Latest / Bloomberg Intelligence / How Science Can Jumpstart Economy: MIT Economists

Transcript

How Science Can Jumpstart Economy: MIT Economists · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul Sweene. You,
0:05
Speaker 1: along with my co host Lisa Brahma wits each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money. Whether at the grocery store or
0:12
Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Well, income inequality and uneven economic
0:25
Speaker 1: economic opportunity clearly became key issues in the sixteen presidential election.
0:31
Speaker 1: To help us kind of dig through some of these issues,
0:33
Speaker 1: we welcome our two guests, Dr Jonathan Gruberg, Professor of
0:37
Speaker 1: economics at the Massachusetts Institute of Technology, and Simon Johnson,
0:42
Speaker 1: professor of Entrepreneurship at m I T and former chief
0:44
Speaker 1: economists at the I m f I. M f I
0:46
Speaker 1: should also say Dr Gruber is also key architect of
0:49
Speaker 1: Obamacare and Romney Care. Dr Gruber, Simon, thank you so
0:53
Speaker 1: much for joining us. So you guys, let's talk about
0:57
Speaker 1: the book you have written, and we're here to discuss
1:00
Speaker 1: it's entitled jump Starting America, How Breakthrough Science can Revive
1:03
Speaker 1: Economic Growth and the American Dream, which is available now.
1:07
Speaker 1: So with this book, Dr gribber Key findings, what's the
1:10
Speaker 1: kind of the key fundings that you guys came up
1:12
Speaker 1: with here? I think the key point is that we've
1:15
Speaker 1: forgotten an important lesson from the U S history, which
1:17
Speaker 1: is the in the boom decades post World War Two,
1:21
Speaker 1: what drove US economic growth was a fruitful partnership between
1:24
Speaker 1: the government and the private sector in developing new technologies
1:28
Speaker 1: that that grew the economy. We can get back to that.
1:31
Speaker 1: At the peak, we spent two percent of our entire
1:33
Speaker 1: economy on publicly financed R and D. It's now down
1:36
Speaker 1: to point seven. We need to get back to investing
1:38
Speaker 1: more R and D the causes growth, but we did
1:41
Speaker 1: do so in a way that involves the whole country,
1:43
Speaker 1: not just a few elite coastal cities that have that
1:46
Speaker 1: have been the major beneficiaries of R and D expenditure
1:49
Speaker 1: in the recent past. Yeah. With that point, Simon, I'm
1:52
Speaker 1: just curious. I think it's a fascinating idea. It's a
1:55
Speaker 1: great idea. Is the is there the political will given
1:59
Speaker 1: the budget deficits we have now to do this? Well,
2:02
Speaker 1: that's a great, great Christian evince Behind closed doors. We
2:05
Speaker 1: find a lot of agreement across the entire political spectrum
2:08
Speaker 1: on the need to support science and i H, as
2:10
Speaker 1: you know, gets a lot of support from Republicans and
2:12
Speaker 1: from Democrats. More funny for ni AH more initiatives like
2:15
Speaker 1: ni H. I think there's interesting that we're proposing a big,
2:18
Speaker 1: bold way to do it. I agree, but it would
2:20
Speaker 1: be benefit everyone across the country and that matters on Congress.
2:23
Speaker 1: What does indeed it does indeed especially in an election
2:26
Speaker 1: here coming up. Yes, so Jonathan, kind of how do
2:28
Speaker 1: we get there? What are you? What are something the
2:30
Speaker 1: practical suggestions that you have guys who call up with
2:33
Speaker 1: within your book. So one important practical suggestion is to
2:37
Speaker 1: realize that we have incredible reservoirs of talent all around
2:41
Speaker 1: the country. That while most of the growth in the
2:43
Speaker 1: US has happened in six or eight cities over the
2:45
Speaker 1: last couple of decades, we have places. In the book
2:48
Speaker 1: we identify a hundred and two places which are large,
2:50
Speaker 1: which have well educated populations, and which have affordable housing,
2:54
Speaker 1: which could become the technology hubs of tomorrow. The other
2:57
Speaker 1: suggestion we make is we need to move to a
2:59
Speaker 1: more ape political process through through sort of a commission
3:03
Speaker 1: that's an a political commission model on the base closing commission,
3:06
Speaker 1: let's make it a technology helb opening commission to help
3:08
Speaker 1: the side worship with the dollars of tomorrow. That's actually
3:11
Speaker 1: an interesting point and a political confission. Do you think
3:15
Speaker 1: I'm just thinking realistically, with all that we're seeing in
3:19
Speaker 1: Congress right now and the all the battling back and forth,
3:22
Speaker 1: it seems impossible to get coordination across the aisle. But
3:25
Speaker 1: it does if you think about you know, electric cars
3:29
Speaker 1: and the potential to invest in electric charging stations across
3:32
Speaker 1: the country and move towards That spells right, That plays
3:35
Speaker 1: right into the green deals. I mean, I mean that
3:38
Speaker 1: is an interesting way to get both sides of the
3:40
Speaker 1: aisle on the same page. Because you do you kind
3:43
Speaker 1: of dot every eye in course every take. Well, you
3:45
Speaker 1: could plug various technology visions into the mechanism that we're proposing,
3:49
Speaker 1: So the Green New Deal absolutely could fit there. If
3:51
Speaker 1: you want to promote more life science, if you want
3:53
Speaker 1: to into cure cancer, that could be the priority that
3:55
Speaker 1: gets plugged in. The key point is spend a lot
3:57
Speaker 1: more on the on the basic science. Privacy is not
3:59
Speaker 1: gonna do that because the private sector can't get and
4:01
Speaker 1: no one company can get all the games. But once
4:03
Speaker 1: you create that scientific information and infrastructure, it can spread
4:07
Speaker 1: and be a catalyst for private sector development. And that
4:09
Speaker 1: can happen absolutely everywhere in the country. Is not This
4:12
Speaker 1: is not a Silicon Valley or Boston promoting book. This
4:15
Speaker 1: is promoting a jump stop for thirty six forty five. Hey,
4:18
Speaker 1: let's go for fifty American states. So, Jonathan, I mean,
4:21
Speaker 1: when you think about it, the university system of this
4:24
Speaker 1: country has been, you know, are one of the backbones
4:28
Speaker 1: of technological advances over time. Um is that? And it
4:32
Speaker 1: seems like that could be anywhere. That could be anywhere.
4:35
Speaker 1: I mean I think of cities like Austin, Texas, which
4:38
Speaker 1: have become you know, huge tech areas. I mean, uh,
4:41
Speaker 1: my son's at the University of Colorado. There's a tech
4:43
Speaker 1: community out there in Boulder, in Denver. It can really
4:46
Speaker 1: happen anywhere. But does it? What's again? I'm just kind
4:49
Speaker 1: of wondering. I just don't see the government stepping up
4:52
Speaker 1: with big dollars today. Well, so two points in that.
4:57
Speaker 1: One of one of our favorite examples in the book
4:59
Speaker 1: is or lay To, Florida, home of the Emails not
5:02
Speaker 1: Mickey Mouse. Forty five minutes east is the center for
5:05
Speaker 1: the US micro computer micro simulation industry and the largest
5:08
Speaker 1: University of America, University of Central Florida, which went from
5:11
Speaker 1: mid sized university to now having the thirteenth rank electrical
5:14
Speaker 1: engineering department in the country. That area, forty five minutes
5:16
Speaker 1: of Orlando, has created a hundred thousand jobs over the
5:19
Speaker 1: past thirty years through a partnership of the government, the university,
5:24
Speaker 1: and the private sector. And where confident that this can happen. Look,
5:27
Speaker 1: if you want evidence, look at the Republican reaction the
5:29
Speaker 1: Green New Deal largely negative. Accept Lamar Alexander said how
5:33
Speaker 1: much he liked the research and development part of the
5:34
Speaker 1: Green New Deal. That's where we can get consensus. So interesting,
5:38
Speaker 1: I asked both of you this question is when you
5:41
Speaker 1: when you do this and you move into away from
5:44
Speaker 1: the coastal areas, as you say, we've seen what um,
5:47
Speaker 1: what this has done to Seattle in terms of real estate.
5:50
Speaker 1: We've seen what it's done to San Francisco in terms
5:52
Speaker 1: of homelessness. It seems to me there has to be
5:55
Speaker 1: a really concerned, uh concerted effort with local communities to
6:00
Speaker 1: sure that this doesn't happen in the locals, don't those
6:02
Speaker 1: who do not participate in this program don't get priced out. Yeah, absolutely, well,
6:06
Speaker 1: thank you to New York for the backlash against Amazon
6:09
Speaker 1: for making that point rather abundantly clear. Of course, it's
6:11
Speaker 1: a priority, absolutely, And you're also right that local communities
6:14
Speaker 1: have to be on board now. And you also know
6:17
Speaker 1: that more than two thirty communities in the United States
6:19
Speaker 1: bid on Amazon h U two. So they want the jobs.
6:23
Speaker 1: The jobs need to come with sustainable growth and and
6:25
Speaker 1: real estate is a key piece of this. One thing
6:27
Speaker 1: that makes so many parts of the Unit States attractive
6:29
Speaker 1: is real estate is really really cheap. If we say
6:31
Speaker 1: the numbers on air, and I think a lot of
6:33
Speaker 1: your New York based listeners are gonna want to move immediately.
6:35
Speaker 1: But you can buy a house in place like Pittsburgh
6:37
Speaker 1: for less than two thousand dollars a nice house, right,
6:40
Speaker 1: So what you want you don't want to lose that.
6:42
Speaker 1: You want to understand and appreciate that as part of
6:45
Speaker 1: the package, and you want to use that as a
6:48
Speaker 1: big part of the message, and you don't want to
6:49
Speaker 1: run out of space. So it's very important you think
6:51
Speaker 1: as a community about what kind of zoning you're going
6:53
Speaker 1: to have, what kind of develop you're gonna you're going
6:55
Speaker 1: to allow. People want to live together, they want to cluster,
6:57
Speaker 1: they want to live closer together than in the past.
7:00
Speaker 1: You need to make sure there's enough space for that.
7:02
Speaker 1: Is there enough trained Does this country have enough trained engineers,
7:06
Speaker 1: technical people to to do this? I mean when I,
7:09
Speaker 1: you know, several years ago when I came out of college,
7:12
Speaker 1: it was everybody on the wall street. Now my kids
7:14
Speaker 1: in our college that they're just all thinking tech and
7:16
Speaker 1: engineering and apps and things like that. Do we have
7:19
Speaker 1: enough technical expertise in this country right now? We have
7:23
Speaker 1: enough skill, we don't have enough technical expertise. I think
7:26
Speaker 1: that once again, one thing we've fallen behind on. One thing.
7:29
Speaker 1: The government did really well in the decades after World
7:31
Speaker 1: War Two, through things like the National Defense Education Act,
7:34
Speaker 1: was invest in both high school and college education the sciences.
7:37
Speaker 1: We need to get back to that. If we simply
7:39
Speaker 1: increase government investment in science but don't boost the supply
7:43
Speaker 1: of scientists, we're just gonna increase income inequality. We increase
7:47
Speaker 1: the demand and the supply. That means a large investment
7:50
Speaker 1: with local buying into improved education at both the high
7:54
Speaker 1: school and college levels. Yeah, that's that's an actually a
7:56
Speaker 1: really good point. I will tell you with my my
7:58
Speaker 1: kids who came up with very interesting degrees they wanted
8:02
Speaker 1: to study, and I pushed them all towards technology because
8:04
Speaker 1: it seemed to be the place to be. As you
8:06
Speaker 1: say it, is there a buy in from the university
8:09
Speaker 1: level um to help support that, for instance, make technology
8:13
Speaker 1: degrees more affordable. That's a kiosk absolutely, And you know
8:17
Speaker 1: who's gonna drive that the young people. The young people
8:19
Speaker 1: want the technology skills they want. I think that it's
8:22
Speaker 1: mixing technology with creative that's the future. That's what the
8:25
Speaker 1: artificial intelligence machines are not going to take away from you.
8:27
Speaker 1: But it has to be affordable. It has to be affordable,
8:30
Speaker 1: and we've got to look at that at the federal level.
8:31
Speaker 1: That after Sputnik seven, that's what we did. We made physics,
8:35
Speaker 1: math education much more affordable. Spread that around the country.
8:38
Speaker 1: There's a federal piece, but there's also a local and
8:40
Speaker 1: state piece. Right there's gonna be pathways through community colleges
8:42
Speaker 1: and other ways through state schools. We were very good
8:44
Speaker 1: at that in the past, and we've taken our eye
8:46
Speaker 1: off that ball. Frankly interesting, gentlemen, Thank you very much.
8:48
Speaker 1: Dr Jonathan Gruber, Professor of Economics and m I T
8:52
Speaker 1: and Simon Johnson, Professor Entrepreneurship at m i T discussing
8:56
Speaker 1: their new book, jump Starting America, How Breakthrough Science can
8:58
Speaker 1: revive economic oath and the American Dream. That book is
9:02
Speaker 1: available now. Thank you very much, gentlemen. I am Paul
9:16
Speaker 1: Swingey and we have Vince Cignerella sitting in for Lisa
9:18
Speaker 1: brahma Witz this morning. I guess taking a look at
9:21
Speaker 1: the f O m C mean minutes from yesterday just
9:24
Speaker 1: kind of confirms what I think the market was already discounting,
9:26
Speaker 1: which is the Fed remains committed to being on the sideline,
9:29
Speaker 1: at least for the near term. To see what that
9:31
Speaker 1: means for the credit markets. We welcome our next guest,
9:34
Speaker 1: r J. Gallas, and your portfolio manager, head of the
9:37
Speaker 1: Municipal Bond Investment Group ahead of the Duration Committee for
9:40
Speaker 1: Federated Investors. He joined us on the phone from Pittsburgh.
9:44
Speaker 1: R J. Welcome to the show. What did you take
9:47
Speaker 1: away from the f O m C notes and kind
9:49
Speaker 1: of the recent dubbish uh commentary from the Fed, how
9:52
Speaker 1: are you positioning your funds? Well, good morning, thanks for
9:56
Speaker 1: having me. I thought on that that the minutes weren't
10:00
Speaker 1: really necessarily market moving, but that doesn't mean there wasn't
10:03
Speaker 1: there wasn't some revelation in there that that I think
10:07
Speaker 1: is material first and foremost. Uh. It basically suggested to
10:11
Speaker 1: me the tone of the minutes themselves affirms the FED
10:15
Speaker 1: that is at neutral, that that one remaining dot that
10:18
Speaker 1: ticks up next year on the dot plot. If you
10:21
Speaker 1: look at the medians, um, don't have don't they don't
10:24
Speaker 1: put too much confidence in that dot. They sound like
10:27
Speaker 1: they're equally likely that the next move is an ease
10:30
Speaker 1: as it is a hike. And it's certainly affirmed the
10:33
Speaker 1: view that this year is not likely to see any
10:37
Speaker 1: move of FED target rates, at least not in twenty nine. Team,
10:40
Speaker 1: We'll see what happens next year. J question for you
10:43
Speaker 1: because this is kind of baffles me. Just a little
10:45
Speaker 1: bit ahead of the Duration committee. This is something I
10:47
Speaker 1: assume you're keen on the balance sheet. We went from
10:50
Speaker 1: prior to the financial crisis, a balance sheet of under
10:53
Speaker 1: a trithlen and now essentially the Fed is saying we
10:55
Speaker 1: need to keep it at three and a half TRISN
10:58
Speaker 1: does does that create any anxiety and us to why
11:00
Speaker 1: they need to leave that much stimulus in the system. Well,
11:06
Speaker 1: just for background, I used to work on the Fed's
11:08
Speaker 1: open market desk. I was a trader at the New
11:10
Speaker 1: York FED back in the nineties. At the time, the
11:12
Speaker 1: system open market account was seven hundred or eight hundred billion,
11:16
Speaker 1: you know, a fraction of its size today. And I
11:19
Speaker 1: think over the decades that have that have followed, the
11:23
Speaker 1: implementation of monetary policy changed drastically with all the various
11:27
Speaker 1: iterations of q E and then the development of various
11:30
Speaker 1: programs to manage short rates, you know, target rates, if
11:33
Speaker 1: you will, within the context of a massive amount of
11:36
Speaker 1: reserves in the banking system. And I think number one,
11:39
Speaker 1: they've shown that that their current framework works, that they
11:43
Speaker 1: can target short term rates even with massive amounts of
11:46
Speaker 1: excess reserves. Paying interest on reserves is another meaningful change
11:51
Speaker 1: that has occurred. Cored about ten or eleven years ago,
11:53
Speaker 1: if I recall correctly, So I don't think they're fed.
11:56
Speaker 1: UM needs to have UH needs to regress, if you will,
12:00
Speaker 1: back to the balance sheet that existed ten twenty years ago.
12:03
Speaker 1: UM the framework. It works, and I think they've proven that.
12:07
Speaker 1: And since it does, that means they have much more
12:10
Speaker 1: flexibility to leave the balance sheet larger if, in fact,
12:15
Speaker 1: the markets broadly defined suggests they should. Well, one thing
12:19
Speaker 1: that suggests they should leave it larger is the fact
12:22
Speaker 1: that the inter bank market for reserves is functioning fine.
12:25
Speaker 1: That the demand for cash if you chart on Bloomberg,
12:28
Speaker 1: the currency in circulation on the FED balance sheet, because
12:31
Speaker 1: that's a big liability, right, has surged in the last
12:34
Speaker 1: ten years. Um, So there's there's plenty of reason to
12:37
Speaker 1: have a larger balance sheet even without the reserve markets.
12:40
Speaker 1: That the demand for currency extremely large and it's grown rapidly.
12:44
Speaker 1: So that's one market that's telling you a big balance sheets. Okay,
12:48
Speaker 1: I think another set of markets are also telling you that.
12:51
Speaker 1: Number One. UH, the confluence of tightening in December and
12:56
Speaker 1: the perception of autopilot, which was fueled by the FED
13:00
Speaker 1: don't communications uh with respect to the balance sheet painted
13:05
Speaker 1: a worrisome picture that rates were still going up, quantitative
13:09
Speaker 1: tightening was was was going to persist, and the FED
13:13
Speaker 1: ran the risk of of overtightening generally speaking, and that
13:17
Speaker 1: had a lot to do with the fourth quarter tumult,
13:20
Speaker 1: the FED reacted to financial conditions which became very adversarial.
13:23
Speaker 1: They called off the dogs on tightening, and they said, hey,
13:25
Speaker 1: the balance sheet can remain large because the markets are
13:29
Speaker 1: telling us that's what they sort of need. And if
13:32
Speaker 1: the FED is sticking by what share Powell said in
13:35
Speaker 1: his January press conference that his primary goal is to
13:38
Speaker 1: extend the economic expansion. If that's your primary goal, then
13:43
Speaker 1: the balance sheet is a secondary goal, and one primes
13:48
Speaker 1: the other. And I think that as a result, they
13:50
Speaker 1: can have a big balance sheet and they're okay with it.
13:52
Speaker 1: It doesn't really necessarily worry me per se. What worries
13:55
Speaker 1: me is when people are talking about, you know, modern
13:57
Speaker 1: monetary theory, this idea of there's a free lunch, that
14:01
Speaker 1: the era of the currencies has told us that you
14:04
Speaker 1: can print your own money to as far as the
14:08
Speaker 1: eye can see to fund all kinds of fiscal expansion.
14:11
Speaker 1: I think that worries me. That's reckless. And I wonder
14:14
Speaker 1: if a large balance sheet is misperceived or misunderstood by
14:18
Speaker 1: those proponents of such theories to say, yeah, there's a
14:21
Speaker 1: free lunch, that that's worrisome. The politics of this get worrisome.
14:25
Speaker 1: So are j just you know, the next three thirty seconds,
14:27
Speaker 1: you know, just give us your sense a kind of
14:29
Speaker 1: economic growth. Obviously, the first quarter GDP a big slow
14:32
Speaker 1: down from the fourth quarter. Are you one of Are
14:34
Speaker 1: you in that campus says we will see accelerating growth
14:37
Speaker 1: in the remainder of nineteen in the US? Yes, yeah,
14:41
Speaker 1: we are. We are clearly the first quarters slower, uh,
14:44
Speaker 1: you know, maybe a high one handle, maybe two uh,
14:47
Speaker 1: you know, slower than where we've been, but but not
14:49
Speaker 1: terribly so. And we do think that's quite possible that
14:53
Speaker 1: chare Powell and his colleagues on the FOMC uh, there's
14:56
Speaker 1: a reasonable probability they can achieve the soft landing. Word
15:00
Speaker 1: of how Chairman Greenspan did back in the nineties, where
15:02
Speaker 1: you had an extensive monetary tightening in ninety four. It
15:05
Speaker 1: was very difficult at the time for financial markets, but
15:08
Speaker 1: on net a recession did not result. The Fed stopped
15:12
Speaker 1: tightening and achieved a soft landing, higher monetary policy rates,
15:16
Speaker 1: some tightening without the subsequent recession. That's their stated goal.
15:20
Speaker 1: I think the markets are suggesting they have a reasonable
15:23
Speaker 1: probability of achieving that goal. Of course, they're not the
15:25
Speaker 1: only variable. What happens in China, it happens in Europe
15:28
Speaker 1: trade policy and all the attenument risks around that are
15:31
Speaker 1: things to consider as well. R J. Gallow will have
15:34
Speaker 1: you back again. Lots to talk about across the FED.
15:37
Speaker 1: R J. Gallo, senior portfolio Managic had the MISS Bond
15:40
Speaker 1: Investment Group and head of the Duration Committee for Federated Investors.
15:44
Speaker 1: He joined us on the phone from Pittsburgh, Pennsylvania. Well,
16:05
Speaker 1: Theresa May accepted the European Union's offer to extend Brexit
16:08
Speaker 1: to October thirty one and must now sell it to
16:11
Speaker 1: skeptical members of Parliament and a Conservative party losing patients
16:15
Speaker 1: in her leadership. To get the latest, we welcome Leonel Laurent,
16:19
Speaker 1: columnists covering financial markets for Bloomberg Opinion. He calling us
16:23
Speaker 1: from London. Leonel, thank you so much for joining us.
16:27
Speaker 1: What does this extension mean for Theresa May and her government?
16:33
Speaker 1: So essentially, what this extension does is buy more time
16:38
Speaker 1: and we have to again stress that this is the
16:41
Speaker 1: second extension granted by EU leaders to the UK. So
16:46
Speaker 1: there is a sense not just of deja but is
16:48
Speaker 1: now an eternal, never ending political impast setting in but
16:55
Speaker 1: as you say, the ball is now in the UK's
16:57
Speaker 1: court and Theresa May is simply you're going to have
17:00
Speaker 1: to try all of her options again, which a bit
17:03
Speaker 1: more time, which includes trying to pass the deal that
17:06
Speaker 1: has been rejected three times by her own parliament, perhaps
17:09
Speaker 1: it may get through a fourth time, or working more
17:13
Speaker 1: with Jeremy Corbyn, the real enemy of the Conservatives, to
17:17
Speaker 1: get a potentially different deal that would get a different
17:21
Speaker 1: but positive support in Parliament. So there are options, but
17:23
Speaker 1: crucially there is more time to achieve those options. But
17:27
Speaker 1: even with more options, for history tells us, or at
17:29
Speaker 1: least what we've seen in the last two and a
17:31
Speaker 1: half years, that the chances of getting this done by
17:34
Speaker 1: the thirty one slim to none. What what is concerning
17:37
Speaker 1: me as a as a former trader and the guys
17:39
Speaker 1: I'm talking to on the street, is I'm hearing that
17:41
Speaker 1: this makes the no deal risk gone, that there's a
17:46
Speaker 1: sense of complacency that's come over of the currency markets,
17:49
Speaker 1: and that we can now step in and by Stirling
17:52
Speaker 1: without the worries that preceded it of a deal ending
17:56
Speaker 1: by Friday. How does that feel to you? That that
18:00
Speaker 1: does not feel too good to me? It doesn't feel
18:03
Speaker 1: good to me either. That's why I think I think
18:05
Speaker 1: he would be right to be cautious. And the reason
18:07
Speaker 1: why it's simply because the next date to bear in
18:11
Speaker 1: mind is October thirty one, right Halloween. And essentially what
18:16
Speaker 1: you have to bear in mind is if if you
18:19
Speaker 1: see this as you know, obviously it's a cliche to
18:22
Speaker 1: talk about a game of a game of chicken, but
18:25
Speaker 1: the point is, if we get to October thirty one
18:27
Speaker 1: and there is no progress, we have to ask ourselves
18:31
Speaker 1: whether the EU, which by this point will have already
18:34
Speaker 1: had European parliamentary elections which the UK will have had
18:38
Speaker 1: to take part in, will now have to decide whether
18:40
Speaker 1: it wants the Commission, the Executive arm which is going
18:43
Speaker 1: to have a sort of long term and and a
18:48
Speaker 1: new a whole new you know, a Risman, take a
18:53
Speaker 1: whole new team of people, whether and and they they
18:57
Speaker 1: sit on November one, and he's going to have to
18:59
Speaker 1: decide whether it really wants Brexit to in effect European
19:03
Speaker 1: decision making. And my concern is that the more time
19:05
Speaker 1: goes on, the more preparations for an odeal Brexit will
19:08
Speaker 1: be finalized. And you know, sadly the accident theory is possible,
19:13
Speaker 1: or even the political will to leave with an nodeal
19:17
Speaker 1: on either side will be there too. So I'm not
19:20
Speaker 1: convinced that the nodial risk has gone well. We can
19:23
Speaker 1: sense even over here in the US the sense of
19:25
Speaker 1: frustration and resignation on the part of you know, obviously
19:30
Speaker 1: the members of Parliament, but also the British people. Isn't
19:33
Speaker 1: it to the point now or that you know, it's
19:37
Speaker 1: clear that the existing plan isn't going to work, can't work,
19:40
Speaker 1: doesn't have any support, that it's probably worth coming back
19:42
Speaker 1: and trying something new, whether that's a second referendum or
19:46
Speaker 1: something else. Aren't we at that point? We are at
19:50
Speaker 1: that point? We you could say we were at that
19:52
Speaker 1: point a couple of months ago, you could say we
19:54
Speaker 1: were at that point, um, maybe even at the end
19:57
Speaker 1: of last year. That the problem is that at politics
20:02
Speaker 1: is about other things, and there is a lot of
20:05
Speaker 1: layers of self interest here, um And I think that
20:09
Speaker 1: the concern is that there is just maybe not not
20:13
Speaker 1: not as many incentives to do the right thing by
20:16
Speaker 1: the voters. Then then we might prefer so the self
20:22
Speaker 1: interest is perhaps elected representatives, is that maybe keep their jobs.
20:26
Speaker 1: Maybe they think that they will lose it if they
20:29
Speaker 1: advocate for a second referendum or some kind of new
20:33
Speaker 1: radical change. And I think on both sides what we
20:35
Speaker 1: are seeing is political reluctance to take responsibility for Brexit.
20:41
Speaker 1: I appreciate up until now it really has been the
20:44
Speaker 1: UK that should have taken responsibility. It hasn't. And I
20:47
Speaker 1: think we're also seeing that you reluctant to do the
20:50
Speaker 1: work for it and take responsibility for the harm of
20:52
Speaker 1: a of a no deal brexit. So right now it
20:54
Speaker 1: is very much a political game rather than doing the
20:58
Speaker 1: right thing for the country. Any chance of She has
21:05
Speaker 1: said perhaps that she would like to have something done
21:07
Speaker 1: by is to not participate in the EU elections. Sure,
21:12
Speaker 1: these these are all possibilities. And remember that the most
21:17
Speaker 1: hard line Brexit supporters view European elections as absurd, borderline treason.
21:24
Speaker 1: On the other hands, given that she has accepted this
21:29
Speaker 1: potential poet heady first extension, we are now in the
21:32
Speaker 1: realms of possibility. Everything is now possible. There could be
21:35
Speaker 1: European elections in the UK and maybe they might be
21:39
Speaker 1: a catalyst for change, maybe as the Conservatives do very poorly,
21:43
Speaker 1: maybe if there's a different kind of sentiment in the country,
21:46
Speaker 1: pro labor, pro Europe. All the other way you might see,
21:49
Speaker 1: you might see things change. Lionel, thank you so much.
21:51
Speaker 1: Lion on the rent calmness, covering finance and markets for
21:54
Speaker 1: Bloomberg Opinion in London. I can actually hear the resignation
21:57
Speaker 1: in his voice, as we can with many other folks.
21:59
Speaker 1: As we discussed this issue well. T Mobile is in
22:19
Speaker 1: the throes of trying to close its proposed acquisition of
22:22
Speaker 1: Sprint and all stock deal currently valued at almost thirty
22:25
Speaker 1: billion dollars, but the regulators aren't so sure. To get
22:29
Speaker 1: the latest on what is going on in the world
22:31
Speaker 1: of wireless in the US, we welcome John Butler. John
22:34
Speaker 1: is a senior telecom analyso Bloomberg Intelligence. He joins us
22:37
Speaker 1: live in our Bloomberg Interactive Brooker studio here in New York. So, John,
22:40
Speaker 1: it looks like the regulators are a little concerned here.
22:44
Speaker 1: Why so, they're concerned about the aggregation of share that
22:48
Speaker 1: would occur if you get Sprint and T Mobile together together,
22:53
Speaker 1: they'll have over a hundred million retail wireless subs, which
22:57
Speaker 1: will be right on par with for rise in and
22:59
Speaker 1: a T and T, so overnight you would have a
23:03
Speaker 1: market with three big players as opposed to the four
23:07
Speaker 1: players you have right now. And I think they look
23:11
Speaker 1: at what T Mobile has done in terms of wireless
23:14
Speaker 1: pricing over the past five years. They by the way,
23:17
Speaker 1: have been very aggressive in pricing their wireless plans and
23:21
Speaker 1: have really sort of kept A T and TM Verizon
23:24
Speaker 1: honest if you will. So I think the big concern
23:27
Speaker 1: to sort of close out the question is if suddenly
23:31
Speaker 1: they're on par in terms of size with A T
23:33
Speaker 1: and T and Verizon, are they going to need to
23:36
Speaker 1: really go out with low prices to get subs um
23:40
Speaker 1: you know, And that's the concern. But is that the question?
23:43
Speaker 1: I mean, it seems to me that they seeing what
23:47
Speaker 1: T Mobile has done, um, they probably just keep continuing
23:51
Speaker 1: to do that to keep trying to gain market share.
23:54
Speaker 1: Because as you said, they're not any bigger than Verizon
23:57
Speaker 1: or a T and T. It just puts them in
23:59
Speaker 1: the same league. So I'm not so sure. I just
24:02
Speaker 1: don't get the d o J response to this. I mean,
24:05
Speaker 1: do they I guess, as you say, they feel like
24:07
Speaker 1: prices are going to go up from here? Yeah. I
24:09
Speaker 1: mean we think is businessmen and we look at it
24:12
Speaker 1: and we say, you know, g T Mobile has been
24:15
Speaker 1: very successful with this strategy, why would they suddenly back
24:18
Speaker 1: off of it just because they're bigger. I don't think
24:21
Speaker 1: they will. They're a disruptor by nature. I think they're
24:25
Speaker 1: going to continue to do that, exactly. And I don't
24:27
Speaker 1: think and then they can't compete in the streaming business
24:30
Speaker 1: yet either, so they still need something to go after
24:33
Speaker 1: the two big guys, right exactly. Um, I think the
24:37
Speaker 1: telco's naturally are moving into content distribution, and I really
24:41
Speaker 1: applaud that, by the way. I think it's a good move.
24:44
Speaker 1: It's getting to be a crowded market. But to get
24:47
Speaker 1: back to what we were saying, I don't see T
24:49
Speaker 1: Mobile amending their behavior as a marketer in any way.
24:53
Speaker 1: But I'm not sure the regulators see that or look
24:55
Speaker 1: at the market from that angle. I'm sure that, you know,
24:58
Speaker 1: the easy thing for the regulators and from an antitrust perspective,
25:01
Speaker 1: as they're just saying, hey, we're going from four to three,
25:03
Speaker 1: that's enough for us to block the deal. I'm sure
25:05
Speaker 1: that that's the simplistic way to look at it. But
25:07
Speaker 1: the reality is, aren't the economics kind of tough in
25:11
Speaker 1: the US wireless business, Like, don't they have to merge
25:13
Speaker 1: otherwise one of these guys is just gonna blow out
25:16
Speaker 1: of the business they do. I mean the it's funny.
25:20
Speaker 1: Telecom is a scale business with the capital ass I
25:24
Speaker 1: mean really, if you're the big guy in the market,
25:27
Speaker 1: you can really sort of call the shots, so to speak.
25:31
Speaker 1: And if you're a subscale player like T Mobile and
25:35
Speaker 1: to a much greater degree, Sprint, you're in a very
25:37
Speaker 1: disadvantaged position. And then as upgrades happen over time that
25:43
Speaker 1: it requires a lot of capital, you end up as
25:45
Speaker 1: a subscale player getting further and further behind. So I
25:50
Speaker 1: think ultimately, if this deal doesn't go through, Sprints gonna
25:54
Speaker 1: have to either partner with someone or I thought or
25:59
Speaker 1: think they will have to become a regional player. Yeah,
26:02
Speaker 1: and Sprint obviously is the one that's the greatest disadvantaged
26:06
Speaker 1: therein um you know, it almost seems like the way
26:09
Speaker 1: you're telling the story, as you say, we think about
26:11
Speaker 1: this as businessman, if it continues to go down this
26:14
Speaker 1: road and Sprint continues to suffer, it almost sounds like
26:17
Speaker 1: T Mobile could come in and rescue them at at
26:19
Speaker 1: the back end, of this and combine anyway. They really
26:22
Speaker 1: could in a way, because again, the small gets smaller
26:25
Speaker 1: and the big get bigger in a scale market like telecom.
26:29
Speaker 1: For T Mobile, though, I think if a deal gets denied,
26:33
Speaker 1: you know, ultimately they're going to have to invest more too,
26:36
Speaker 1: because if you look at their their spectrum portfolio, those
26:40
Speaker 1: air waves where they're offering wireless, they have some big
26:44
Speaker 1: gaps there that A T and T and Verizon don't,
26:47
Speaker 1: So I think they're gonna need to step forward and
26:49
Speaker 1: spend a lot of money just to fill those gaps,
26:53
Speaker 1: and then they're going to have the added expense of
26:55
Speaker 1: rolling out five g on top of it. So you know, uh,
27:00
Speaker 1: even three or five years hence, are they're going to
27:02
Speaker 1: have the capital to come back to the table and
27:04
Speaker 1: try and buy Sprint. I'm not sure on that one.
27:08
Speaker 1: For Sprint, it would make sense for a cable operator
27:11
Speaker 1: to make maybe look at them, because in terms of
27:14
Speaker 1: moving into adjacent markets, the cable guys are now starting
27:17
Speaker 1: to test the waters and wireless. So I don't think
27:21
Speaker 1: Sprint is out of options in the wake of this
27:23
Speaker 1: deal not going through, But like you, Vince, I started
27:26
Speaker 1: look at it in question what the regulators are thanking. So, John,
27:29
Speaker 1: I know at Blomberg Intelligence, Uh, you guys have the
27:32
Speaker 1: advantage of working with some great experts, including generally who
27:35
Speaker 1: does antitrust? What is Jen saying in terms of the
27:38
Speaker 1: odds of this and getting approved. So I was chatting
27:41
Speaker 1: with Jenn about that, and we agree that the odds
27:43
Speaker 1: of it not going through are probably in the range
27:46
Speaker 1: of six or so. So fort that it does get
27:50
Speaker 1: it okay. It's a tough one to call. It always
27:53
Speaker 1: comes down to the wire in a case like this,
27:56
Speaker 1: where you know, just as we were talking about, Sprint
27:59
Speaker 1: almost can make the failing firm argument of hey, if
28:02
Speaker 1: this doesn't go through, we're done. You know, I'm not
28:06
Speaker 1: sure they really are in that position where they're completely done,
28:10
Speaker 1: and so who knows if they'll win the day there.
28:12
Speaker 1: But I think right now we're looking at a forty
28:15
Speaker 1: chance that the deal gets it okay, inserting that's probably
28:18
Speaker 1: not what the companies were envisioning when they announced this deal. Um. Interesting.
28:22
Speaker 1: John Butler, thanks so much for keeping us on top
28:25
Speaker 1: of what is going on with the Sprint T Mobile
28:28
Speaker 1: deal in the US wireless business. John is a senior
28:31
Speaker 1: telecoms analysts for Bloomberg Intelligence. Thanks for listening to the
28:34
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
28:37
Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.
28:41
Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
28:44
Speaker 1: Abram Woyd's I'm on Twitter at Lisa Abram Woit's one
28:46
Speaker 1: before the podcast. You can always catch us worldwide. I'm
28:49
Speaker 1: Bloomberg Radio