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President Donald Trump's Economic Scorecard · Trumponomics

• 0:00
  Speaker 1: America isn't easy. America is advanced citizenship. You've got to
• 0:06
  Speaker 1: wine it bed because it's going to put up a fight. Hello,
• 0:16
  Speaker 1: and welcome to Stephanomics, the podcast that brings the global
• 0:19
  Speaker 1: economy to you. Well, what can we possibly talk about
• 0:23
  Speaker 1: this week? Well, it's fair to say that we don't
• 0:30
  Speaker 1: yet have a complete picture of exactly he'll be controlling
• 0:34
  Speaker 1: the main levers of US government for the next four years.
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  Speaker 1: But we can probably say the Democrats have not swept
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  Speaker 1: the table, which has implications for the kind of radical
• 0:44
  Speaker 1: changes we might expect to see in US policies over
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  Speaker 1: the next four years. But before getting into what could
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  Speaker 1: be an agenda for the future, what about the past?
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  Speaker 1: How has President Trump's four years changed the US economy
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  Speaker 1: and its impact on the rest of the world. Well,
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  Speaker 1: this week I'm going to discuss that with two very
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  Speaker 1: wise economists in a moment, the author economist and Bloomberg
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  Speaker 1: columnist Tyler Cohen, professor of economics at George Mason University.
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  Speaker 1: But first, Randall Krosner, former Federal Reserve Governor and professor
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  Speaker 1: of economics at the University of Chicago Booth School of Business.
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  Speaker 1: Now I should say he's speaking to us from the
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  Speaker 1: streets of London, just outside their London campus, if you can,
• 1:25
  Speaker 1: if you're trying to work out what some of the
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  Speaker 1: noises are during the conversation. But Randy, thank you very
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  Speaker 1: much for joining us. How would you say President Trump
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  Speaker 1: had changed the US economy in the last four years?
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  Speaker 1: What's what difference has he made? I think he's made
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  Speaker 1: quite a difference. I think there's been a dramatic difference
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  Speaker 1: in the approach to the global trade, in particular to
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  Speaker 1: trade with with China. Really emphasizing the concerns about intellectual property,
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  Speaker 1: about about potential for unfair trade practices and really brought
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  Speaker 1: that to the fore in a way that had not
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  Speaker 1: been there before in the US or elsewhere. And I
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  Speaker 1: think it's really changed the global discussion on that. You
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  Speaker 1: can agree or disagree, but I think, um, whether it
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  Speaker 1: is a Trump administration or a Biden administration going forward, UM,
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  Speaker 1: I think there's gonna be a lot of tension trade
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  Speaker 1: with China. Second area that I think he made a
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  Speaker 1: major change is with respect to taxes UH significant reduction
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  Speaker 1: corporate taxes UH. US corporate tax rates had stayed pretty
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  Speaker 1: much where they were for a long time whereas most
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  Speaker 1: of the the others, like here in the UK or
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  Speaker 1: in continental Europe, and most of the major major competitors
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  Speaker 1: have been reducing corporate taxes over time. So that was
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  Speaker 1: an important second important change. I think the third important
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  Speaker 1: change is related to at a climate and green energy,
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  Speaker 1: and clearly the president withdrawing from the Paris Accord and
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  Speaker 1: taking a very different view of green energy than President
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  Speaker 1: Obama had and Vice President Biden had, that was a
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  Speaker 1: big change. So I think three major changes. And as
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  Speaker 1: an economist, what would you look at now and consider
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  Speaker 1: to be the best feature of the great the most
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  Speaker 1: positive contribution that the president had made to America's future
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  Speaker 1: growth and prosperity. I do think the tax reforms helped
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  Speaker 1: us to move a little bit closer to a more
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  Speaker 1: sensible system of taxation of corporate income, that, all of
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  Speaker 1: the things being equal, was was a positive. Is it
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  Speaker 1: as far as I would have liked to have gone. No.
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  Speaker 1: Is it as full of reform? No? But it was
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  Speaker 1: a step in the right direction. So that's interesting because
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  Speaker 1: of course there's a lot of perception that the tax
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  Speaker 1: cuts predominantly benefited the rich and big corporations. But you
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  Speaker 1: would say that it's not gone far enough. So my
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  Speaker 1: focus as primarily on the on the corporate side to
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  Speaker 1: try to focus on increasing investment because we've had not
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  Speaker 1: as much investment as as we would have liked. That's
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  Speaker 1: a global phenomena, it's not unique to the US and UH,
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  Speaker 1: and trying to improve incentives for firms to invest and
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  Speaker 1: invest in the United States is valuable. The previous tax
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  Speaker 1: system had these diverse incentives that led to so called
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  Speaker 1: inversions of companies trying to move their domicile out of
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  Speaker 1: the US to places like Ireland and elsewhere that had
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  Speaker 1: very low taxes. UH. That certainly had no benefit for
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  Speaker 1: the US. A lot of corporations were holding hundreds of
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  Speaker 1: billions of dollars offshore because of the way the tax
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  Speaker 1: system worked, and this helped to reduce some of those
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  Speaker 1: those disincentives. As I said, did they go far enough
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  Speaker 1: to solve the issues and UH and give us, you know,
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  Speaker 1: a spiked productivity growth? No? Was it a step in
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  Speaker 1: the right direction. Yes, that's funny. We're gonna think a
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  Speaker 1: bit later on. We're going to discuss one of the
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  Speaker 1: potential reasons why we have that shortfall in investment. But
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  Speaker 1: I'll leave people hanging for that answer. Um, And if
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  Speaker 1: you have to ask you what you most want to
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  Speaker 1: change from an economic standpoint, what what do you think
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  Speaker 1: was most damaging to America's future prosperity potentially? So, I
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  Speaker 1: think that the key would be to really have a
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  Speaker 1: very clear focus on a pro growth and productivity growth
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  Speaker 1: agenda and uh and I think there were a lot
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  Speaker 1: of distractions from something something like that and that was
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  Speaker 1: I think that would be the biggest benefit going forward,
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  Speaker 1: regardless of whether it's Republicans or Democrats. I think there's
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  Speaker 1: certainly a number of things that people on both sides
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  Speaker 1: of the aisle could agree with. And if you have
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  Speaker 1: higher productivity, growth, higher investment, that then leads to the
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  Speaker 1: higher wages. And as someone who had has sat as
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  Speaker 1: a policymaker in the Federal Reserve, I have to ask
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  Speaker 1: you how you feel the FED has fared over the
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  Speaker 1: last four years. I mean, we're familiar with the actions
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  Speaker 1: has had to take in response of the COVID crisis,
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  Speaker 1: but we've also seen it become much more subject of
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  Speaker 1: political attacks and more of a politicized institution despite its
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  Speaker 1: best efforts. Do you think that's something that needs to
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  Speaker 1: change or has put the FED in a in a
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  Speaker 1: risky position going forward. I think the FED is always
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  Speaker 1: in the political cross hairs. I was there during the
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  Speaker 1: global financial crisis, and certainly there were a number of
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  Speaker 1: political actors who were suggesting quite strongly things that we
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  Speaker 1: should or shouldn't be doing. So I don't think it's
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  Speaker 1: it's new to the FED to to come under political
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  Speaker 1: scrutiny and political pressure. I think one of the interesting
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  Speaker 1: things is an unintended consequence of the reforms that so
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  Speaker 1: called Dodd Frank reforms that came after the after the
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  Speaker 1: global financial crisis. UM, it required that for the FED
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  Speaker 1: to do the emergency programs that they had done when
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  Speaker 1: I was there without asking Treasuries permission, now requires sign
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  Speaker 1: off from the Secretary of Treasury. There was a concern
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  Speaker 1: that would slow the FED down and be able to
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  Speaker 1: respond to a crisis. Obviously, the FED responded very rapidly
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  Speaker 1: and uh and very boldly. And what's interesting is that, UM,
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  Speaker 1: I think the Congress is now when the appropriate money
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  Speaker 1: for doing certain programs, they say to the Treasury, will
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  Speaker 1: here's some money, who work with the FED to turn
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  Speaker 1: that into a particular program, like a main street lending
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  Speaker 1: program or other programs like that. So I think what's
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  Speaker 1: interesting is that an unintended consequence of UH of the
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  Speaker 1: DoD frank has not been to just slow down the response,
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  Speaker 1: but to have more direct um direction from the members
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  Speaker 1: of Congress as to what the FED should be doing
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  Speaker 1: in a crisis. And of course, I mean the FED
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  Speaker 1: purists would say that's a disaster because you don't want it.
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  Speaker 1: You're sort of chipping away at the Fed's independent But
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  Speaker 1: the other view would be that it makes them more
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  Speaker 1: accountable to ultimately the elected leadership of the country. Where
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  Speaker 1: do you stand on Yeah, so it's difficult to get
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  Speaker 1: the balance right. It's got to be accountability, and certainly
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  Speaker 1: in a crisis it's important for all hands to be
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  Speaker 1: on deck, whether it's the Treasury, whether it's Congress, whether
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  Speaker 1: it's the FED, and trying to be coordinated. So I
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  Speaker 1: think that's UH. You know, it's important to have that
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  Speaker 1: sort of united united front and have that kind of coordination.
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  Speaker 1: The question is, in the longer run, does that interfere
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  Speaker 1: with the ability of the FED to step back to
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  Speaker 1: take back some of the UH the programs that they
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  Speaker 1: had had put forward when the economy begins to recover
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  Speaker 1: if they If that becomes difficult, that's really problematic, because
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  Speaker 1: then that would likely lead to an inflation outcome that
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  Speaker 1: I think no one ultimately wants. UM, But sometimes it's
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  Speaker 1: difficult for the political actors to to see those intermediate
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  Speaker 1: to longer run consequences when they want to maintain credit
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  Speaker 1: flowing to a particular sector. I mean, one thing that
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  Speaker 1: the FED did end up doing UM, which also supported
• 9:04
  Speaker 1: the stock market, which is obviously a big focus for
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  Speaker 1: President Trump, was making these quite sort of big promises
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  Speaker 1: about buying junk bonds and supporting corporate lending at that level,
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  Speaker 1: which I think sort of raised a few eyebrows that
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  Speaker 1: to have the FED in effectively propping up that bit
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  Speaker 1: of the market as well as somehow implicated in supporting
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  Speaker 1: the stock market generally. Do you think that the Fed's
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  Speaker 1: called itself into a difficult position there. I think there
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  Speaker 1: are two pieces of it. One is, if they see
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  Speaker 1: the markets not functioning properly, they're going to intervene, and
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  Speaker 1: they should intervene to make sure there isn't a total
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  Speaker 1: meltdown that happened a decade ago. That also happened in
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  Speaker 1: March of this year when the FED intervened, provided liquidity,
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  Speaker 1: provided um uh U s dollar credit globally to other
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  Speaker 1: central banks, and that took away what I call a
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  Speaker 1: market dysfunction discount UM. And so that is something that
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  Speaker 1: I think is appropriate for or for central banks to
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  Speaker 1: be doing the challenges. They have now gotten into areas
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  Speaker 1: that we had not gotten to when I was there
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  Speaker 1: a decade ago, um taking effectively more risk because they
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  Speaker 1: are getting into lower rated securities, doing some direct lending.
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  Speaker 1: And the question will come when there potentially some losses
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  Speaker 1: associated with that. The programs that the FED did while
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  Speaker 1: I was there, we didn't have have losses associated with those.
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  Speaker 1: Um if there are losses, even though in some sense
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  Speaker 1: that's what the Congress wanted. If they want the FED
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  Speaker 1: to lend where banks otherwise wouldn't lend, they're directing them
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  Speaker 1: to take on more risk than otherwise would have been
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  Speaker 1: the case because the private sector wasn't doing that. But
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  Speaker 1: then when the losses occur, no one wants to bear
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  Speaker 1: those losses, and so there will be a lot of
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  Speaker 1: a lot of finger pointing and questions about well, why
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  Speaker 1: did you take those kinds of risks? And and so
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  Speaker 1: I think that's going to be one of the tensions
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  Speaker 1: going forward if we turn to the future briefly, there
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  Speaker 1: is there has been a fewest political debate about whether
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  Speaker 1: and how much fiscal stimulus is needed for the US
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  Speaker 1: to to make sure that it doesn't go into another recession.
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  Speaker 1: Would you be worried about the short term outlook for
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  Speaker 1: the US economy if it wasn't possible to pass another stimulus.
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  Speaker 1: I think the key is really where the money is spent.
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  Speaker 1: I know there's been a debate over two trillion versus
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  Speaker 1: three trillion um that the Trump administration and the Republics
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  Speaker 1: I proposed to true trillion. That wasn't enough where the
• 11:34
  Speaker 1: members of the House, these are very large numbers. And uh,
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  Speaker 1: and I think it's not just you know, when you're
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  Speaker 1: in that realm, it's not two versus three trillion, but
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  Speaker 1: how are you spending it? And and I think the
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  Speaker 1: most important thing is to try to UM build databases
• 11:52
  Speaker 1: and get data on where are the worthy infections and
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  Speaker 1: then do track and trace so that you can quickly respond.
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  Speaker 1: That's the most effective way to try to save lives
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  Speaker 1: and save livelihoods. Unfortunately, very little of the previous UM
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  Speaker 1: stimulus packages were focused on the health issues directly focused
• 12:12
  Speaker 1: on the data collection and data dissemination issues, track and trace,
• 12:16
  Speaker 1: those kinds of things. So I think it's it's more
• 12:18
  Speaker 1: about how you're spending it, um, you know, given that,
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  Speaker 1: I think both sides will want to spend a fair
• 12:24
  Speaker 1: amount of money rather than the specific number, given that
• 12:28
  Speaker 1: it's it's quite a large, quite a large amount. There's
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  Speaker 1: a Randall Crosner, thanks very much, Thank you very much,
• 12:39
  Speaker 1: Tyler Code. We don't know what's going to happen, or
• 12:42
  Speaker 1: we don't know exactly what's going to happen. It does
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  Speaker 1: look like the Democrats have not swept the board, shall
• 12:47
  Speaker 1: we say, um, So we're possibly that may limit the
• 12:52
  Speaker 1: scale of the changes we might see over the next
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  Speaker 1: four years. But if we're just stepping back and looking
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  Speaker 1: at the last your four years, how has Donald Trump
• 13:02
  Speaker 1: changed the economy? What's one of the big things that
• 13:05
  Speaker 1: will stand out for historians. I think the biggest thing
• 13:09
  Speaker 1: that will stand out is that he didn't change the
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  Speaker 1: economy much at all. In fact, so there was a recovery.
• 13:15
  Speaker 1: He oversaw that the recovery in some ways accelerated. That
• 13:20
  Speaker 1: was good news. COVID is a separate story. Obviously, it
• 13:24
  Speaker 1: hit the economy. But I'm not sure how much that
• 13:27
  Speaker 1: will be connected with Trump, because it's happened to the
• 13:29
  Speaker 1: whole world. So Trump will be seen as important in
• 13:33
  Speaker 1: the realm of ideas more than the realm of economics.
• 13:37
  Speaker 1: And what if you were going to pick one good thing,
• 13:40
  Speaker 1: maybe one bit good shift that happened, at least in
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  Speaker 1: part as a result of his actions, that might have
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  Speaker 1: helped America's future prosperity, what would you what would you
• 13:51
  Speaker 1: point to? I bet he would look at the stock market,
• 13:53
  Speaker 1: But what would you look at Operation warp speed accelerating
• 13:57
  Speaker 1: the progress of the vaccine. It's been pretty phenomen and
• 14:00
  Speaker 1: all Trump gets some of the credit for that. People
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  Speaker 1: underrate that. And what do you think for someone coming in,
• 14:07
  Speaker 1: anybody coming in, what would you most want to reverse
• 14:11
  Speaker 1: or what would you start want to start to push
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  Speaker 1: against you for the long term good of the country economically,
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  Speaker 1: Starting in January, we had two full months to prepare
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  Speaker 1: for the pandemic and essentially did nothing, and that also
• 14:25
  Speaker 1: hurt our economy greatly. That was completely our own stupidity
• 14:29
  Speaker 1: and own goal, partly the fault of our president, though
• 14:31
  Speaker 1: not only. And if we could do that over again,
• 14:34
  Speaker 1: we'd be in a much better position right now when
• 14:37
  Speaker 1: you're looking back at um this potential scarring of the
• 14:41
  Speaker 1: COVID recession. You know, we look in Europe and we think, well,
• 14:45
  Speaker 1: potentially the US with its more flexible labor market with
• 14:50
  Speaker 1: only without the sort of furlough scheme, so that lots
• 14:53
  Speaker 1: of people, although they had higher benefits, they were thrown
• 14:56
  Speaker 1: into unemployment m forced to fend for themselves elves. There's
• 15:00
  Speaker 1: some expectation that maybe the adjustment in the economy would
• 15:04
  Speaker 1: be faster once we start moving away from the pandemic,
• 15:07
  Speaker 1: and the scarring will be less in the US. Do
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  Speaker 1: you buy that or do you think there is a
• 15:11
  Speaker 1: lot of scarring that's now baked into the impact of
• 15:14
  Speaker 1: this recession. Well, both are true. There's a lot of scarring,
• 15:18
  Speaker 1: but it's much worse than Europe. I don't think that's
• 15:20
  Speaker 1: a hypothetical. I think we already see it. So Americans
• 15:24
  Speaker 1: have learned to live with a certain level of COVID
• 15:26
  Speaker 1: that's quite unfortunate in many ways. But I don't think
• 15:30
  Speaker 1: we'll have the snap back in terms of expectations and
• 15:33
  Speaker 1: retail sales that we're seeing in so much of Western Europe.
• 15:36
  Speaker 1: We've had a steadier course for our pandemic. And you
• 15:40
  Speaker 1: mentioned that Trump inherited a pretty nice economy. Clearly the
• 15:45
  Speaker 1: next four years that whoever inherits the White House is
• 15:50
  Speaker 1: not going to be looking at as as good a picture.
• 15:53
  Speaker 1: How would one play? I mean, what's what are the
• 15:55
  Speaker 1: what are the priorities for whatever? So whichever side you're on,
• 15:59
  Speaker 1: fighting back the pandemic is the number one priority. Getting
• 16:02
  Speaker 1: a vaccine out there distributed in a safe, effective and
• 16:05
  Speaker 1: timely manner. That won't be easy, even if you're a
• 16:08
  Speaker 1: big optimist on the biomedical front, Convincing enough Americans to
• 16:12
  Speaker 1: take it, setting up the distribution networks that would be
• 16:16
  Speaker 1: a challenge to any leader of any country. I think
• 16:19
  Speaker 1: we'll do okay, but we'll see. And if there's no
• 16:22
  Speaker 1: scope for stimulus, if we get good luck. Mitch McConnell
• 16:26
  Speaker 1: has already said he wants there to be stimulus. Now.
• 16:29
  Speaker 1: The devil is in the details. But I think there
• 16:31
  Speaker 1: are political gains from trade and we'll no soon enough
• 16:34
  Speaker 1: who has one what. I think there'll be a deal
• 16:37
  Speaker 1: right away. It won't be what I would choose, but
• 16:39
  Speaker 1: we'll get something and pretty soon. And you don't think
• 16:42
  Speaker 1: the risk. I mean, at this stage one might say
• 16:44
  Speaker 1: that that the beginning is a kind of shock and
• 16:47
  Speaker 1: are approach to fiscal stimulus that you need a lot
• 16:50
  Speaker 1: of money quickly and get money into households hands, which
• 16:55
  Speaker 1: arguably the first stimulus package did. Um that this age,
• 17:00
  Speaker 1: when you're in a bit more of a kind of
• 17:02
  Speaker 1: mature form of recovery or hope hopeful recovery, where the
• 17:07
  Speaker 1: money goes is more important. Would you buy that? I
• 17:10
  Speaker 1: would look at it a little differently. If you think
• 17:13
  Speaker 1: we might be able to start distributing a vaccine by
• 17:16
  Speaker 1: say January or February, you want to redirect stimulus to
• 17:20
  Speaker 1: areas that need a very immediate you know, tiding over
• 17:24
  Speaker 1: that might be some state in local governments. But then
• 17:27
  Speaker 1: you do in fact need much less stimulus compared to
• 17:30
  Speaker 1: say what was required in March. So it interacts with
• 17:34
  Speaker 1: the biomedical side, and we may be at the point
• 17:36
  Speaker 1: where we're trying to patch holes. We we can't solve
• 17:39
  Speaker 1: all of the problems. And finally we we talked to
• 17:42
  Speaker 1: Reddy Crossner earlier about where the FED comes out of
• 17:46
  Speaker 1: the first four years of Trump. Do you think the
• 17:47
  Speaker 1: FED is in a sort of more more perilous position
• 17:50
  Speaker 1: given the UM. Now it's so strongly associated with Trump's
• 17:55
  Speaker 1: efforts to support the stock market, and has UM really
• 18:00
  Speaker 1: gone out of a limb to support the economy buying
• 18:02
  Speaker 1: up chunk junk bonds and other things. This year, I
• 18:06
  Speaker 1: think the FED, Amazon, and the NBA have proven themselves
• 18:10
  Speaker 1: to be the truly well functioning institutions in America. The
• 18:14
  Speaker 1: FED didn't even have to use up all of its
• 18:16
  Speaker 1: lines of credit. And let's hope they're standing ready next
• 18:19
  Speaker 1: time around. Tyler Cone, thank you very much. Thank you.
• 18:23
  Speaker 1: M Now you'll remember that one of the facts about
• 18:32
  Speaker 1: President Trump's four years in office that he's most proud
• 18:35
  Speaker 1: about is what's happened to the stock market. The SMP
• 18:38
  Speaker 1: five hundred index has risen fifty since he took office.
• 18:43
  Speaker 1: It's not the highest ever return, as he might often claim.
• 18:46
  Speaker 1: In fact, the same index rose in President Clinton's first
• 18:51
  Speaker 1: four years in the But here's one way that Trump's
• 18:54
  Speaker 1: stock market rally really is different, because it rests on
• 18:58
  Speaker 1: the value of assets that you can't see and you
• 19:01
  Speaker 1: can't touch. If you sold all of the physical assets
• 19:05
  Speaker 1: tangible assets in those SMP five companies, you'd only get
• 19:10
  Speaker 1: to about a fifth of the supposed market value. Everything else,
• 19:15
  Speaker 1: that's about twenty two trillion dollars worth of market capitalization
• 19:20
  Speaker 1: comes from intangible assets like algorithms or lists or brands,
• 19:26
  Speaker 1: a lot of invisible assets. We had a fascinating story
• 19:28
  Speaker 1: about this on Bloomberg recently, written by reporter Sarah Ponsek,
• 19:32
  Speaker 1: and I wanted to dig into it because it seemed
• 19:34
  Speaker 1: to me to have so many implications for the US
• 19:37
  Speaker 1: economy and for policymakers everywhere and here. To talk to
• 19:42
  Speaker 1: us about some of those implications is New York University
• 19:46
  Speaker 1: professor barru Clev, whose writings on this topic have spurred
• 19:50
  Speaker 1: something of a debate on intangible assets. Professor Lev, thank
• 19:55
  Speaker 1: you very much for joining us. I should start by
• 19:58
  Speaker 1: asking you, is there's a Is this a new phenomenon
• 20:02
  Speaker 1: that quite so much of the value of our the
• 20:05
  Speaker 1: US major stock market is actually is intangible assets. It's
• 20:10
  Speaker 1: definitely not a new phenomenon, and it's at least twenty
• 20:14
  Speaker 1: five even thirty years. It really started in the mid
• 20:19
  Speaker 1: eighties when investment in intangibles, meaning investment in research and
• 20:25
  Speaker 1: developments and information technology, brand human resources so passed in
• 20:32
  Speaker 1: the United States. Investment intangible assets thinks that when they
• 20:38
  Speaker 1: fall you can hear them. The traditional investments machines, structures,
• 20:43
  Speaker 1: and so on and so on, and the gap between
• 20:46
  Speaker 1: the two is growing. Today. Investment in intangibles in the
• 20:51
  Speaker 1: United States annually is the staggering sum of about two
• 20:57
  Speaker 1: and a half trillion. With the t trillion dollars investment
• 21:02
  Speaker 1: intangibles is about t off it. So it's a complete
• 21:08
  Speaker 1: transformation of the US economy and to to a large extent,
• 21:13
  Speaker 1: others economy is to definitely the UK, China, to some
• 21:19
  Speaker 1: to some extent North European countries and so on and
• 21:23
  Speaker 1: so on. So it's a it's it's an incredible transformation
• 21:28
  Speaker 1: with lots and lots of consequences positive and negative. And
• 21:33
  Speaker 1: I like your your definition of the of a physical asset.
• 21:36
  Speaker 1: I remember when we were thinking about the difference between
• 21:38
  Speaker 1: goods and services when I was just learning economics, and
• 21:42
  Speaker 1: and a good was something you could drop on your foot.
• 21:44
  Speaker 1: But it's certainly true the intangible assets you can't drop
• 21:47
  Speaker 1: on your on your foot. Now, one of the things
• 21:50
  Speaker 1: that people have highlighted as a really serious implication of
• 21:56
  Speaker 1: this and why it's so important for our economy, is
• 22:00
  Speaker 1: that it has contributed to rising inequality. I know this
• 22:05
  Speaker 1: is complicated, but what is the read across from the two.
• 22:09
  Speaker 1: Why does it Why does not having physical assets like
• 22:12
  Speaker 1: factories make it more likely that the profits from these
• 22:15
  Speaker 1: companies will be concentrated in fewer hands. Those intangible assets
• 22:23
  Speaker 1: like patterns and music and content things like that have
• 22:31
  Speaker 1: many qualities which differentiate them from tangible assets. But the
• 22:37
  Speaker 1: main one is what the economy is called scalability. And
• 22:43
  Speaker 1: airline can sell a seat on an airplane to only
• 22:48
  Speaker 1: one person per flight, but if you are selling drugs,
• 22:55
  Speaker 1: if you are selling software, if you are selling music,
• 22:59
  Speaker 1: you can add this same time sent to millions and
• 23:03
  Speaker 1: millions of companies. The skies really limits. That's the scalability
• 23:11
  Speaker 1: of intangible assets. That's what creates the enormous profitability their
• 23:18
  Speaker 1: normals size. And I want to emphasize and not just
• 23:22
  Speaker 1: speaking about Apple or Google or Amazon. We all know
• 23:28
  Speaker 1: that these are gigantic, historically gigantic companies. I'm speaking about
• 23:33
  Speaker 1: hundreds and thousands of companies that are reaching intangibles. Intangibles
• 23:41
  Speaker 1: have all kinds of advantages spoke about. They create huge profits, size,
• 23:49
  Speaker 1: some of them dominate, many of them dominate market but
• 23:53
  Speaker 1: they have a dark side, and the dark side is
• 23:58
  Speaker 1: that it's very, very difficult to manage and developed intangibles.
• 24:06
  Speaker 1: Those who are intensive in intangibles need very very skilled employees.
• 24:13
  Speaker 1: And I don't mean just at the top. I mean
• 24:17
  Speaker 1: they need are and the scientists. They need software engineers,
• 24:20
  Speaker 1: they need content creators, they need patent experts, they need
• 24:24
  Speaker 1: sales persons. All of these people are handsomely paid, not
• 24:30
  Speaker 1: because the companies are good out but because they're highly skilled.
• 24:35
  Speaker 1: So the intangibles, the complexity of the task, the need
• 24:41
  Speaker 1: for very skilled people is a major reason for income inequality.
• 24:49
  Speaker 1: Economy is estimated that about two thirds of income inequality
• 24:54
  Speaker 1: comes from this fact. I guess what you're talking about,
• 24:59
  Speaker 1: an essence, This is there's sort of two big things
• 25:02
  Speaker 1: that contribute to the inequality. The scalability of these assets.
• 25:07
  Speaker 1: The fact that you can produce you can sell unlimited
• 25:10
  Speaker 1: amounts at some level rather than this scarce supply of
• 25:14
  Speaker 1: airline seats as your example. Um it can make it
• 25:19
  Speaker 1: a very very profitable company for a very small input
• 25:24
  Speaker 1: of labor and physical investment. Um So, and that says
• 25:28
  Speaker 1: very unlabor intensive, but you can make a lot of money,
• 25:30
  Speaker 1: which could go to a relatively small number of people.
• 25:33
  Speaker 1: I guess that's one part of it. And then the
• 25:35
  Speaker 1: other part is what you've been saying about their reliance
• 25:39
  Speaker 1: on super skilled people who will themselves need to be
• 25:43
  Speaker 1: highly paid to be to hold onto them. Is that
• 25:47
  Speaker 1: would you say that's about this sort of is the
• 25:49
  Speaker 1: two pieces. It's the sort of scalability and therefore the
• 25:52
  Speaker 1: potential for very high profits for a very small number
• 25:55
  Speaker 1: of people, but also the highly skill I would take
• 25:58
  Speaker 1: one small except it's not a small number of people.
• 26:03
  Speaker 1: I mean if you look at if you look at
• 26:05
  Speaker 1: large tech companies like Google and Amazon, they employ hundreds
• 26:11
  Speaker 1: of thousands of employees. It's not just a few. And
• 26:16
  Speaker 1: that's that's that's the major effect on incomil equality. It's
• 26:20
  Speaker 1: not just at the top of one tenth of one percent.
• 26:25
  Speaker 1: We are speaking about millions of people who are really
• 26:30
  Speaker 1: highly highly paid because those intangible intensive companies employ lots
• 26:37
  Speaker 1: and lots of of people. But the number of people
• 26:42
  Speaker 1: who are employed by by others is of course even
• 26:46
  Speaker 1: larger than that, and they are less skilled and much
• 26:51
  Speaker 1: less paid. In this case, I guess the example that
• 26:55
  Speaker 1: people have in their minds is when you have a
• 26:56
  Speaker 1: beginning of one of those companies where the market value
• 27:00
  Speaker 1: can be extraordinary. And you really are just talking about
• 27:03
  Speaker 1: a single office full of people. But what you're saying
• 27:06
  Speaker 1: is that most of the story is actually once these
• 27:08
  Speaker 1: companies have got big. Yeah. Yeah. The fact is. The
• 27:14
  Speaker 1: fact is if you look at sizes of companies, the
• 27:17
  Speaker 1: big get bigger, and the small stagnates. That's the said
• 27:25
  Speaker 1: thing about it. Most of the small and I'm talking
• 27:28
  Speaker 1: about thousands of companies, not a few, most most of
• 27:33
  Speaker 1: the small stagnate in size, stagnate in profitability, many of
• 27:40
  Speaker 1: them are losing money. They can el afford investment in
• 27:46
  Speaker 1: new technology, investment, high skilled employees. You have a whole
• 27:52
  Speaker 1: huge sector there that is really doomed to a continue struggling,
• 28:00
  Speaker 1: just continuous struggling. And we're thinking in part on this
• 28:05
  Speaker 1: program about what some of the policy challenges are for
• 28:07
  Speaker 1: the next four years. And I wonder, I mean, the
• 28:13
  Speaker 1: the basic rules that most companies have, the way that
• 28:17
  Speaker 1: accounts are designed and companies are taxed and and regulated,
• 28:24
  Speaker 1: were made for a time which a much bigger proportion
• 28:27
  Speaker 1: of a company's value was in things that you could
• 28:30
  Speaker 1: you could see and touch. Do you think there are
• 28:33
  Speaker 1: there are changes that policymakers could make or should make
• 28:37
  Speaker 1: um for us to for these for these companies to thrive,
• 28:43
  Speaker 1: but also perhaps not contributing quite the same way to inequality.
• 28:49
  Speaker 1: I'm not a great believer of philosophically in government intercasion
• 28:55
  Speaker 1: in the regulation. I am in Old Chicago, a PhD professor,
• 29:02
  Speaker 1: UH there for several years. I can think of several
• 29:07
  Speaker 1: things that will decrease significantly the income inequality. Basically being
• 29:13
  Speaker 1: an educator or university educator all my life training, training,
• 29:19
  Speaker 1: training is my motto. For example, all those young people
• 29:25
  Speaker 1: at colleges and universities all over the world, My my
• 29:30
  Speaker 1: suggestion for you is, don't spend your time on useless courses. Uh,
• 29:40
  Speaker 1: spend it on something that you can transform into a
• 29:46
  Speaker 1: skill that will be demanded. And I'm not just speaking
• 29:50
  Speaker 1: about social engineers. I'm speaking about content creators and and
• 29:58
  Speaker 1: brand men managers. There is a whole slew of things
• 30:03
  Speaker 1: that will will prob will enable you to become skilled persons.
• 30:10
  Speaker 1: I just thinking about the gap with governments and do
• 30:14
  Speaker 1: massive investment in vocational schools very important, Professor lev thank
• 30:21
  Speaker 1: you very much for joining us. Thank you, thanks for listening.
• 30:31
  Speaker 1: To Stephanomics. We'll be back next week with more on
• 30:34
  Speaker 1: the ground reporting and analysis about the global economy. Remember
• 30:38
  Speaker 1: you can always find us on the Bloomberg terminal, website, app,
• 30:41
  Speaker 1: or wherever you get your podcast. You can also get
• 30:44
  Speaker 1: more news and analysis from Bloomberg Economics right through the
• 30:47
  Speaker 1: week by following as Economics on Twitter. This episode was
• 30:51
  Speaker 1: produced by Magnus Hendrickson, with special thanks to Randy Krosner,
• 30:54
  Speaker 1: Tyler Cohen, and baroque lev Lucy Meekin is the executive
• 30:59
  Speaker 1: producer of Stephanos and the head of Bloomberg Podcast is
• 31:02
  Speaker 1: Francesco Levia.