Latest / Bloomberg Intelligence / CalSTR's Ailman: Market Shifting To Private Companies

Transcript

CalSTR's Ailman: Market Shifting To Private Companies · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Joining us,
• 0:33
  Speaker 1: of course, is Chris Ailman. He is our co host
• 0:36
  Speaker 1: for Bloomberg Markets. He is the chief Investment Officer, that's
• 0:40
  Speaker 1: his day job of the California State Teachers Retirement System,
• 0:44
  Speaker 1: helping to manage more than two billion dollars. Chris, you
• 0:48
  Speaker 1: know when we talk about billions and you know how
• 0:51
  Speaker 1: much money people do you wake up in the morning thinking,
• 0:53
  Speaker 1: oh my gosh, that's a lot of money. Or does
• 0:57
  Speaker 1: the number really matter to you in the sense of
• 1:00
  Speaker 1: what you have to do on a day to day basis?
• 1:03
  Speaker 1: I mean, would you behave and operate you know, whether
• 1:06
  Speaker 1: it was a hundred million dollars or two billion dollars
• 1:09
  Speaker 1: not two d and twenty eight billion dollars. No, it's
• 1:11
  Speaker 1: staggering number and I am in awe all the time.
• 1:15
  Speaker 1: I've been the c I O at calisters for over
• 1:18
  Speaker 1: seventeen years, so obviously that long you do tend to
• 1:21
  Speaker 1: get used to things. But I am still, um, just
• 1:25
  Speaker 1: very surprised and and all when the portfolio moves up
• 1:29
  Speaker 1: or down a billion dollars or two billion dollars in
• 1:32
  Speaker 1: a day, and I would operate differently if I had
• 1:36
  Speaker 1: one billion, I could be more nimble. Um pick. You know,
• 1:40
  Speaker 1: I often use the expression you've got to think of
• 1:42
  Speaker 1: us at a two billion. We're like a giant cruise
• 1:45
  Speaker 1: ship in the ocean. The board has picked a dot
• 1:48
  Speaker 1: on the horizon which is seven percent, and we aim
• 1:51
  Speaker 1: for it. And as we inch closer to the horizon,
• 1:55
  Speaker 1: like a horizon, it just keeps extending. So we're out
• 1:58
  Speaker 1: to see forever. We're never coming into port. So I
• 2:01
  Speaker 1: can't spend on a time. Um. I know those ships
• 2:04
  Speaker 1: had side thrusters, but they can't use them in the
• 2:06
  Speaker 1: open ocean, So I'm not you know, if I was well,
• 2:10
  Speaker 1: but if I was at Yale, or if I was
• 2:12
  Speaker 1: at the University of Texas, I might be a lot
• 2:14
  Speaker 1: more nimble. I would overweight certain asset classes at my
• 2:18
  Speaker 1: size and scale. I just can't, so it weighs on
• 2:21
  Speaker 1: us to put it in numbers. Every July one, when
• 2:24
  Speaker 1: we wake up, that's the beginning of our year. We
• 2:27
  Speaker 1: have to make fifteen billion dollars of profit from the
• 2:30
  Speaker 1: start of the year. And that number is staggering. But
• 2:33
  Speaker 1: it's a marathon. And the minute we finish a mile,
• 2:35
  Speaker 1: you know what, there's another mile ahead of us. So, Chris,
• 2:38
  Speaker 1: I'm struck by also the amount of money, the nearly
• 2:42
  Speaker 1: two billion dollars that you manage. And I think about
• 2:46
  Speaker 1: as we head into the anniversary of Lehman's collapse, how
• 2:50
  Speaker 1: much money has shifted from the banks to the asset
• 2:54
  Speaker 1: management industry, and with pensions with their assets exploding, And
• 2:58
  Speaker 1: I have to wonder, you know, how concerned are you
• 3:01
  Speaker 1: or how confident are you about the oversight of all
• 3:05
  Speaker 1: of the asset management industry and the pension industry with
• 3:08
  Speaker 1: respect to risks building there and potential systemic problems emerging
• 3:12
  Speaker 1: there outside of the banks. Well, you know, I think
• 3:15
  Speaker 1: in this town the word Dodd Frank is a dirty word,
• 3:18
  Speaker 1: but I actually I think it's been very positive. I
• 3:21
  Speaker 1: like the banks. The fact that the banks have stress
• 3:23
  Speaker 1: tests from the FED. You have to keep in mind
• 3:25
  Speaker 1: that for a hundred and fifty years, the broker terms
• 3:28
  Speaker 1: were generally eight to maybe twelve times leverage on their
• 3:32
  Speaker 1: balance sheet. Then in two thousand and six and seven,
• 3:36
  Speaker 1: they suddenly went to forty times leverage. That's what we
• 3:39
  Speaker 1: had to pay attention to, and that's what the average
• 3:41
  Speaker 1: consumer had no visibility of the risk that was suddenly
• 3:43
  Speaker 1: being put on the books. UM. I think the system
• 3:46
  Speaker 1: UH is actually operating very well. Should it be more regulated? Oh,
• 3:50
  Speaker 1: there's some key areas as we mentioned earlier. I think
• 3:52
  Speaker 1: the fiduciary UH rules should be put in place, UM
• 3:57
  Speaker 1: for retail. But I think overall, the pen and industry
• 4:00
  Speaker 1: is actually steadily improving and doing better all the time. UM.
• 4:05
  Speaker 1: I think from a broad picture standpoint, there are a
• 4:09
  Speaker 1: lot of opportunities. UM. The baby boom is retiring Generation
• 4:14
  Speaker 1: X and and obviously the millennials are coming into position
• 4:17
  Speaker 1: they need to be saving more for retirement. And that's
• 4:20
  Speaker 1: an absolutely huge issue because the average worker in the
• 4:24
  Speaker 1: USA is protected by a four oh one K and
• 4:27
  Speaker 1: most don't have a big enough balance. So there are
• 4:30
  Speaker 1: looming risks on the horizon. But I think we're in
• 4:32
  Speaker 1: a good place UH for continued growth and and when
• 4:36
  Speaker 1: it comes to the risk of the investment portfolio. I
• 4:38
  Speaker 1: think we're actually, at least I think we're fairly balanced.
• 4:40
  Speaker 1: We've got a good blend of Yes, we're heavily exposed
• 4:43
  Speaker 1: to global equities, but we've got a good balance of
• 4:47
  Speaker 1: other stocks real estate, UH, fixed income, private equity, other opportunities.
• 4:53
  Speaker 1: I think the most profound change we've seen since two
• 4:56
  Speaker 1: thousand and eight is the number of companies public come
• 5:00
  Speaker 1: companies UH that have gone private and state private. So
• 5:03
  Speaker 1: there are fewer publicly traded companies in the marketplace today
• 5:07
  Speaker 1: than that we're back then, and the huge volume that
• 5:10
  Speaker 1: we've seen. The banks have gotten out of the private
• 5:14
  Speaker 1: debt business and we've seen really long term investors come
• 5:18
  Speaker 1: in and fill that. That's not really a bad thing,
• 5:21
  Speaker 1: but it certainly is something to watch. Private debt transactions
• 5:25
  Speaker 1: have more covenants, which is a good thing, UM, but
• 5:28
  Speaker 1: it still is something to keep an eye on because
• 5:30
  Speaker 1: the amount of money chasing the debt transactions. Chris Sleman,
• 5:36
  Speaker 1: when you were attending you see Santa Barbara, did you
• 5:39
  Speaker 1: ever think that you would be in the role you
• 5:42
  Speaker 1: are now? No. I point out we have a mentoring programmer,
• 5:45
  Speaker 1: we have student interns come in every summer, and we
• 5:48
  Speaker 1: had some that were shadowing me last week, and I
• 5:51
  Speaker 1: pointed out that my job did not exist when I
• 5:54
  Speaker 1: went to school. UM, so that may be true for
• 5:57
  Speaker 1: them as well. Don't necessarily study one specific thing, but
• 6:01
  Speaker 1: be a broad spectrum of education and learn about a
• 6:05
  Speaker 1: lot of things. I knew I wanted to be oddly enough,
• 6:08
  Speaker 1: coming from California, I wanted to be involved in Wall
• 6:10
  Speaker 1: Street and in finance. Um, not a popular thing on
• 6:13
  Speaker 1: the on the West. I was gonna say, you see,
• 6:15
  Speaker 1: Santa Barbara, I can't imagine that there are a huge
• 6:17
  Speaker 1: cohort of individuals like you. Yeah, the the Wall Street
• 6:20
  Speaker 1: Journal did reach there, but it was not I think
• 6:22
  Speaker 1: it was still a day late by the time I
• 6:24
  Speaker 1: got there. They sold it over on State Street. You
• 6:26
  Speaker 1: could just over there, but you know it. I think
• 6:30
  Speaker 1: it gave you a perspective. You're not locked on the
• 6:33
  Speaker 1: Manhattan and everything that goes on and all the emotion.
• 6:36
  Speaker 1: You can look at it from afar. I actually like
• 6:38
  Speaker 1: managing money on the West Coast. You have to realize
• 6:40
  Speaker 1: that we're off time zones. So the the US equity
• 6:43
  Speaker 1: market is opening at the crack of don basically six
• 6:46
  Speaker 1: thirty in the morning and it's closed by one Um
• 6:49
  Speaker 1: and Lisa as she knows, and him. That's when I
• 6:51
  Speaker 1: go for bike rides and and it gives me a chance.
• 6:54
  Speaker 1: I listened to Bloomberg Radio, so I'll plug for you guys.
• 6:57
  Speaker 1: And one of the things I do is really that
• 6:59
  Speaker 1: way gives me a broader perspective to look at, to
• 7:02
  Speaker 1: step away from the day to day noise and look
• 7:04
  Speaker 1: at the broad trends, because I think when you're doing
• 7:07
  Speaker 1: retirement planning, you've got to think longer term. I'm just wondering,
• 7:10
  Speaker 1: and you talked about sort of the rational aspect of
• 7:14
  Speaker 1: managing money and looking at the finances. Do you worry,
• 7:18
  Speaker 1: especially given the rhetoric that we're experiencing politically, especially with trade,
• 7:24
  Speaker 1: that we're moving away from looking at just sort of
• 7:28
  Speaker 1: a capitalistic financial outlook of what makes sense and going
• 7:32
  Speaker 1: towards something different. Well, I think yes, because this is
• 7:37
  Speaker 1: a prolonged ball market. Obviously, you know we're nine and
• 7:40
  Speaker 1: a half years into this ball market. Ball markets, as
• 7:43
  Speaker 1: we know, typically don't die of old age. They die
• 7:46
  Speaker 1: of an event or some occurrence. Trade is one of
• 7:49
  Speaker 1: those things. One of the things I do for the
• 7:51
  Speaker 1: board is in essence, go up into the crow's nest,
• 7:54
  Speaker 1: look at the horizon, and identify for them the risks
• 7:57
  Speaker 1: that I see the storm's brewing, and this trade skirmish
• 8:02
  Speaker 1: battle is definitely one of them. UH. To pick fights
• 8:04
  Speaker 1: with Mexico and Canada. It's good that the US has
• 8:08
  Speaker 1: a stronger negotiating stance, but we're doing it in the
• 8:11
  Speaker 1: typical real estate style where we throw the keys at
• 8:13
  Speaker 1: the bank and threatened to walk away from the transaction.
• 8:16
  Speaker 1: I don't think that's an effective strategy when it comes
• 8:20
  Speaker 1: to global diplomacy. Were an interlinked global economy, and so,
• 8:25
  Speaker 1: as you've heard from companies, we can't just pick fights
• 8:28
  Speaker 1: with our trading partners. And this skirmish that's going on
• 8:32
  Speaker 1: with China really is a significant thing to watch. It
• 8:35
  Speaker 1: is a huge risk. China is the number two largest economy,
• 8:38
  Speaker 1: it is the biggest part of the emerging markets. UH,
• 8:41
  Speaker 1: it's going to affect us in numbers of ways. So
• 8:44
  Speaker 1: those are the types of things that I'm worried about.
• 8:47
  Speaker 1: I was concerned starting this year, coming up on this
• 8:50
  Speaker 1: tenure anniversary, how investors would react, and I have to
• 8:53
  Speaker 1: say they're surprisingly resilient. UM, but we know the downside
• 8:59
  Speaker 1: is quick. The old adage Wall Street climbs the stairs,
• 9:03
  Speaker 1: but it goes down the elevator. Um. I'm constantly worried
• 9:06
  Speaker 1: about hedging the portfolio for what might be something we're
• 9:10
  Speaker 1: not foreseeing that would cause the market to trade off
• 9:13
  Speaker 1: as we saw in January in early February. It will
• 9:17
  Speaker 1: do it quick, and people often forget when you look
• 9:19
  Speaker 1: back at two thousand and eight, the destruction in the
• 9:22
  Speaker 1: market really occurred about over a hundred calendar days. It
• 9:25
  Speaker 1: was very fast, um, and not that we would do
• 9:28
  Speaker 1: that again. But I think that you've got to be
• 9:31
  Speaker 1: balanced in your portfolio. You can't just be all long stocks.
• 9:35
  Speaker 1: I want to go back to something you mentioned briefly
• 9:37
  Speaker 1: about mentors, and I'm wondering if there are other pension plans,
• 9:44
  Speaker 1: maybe someone's listening, they're interested in getting into the business.
• 9:49
  Speaker 1: Should they just write a letter to the head of
• 9:52
  Speaker 1: the pension plan and say, look, I'd like to learn
• 9:55
  Speaker 1: what you're doing, how you do it. Can I get
• 9:58
  Speaker 1: involved in some way? Because that may not be a
• 10:00
  Speaker 1: traditional g I want to go and work there. I
• 10:03
  Speaker 1: don't have the skills yet. But on the other hand,
• 10:06
  Speaker 1: you're going to learn a lot from just being around.
• 10:08
  Speaker 1: Oh yeah, well I think I think just not the
• 10:10
  Speaker 1: pension plan side, the bye side as we call it
• 10:13
  Speaker 1: in our industry lingo, which is that we're the asset owners,
• 10:16
  Speaker 1: so we're buying investment transactions rather than being on the
• 10:20
  Speaker 1: cell side, which predominates this. But I meant, for example,
• 10:23
  Speaker 1: you know, previous to being at Cowsters, so how do
• 10:25
  Speaker 1: they get you were at Washington, You were at the
• 10:27
  Speaker 1: Washington State Investment Board, right, So the idea would be, okay,
• 10:31
  Speaker 1: just write a blind letter, find out who's in charge,
• 10:33
  Speaker 1: write a letter, explain why you're interested, and you just
• 10:37
  Speaker 1: never know because it's not a traditional you know, it's
• 10:40
  Speaker 1: not on you necessarily on a list of things to
• 10:42
  Speaker 1: do if you're looking to get into the business. I
• 10:44
  Speaker 1: have been speaking to the business school at U C. Davis,
• 10:48
  Speaker 1: at Sack State. I've tried to be open to UC
• 10:50
  Speaker 1: Santa Barbara, any of the schools to go back and
• 10:53
  Speaker 1: make them realize that if you want a job in investments,
• 10:56
  Speaker 1: you don't have to be in Manhattan. You can work
• 10:59
  Speaker 1: in you g in Oregon, you could or Salem, Oregon.
• 11:02
  Speaker 1: You could work in Olympia, Washington. You could work in Sacramento, California.
• 11:07
  Speaker 1: So I think that's been part of our program, is
• 11:09
  Speaker 1: to reach out and make them realize, UM, if you're
• 11:11
  Speaker 1: on the BI side, you can be in a lot
• 11:13
  Speaker 1: of different places. It's an exciting job. It's a unique opportunity,
• 11:17
  Speaker 1: and you're right, you're gonna learn about a wide variety
• 11:21
  Speaker 1: of asset classes, not just be stuck in one narrow area.
• 11:25
  Speaker 1: Is it still exciting in the world of indexing indexing, yes,
• 11:28
  Speaker 1: because it's that beta exposure, you know. I think it's
• 11:31
  Speaker 1: going to be interesting. There's a lot of debate about
• 11:33
  Speaker 1: indexing to what index not to be wonky, but the
• 11:37
  Speaker 1: fact that it isn't just the broad Russell three thousand
• 11:41
  Speaker 1: or MSCI index. People are now indexing to a wide
• 11:45
  Speaker 1: variety of E s G indexes, um getting off the
• 11:49
  Speaker 1: cap weighted structure. So the definition of the market is
• 11:53
  Speaker 1: constantly changing. I do have to wonder, I want to
• 11:55
  Speaker 1: go back to the idea of fewer public companies and
• 11:58
  Speaker 1: just quickly get your opinion. What do you think is
• 12:01
  Speaker 1: the consequence of a move away from being public into private. Well,
• 12:06
  Speaker 1: there's a huge consequence. Obviously, your access to capital changes dramatically,
• 12:11
  Speaker 1: and that's one of the things In the past, there
• 12:13
  Speaker 1: wasn't capital for the private markets, but now there are
• 12:15
  Speaker 1: so many large institutions like ourselves that are willing to
• 12:19
  Speaker 1: fund that. I think in a way, we're fueling that
• 12:21
  Speaker 1: interest in staying private. UM. Obviously we create a lot
• 12:25
  Speaker 1: of rules and regulations on public companies. I think that's good,
• 12:29
  Speaker 1: but it's weighed enough on ceo s. You know, one
• 12:31
  Speaker 1: of the requirements of Dodd Frank was simply the requirement
• 12:34
  Speaker 1: that a CEO sign off on their financial statements that
• 12:37
  Speaker 1: they're accurate. I was shocked that so many people were
• 12:41
  Speaker 1: up in arms about that UH. And and yet we've
• 12:44
  Speaker 1: had CEOs who say, well, I'd rather stay private so
• 12:46
  Speaker 1: I don't have to do that. It's like, come on,
• 12:48
  Speaker 1: you can't verify and attest to your financial statements. So
• 12:53
  Speaker 1: people cry about many of the facets of Dodd Frank.
• 12:56
  Speaker 1: Maybe that needs to be some small adjustment, but I
• 12:59
  Speaker 1: think it's actually proven to be a tremendous UH safety
• 13:02
  Speaker 1: net under the U S system. And I think there's
• 13:05
  Speaker 1: there's pros and cons to being public and being private,
• 13:08
  Speaker 1: but you're using other people's capital when you're public, and
• 13:11
  Speaker 1: they have to have a voice. Well, Donna, thanks for
• 13:14
  Speaker 1: your voice, and we're going to be hearing more of
• 13:16
  Speaker 1: it because you're gonna stick around. We've got more with
• 13:18
  Speaker 1: Chris Alman. He is the chief investment officer for the
• 13:21
  Speaker 1: California State Teachers Retirement System, Yes, helping to manage more
• 13:26
  Speaker 1: than two hundred and twenty five billion dollars. You're listening
• 13:31
  Speaker 1: to Bloomberg right now. We are joined by, of course
• 13:49
  Speaker 1: Chris Alman, who is our guest host for today's show.
• 13:52
  Speaker 1: He's chief Investment Officer of the California State Teachers Retirement
• 13:55
  Speaker 1: System in Sacramento, but he's here in our eleven three
• 13:58
  Speaker 1: oh studios and we're all so very lucky to have
• 14:01
  Speaker 1: Jim Anderson, chief executive officer of Social Flow, here with
• 14:04
  Speaker 1: us to talk about a very important topic as social
• 14:07
  Speaker 1: media companies continue to come under scrutiny about the amount
• 14:10
  Speaker 1: of information that they deliver, especially to advertisers. So just
• 14:15
  Speaker 1: bring us up to speed on just sort of the
• 14:18
  Speaker 1: dynamics that are affecting the advertising industry right now as
• 14:21
  Speaker 1: they pertain to social media. Yeah, exactly. The problem is
• 14:24
  Speaker 1: is that the tech companies are making a fortune right
• 14:27
  Speaker 1: Facebook and Google take the lion share of digital advertising
• 14:30
  Speaker 1: dollars and and they've got a brilliant business model that
• 14:32
  Speaker 1: they don't have to pay to create any of the content. Right,
• 14:35
  Speaker 1: Companies like Bloomberg, BBC, CNN, you name it. Media outlets
• 14:38
  Speaker 1: create the content and ultimately are not benefiting from monetization.
• 14:42
  Speaker 1: So everybody in the digital world knows this is the problem.
• 14:45
  Speaker 1: What we're doing is taking the next logical step and
• 14:47
  Speaker 1: introducing a blockchain based token to try to get the
• 14:49
  Speaker 1: media companies better compensated for the content they create. What
• 14:53
  Speaker 1: does that mean? I know what blockchain token? I understand. Well,
• 14:59
  Speaker 1: I don't go ahead, you're gonna inte. Well, it's great.
• 15:02
  Speaker 1: I I am as guilty as anybody of talking about
• 15:04
  Speaker 1: things like distributed im mutable ledgers. And that's just simply
• 15:07
  Speaker 1: a terrible way to talk, right about anything. So I'm
• 15:09
  Speaker 1: carrying around Obviously your listeners can't see this book I'm holding.
• 15:12
  Speaker 1: But it's just a little bound ledger, right, So think
• 15:14
  Speaker 1: old school write the old bound ledger that you would
• 15:16
  Speaker 1: find in the courthouse, or that you would uh you know,
• 15:19
  Speaker 1: a merchant would have. They opened it up. Those pages
• 15:21
  Speaker 1: they're sewn in so you you see if a page
• 15:23
  Speaker 1: has been removed or added, the pages are numbered, you
• 15:26
  Speaker 1: fill it out with indelible ink, and now you have
• 15:27
  Speaker 1: a ledger of what's happened. That's not necessarily forged proof,
• 15:31
  Speaker 1: but it's very fraud resistant. I think that's what blockchain
• 15:33
  Speaker 1: is in the digital world. It gives you the ability
• 15:35
  Speaker 1: to have sort of the equivalent of a bound ledger
• 15:37
  Speaker 1: that you can actually put some degree of trust in.
• 15:40
  Speaker 1: All Right, So, Chris, when you hear companies, UH engage blockchain,
• 15:44
  Speaker 1: do you tune out? Do you get more interested? Or
• 15:48
  Speaker 1: is it just another technology in a way of recording things?
• 15:51
  Speaker 1: I mean, how do you sort of engage? No? I
• 15:53
  Speaker 1: think blockchain has a definite it's a tool of the future. Um.
• 15:57
  Speaker 1: It's a software system that allows a record keeping and
• 16:02
  Speaker 1: I think it has a place. My question, um is really,
• 16:05
  Speaker 1: how do you make money? How do you compensate the
• 16:08
  Speaker 1: media companies for their content? Are consumers going to pay
• 16:12
  Speaker 1: for that? Uh? It's interest advertisers ultimately. So there are
• 16:16
  Speaker 1: two ways you can do it exactly consumers and sort
• 16:18
  Speaker 1: of think subscription businesses. What whether you want to think
• 16:20
  Speaker 1: about New York Times, Wall Street Journal or even Netflix.
• 16:22
  Speaker 1: I mean, there's plenty of incentives to do that. The
• 16:25
  Speaker 1: problem there we see as a share of wallet problem
• 16:28
  Speaker 1: is everybody tries to get subscriptions. How many media companies
• 16:31
  Speaker 1: can realistically get vibrant subscriber basis. So that's why we've
• 16:35
  Speaker 1: landed on the advertising side. There's a long history of
• 16:37
  Speaker 1: advertising supported media. I mean, it's it's a multi trillion
• 16:41
  Speaker 1: dollar industry right now, and in the digital world in particular,
• 16:44
  Speaker 1: that that that is sort of rife with a lack
• 16:46
  Speaker 1: of trust, right, lack of transparency, fraud, bots, not real traffic.
• 16:50
  Speaker 1: And so that's one of the things that blockchain really
• 16:52
  Speaker 1: has the potential to solve. Is there a way of
• 16:55
  Speaker 1: quantifying good views, quality views, and irrelevant views? You know what?
• 17:01
  Speaker 1: You know what I'm saying. Well, and so the first
• 17:04
  Speaker 1: thing is can you quantify real humans? Right? I mean
• 17:07
  Speaker 1: so almost by definition, a boat or a robot or
• 17:09
  Speaker 1: some kind of automated account is not a real view.
• 17:11
  Speaker 1: And that's a huge problem in the industry right now.
• 17:14
  Speaker 1: So that's the first and most important thing. And by
• 17:16
  Speaker 1: the way, what Facebook and Twitter and all the other
• 17:18
  Speaker 1: social platforms are really spending a lot of time is
• 17:20
  Speaker 1: trying to get the bot traffic out of there, because
• 17:22
  Speaker 1: it really artificially inflates metrics. It adds a whole dynamic
• 17:25
  Speaker 1: of fraud and and sort of just frankly bad business
• 17:29
  Speaker 1: to those platforms. Then the next step with what you're
• 17:32
  Speaker 1: saying is, okay, well, not all views are created equal, right,
• 17:35
  Speaker 1: the drive by viewer versus somebody who's really engaged in
• 17:38
  Speaker 1: your content. And I think most media outlets like to
• 17:41
  Speaker 1: think of that in terms of some kind of subscription funnel.
• 17:43
  Speaker 1: How do I take my most active viewers and try
• 17:45
  Speaker 1: to convert them into some kind of paying subscriber. I
• 17:48
  Speaker 1: just want to follow up on somethings said having to
• 17:51
  Speaker 1: do with bots and sort of what shadow activity that
• 17:58
  Speaker 1: doesn't really exist, and advertisers are paying for it and
• 18:02
  Speaker 1: publishers are looking forward, what's the big deal if you buy?
• 18:06
  Speaker 1: If you if you know, there used to be this
• 18:08
  Speaker 1: time when if you've got to be a vice president
• 18:10
  Speaker 1: of major corporation, you would get a subscription to a newspaper,
• 18:13
  Speaker 1: let's say the Wall Street Journal, right, and then you'd
• 18:15
  Speaker 1: go into these buildings and you would see a pile
• 18:17
  Speaker 1: of them thrown at the elevator banks. What's the difference
• 18:21
  Speaker 1: whether they read it or not, as long as they
• 18:23
  Speaker 1: buy the subscription, well, for a subscription business. I mean, ultimately,
• 18:27
  Speaker 1: if somebody is willing to pay, I mean that's the judge.
• 18:29
  Speaker 1: If it's not, I have a credit card, then maybe
• 18:31
  Speaker 1: you're okay with But isn't that the same point when
• 18:33
  Speaker 1: you're talking about online subscriptions, Well the words someone has
• 18:38
  Speaker 1: to subscribe or at least give their email or some
• 18:41
  Speaker 1: personal data, which some markets somewhere in the whole ether says,
• 18:46
  Speaker 1: oh yeah, this is valuable. I have five thousand names,
• 18:50
  Speaker 1: or I have fifty million names, then we can now
• 18:53
  Speaker 1: send them lots of junk mail. It's it's about the
• 18:56
  Speaker 1: way the industry works as opposed to the actual infra nation. Right.
• 19:00
  Speaker 1: I mean advertising used to work because you'd have an
• 19:03
  Speaker 1: ad buyer who was told to go out and buy
• 19:07
  Speaker 1: a certain CPM, a certain cost per fouse. Right, that's
• 19:12
  Speaker 1: all changed now because Google and Facebook have automated the
• 19:16
  Speaker 1: actual activity. You never need the advertising manager never needs
• 19:20
  Speaker 1: to meet with Google or Facebook. They just type in
• 19:25
  Speaker 1: the parameters of what they want and then they buy
• 19:27
  Speaker 1: as many clicks as they want. Right, Well, there's two
• 19:30
  Speaker 1: things wrapped up in there. The first one, though, it
• 19:32
  Speaker 1: is important. I mean, if you're buying a million access
• 19:34
  Speaker 1: to a million people for ten million impressions, and half
• 19:37
  Speaker 1: of those are fraudulent. Well, then there's a lot of
• 19:39
  Speaker 1: waste built in, right, You're you're paying for things you're
• 19:41
  Speaker 1: not really getting, not real human views. But you do
• 19:43
  Speaker 1: raise a really important point, which is the self served
• 19:46
  Speaker 1: nature of these platforms. Right. It's just it's ridiculously easy.
• 19:50
  Speaker 1: I can pull out my credit card right now and
• 19:51
  Speaker 1: go buy twenty five do and Facebook advertising and and
• 19:55
  Speaker 1: reach you know, real human beings. And so Facebook and
• 19:57
  Speaker 1: Google have built amazingly powerful to technology platforms. The question
• 20:02
  Speaker 1: is is, well, what about the companies that actually create
• 20:04
  Speaker 1: the content to populate those platforms? And that's what we're
• 20:07
  Speaker 1: trying to solve for. So Chris, come on in here,
• 20:09
  Speaker 1: because I know that social responsibility is a big focus
• 20:11
  Speaker 1: of yours, and as we talk about identifying bots and
• 20:14
  Speaker 1: identifying humans, it raises a really interesting question about the
• 20:18
  Speaker 1: oversight of social media companies and sort of where do
• 20:20
  Speaker 1: advertisers come in with respect to that, where do regulators
• 20:23
  Speaker 1: come into that, Especially on the heels of the hearings
• 20:25
  Speaker 1: we heard in Washington, d C. Well, it's the wild West.
• 20:28
  Speaker 1: I mean, it's just nuts. People consumers have to be
• 20:31
  Speaker 1: much more savvy about where they're getting information and the
• 20:34
  Speaker 1: type of information they're getting. I think far too many
• 20:37
  Speaker 1: people have been taken astray. But Lisa, when I look
• 20:40
  Speaker 1: at at at social Flow your company, I don't understand
• 20:44
  Speaker 1: how you make money in the middle of You're going
• 20:48
  Speaker 1: to charge consumers, you charge the advertisers for eyeballs. How
• 20:51
  Speaker 1: does this all work? Well? So we make money by
• 20:54
  Speaker 1: sort of taking a slice of the money that we
• 20:56
  Speaker 1: pass along to publishers. Our goal is to get the
• 20:59
  Speaker 1: media companies paid right, So that's what we do now,
• 21:01
  Speaker 1: that's what we do in the future with blockchain. We
• 21:03
  Speaker 1: work for two of the world's biggest media companies, including Bloomberg,
• 21:07
  Speaker 1: in terms of getting their content out to the social platform.
• 21:09
  Speaker 1: So what we want to do is enable those companies
• 21:13
  Speaker 1: to be paid more and then we'll take a slice
• 21:15
  Speaker 1: of that. That's how we'll make our money. And if
• 21:17
  Speaker 1: we succeed and do well, the advertisers get real value,
• 21:20
  Speaker 1: the consumers get real value, the media companies get real value,
• 21:23
  Speaker 1: and of course we get real value as compensation for
• 21:26
  Speaker 1: for pulling it all together. So that's one of the
• 21:28
  Speaker 1: things that drives me nuts when you think about the
• 21:30
  Speaker 1: social media world, they're focused on eyeballs. Eyeballs are more
• 21:34
  Speaker 1: engaged when they're fearful, and so that's why I think,
• 21:38
  Speaker 1: while they won't want to admit it, they're in the
• 21:40
  Speaker 1: business of pumping out fear and pumping out negative news
• 21:43
  Speaker 1: so that people may our attention. I don't know that
• 21:46
  Speaker 1: advertisers really want to be associated with that emotion. If
• 21:49
  Speaker 1: I'm angry about reading an article and then suddenly an
• 21:52
  Speaker 1: ad for home depot pops up, I don't know if
• 21:54
  Speaker 1: that's a good thing. Well, except that if you if
• 21:57
  Speaker 1: you've got a lot of eyeballs clicking on your pages
• 22:01
  Speaker 1: and you tend to have a lot of horrific stuff
• 22:03
  Speaker 1: people more people will probably come. I mean we've seen
• 22:06
  Speaker 1: that time and time again. Right, the more catastrophic kinds
• 22:09
  Speaker 1: of stories, the ones that get more attention. Uh more
• 22:12
  Speaker 1: viewership is is good viewership? No? I mean is there
• 22:15
  Speaker 1: I guess that this raises a question. Is there a
• 22:17
  Speaker 1: delineation between sensationalized news and you know, dryer news that
• 22:22
  Speaker 1: might cater to people who perhaps are better educated or
• 22:25
  Speaker 1: sort of more in the industry. I definitely think there is.
• 22:28
  Speaker 1: But Chris, let me say this, I mean Facebook made
• 22:30
  Speaker 1: last quarter what fourteen billion dollars in revenue, So the
• 22:33
  Speaker 1: proof is in the delivery. I don't disagree with your points. Sensationalized,
• 22:36
  Speaker 1: you know, click baity and and sort of more tragic
• 22:39
  Speaker 1: stories are not particularly brand, say for advertiser friendly. And
• 22:42
  Speaker 1: you ask the home depot example, No Home Depot does
• 22:45
  Speaker 1: not want to be associated with stories about terrorism or
• 22:47
  Speaker 1: crime or those types of things. But do they really
• 22:50
  Speaker 1: care if people are clicking on them? Do they really care?
• 22:52
  Speaker 1: They do? They do? I mean, no brand manager is
• 22:54
  Speaker 1: going to be comfortable with that if for no other
• 22:56
  Speaker 1: reason than when somebody points it out. It's just sort
• 22:58
  Speaker 1: of appalling on a on a human level. What you
• 23:00
  Speaker 1: doing advertising against tragedy? It happens, clearly, I mean, it
• 23:03
  Speaker 1: happens a lot in the digital advertising ecosystem. But if
• 23:06
  Speaker 1: you ask any of these brand managers, they certainly would
• 23:08
  Speaker 1: much prefer to be associated with content about puppies and
• 23:11
  Speaker 1: kittens and picnics and happy occasions. Would would certainly be
• 23:15
  Speaker 1: the preference. We want to thank Jim Anderson. He is
• 23:18
  Speaker 1: the chief executive of Social Flow for enlivening us with
• 23:22
  Speaker 1: the discussion about advertising and blockchain. You're listening to Bloomberg
• 23:41
  Speaker 1: Hurricane Florence has caused over a million people to evacuate
• 23:46
  Speaker 1: as this dangerous hurricane bears down on the East coast
• 23:49
  Speaker 1: of the United States. Here to tell us more about
• 23:52
  Speaker 1: the effects of the hurricane and the hurricane itself is
• 23:55
  Speaker 1: Jeffrey Flynn. He is our insurance industry analyst for Bloomberg Intelligence.
• 24:00
  Speaker 1: And we also have with us Brian Sullivan, enager and
• 24:03
  Speaker 1: commodities reporter for Bloomberg News. Brian Sullivan, let's begin with you.
• 24:09
  Speaker 1: You join us from our one oh six one Boston
• 24:11
  Speaker 1: Newburyports Station studio rather in Boston, and can you give
• 24:15
  Speaker 1: us an update on where the hurricane is tracking and
• 24:20
  Speaker 1: some of the details wind speed and so on. Alright,
• 24:23
  Speaker 1: so the hurricanes about nine hundred miles away from Cape
• 24:25
  Speaker 1: Fear in North Carolina, and it's got wind speeds of
• 24:28
  Speaker 1: one hundred and thirty miles an hour that should get
• 24:31
  Speaker 1: a little stronger as it nears North Carolina. Um, there's
• 24:35
  Speaker 1: some interesting things buried in the forecast this vast update,
• 24:39
  Speaker 1: and that is that it may weaken a quite a
• 24:43
  Speaker 1: bit before it gets actually gets on the coastline, so
• 24:45
  Speaker 1: it may not come ashore as a category four but
• 24:49
  Speaker 1: meteorologists are warning everyone that because of its large size
• 24:52
  Speaker 1: and the fact that it's been sitting out there such
• 24:54
  Speaker 1: a long time, the devastation really can't be measured by
• 24:58
  Speaker 1: a category one, two, three, or four. Jeffrey, come on
• 25:02
  Speaker 1: in here, because I love your impression on what's at stake,
• 25:06
  Speaker 1: Which insurance companies are most potentially on the hook, what
• 25:09
  Speaker 1: the potential damage might look like, and whether most of
• 25:13
  Speaker 1: it's insured or not. Yeah, No, it's UM, it's interesting actually, UM,
• 25:17
  Speaker 1: you know, looking at the exposures in North Carolina and
• 25:20
  Speaker 1: Virginia and South Carolina. UM. Actually, the mutuals are probably
• 25:24
  Speaker 1: going to take non publicly traded firms may kind of
• 25:27
  Speaker 1: see the largest losses that I'm talking about. UM, you know,
• 25:30
  Speaker 1: like State Farm nationwide in USA A A. They seem
• 25:33
  Speaker 1: to have the highest market shares in those states of
• 25:35
  Speaker 1: homeowners insurance. UM. You know, in terms of the publicly
• 25:39
  Speaker 1: traded firms, UM, all State and Travelers have the most
• 25:42
  Speaker 1: significant exposure. UM. There they each write, um, you know,
• 25:46
  Speaker 1: roughly two million of premiums in North Carolina. UM. So
• 25:50
  Speaker 1: that those two should probably stand out. UM. In the
• 25:54
  Speaker 1: publicly traded peer group, those stocks are off about about
• 25:58
  Speaker 1: three percent over the past week, UM, you know, and
• 26:01
  Speaker 1: and that UM that that kind of kind of dives
• 26:04
  Speaker 1: with with kind of the losses that they might see.
• 26:07
  Speaker 1: UM on an industry wide perspective, in terms of insured losses,
• 26:10
  Speaker 1: it probably UM either higher the flooding. Flooding is typically
• 26:14
  Speaker 1: not covered by standard homeowners policy, so UM the larger
• 26:19
  Speaker 1: percentage of flooding is of the total damages will kind
• 26:22
  Speaker 1: of reduce the percentage of insured losses. But I think
• 26:25
  Speaker 1: we're looking at kind of insured losses perhaps between UM
• 26:28
  Speaker 1: five and ten billion, and I think damages economic damages
• 26:32
  Speaker 1: maybe as as high as twenty UM. The industry has
• 26:36
  Speaker 1: about UM two billion in total capital excluding Berkshire, so UM,
• 26:42
  Speaker 1: you know, a ten billion dollar impact on the insured
• 26:45
  Speaker 1: loss might be about three um of industry of industry capital.
• 26:49
  Speaker 1: One of the other smaller smaller companies, UM Assurance, a smaller,
• 26:54
  Speaker 1: more MidCap insurance company, has some decent exposure in the reason,
• 26:57
  Speaker 1: so they could also also be affected. Those are kind
• 27:00
  Speaker 1: of the ones you want to focus on. I understand
• 27:03
  Speaker 1: this is a risk that this hurricane may stall over
• 27:06
  Speaker 1: the Carolinas and then just dump rein. So who does
• 27:10
  Speaker 1: bear the loss when it comes to flooding. UM, you know,
• 27:16
  Speaker 1: and I'm sure Brian, Brian come in as well, but
• 27:18
  Speaker 1: it's it's largely going to go to the n f
• 27:20
  Speaker 1: I T the National Flood Insurance Program, and it it
• 27:24
  Speaker 1: obviously depends on how many UM you know, in some
• 27:27
  Speaker 1: of the more coastal regions, UM homeowners are required required
• 27:32
  Speaker 1: to buy that insurance. The the in regions that are
• 27:37
  Speaker 1: further away from the coast, UM but still at risk,
• 27:39
  Speaker 1: a lot of times it's not purchased by homeowners. But
• 27:43
  Speaker 1: but this all you know that there's been a long
• 27:46
  Speaker 1: sort of political history with with the National Flood Program,
• 27:49
  Speaker 1: which is in debt pretty significantly. But but this should
• 27:52
  Speaker 1: be you know, to the extent that that homeowners do
• 27:55
  Speaker 1: have National n f I P coverage, it will be paid,
• 27:59
  Speaker 1: although tax bears will obviously ultimately bear that as that
• 28:02
  Speaker 1: program goes probably goes more into debt. Brian, can you
• 28:05
  Speaker 1: just talk a little bit about the flood damage that
• 28:07
  Speaker 1: could potentially happen, especially if the storm does stall out, well,
• 28:11
  Speaker 1: you know, you start to get flood damage away from
• 28:13
  Speaker 1: the floodplains and now you're getting into areas where people
• 28:16
  Speaker 1: don't have flood insurance. So UM, you know, they're going
• 28:19
  Speaker 1: to be on the hook for it themselves. And we've
• 28:21
  Speaker 1: seen this numerous times in these storms that the the
• 28:25
  Speaker 1: rain comes down, it just swells. The river's up, you know,
• 28:27
  Speaker 1: way beyond where they've ever been before. UM. Last year
• 28:31
  Speaker 1: with Hurricane Harvey, for instance, a lot of people who
• 28:33
  Speaker 1: were damaged by flood or had their homes destroyed by
• 28:36
  Speaker 1: flood um they didn't have insurance at all, so they
• 28:39
  Speaker 1: were on the hook totally for it themselves. Brian, what
• 28:43
  Speaker 1: kind of storm surge can we expect UM? Right now,
• 28:46
  Speaker 1: they're talking about a twelve foot maximum UM, which is
• 28:50
  Speaker 1: definitely enough to um cover your house. Thank you both
• 28:55
  Speaker 1: for joining us. Really a pleasure to have both of you.
• 28:58
  Speaker 1: Jeffrey Flynt, insurance industry analysts for bloom Intelligence from Skillman,
• 29:02
  Speaker 1: New Jersey. Brian Sullivan, energy and commodities reporter for Bloomberg News,
• 29:06
  Speaker 1: will be keeping track of the storm as it approaches.
• 29:09
  Speaker 1: Coming to us from our Bloomberg One of six one
• 29:11
  Speaker 1: studio in Boston. Chris Almond still with us of a
• 29:15
  Speaker 1: cow Star's chief investment officer and UH and in the
• 29:18
  Speaker 1: last moment the show, I want to talk a little
• 29:20
  Speaker 1: bit about this hurricane that's coming, and the sort of
• 29:22
  Speaker 1: expectation that we're going to get more major storms as
• 29:26
  Speaker 1: the climate does change. How is that affecting your investments
• 29:30
  Speaker 1: if at all? Um it does. Absolutely, we have already
• 29:34
  Speaker 1: looked at rising sea levels and tried to start to
• 29:36
  Speaker 1: factor that into real estate. I think the biggest change
• 29:40
  Speaker 1: that we've seen is understanding that as the climate changes,
• 29:44
  Speaker 1: we don't know how severely and at what what rate
• 29:47
  Speaker 1: of time is this going to be a event to event.
• 29:52
  Speaker 1: The one thing we do know is more weather extremes hot, cold,
• 29:56
  Speaker 1: uh and particularly with the rain, the fact that it
• 29:59
  Speaker 1: won't rain in certain parts that create drought and stress,
• 30:02
  Speaker 1: and then other areas will be deluged. So we're already
• 30:06
  Speaker 1: starting to see infrastructure investments as governments recognize that and
• 30:09
  Speaker 1: try and put that infrastructure in place. But I think
• 30:13
  Speaker 1: it's a higher risk that we've had to factor it in.
• 30:16
  Speaker 1: You look at and the insurance companies were definitely the
• 30:18
  Speaker 1: leaders when it comes to interacting climate change with their forecast,
• 30:22
  Speaker 1: but you already start to see other companies realize, like
• 30:25
  Speaker 1: Coca Cola and PepsiCo, they can't rely on water sources.
• 30:29
  Speaker 1: They need to secure their own water. Um, You've started
• 30:32
  Speaker 1: to see other companies factor that in despite all the
• 30:36
  Speaker 1: hype and all the rhetoric about whether climate change is real,
• 30:39
  Speaker 1: smart business people are factoring that into their risk models
• 30:43
  Speaker 1: and managing it. And of course in California, where you're
• 30:47
  Speaker 1: based in Sacramento, wildfires, droughts and then substantial rains. That's
• 30:54
  Speaker 1: not a good combination now. And the wildfires are really
• 30:58
  Speaker 1: uh horrific this season, and I think, unfortunately we're gonna
• 31:02
  Speaker 1: be saying that every year and all the way up
• 31:04
  Speaker 1: to the Northwest. We took our vacation up to cord Alone, Idaho,
• 31:08
  Speaker 1: and up into Spokane, and the air quality was honestly
• 31:11
  Speaker 1: worse than it is in Beijing, China this year, and
• 31:14
  Speaker 1: I was quite surprised to hear from people that said,
• 31:16
  Speaker 1: you know what, every August, we get air quality problems.
• 31:19
  Speaker 1: Now that wasn't true in the past, but the fires
• 31:22
  Speaker 1: in British Columbia begin because of droughts and changes in patterns.
• 31:25
  Speaker 1: You're starting to see the West coast have air quality issues.
• 31:30
  Speaker 1: We're traveling now looking at the a q u I
• 31:32
  Speaker 1: Air Quality Index. Thanks very much, Chris Ailman. Always a pleasure,
• 31:37
  Speaker 1: much appreciated to spend time with us. Chris Ailman, our
• 31:40
  Speaker 1: co host today, chief investment officer for Calisters. We look
• 31:43
  Speaker 1: forward to having you in the future. Thank you very much,
• 31:46
  Speaker 1: great honor to be with both of you. This is Bloomberg.
• 32:03
  Speaker 1: The widening gap between the highest earning in people in
• 32:09
  Speaker 1: the world and the lowest earning ones has raised a
• 32:11
  Speaker 1: lot of questions about the way that we value certain things,
• 32:15
  Speaker 1: and our next guest argues that currently our economy values
• 32:20
  Speaker 1: uh that rewards value extraction rather than value creation. Marianna Matsukato,
• 32:25
  Speaker 1: Professor of of the Economics and founder and director of
• 32:28
  Speaker 1: the Institute for Innovation and Public Purpose at the University
• 32:31
  Speaker 1: College London, as well as the author of the new
• 32:33
  Speaker 1: book The Value of Everything, Making and Taking in the
• 32:36
  Speaker 1: Global Economy is here with us, and of course Chris Alman,
• 32:40
  Speaker 1: CEO of Calisters, is also with us today. Marianna, what
• 32:44
  Speaker 1: do you mean about that that our current economy rewards
• 32:47
  Speaker 1: value extraction rather than the value creation. Well, what we
• 32:50
  Speaker 1: need in order to drive investment led growth, and we
• 32:54
  Speaker 1: should remember that that is the ideal kind of growth.
• 32:56
  Speaker 1: We don't want growth to be growing simply because of consumption,
• 33:00
  Speaker 1: taking out debts simply because their incomes aren't rising. Investment
• 33:03
  Speaker 1: actually has a direction. We all talk about innovation. We
• 33:08
  Speaker 1: want innovation to happen, but innovation actually requires long term finance. Instead,
• 33:12
  Speaker 1: we have a financial sector which remains quite short terms
• 33:15
  Speaker 1: and speculative even after the financial crisis, and we have
• 33:19
  Speaker 1: the real economy players. So in industry, think of it
• 33:22
  Speaker 1: energy and pharma increasingly spending their profits and areas like
• 33:25
  Speaker 1: share by backs to boost stock prices, stock options, and
• 33:28
  Speaker 1: surprise surprise, executive pay. Now, what I argue in the
• 33:31
  Speaker 1: book is that these practices are actually being rewarded, and
• 33:33
  Speaker 1: these are not about creating value. They're really just moving
• 33:36
  Speaker 1: around existing assets. And part of the blame, I think
• 33:39
  Speaker 1: is economic theory, where we basically assigned value to what
• 33:44
  Speaker 1: has a price. And this is a huge change from
• 33:46
  Speaker 1: how value used to be debated over the last three years.
• 33:49
  Speaker 1: So just think of Adam Smith's whole emphasis on the
• 33:51
  Speaker 1: division of labor, technological change, Karl Marks as well David Ricardo.
• 33:55
  Speaker 1: They first thought about what is value and then use
• 33:58
  Speaker 1: that to determine price. Today we have mic theory, which
• 34:01
  Speaker 1: starts with prices and then uses that to determine value.
• 34:04
  Speaker 1: And this is why by the way. Lloyd blankfeend after
• 34:07
  Speaker 1: the financial crisis in two thousand and nine, said Goldman,
• 34:10
  Speaker 1: sax workers are the most productive in the world, So
• 34:13
  Speaker 1: there's a tautology there. They're being paid a huge amount.
• 34:16
  Speaker 1: That's how we actually measure value. So of course they
• 34:18
  Speaker 1: are valuable. So how do we measure this, Christi Alman?
• 34:21
  Speaker 1: How do we measure the output? How do we measure
• 34:24
  Speaker 1: that value and put the emphasis on that. Well, what's
• 34:27
  Speaker 1: interesting is that some people for decades now have been
• 34:31
  Speaker 1: arguing that there's a problem. So just think of g
• 34:33
  Speaker 1: d P. If you marry you're cleaner, GDP will actually
• 34:37
  Speaker 1: go down because you know, the cleaner maybe was being
• 34:39
  Speaker 1: paid or hopefully was being paid, and then you marry
• 34:41
  Speaker 1: him or her and all of a sudden, um, they're
• 34:43
  Speaker 1: still doing the same work, but they're not being paid.
• 34:46
  Speaker 1: So GDP would go down because we only include in
• 34:48
  Speaker 1: GDP those goods and services that have a price. Similarly,
• 34:51
  Speaker 1: if firms pollute, GDP goes up because we don't actually
• 34:55
  Speaker 1: have a way to automatically, you know, subtract those things
• 34:58
  Speaker 1: that are bad. But as long as you pay to
• 35:00
  Speaker 1: clean up the pollution, GDP will rise. Now this is
• 35:03
  Speaker 1: a well known problem. What I argue is that the
• 35:05
  Speaker 1: bigger problem is that because we've confused value extraction with
• 35:09
  Speaker 1: value creation, we've also confused rents with profits, and much
• 35:14
  Speaker 1: of what's in GDP is actually rent. And so before
• 35:16
  Speaker 1: adding in different types of indicators that people are arguing
• 35:20
  Speaker 1: for about well being, I say, let's clean the house
• 35:22
  Speaker 1: and get get rid of the rent. So what is rent? Rent?
• 35:25
  Speaker 1: For the classical economists again who I mentioned before, Adam Smith,
• 35:28
  Speaker 1: David Ricardo, Karl Marx, was basically unearned income. So different
• 35:33
  Speaker 1: actors in the economy maybe just playing some sort of
• 35:35
  Speaker 1: intermediating role. Think of a troll under a bridge getting huh,
• 35:39
  Speaker 1: some money, not really adding any value. And so because
• 35:43
  Speaker 1: their theory of value is actually nested in objective conditions
• 35:46
  Speaker 1: related to production, division of labor, technology, innovation, they could
• 35:51
  Speaker 1: actually kind of make lists almost of who they thought
• 35:54
  Speaker 1: was actually adding value and who was extracting it. Um. Now,
• 35:58
  Speaker 1: I don't think the point is about making lists and
• 36:00
  Speaker 1: you know, shaming anyone, but really rethinking how we can
• 36:03
  Speaker 1: actually reform finance so it is actually providing, for example,
• 36:07
  Speaker 1: patient long term committed finance to industries to innovate, versus
• 36:11
  Speaker 1: making quite a bit of money just moving around existing assets.
• 36:14
  Speaker 1: Just about a minute left. Is there any way that
• 36:16
  Speaker 1: these ideas could be implemented without a widespread crisis that
• 36:19
  Speaker 1: make people really rethink the entire financial system? Or is
• 36:22
  Speaker 1: this just basically a theoretical Uh no, No, I mean
• 36:25
  Speaker 1: to be honest, the reason I'm tired, besides the fact
• 36:27
  Speaker 1: that I have four kids, is I go around the
• 36:29
  Speaker 1: world actually trying to turn this into practice. Um of
• 36:33
  Speaker 1: report we're writing, which will be out in a couple
• 36:34
  Speaker 1: of weeks, is about what does this mean. For example,
• 36:37
  Speaker 1: for the pharmaceutical industry, why are they getting away with charging,
• 36:41
  Speaker 1: you know, astronomical prices in the name of value. They
• 36:44
  Speaker 1: actually have a formula called value based pricing. But first
• 36:48
  Speaker 1: of all, something like of the drugs that are in
• 36:50
  Speaker 1: the market, we're actually funded by the public sector, so
• 36:53
  Speaker 1: taxpayers through the National Institutes of Health, the prices being
• 36:56
  Speaker 1: set do not take that into consideration. We also have
• 37:00
  Speaker 1: all over the world different types of taxpayer funded investments
• 37:04
  Speaker 1: that are then free rider. On top of I just
• 37:07
  Speaker 1: heard you talking about Tesla. Tesla received a four hundred
• 37:10
  Speaker 1: and sixty five million guaranteed loan by the Department of
• 37:13
  Speaker 1: Energy the same amount. By the way that Celindra got
• 37:15
  Speaker 1: Clindra went bust, the taxpayer came in to bail them out,
• 37:18
  Speaker 1: Tesla what happened there for the taxpayer, So really rethinking
• 37:21
  Speaker 1: these things could actually turn into practical ways to make
• 37:24
  Speaker 1: sure that we don't just have growth, but we have
• 37:26
  Speaker 1: inclusive growth, innovation led growth, and sustainable growth. Want to
• 37:30
  Speaker 1: thank you very much for coming in and spending the
• 37:32
  Speaker 1: time with us. Marianna matsu Kato is the author of
• 37:38
  Speaker 1: Making and Taking in the Global Economy, The Value of Everything,
• 37:43
  Speaker 1: very interesting and very well written. Thanks very much for
• 37:46
  Speaker 1: being here. Thanks for listening to the Bloomberg P and
• 37:52
  Speaker 1: L podcast. You can subscribe and listen to interviews at
• 37:55
  Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm
• 37:59
  Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on
• 38:03
  Speaker 1: Twitter at Lisa Abramo wits one. Before the podcast, you
• 38:06
  Speaker 1: can always catch us worldwide on Bloomberg Radio.