how to do that and how to do it effectively? Well, I

do think there are some parallels. If only Mitch McConnell was a thorn in the side of both of those uh, And I think the the thought in two thousand nine, if you remember, was let's do some and if things remain bad, we'll just do more. But Mitch McConnell saw to it that that there would not be more. So I think if you look at the incoming Biden administration, they're probably gonna put some significant focus on try to get as much direct relief as you can, as early

as you can, because the economy needs it now. One difference is in two thousand nine, that was traditional stimulus the U the U. S. Government's gonna spend money try to get growth jump started. This is different. I mean, this is a temporary wave that's spread over US and we basically need to figure out a way to hold our breath for six or eight months until the vaccine can be widely available and we can go back to

doing what we were doing before. So we're trying. Our goal is to try to prevent permanent damage, which is a little different from stimulus. So I hope that they can agree to do something. I mean, we need the money right now. Well, and that goes to the question that's been pending, frankly since July thirty one. When we when the supplementary unemployment benefits, what a way? The question is do you hold on for the full loaf or

take half a loaf? Thus, farther speak of the House, Nancy Pelosi, she's come down off over three point three trillion, but still she's insistent on a lot. Would you advise the incoming president say take what you can get during this lame duck session. I guess I disagree a little bit with the premise of that question. We need as much as we can get, as soon as we can get it. My perception of what's happening is not that

the Democrats are holding out. It's that, once again, like in two thousand nine, Mitch McConnell has decided that a deal is not favorable to him before these Georgia runoff elections, and so it's not primarily a dispute about the size of the rescue. It's about one side not wanting there to be a bill at all. So I think if Minuan and Pelosi, we're the only two deciders, they would have been able to reach an agreement. I mean, they were close on on numbers and how long it would last.

I just think the politics of this whole thing is is quite complicated in the lame Dock. Well, that that's sobering because, as you suggest, if it's a question of not giving the those side credit for something before those runoff elections, that suggest we're not gonna get anything until

into the new year. And I've and I'm quite afraid of that because as you say, look, the unemployment money ran out, the cares agg money through the p p P program that was gonna help give a lifeline to small business, that money's run out, and the Treasury you saw last week said they're gonna withdraw the money for the Fed Main Street lending facility, so that money is not going to be there. So I think this issue that we are we are inches away from having permanent

damage that we did not have to have. Um that that that I think everybody should find sobering. So Austin, talk about that permanent damage as you as you put it, because there's a great deal of hope that a vaccine is coming. It's not here yet, it'll probably be at least into the middle of next year before it really is widely disseminated. And so we need a bridge to get there. What kind of damage can happen in the meantime, because some people might say, well, let's just wait, we'll

get the vaccine, will be okay in the long run. Yeah, but we need the bridge, like said, and the alternative is falling down in the water. And and there are literally millions of businesses around the country that I would say they're gonna go bankrupt, but as you know, something like nine of business closures never even they can't afford to go through bankruptcy. They just shut the doors and they're never heard from again. And that's a space that we absolutely don't want to have to go down. But

right now we're on path to two. In all the states and pretty much all the major cities of the country. They're having revenue shortages like they've never seen, with expenses that are up dramatically because of the pandemic, and they're going to have to start laying off policemen, firefighters, teachers, and a whole bunch of state services that we kind of need at a moment like this. So I think those are the two big speed bumps, uh that I fear.

And and then the third is underlying this whole thing. The virus is the boss. And if you cannot get control of the spread of this virus until the middle of next year when the vaccine comes, there's gonna be thousands. There will be thousands of people who die unnecessarily. There will be tens of thousands of people who are hospitalized

or suffer permanent health damage permanently unnecessarily. So I really hope that Congress does as big a package of relief as they can, as rapidly as possible, so we don't get people evicted from their homes. I mean, millions of people are gonna get evicted. That was Austin gouls Be, a professor of economics at Chicago's Booth School. Coming up. Oh, PEC plus decides to ease off the brakes, but very gradually we talked with Daniel Jurgin about what difference it

will really make. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. We think that energy prices are at equilibrium somewhere in the high team's low twenties. I also think it's a little bit of a hedge. We have seen a very short production in energy prices. By the way, that is stimulative to the economy, So thank you for that. That was Abby Joseph Cohen of Goldman Sachs on Wall

Street Week back in two thousand two. Eighteen years later, the price of oil is double what it was back then, and we don't look at low oil prices so much for how they can stimulate the economy as for what they may say about the strength of global demand, particularly in the time of the pandemic. Daniel Jurgen of I H S Market wrote the book on oil, and we asked him whether this week's latest opeque plus agreement to

gradually ease production curves is what the market needs. What it does is basically says that the deal is not going to break up. When you have twenty three nations that come together and looking at an abyss a negative oil prices, they make a deal. Everybody sticks together. Other as prices start going up, people start looking at their own interests. Saudi Arabia has one view, Russia another view, UH,

the UAE another view. But I think that they could not afford to not have a deal, and there are a lot of digital bilaterals that had to happen to make this happen. But this kind of is a is a gradual one that does ultimately get to what they'd

agreed to in terms of bringing production back. But it just shows you, David, how hard it is to bring seven and a half million barrels of oil over a year back into the market exactly, particularly given this market just one part of forgive the expression criminal knowledge here. I'm hearing some people say it was important that Russia was presiding they were chairing the meeting around the Saudi Arabia. Do you put any stock in that. I think so.

I think Minister Novak was one of the architects of the whole deal, the Russian and UM, the Saudi coach share, UH, the petroleum minister Ulzi spend Salomon decided he didn't want to be in the chair, and so the your of stability was somebody who's not part of OPEC. But part of the non OPEC group, So it sends a message

about the Russians focus on stability. So they had to delay the meeting because there was enough contention they couldn't really get to an agreement quite And the contention, as I understand it, came from a quarter that I didn't appreciate, which is Saudi Arabia and U a E. Usually I think it's Saudi Arabia and Russia. What was the bone of contention between Saudi Arabia and the United Arab Emirates. Yeah, they actually Saudi Arabia and Russia has been the basis

of this whole agreement from the beginning. Uh. The U a E has said that they want to increase production. They didn't like the fact that other countries were cheating. Uh, they seemed to want to They've raised questions about what's the framework here. I think they want to monetize their oils. So there was a degree of tension between those two countries in terms of their point of view, which normally

they're pretty much in locksteps. So that's the example of the divergence of interest that exists, particularly as prices start going up again in anticipation of vaccine. Well that and that's key. It seems to be as you say, the prices started going up again because I took a look at oil over a period of time of the course of the year, and it has been moving its way back up. Is that really triggering the dispute right now about whether it increased production? Yes, I could. I think

when prices start going up the divergence of interests. I mean, the oil price has basically been stuck on what I call the virus alley, and like a lot of other parts of the economy, and in terms of getting out, it's been torn between the one hand, now vaccine optimism

and the other hand virus pessimism. But as it's now basically looking towards the springtime, when it's possible that a lot of people in countries where you have had economic shutdown like the United States or Europe, will be back in motor cars and demand will be going up again.

Then we spent almost every day looking at the equity markets, at least here in the United States and how they've been going up, and it's generally thought that's because we are anticipating a vaccine sometimes at least towards the middle of next year, does the all market work that way? I mean all this is being affected already by the prospect of a wider distributive vaccine by the middle of absolutely it's signaling it, and that that, uh, that's when

you'll start to see demand going up. Of course, there's some things hanging out there. For instance, that the Biden administration starts to move to try and reopen the door with Iran, that could mean a lot of Iranian oil coming back into the market. So there's a whole geopolitical

drama that's happening at the same time. But it's certainly expectations of a vaccine and kind of confidence and hope beyond what looks like a very difficult twelve weeks that we have a head from a health point of view. At the same time, we see China coming back faster. I think it's fair to say in the United States and Europe, is that helping drive the price of oil in and of itself right now? It gives a sense

of what the China resurgence is doing. Yeah, it's uh sent a message that was not expected because people thought, you know, demand would be weak. Chinese oil demand now is higher than it was at this time last year. So I think that is figuring in that people see that you get recovery, and with recovery comes increased demand.

And uh, you know, this is a market that has been very hard hit by the reduction in demand because of the free snymp of activity, and there seems to be indication that demand is is really back in India as well, and that's another signal that the market's looking at. Moving over to the supply side, you mentioned the possibility of Iran coming back online if in fact a Biden administration comes to terms of them. Libby already, as I understand,

it is producing again more than it was before. How much oil is sitting out there that could come back in on the production side, Well, if you add what has been out because of the OPAQ plus deal at this point that's seven a half million barrels, then you have another that all won't come back at once. They're trying to have a structure for that, but you could have three million barrels a day of Iranian oil coming back,

and possibly something with Venezuela too. So that is hanging out there, and it looks like the Trump administration is doing everything you can to put together an anti stronger, anti Iranian coalition to make things more difficult for a Biden administration. What is the effect at this point of the U S shale. I mean, it's been a huge effect. You you have it in the new Map, your new book about the effect of US shale. How is that affecting the oil market right now? Well, shale has come

down a lot. We reached an incredible high point of thirteen million barrels a day in February, ahead of Saudi Arabia,

ahead Russia. We're still out of Saudi Arabia in Russia because of their cutbacks, but it's down about two million barrels a day, and I don't think we'll see a recovery until the middle of next year, until you start to see a demand going up and prices getting really getting out of virus Alley Dan, As you suggest, the big issue I think it's for the world, but certainly for the oil industry, is what happens with the vaccine

and the vaccine coming back on. We also have a change in administrations coming up here in the United States, and we have what looks to be quite a different approach to energy coming in from a President Leiden when he takes office January twenty. How big a factor is that likely to be? Well, well, I think in a way.

I think the way obviously listening to your previous interview and thinking that really the presidential election really isn't over until January five, and we know the outcome of Georgia, because that will affect what the Biden administration can and can't do it on climate. But it is said that climate is one of its four priorities. John Kerry has been appointed as Climate Envoy. Every Cabinet secretary will have a climate objective so and the United States will re

engage with the Global Climate Paris Consensus. So it will be a pretty big change, I think. But he's also made clear that there's no ban on fracking, that there'll be more regulation. That was Daniel Jurgen, author of the New Map Energy, Climate and the Clash of Nations. Coming up, We're down to the wire on Brexit. Bloomberg Senior executivetor for Economics Stephanie Flanders on what's at stake that's next

on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio Less than a month ago until the United Kingdom leaves the European Union with or without a deal. After years of back and forth, it's hard to see how the parties have truly narrowed their differences over harmonizing regulations over the Irish border or over those fish. As Wall Street Week contributor and Bloomberg Senior executive editor for Economic Stephanie Flanders says,

it's time to make some decisions. Well, and of course it's those kind of phrases that have been used over the last few weeks as we've had increasingly felt that we were just on the edge of an agreement, and that was true last week, and we know that it was delayed. Any any final furlough was was delayed by the fact that one of the negotiators actually was exposed to COVID and everyone had to go into quarantine for

some period of time. But every day now we've all to our reporters and the world on the street, we are hearing that it's about to come a deal. I have to say, the move music the last few days has actually been less positive, and I think that's partly the feeling that hang on a minute, we thought we knew what needed to happen. You mentioned those three deals.

You know the general perception is, but on those three sticking points, it's Britain, probably Boris Johnson himself, who will need to give a little bit on this language around a level playing field where Britain sort of promises that it's not going to try and use its new freedom to get an enormous competitive advantage against Europe in return for the Europeans then asking for what the British would say was a more reasonable amount of access to British waters.

It's amazing how important this not point one percent of the economy, the fishing has become in this negotiation, and of course many in the financial sector. The city is so important. I would say, hang on a minute. We were sold down the river years ago and you're still the fish fishermen are still in their battling away for their rights. It does seem like a very topsy turvy negotiations. As we would say, them's politics, it's a practical matter.

But we have the British on the one side, and I think it's pretty to say the British position is not always been perfectly consistent. But on the other hand, are we having dissension over the European side because now there are reports that maybe they don't think Michelle Barnier is really including them in and what the terms are. There was even a Bloomberg report saying that in fact, France might be threatened to vita whatever Mr Barnier negotiate.

You know, the Friends have always had a very have been the sort of the muscular side of the negotiations and certainly have had more muscular rhetoric feisty rhetoric throughout this process. We know they've quite actively talked about taking advantages for paris Is financial sector for this for sure, but also about Britain being you know, being absolutely sure that Britain doesn't get a deal that any other country might look at and say, oh, I'd like I want

one like that. Whether that's sort of classic, not to play to too many stereotypes, but is it the sort of you know, gallic desire to sound to sound matcho or whether there's something more fundamental They're a real disagreement. I'm not so sure. And what has been really striking throughout you pointed to the inconsistency on the British side

in general the Europeans. This is a lot of countries with a lot of different interests in this negotiation have been remarkably of one voice throughout, and I suspect that will continue even if you get a little muttering around the edges. What is the real deadline? I mean, there are so many deadlines now I'm hearing like December eighteen, because they do have to get ratification right after they

get a deal done. Yeah, And it's been interesting because that the British said the deadline of October, middle of October a while ago, so that was the sort of drop dead date. Um the Europeans were always a bit sort of po pooed that. Then it went through November. I interviewed the Irish Prime Minister a few weeks ago for the Bloomberg New Economy Forum. He thought the deadline could slip into the middle of December. Now they are

talking about a bit later. I think the idea is, once you get into that un of territory, everything would be provisional. You wouldn't be able to get ratification in the European Parliament, and in the sense you would be prolonging the agony because you would you would still be having to go back and finalize this deal that you

did already in the final hour. So I think people are hoping that we won't be pushing those further deadlines, not least because that the new vaccine that Britain has just confirmed has to we haven't got it from but Belgium yet, and we certainly don't want to get shipments to be interfered with come January. So we're all going to need to be watching this very very closely over the coming days and weeks. By the way, if they don't get a deal done by by December thirty one,

can they just keep negotiating into new year? I understand w t R restrictions will come into effect, but why couldn't they deal want to do a deal on January fifteen or January You know, we've we found that before that these things can be can be more flexible. I think that the problem is that the potential of extending the transition period was absolutely ruled out after the summer.

There was a deadline. I think it was in August where the British to apply for an extension and they said, despite COVID, despite everything else, the government was adamant it wouldn't have an extension. So legally, you're right that the change has to happen on January one. Whether you'd have enough goodwill, enough desire to negotiate with the same kind of pace and energy when you've already crashed through that crucial legal deadline, I'm not so sure. But yet technically

they could carry on talking. That was Stephanie Flanders, Bloomberg Senior Executive editor for Economics. Coming up, we wrap up the week with our special contributor Larry Summers of Harvard. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Every week we ran things up with our special contribute Larry Summers, Harvard. So Larry, welcome. I must say this

week instructs me. It strikes me that the big developments were on the fiscal side rather than the monetary side. We did hear from j Pale said there are some uncertain about the economy, but it was really apparent progress to a compromise on some fiscal stimus were on that nine hundred eight billion dollar proposal from some Democrats and

some Republicans in the Senate. Is it possible that in fact, the Republicans have been right all around long, and then we shouldn't have done the three point three trillion last spring, and it was right to wait, because nine eight billion maybe enough. I think the three point three trade was always a negotiating position. We certainly should have done stimulus in the summer. We would have come into this difficult period with a stronger economy. We would have had even

more rapid growth. We would have helped a lot of children who are going hungry. We would have prevented a lot of layoffs from state and local governments. But look, David, what's important now is to look forward, not backward. And you saw it employment figures. You see it in what's happening with COVID. This economy needs relief, and it needs it now. It needs it for hungry children, needs it for people who are unemployed. Needs it to compensate those who are going to need to stay home if we're

all going to state safe. It needs it to pay for much more testing than UH we're having. It needs it to pay for more contract tracing than we're now doing. It needs it to pay for the monitoring and assuring that people are wearing UH masks and it needs it to make sure that we deliver those vaccines every bit as rapidly as we conceivably can. This cannot possibly be a moment for UH sitting still. It would be the highest irresponsibility if Washington was not able to find a compromise.

That means cutting out peripheral issues that may be very important economic issues but are not central to the stimulus challenge, and it means getting with the program and recognizing that America needs help. I hope it will happen in the next several weeks. It looks more likely than it did, but there are no certain and teach and it is a real test of goodwill and the capacity of Washington's function. Larry, one of the things we like to do here in Wall Street is look at the week, but also look

beyond the week too. Larger patterns here, and when anybody mentions a paradigm shift for me, it certainly gets my attention. I read that book a long time ago about Paradigi and their suggestion there may have been a paradigm ship when it comes to physical cities. It comes from Olivia Well and Shard referring to you, saying that there there might be a paradigm shift. The large agreement between Larry Summers, Jason Firman, Ben bernanke Ken Rogoff, and him tell us

about that paradigm shift. I think the paradigm shift is what I've talked about on your show before, Uh, David Uh. For forty years, since the inflation of the seventies, the preoccupation of macro economic policy has been with monetary discipline

to avoid inflation and fiscal discipline to prevent crowding out. Now, when we've got zero interest rates and zero interest rates projected for a very long, very low interest rates for acted for ver long time, we're in a different paradigm where in a paradigm where the challenge is absorbing all the savings that an unequal and uncertain private sector generates, and that means we're gonna have to think about fiscal policy not just as a countercyclical tool, but as a

chronic instrument that we're gonna need to use to maintain demand. If we don't have fiscal policy, we're gonna have pathologically low interest rates. We're gonna have with those pathologically interest rates, savers who don't have a chance to make it for their retirement exploding asset prices and potential financial instability, rising uh inequality, and economies that aren't going to reach their

full potential. So the right way is to provide more stimulus to the economy, and we probably can't provide it with monetary policy, and even if we could, the side effects would be catastrophic in terms of financial instability. So we need to think about fiscal policy as a permanent tool of maintaining demand management. That is a very different view than the one we've had. It may not it may well not be the right view forever, but it's

the right view for coming decades. So so apply that approach the fiscal policy, which it would be a paradigm shift, as you say, to what we're facing right now, what Roger All referred to as a split screen economy, where we're looking at three or four months of really tough times, perhaps with a snap back if a vaccine is why they distributed towards the middle to the end of next year. Can we have one fiscal policy that handles both of

those very different conditions. I think so, because even with the snap back, even with a very good period of growth, we're still going to be short in terms of total number of jobs where we thought we were. We're going to be short in terms of output of where we thought uh we would uh be, and we are going to need to run deficits of a kind larger than

people used to think we're appropriate. Um. And the truth is it's gonna be okay, because we're gonna be able to run uh those deficits given how much savings there is to absorb them, and given how little pressure there is uh coming from credit markets. So I don't think

this is an alarming prospect. In many ways, low costs to borrow for public investments are a boon, are a good thing, just like businesses regard low borrowing costs is a good thing, and all of us as homeowners regard the ability to refinance our mortgages, the ability to get a larger home or a second home at a lower carrying costs because of low interest rates. We regard those as positive things, and the same thing is operative in terms of public investment. So I don't think that this

is necessarily a bad uh thing. Low interest rates are an opportunity to do all kinds of things we probably should have done a long time ago, whether it's green investments, or investing in our children, or fixing our infrastructure. I've used this example before. When I started flying from Harvard to Washington to give advice, it took an hour and a quarter. Now it takes over an hour and a half. And it hasn't gotten any further. And airplane technology hasn't

gotten worse. What's gotten worse is our air traffic control systems ability to manage all the traffic that's got to not make any sense. That is one of many, many examples of where we need to strengthen our country's infrastructure. Another example is our kids who are uh not able to go to school and in so many cases don't really have decent access to education because they lack the broadband access that is kind of part of being part of the economy, in the same way that electrification was

a necessity to be part of the economy a century ago. Okay, so Larry, just a little over a minute left here. I want to do a couple of quick Summer says is that we love to do. Number One, when are we going to have a defects of vaccine which is so widely distribute it affects American population? When will that happen June one. That's that's pretty But is that the second inoculation or just the first, second and second inoculations for enough of the population that COVID will be down

from current levels by June one, is my prediction. I mean, there are people who are saying we're gonna get a third of the way by February, and if we come close to that, we'll get the rest of the way for sure by June. Well, I for one, would take that deal without question. I'm an optimist. Well, I like your optimism. That's terrific. Clary, you've been warnings about COVID nineteen. It's good if there's a way out of this second one when we're gonna were gonna see the ten year

yield up about one. We really saw it move up significany this week. I think that's gonna be until next year. I don't think the fans gonna want to see that happen. I think there's gonna be a lot of pressure to keep rates, uh, keep rates low to maintain financial stability and make sure that we're getting all the stimulus to investment that we can February one, by next year one, yeah, yeah, exactly, but does that mean that the reflation trade maybe over

oversold as a possibility. Uh No, there's a lot more room above one per cent than there is. That's parallel where we are where we are now, But I don't think it's a good short run. Thank you so much to Special Wall Street. We contributor Larry Summers of Harvard, always so great to have him with us. Finally, one more thought, the irresistible force of COVID meets the immovable object of American football. All of our lives have been upended in ways we could not have imagined just a

year ago. But it's one thing to work from home, or miss graduations and family gatherings or forego vacations. It's something else, altogether to do without our football. So the NFL came up with a plan to push ahead, to test everyone daily where masks even in practices, limit all outside activities, and punish anyone who doesn't comply. The only problem is football is played by people, and people don't always play by the rules. Even in football, they had

a good protocol, good strategy in place. At the end of the day, they're working with people, and human beings

make errors. And so this week we had the Pittsburgh Steelers play the Baltimore Ravens on a Wednesday afternoon, the third time the game had been rescheduled because a good part of the Ravens roster tested positive and the Denver Broncos lost all of their quarterbacks not to COVID, but to violating the rules on COVID, leaving a wide receiver to run the team, one who hadn't taken a snap under center since his days in college at Wake Forest.

It would be easy to say just stopped playing, But as Hall of Fame cornerback Darryl Green put it, it's not just about a game. For many of us, it's about who we are. How can we keep moving certain things that has to continue to move that makes us who we are as an American society. So whether you love football the way some of us do or not, we all share the need not to let a virus that's changed what we do change who we are. That does it. For this episode of Wall Street Week, I'm

David Weston. This is Bloomberg. See you next week,