Wall Street Week 03/29/2024

Summary

This episode of Bloomberg Wall Street Week, hosted by David Westin, dives into critical financial and political topics. It features insights from notable figures like Gillian Tett on geopolitical investment risks and Larry Fink's discussion on retirement crises globally. The episode examines U.S. CEOs' perspectives on presidential candidates, the role of standardized tests in university admissions, and the impact of high debt on the economy. It also explores leadership accountability in various sectors, highlighting challenges faced by Boeing's CEO, Disney's governance under Nelson Peltz's scrutiny, and a controversial NBC staffing decision. The program blends economic analysis with current affairs, providing a multifaceted view of global finance and leadership responsibility.

Takeaways

• 🚨 A tragedy strikes Baltimore Harbor, highlighting unforeseen disasters.
• 💰 Boeing's leadership sees a significant change with the CEO stepping down amid controversies.
• 🌍 The U.S. diverges from Israel in a UN decision, indicating shifts in international relations.
• 📖 Larry Fink of BlackRock discusses a looming retirement crisis, emphasizing the need for a national conversation on retirement affordability and the impact of medical advancements on longevity.
• 💳 Concerns about the U.S. fiscal situation and the national debt are raised, pointing to the urgent need for addressing the deficit and exploring private market investments for retirement.
• 📈 The role of standardized tests in college admissions is debated, with arguments for their predictive value and against their potential bias and accessibility issues.
• 📝 Josh Bolten from the Business Roundtable shares insights on what American CEOs seek in the next president, focusing on fiscal responsibility, trade policies, and the regulatory environment.
• 🛡️ The script touches on the geopolitical risks affecting investments, highlighting the complex interplay between economics and international politics.
• 📚 Discussions on economic growth strategies stress the importance of public and private investment, trade policies, and regulatory environments.
• 👨‍💻 NBC reconsiders its decision to hire Ronna McDaniel as an on-air contributor after internal backlash, reflecting tensions between newsroom values and leadership decisions.

Q & A

What crisis is Larry Fink of BlackRock focused on in his annual letter to investors?

Larry Fink's annual letter to investors is focused on the retirement crisis in the United States and around the world.

How many Americans lack any savings or retirement plan according to the script?

According to the script, 57 million Americans don't have any savings or retirement plan.

What technological advancements are mentioned as extending human life and impacting the retirement crisis?

The technological advancements mentioned include drugs for weight loss, kidney disease, liver disease, heart disease, joint disease, and new medicines for dementia.

What is the suggestion made for incorporating private markets into retirement planning?

The suggestion made is to consider including private markets, such as infrastructure investments, into retirement planning due to their long maturity, higher coupon, and more predictable returns.

What concern does Larry Fink express regarding the US public debt and deficit?

Larry Fink expresses concern about the dramatic increase in the US public debt and deficit, noting it went from $8 trillion in 2000 to $34 trillion, highlighting the risk of crowding out private capital and the potential for structurally higher interest rates.

What economic growth rate does Larry Fink suggest is necessary to manage the US deficit effectively?

Larry Fink suggests that a 3% real growth rate is necessary to effectively manage the US deficit.

How does Glenn Hubbard, former chair of the Council of Economic Advisors, view public investment in growth?

Glenn Hubbard views public investment in basic and applied research, especially in areas like technology and climate change mitigation, as crucial for growth, rather than large-scale industrial policy initiatives.

What does Gillian Tett of the Financial Times identify as a major risk investors are underestimating?

Gillian Tett identifies geopolitical and domestic political risks as major factors that investors are underestimating, particularly in the context of technologies like TikTok.

What concerns do American CEOs, according to Josh Bolten of the Business Roundtable, have regarding the next president?

American CEOs are very concerned about the fiscal situation in the United States, looking for policies that address the deficit and debt without harming the competitiveness of US businesses.

What is the debate regarding standardized tests at American universities, as discussed by economist Melissa Kearney?

The debate revolves around the predictive value of standardized tests like the SAT for college performance, their accessibility and fairness to students from various backgrounds, and the move by some colleges to test-optional policies.

Outlines

00:00

📉 Exploring Financial and Geopolitical Risks

This segment introduces a series of discussions on Bloomberg Wall Street Week, focusing on the intersection of finance, geopolitics, and societal issues. Highlights include insights from Gillian Tett on the impact of geopolitical risks on investments, Josh Bolten's perspective on what American CEOs desire from the next U.S. president, particularly concerning fiscal policies, and economist Melissa Kearney's analysis of standardized tests in American universities. Additionally, Larry Fink of BlackRock addresses the retirement crisis, emphasizing the need for a global dialogue on retirement sustainability in the face of medical advancements that prolong life. The narrative underscores a collective concern among experts and leaders about the future of investments, fiscal health, and the broader economic landscape amid evolving geopolitical and social challenges.

05:01

🏦 Navigating Financial Markets and U.S. Debt

The conversation continues with a deeper dive into the complexities of capital markets and the burgeoning issue of U.S. debt, scrutinized through the lens of BlackRock CEO Larry Fink's observations. Fink articulates the paradox of capital market success juxtaposed with the alarming growth of U.S. debt, highlighting a near fourfold increase over two decades. This section underscores the intertwined relationship between public debt, private investment, and economic policy, illustrating the dire need for strategic public-private collaboration in investment, especially in infrastructure and technology, to steer economic growth and mitigate the impact of rising national debt.

10:02

📈 Strategies for Economic Growth and Trade

This part introduces Glenn Hubbard's views on stimulating economic growth through policy tools like public investment and trade policy. Highlighting the limitations and potential of public investment, Hubbard criticizes current industrial policies while advocating for more effective approaches, such as enhanced research and defense spillovers into the private sector. The segment also revisits the tax policies and trade stances of the Trump administration, emphasizing the importance of balancing tax cuts with anti-protectionist trade policies to foster economic growth and maintain competitiveness in a global market.

15:02

🌍 Investing Amidst Geopolitical Uncertainty

Gillian Tett shares insights on the increasing importance of geopolitical considerations in investment decisions, illustrating the disconnect between short-term market optimism and long-term geopolitical risks. Tett's discussion highlights the emerging challenges investors face, including government capriciousness and the impact of technologies like AI on political processes. The narrative suggests a shift towards more comprehensive risk assessment strategies, underscoring the need for investors to embrace a broader understanding of historical and cultural contexts in navigating a tumultuous global landscape.

20:06

📚 The Impact and Controversy of Standardized Testing

Melissa Carney, an economist, delves into the contentious debate over standardized testing in college admissions, affirming the predictive value of SAT and ACT scores in academic success. Carney addresses common criticisms, emphasizing the contextual evaluation of test scores by admissions officers and the unintended consequences of test-optional policies. The segment reveals the complex interplay between educational equity, academic readiness, and the role of standardized tests in ensuring appropriate student-college matches, highlighting the broader implications for educational policy and social mobility.

25:09

🏛 Leadership and Accountability in Times of Change

This concluding segment reflects on various instances of leadership being held accountable across political, corporate, and media spheres. Highlighting stories from Boeing's CEO changeover, the proxy battle at Disney, and NBC's controversial hiring and subsequent reversal regarding Ronna McDaniel, the narrative underscores the diverse challenges and responsibilities of leadership. The discussion extends to broader implications for corporate governance, political leadership, and media integrity, illustrating the complex dynamics of accountability and public trust in a rapidly evolving socio-political landscape.

Keywords

💡Retirement crisis

The term 'retirement crisis' refers to the growing concern that many individuals will not have sufficient financial resources to maintain their standard of living in retirement. In the video, Larry Fink of BlackRock discusses the increasing conversations with clients about the retirement crisis, highlighting the issue that a significant number of Americans lack adequate savings or retirement plans. This crisis is exacerbated by longer life expectancies and the insufficiency of social security benefits to cover the full extent of retirement needs.

💡Geopolitical risk

Geopolitical risk involves the impact of political decisions, events, or conditions in one country on the global economic and financial landscape. The video mentions Gillian Tett of the Financial Times discussing the investment in geopolitical risks, reflecting on the increased levels of uncertainty and the potential effects on global markets. This concept is crucial in understanding the interconnectedness of global economies and the potential for political actions to cause widespread financial implications.

💡Infrastructure investment

Infrastructure investment is mentioned in the context of Larry Fink advocating for the redirection of private capital into long-term assets like infrastructure. This is considered a means to achieve stable returns for retirement savings. The discussion points to the necessity of investing in infrastructure to support economic growth and address the retirement crisis, with an emphasis on the potential for public-private partnerships to fund critical projects.

💡Standardized tests

Standardized tests are exams designed to measure a student's academic ability and potential. The video includes a segment with economist Melissa Kearney discussing the role of standardized tests like the SAT in predicting college success. The debate around these tests involves their predictive power, alleged cultural bias, and the impact on students from varied socioeconomic backgrounds, highlighting the complexity of using such metrics in educational admissions.

💡Public debt

Public debt refers to the total amount of money owed by a government. Larry Fink expresses concern over the rapid increase in U.S. public debt, emphasizing its implications for future economic stability and interest rates. The discussion points to the broader issue of fiscal responsibility and the potential economic consequences of high public debt levels, such as crowding out private investment and structurally higher interest rates.

💡Economic growth

Economic growth is the increase in the production and consumption of goods and services. The video discusses the necessity of achieving higher economic growth rates to manage and reduce the impact of national debt. The debate includes perspectives on how different administrations and policies, such as public investment, trade, and taxation, can influence economic growth, with a focus on sustainable growth as a solution to fiscal challenges.

💡Trade policy

Trade policy involves regulations and agreements that control international trade. The video touches on the potential impact of trade policies on economic growth, mentioning the protectionist trade policies debated by U.S. presidential candidates. The discussion includes the implications of tariffs and trade agreements on national economies and global economic relations.

💡Tax policy

Tax policy refers to the government's approach to taxation, including rates, exemptions, and incentives. In the video, the contrast between different political leaders’ tax policies is discussed, particularly in the context of how these policies affect economic growth, business investment, and the fiscal landscape, highlighting the role of tax policy in shaping economic conditions.

💡Capital markets

Capital markets are venues where savings and investments are transferred between suppliers of capital and those who demand capital. Larry Fink's optimism about the vitality of capital markets is mentioned, discussing how capital markets function as a platform for solving problems through investment and dialogue, and their role in addressing the retirement crisis.

💡Fiscal policy

Fiscal policy involves government spending and tax policies to influence the economy. The video discusses how fiscal policy decisions impact the national debt and economic growth. Concerns are raised about the sustainability of current fiscal policies, with suggestions that a focus on economic growth and prudent fiscal management could alleviate some of the challenges posed by large public deficits and debts.

Highlights

Larry Fink of BlackRock discusses the retirement crisis in the United States, highlighting the lack of savings and retirement plans among millions of Americans.

The advancements in medicine and technology that are extending life expectancy and the implications for retirement planning and healthcare systems.

Discussion on whether the retirement age should be re-evaluated in light of increased longevity and the need for purpose in later life.

Larry Fink's optimism about the vitality of markets and capitalism, despite the challenges presented by the retirement crisis.

Concerns over the growing U.S. deficit, which has significantly increased in recent years, and the potential long-term economic impacts.

Debate on public and private sector roles in developing 21st-century infrastructure and addressing the challenges of digitization and decarbonization.

The need for a national dialogue on retirement affordability and the restructuring of investment strategies towards long-dated assets.

Glenn Hubbard's perspective on public investment, research support, and the role of trade policy in economic growth.

The rise of geopolitical and domestic political risk in markets and the need for investors to adapt their strategies.

Gillian Tett's insights on the importance of considering cultural and historical factors in investment decisions and risk management.

Josh Bolten of the Business Roundtable on the concerns of American CEOs about the fiscal situation in the United States.

Discussion on the impact of corporate tax environment, trade policies, and regulations on business and economic growth.

Melissa Kearney's analysis of the effectiveness of standardized tests in predicting college academic performance and their role in the admissions process.

Debate on the perceived cultural biases of standardized tests and the importance of contextual evaluation in college admissions.

The significance of academic preparation and support systems in ensuring the success of students from less advantaged backgrounds in college.

Transcripts

A tragedy hits Baltimore Harbor, Boeing loses a CEO

and the United States breaks ranks with Israel at the United Nations.

This is Bloomberg Wall Street Week.

I'm David Weston.

This week, Gillian Tett of the Financial Times on investing in geopolitical risk.

In some ways, what we're seeing right now is a back to the future.

Josh Bolten of the Business

Roundtable on what American CEOs want in their next president.

The CEOs and the Business Roundtable are very concerned

about the fiscal situation in the United States.

And economist Melissa

Kearney on the fight over standardized tests at American University.

Students submitted S.A.T.

scores are very highly predictive of their academic performance

when they get to college.

But we start with Larry

Fink of BlackRock and his annual letter to investors focused this year

on what he calls a retirement crisis in the United States and around the world,

which is what Larry is hearing about more and more from BlackRock

clients by letters are a reflection of my conversations with clients.

So it is.

And so over the past year, I heard more and more conversation about retirement,

the retirement crisis

from many parts of the world, from middle class developing countries

to developed countries.

The acute problem here in the

United States is that we have still 57 million Americans who

who don't have any savings or any retirement plan.

Social Security is a fantastic foundation for retirement.

But if that's all you have when you retire, you're

you're going to be living in in poverty below the poverty line because it just is.

It's supplemental,

but it's not meant to be the totality of what you have in a retirement.

And the whole concept of we're aging, we're you know, we're all living longer.

And I think one of the big narratives is has to reflect in

2023 was the miracles of medicine.

When we talk about the drugs, like it was unpacking all the different weight

loss drugs, how that is extending life.

It's it's conquering

kidney disease and liver disease and heart disease and joint disease.

And it's and then there are new medicines

now for for dementia that extends life.

So if you think about the miracles of technology

and how it transform enormous our lives and extends their life,

there is not a dialog in America or most places about

can we afford that longevity and our entire retirement

system was based on statistics that were created 50 years ago

whereby most Americans retired between 60 and 62 then.

But most Americans passed away at 67.

And today, statistically

a couple 60 years old in good health.

One of them is will live over 90.

And so the other question is,

should we reevaluate how we work and how long we work?

Because we all need purpose in life.

And in most places, most people get find purpose, obviously,

maybe with their grandchildren, their children, their their community.

Many people find purpose in their in their jobs.

And the thought of retiring at 60 with 30 more years

or a third of your life, your life in front of you.

These we need to have a dialog.

We need to have a conversation.

And you know, I'm an optimist.

I am a very optimistic about the long term vitality of of our markets.

I'm bullish on capitalism.

The reason I'm bullish is that when I read the newspapers

every morning and listen to Bloomberg and other news organizations,

it's full of scary things.

We talk about the problems, we talk about all the problems,

but we solve problems through conversation.

And the one area where we have no conversation

is, is the affordability of retirement

and the whole concept of retirement.

And we need to start a global and most importantly, a national dialog.

Should we be changing the rules

so we can put our four one kids or IRAs into private markets?

I believe there are some great

areas of private markets that are going to be great investments

for retirement, and I would channel that more towards infrastructure

because infrastructure is has a long maturity.

It has a higher coupon,

but it has a lower profile of returns

than what I would say, other areas of the private markets.

So it has a more a good corridor of returns,

but higher probabilities of meeting those returns.

And so, yes, we need to be relooking at how we think about investing,

whether that is going to be in private equity or infrastructure.

I do believe we need to be putting more long

dated assets into retirement and so that you could

so that you could

meet the returns that you need to have the pool of money

that you acquire during during retirement.

In your letter, you talk a lot about the success of the capital markets,

all that they've accomplished at the same time.

You do mention the problem with particular US debt.

You think it's more urgent than any time. I think you said it.

You can remember in your lifetime.

Put those two things together.

To what extent

has the success of the capital markets

come specifically because we've taken more debt on the public balance sheet?

We've shifted debt from private balance sheets to public balance sheets.

No question.

But let's just use a statistic that I think

when I talk about this statistic, I get frightened.

In the year 2000,

the US deficit was $8 trillion.

Today, it's $34 trillion.

So 23 years later,

we increased our deficit by $26 trillion.

So for the first 230 odd 40 years,

we increased our deficit to 8 trillion.

And in the last 23 years, we went with

we increased it by $26 trillion.

I think that speaks volumes of what's happening in our in our

in our country today.

The problem with these tepid deficits is and now with

and I believe higher interest rates for longer, the cost of financing

our deficits are going to erode more and more of our

of our disposable income as a country.

And I do believe they're we're getting

to a point where our public debt is going to start crowding out

private capital and we're going to have structurally higher interest rates.

What can the private sector do to trigger some action in that regard?

I mean, you're the head of the largest asset manager in the world, Larry Fink.

It's not just you, but you have some influence.

At this point, we have candidates running for president

who aren't even talking about this. I'm not even the conversation.

So in my letter, I talk

about the need for more public private investments.

But the United States is one of the last countries where we've had

private capital investing and in our infrastructure.

And I believe if we changed

our policies, privatized

our airports and privatized maybe our ports and having private capital

investing that, then our public spending could be rededicated

to more urgent social needs, more urgent needs, elevating our education, elevating,

you know, our, you know, issues around Social Security and health care.

And so I believe the need

is to rethink what is the role and responsibility of the public sector

for the development of better 21st century infrastructure.

We know that we are going to have to digitize our entire economy.

We know we're going to have to move forward on decarbonization.

These require huge pools of money.

Allow the private sector to be part of that.

We have this enormous functional capital markets that can provide the capital.

We as a country must use it more often

and access the role of private sector.

And so I think we still,

you know, that does not

change the course of our deficits, but we can certainly reallocate

some of our moneys into more urgent issues.

And I, I would say in my letter speaks about it

to we need to grow our economy.

So our deficits are a smaller component of our GDP.

That is the bigger issue.

If our if we continue to just grow at 2% and we have these type of deficits,

that's when the deficits really are going to be a problem

about five in ten years, which you suggest 3%.

Is that realistic?

We need that has to be our target.

We need to find ways of growing at 3% instead of just cutting taxes

or we need to find ways of incenting private

capital to be investing more.

We need to encourage growth and we need to be.

And this is a debate now, and there's a lot of people talking against us.

We need to embrace our capitalism because our capitalism

has shown to be the best economic force in the world.

That was BlackRock's Larry Fink.

Coming

up, we talked with Glenn Hubbard of the Columbia Business School

about how we could get the sort of economic growth that Larry Fink says

we'll need to work through our debt problems.

I think it's a mistake to use the sort of big spending industrial policy

as opposed to that kind of partnership or research support.

That's next on Wall Street

Week on Bloomberg.

This is Wall Street Week.

I'm David Westin.

If growth is the goal,

what are the most effective policy tools for getting us there?

Is it public investment? Is it private investment?

Trade policy? Tax policy?

Glenn Hubbard advised President George W Bush on these questions

as chair of the Council of Economic Advisors.

He is now dean emeritus of the Columbia Business School

and author most recently of The Wall and the Bridge.

So welcome back, Glenn. Always great to have you here.

So let's talk about growth because everybody talks about it.

I'm not sure anybody does anything about it.

But if that is our goal, that we want to get to growth, what drives

that the most from your point of view as a matter of policy?

Well, to me, that's the biggest question in economic policy, David

and I, I think growth is super important for our living standards, for our ability

to do anything.

There are policies that work,

but we also have to remember to get social support for those policies.

A lot of economists

line up policies and all the angles that you listed all correctly,

but without thinking about social support, we need to do both.

So we've had the Biden administration

now, which has tended to favor, to some extent, public investment.

We have

the Inflation Reduction Act.

We have it in the Infrastructure Act.

What is the role of public investment in order to get growth going?

Well, public investment can play a big role in growth, but I don't think

it's the type that we're seeing in the present industrial policy.

I think of it as could we invest more in basic research for ideas in general,

for technology, for climate change mitigation, whatever you want.

Could we put applied research centers around the country?

Could we do more in defense where we know we're going to have to build up

and use defense research spillovers in the private sector?

All of those make sense to me.

The Inflation Reduction Act less so when it comes to industrial policy.

What did the Trump administration do? The first Trump administration?

There may be another one.

Well, interestingly, one very successful piece of industrial policy

in the first Trump administration was Operation Warp Speed,

because there you have the government in a essentially a public

private partnership guaranteeing demand, expediting things.

That strikes me as this kind of holistic approach that I'm mentioning.

It's a smaller case, but a very important one.

I think it's a mistake to use the sort of big spending industrial policy

as opposed to that kind of partnership or research support.

Some might say that President Trump, when he was there, used big spending

in the form of tax cuts because that is a form of expenditure.

After all, was that effective in getting private investment?

Because I've read very mixed things about that.

Well, I think it is.

I mean, most of the scholarship I've seen on the Tax Cut and Jobs Act of 2017

that you're referring to does indicate quite substantial increases investment.

Why is it mixed?

Because remember, at the same time, we also had a protectionist policy

tilt that's very anti investment and anti-growth.

But the pure effects of the tax cut were there.

And I would think that the next Congress and the next president,

whoever's in those various chairs, are going to have to figure out what to do

about the Tax Cut and Jobs Act, as many of its provisions are expiring.

Well, you took us to trade pretty quickly, but what about trade?

What is the role of trade policy in promoting growth?

Well, unfortunately, this is one where both of our candidates

are offering a fairly protectionist trade policy to the country.

We need openness in markets.

We need markets for American exports.

We need to be open here

to other goods and services unless there's a national security interest.

But we also have to bring everybody along.

And I would hope that either a President Biden or a President Trump

would realize that imposing real world policies, not just tariffs.

We recently had another distinguished economist here, Paul Romer,

who had an approach to trade that was a bit different

from what I'd heard before, which is basically be protectionist.

It comes to goods, importing of goods, but not when it comes to capital and ideas.

Essentially, you say, come build it here, train our workers up and we keep our jobs

where we don't lose them to China, as many people think we did around 2000.

Well, but this is what's curious about some of the present debates.

We are having foreign investment in the United States

and the jobs here, yet we're questioning Nippon Steel and U.S.

Steel.

We're questioning foreign automakers

being in the United States, why we're hiring people here.

We're building things here.

So I agree, Glenn, What about the so-called crowding out phenomenon?

That is to say we're borrowing so much money

that debt and deficit is really crowding out investment.

Are we seeing that?

Is that inhibiting growth in the United States now?

Well, it's certainly a factor.

I think the bigger issue for deficits and debt is the future

tax burdens that they employ in a global capital market.

Interest rates themselves don't have to go up that much in response to U.S.

borrowing.

That said, we have to pay it back.

And business people understand that.

You and I understand that is individuals.

Those are our future tax burdens.

So it's definitely a problem in a good economy.

We're running mammoth deficits.

The most recent

congressional Budget Office report says it's just going to get worse.

We need to change.

So let me be specific here and put a target on this.

We had Larry Fink issue his annual chairman's letter.

A long chairman.

That's right. But we read every word of it.

And one of things he said is the thing we need to do on the deficit is grow

our way out of it.

He was saying we need to grow at 3% real growth, 3% real growth

in order to go into deficit. Is that realistic?

Are there policies we could adopt that would get us to that sort of bogey?

We can get close.

A lot depends on what you assume about productivity growth in response

to artificial intelligence.

So I think it might be possible.

Technically, you can't grow your way out of the deficit.

Our entitlement programs are linked in to the real economy,

but I certainly agree with Mr.

Fink that, yes, growth is the number one thing that we could do.

And there are a set of policies

we've talked about some of those that would push us in that direction.

Coming up, geopolitics

loom larger in investors minds than they have for years.

We talk with Gillian Tett

of the Financial Times about investing in a troubled world.

An entire generation was reared

on the idea that it is not in the model or in the balance sheet.

It doesn't matter.

That's next on Wall Street Week on Bloomberg.

This is Wall Street week.

I'm David West.

And investors are facing a sharp rise in political and geopolitical uncertainty.

And yet markets seem to be assuming everything's just fine.

Take us through this apparent disconnect.

Welcome back.

Now, Jillian, tech columnist and member

of the editorial board of the Financial Times

and provost of King's College, Cambridge.

Julie, great to have you back with us.

Great to be here, particularly at this crazy, weird times.

Exactly.

And you wrote a column just recently, actually about Tick Tock

and you think it's about tick tock and social media.

But it went beyond that to talk about how capricious governments,

certainly China, but also the United States are

and how investors have to sort of accommodate that.

Absolutely.

I mean, what I was really trying to talk about in the Tick Tock column

was the fact that we have this paradox in markets.

On the one hand, you have markets soaring on the back of a pretty good short

term economic outlook, a lot of relief about the so-called soft landing

and excitement about the idea the Fed will cut rates later this year.

But at the same time, we have really quite unprecedented levels of medium

to long term geopolitical risk and domestic political risk.

And Tick Tock is one example of that in a fairly extreme form,

because until a couple of years ago, there were a lot of big private

capital players who assumed this was going to be

one of the hottest things in the tech landscape.

People were talking about it potentially being the most lucrative

and profit generating trade that they've seen for a long time.

But of course, now we know that Washington is considering

forcing tick tock to essentially be banned if Bytedance's

parent doesn't sell off tick tock to an outside player.

And so suddenly geopolitical risk has come in and bought the party.

And that's a metaphor for what's happening or what could happen in many,

many asset classes and in relation to many types of securities going forward.

My concern is that investors are simply not realizing the magnitude of that risk.

Julia, we all know you for your work at the financial Times, how you've covered

international finance for many, many years.

At the same time,

I want to go back to your original training

because I love to talk to you as a social anthropologist.

That's where you have your Ph.D.

apply that, if you can, to investors.

What are they missing here?

Is it because they're wishing themselves to success

and just saying, let's make believe there aren't these problems?

Is it because it's just too difficult to try to discount

this geopolitical risk in China or the United States?

I think the key thing investors are missing

right now is that if you look back at the second half of the 20th century,

that was an era when we saw the rise of all kinds of intellectual tools

that were very useful for navigating the world like balance

sheets, like economic models, like opinion polls.

And all of those rose on the back of the computer revolution.

And the fact that it became possible to crunch

huge amounts of data for the first time on a large scale.

Now, the problem with all

those tools is that although they're incredibly useful,

they're only as good as what you put into your model,

onto your balance sheet, onto your opinion polls

and what you leave out can sometimes matter enormously.

And the story of the last few years is that what has been left out,

what has been a footnote on the balance sheet or an externality

to the economic model like medical risk, like environmental issues,

like social upheaval, like rapid tech change

or now domestic politics and geopolitics, Those issues that were not included

in those fancy computerized models are suddenly becoming

the model in the sense they're most important.

And from a cultural perspective, an entire generation

was reared on the idea that it is not in the model or the balance sheet.

It doesn't matter.

And now they're waking up and realizing with a shock, that's wrong.

That was no surprise to the people who were investing before

the eras of model making a balance sheet fine tuning.

But it is a surprise now because of this cultural pattern.

Julia, I want to pick up on one thing you referred to is political risk.

As we face

an election here in United States, there are elections around the world,

but we tend to focus on the presidential one here.

And is there a new element of uncertainty in misinformation?

Because I know you've done a lot of work on that subject,

by the way, which may take us back into tick tock,

because that's some of the objections about tick tock.

Absolutely.

The issue of misinformation

is a classic issue which was not appearing on The Economist's model

or even frankly, or many politicians or political models in the past.

And the issue cuts both ways.

On the one hand, there really is a very real risk that

AI and other types of digital technologies will end up manipulating

or meddling with the voting process in a way that discredits

potentially the outcome in November.

The other risk, though, for investors is that fear of that causes

some very unpredictable and potentially capricious reactions from Washington

that could potentially hurt the tech sector.

And we see in the last year or two is a tech sector boom

dramatically on the idea that there's extraordinary

technological breakthroughs around.

I would keep generating more and more profits and enable American

business to boom.

That may be the case, but anyone investing in tech today

has to think about the ways that the growing politicization of tech

could essentially upend their models and projections for the future.

As well.

And yet, tick tock, bite dance is an extreme case,

but it's certainly not the only one at the moment that's out there

that investors need to think about.

Julian, let me do something that is uncomfortable

for you as a journalist to put a crystal ball up in front of us.

You're a journalist.

You report, you don't predict the future, but based on your experience,

how do you think investors will come to adjust to the issues that you're saying?

Will we develop an Excel spreadsheet for geopolitical risk, or will

we just have to hedge a great deal more and actually take less risk to begin with?

Well, I think that you're already seeing the adjustment process in the sense

that you're getting consultancies that handle political risk booming

dramatically in a way they weren't two decades ago.

At the same time, you're seeing groups like the CFA introducing a much wider

set of ideas into the analysis they do and their educational programs.

But at the end of the day, the only way to really hedge or prepare

for this kind of geopolitical risk is to do two things.

Firstly, study history and realize that your own memory,

your own life cycle is very short and it pays to see

what people were doing 100 years ago when they face

this kind of geopolitical risk without flashy computer models.

And secondly, that old adage of diversify, diversify, diversify.

And the last point I'll make is that in some ways,

what we're seeing right now is a back to the future in the sense that

anyone after World War Two was quite used to the idea that government

had a big, potentially capricious role in the economy and in the business sphere.

After the Reagan and Thatcher revolutions.

Those ideas fell away.

In some ways, we're going back to the idea that government can indeed

intrude in companies and the markets with tick tock or anything else.

And in many ways, looking back to understand

the future is quite a valuable precept to have right now.

Jenny It's always such a great treat to have you on Wall Street.

There's Gillian Tett of the Financial Times and King's College Cambridge.

Coming up, what do

American CEOs think about the upcoming election?

We ask the head of the Business Roundtable, Josh Bolten.

The business community has been very disappointed with the regulatory

environment in the United States today.

That's next on a Wall Street week on Bloomberg.

This is Wall Street Week.

I'm David Westin.

As we move closer to the presidential election in November.

Global Wall Street focused on what

the differing economic policies of the two frontrunners, President Joe

Biden and former President Donald Trump, could mean for business.

For his views, we welcome back now Josh Bolten.

He's president and CEO of the Business Roundtable and former chief of staff

to President George W Bush. Josh, welcome back.

Good to have you.

Before we get into what November white mean for business,

let's talk about where we are right now.

I know quarterly you do a survey of your CEOs who are your members.

Where do you CEOs think we are as an economy right now?

David, Thanks for having me back.

Our CEOs are in a pretty comfortable place.

Every quarter, we ask them about their expectations

for sales over the coming six months

and their plans for CapEx and hiring over that same period.

And we

we combine the results into a headline index

that is basically a pretty good barometer of CEOs sentiment

and the CEOs in the Business Roundtable.

Their sentiment for the coming six months is pretty good.

For the first time since the third quarter of 2022.

The that headline index is above its historic average.

So it's not it's not exuberant.

It's not

going gangbusters as far as our CEOs are concerned.

But they say they see things as in

pretty good shape for the for the coming six months

based on economic fundamentals.

And it seems to me, David, that the one thing that might throw them off

of that optimistic outlook is something that happens in something

dramatic, that happens in our politics or our geopolitics.

So let's talk about that specific because as I say,

you had experience in the White House, you know, where of you speak.

How much of a difference does it make who is in the White House

no matter who it is?

Can the president really affect the economy substantially?

Oh, from the standpoint of our businesses, enormously.

And in particular, during periods

when the tax code is open for renegotiation,

when there are potential trade deals on the table,

that might or might not happen depending on who's in charge,

the regulatory

environment is dramatically influenced by

who's in the White House.

So all of those things can really affect the the business

outlook from from the standpoint of our country's biggest corporations.

Let's take those three that you've mentioned, starting with taxes

and the difference as we perceive it

right now between the two frontrunners, Donald Trump and Joe Biden.

Joe Biden has said he wants to increase taxes on corporations.

Presumably, President Trump would want to renew the so-called tax

cuts, the Trump tax cuts.

So how does business perceive the alternative between these two individuals?

Well, business very much

welcome the tax cuts that passed in 2017.

They have a lot to do with the prosperity that we enjoyed before the pandemic

and that we enjoy now is a reasonable tax environment.

You know, prior to 2017, the United States was among

the highest tax jurisdictions in among developed countries.

The 2017 Act didn't didn't bring us to the head of the pack,

but it put us in the middle of the pack where it's possible for U.S.

companies to compete in 2025.

A lot of those provisions

that brought us back into a competitive range are going to expire

and there will be a big debate about what

to do with a whole range of tax

provisions on both the corporate and the individual side

and the the occupant of the White House is going to have a lot to say

about whether taxes go up or remain

roughly roughly where they are.

The the composition

of the Congress for that purpose is also going to be very important.

And as close as it looks like,

polling suggests that our presidential elections will be

the the control of

both houses of Congress is also very much in doubt.

Josh, as you know so well, taxes in Washington amount to revenue.

I mean, if you cut taxes, you lower revenue as well, typically.

How concerned are business CEOs, CEOs of big corporations

about our debt and deficit situation?

Because there's a lot of concern on economists point.

Yeah, and I mean, as a former budget director, I'm concerned as well,

the CEOs of the Business Roundtable are very concerned

about the fiscal situation in the United States.

But from from their perspective,

the United States doesn't really have a problem

that we're undertaxed, certainly on the corporate side.

We have a problem of overspending.

And if you look at historic data about taxation, tax revenue

as a percentage of GDP and government spending as a percentage of GDP,

you see that the tax revenue over time is Israel.

We're in a relatively historically average place in how much of our GDP

taxes are taking what's gone way out of whack is the is the spending.

And so

our members would like to

see the Congress and the president come together

on a sensible ways to control

what has been out-of-control spending

and not try to solve the deficit problem

on the backs of of our businesses

because our economy will not flourish.

If if the the tax environment is not competitive and we are at risk

of becoming at once again an uncompetitive competitive tax jurisdiction.

The second thing you mentioned was trade and tariffs, of course.

President Trump, when he was president, imposed a variety of tariffs.

Those, for the most part, have not come off.

Under President Biden, we're now talking about further tariffs

from candidate Donald Trump.

At the present time, how concerned is the business community

with increased tariffs, particularly some of the ones

we're talking about, like 50, 60% or even 100% on Chinese products?

Yeah, that would be it would be highly disruptive.

The United States cannot operate in India

in the modern world, as its own bubble of

protected economy.

We are in a global economy and we damage our own prosperity

and our own future competitiveness.

If try to protect ourselves

by tariffs or any other measure

from global international trading environment.

Nobody knows that better than the big companies that are members

of the Business Roundtable because they operate in.

Most of them operate in many countries around the world,

and they need to be able to compete.

A 10% tariff across the board

would be a huge tax on the American people.

And to the extent that those are goods

that consumers use, the consumer would pay the cost of that.

And to the extent that a 10% tariff makes it more expensive

for companies to produce here in the United States

because their inputs are more expensive, we'd be driving business overseas.

So from the perspective of a business,

a tariff like that would be a huge mistake,

and we certainly hope that doesn't come to pass

as a as a policy matter overall.

What the business community would like to see is a real affirmative

trade agenda from the from the United States.

That is negotiating trade deals,

especially with our friends and allies in Asia,

which is the

only way we're going to succeed in competing with China.

The third thing you mentioned was regulation.

Obviously, Donald Trump, when he was president, had a very deregulatory agenda.

President Biden has not embraced that.

In fact, in some areas, such as antitrust enforcement

has really doubled down on regulation.

Give us a sense how the business community perceives this alternative

on regulation between these two candidates.

The the business community has been very disappointed

with the regulatory environment in the United States today.

In that same survey we just talked about, we asked our CEOs

the question of do they think that

that government policy is undermining

free enterprise in the United States?

And over three quarters of them said, yes,

they do believe that government policy is undermining free enterprise.

And among those who said yes.

Almost all of them cited regulation as a key concern.

And about two thirds of them said that

antitrust policy is a key concern.

So the business community is

is not happy with the regulatory approach that the Biden administration

has taken, particularly out of the Securities Exchange Commission.

But a lot of other areas as well,

where we're hopeful to get improvements on that score.

But on that score,

a Trump administration would almost certainly be preferable.

Josh, thank you so much for being on Wall Street with once again, that is Josh

Bolten of the Business Roundtable.

Coming up, the fight over standardized tests.

Are they helping or hurting us?

Make sure the right people get into college?

We ask economist Melissa Carney of the University of Maryland.

That's next on Wall

Street Week on Bloomberg.

This is Wall Street Week.

I'm David Westin.

Matching prospective students with the right college opportunities

has never been more important for the students and for their future employers,

which has led to greater scrutiny of the standardized tests

used to screen applicants.

With some colleges turning away from the SAT and the act

and some schools returning to them after giving them up.

Take us through the pluses and minuses of standardized tests.

Welcome back.

Now, Melissa Carney, professor of economics

at the University of Maryland was a great to have you back with us.

So first of all, Louise has most basic question.

Do they work?

Do SATs and Acts,

are they accurate in predicting success in post-secondary education?

Yes is the short answer.

The data that comes out of college

records has revealed very clearly that students submitted S.A.T.

or ACT scores are very highly predictive of their academic performance

when they get to college, much more so than guidance

counselor recommendation letters or even their high school grades.

In some sense,

the fact that the test scores are more predictive of college academic performance

than high school grades is not surprising, given how much variation

there is across high schools in grading standards and academic rigor

and, of course, rampant grade inflation has made grades last meaning meaningful.

And so test scores are just very predictive and a really important signal

that colleges have access to when they're looking for the right match,

the right academic match between students and their level of academic rigor.

What about the claims that I've seen that there's some cultural bias

to these standardized tests and by the way,

they disadvantaged students coming from less fortunate families?

Yeah, there's a couple of points to make here.

First, researchers who have looked for this

find that the test scores are very predictive of academic

performance in college for students from different backgrounds.

And so that counters the idea that it's not helpful for students

from less advantaged backgrounds or it's biased against them.

The second really important fact here is that college admissions

officers don't consider standardized test scores in a vacuum.

They're very open and transparent about the fact that they evaluate these

in the context.

The bar for what would be considered an impressive score is higher for students

coming from more advantaged backgrounds than less advantaged backgrounds.

And so that's really important to realize that admissions officers

are contextualizing the scores when they're submitted.

And by the way, this is why test the move to test optional or test blind

made it particularly difficult for kids from less advantaged backgrounds to signal

to more academically rigorous schools that they were prepared.

It's actually a particularly important signal for kids from less advantaged

backgrounds to be able to deliver to university or college

admissions officers who might not know their high school very well, for instance.

Yeah, So there are various advantages.

People coming from families that have more wealth have,

But one of them is this incredible industry

that's grown up around preparing for the city and state and city.

I'll just go to my personal experiences.

You know, I'm involved in a charity in Yonkers helping the public schools.

So you go across the border to Bronxville.

Those kids are all getting tutoring, which costs a fair amount of money.

Not so much in Yonkers.

Doesn't that skew the system?

Yeah, but but admissions officers are aware of that.

So what they would see from a kid coming from Yonkers

who likely doesn't have access to that kind of tutoring or preparation,

really, they're not going to evaluate the scores

the same the report coming out of Dartmouth

about why they're going back to requiring test is very clear on this.

So they use the example of a student from an advantaged background,

a high income family,

a school that sends a lot of kids to selective schools, a 1400 on the S.A.T.

would not have helped that student gained admission to Dartmouth.

But for a student like your student from from that you brought up from Yonkers,

1400 would have been very helpful to them in earning admission.

The problem is, when the schools went test optional,

kids from different backgrounds were equally likely to withhold a score.

A score of 1400, presumably for because kids from less advantaged

backgrounds don't have access to the savvy college counselors

who are more attuned to how the game is played

and would have told them know this score is helpful for you,

you're not being compared to the overall average or distribution.

And so that's why

the kids who were most harmed by the elimination of the test score

requirement were really high achieving kids from less advantaged backgrounds.

And that's a big part of the reason that schools like Dartmouth and Brown

and M.I.T.

and Yale are saying they're going back to requiring these tests.

Certainly getting the right student in the right college is a starting point,

but it's not the ending point.

They also have to succeed once they get there,

they have to make it all the way through.

And the track record there that I've read was not so great

about a lot of children making all the way through,

and particularly ones from less advantaged families.

What can we do to make sure they succeed once they get there?

I think this is really important.

So, for instance, the University of California school system is still test

blind and people who are championing that have pointed out that those schools

are now enrolling more students

from underrepresented minority groups, less advantaged backgrounds.

But the problem is, if that access is coming at a cost of less academic match.

And so you're bringing in students who are less likely to thrive

and you're undermining the match between the academic preparation

of a student and the academic rigor of a particular campus.

So getting the match right is critically important.

We don't want to throw out signals of the match quality

and then students who are disadvantaged when they get to college.

You know, work has shown that a lot of students

need a lot of support systems and you want to be able to make sure

that students are being well-served by the campuses they're at.

That's a different problem.

And by the way, there's a related problem here,

which is the fact that students from different backgrounds are much

you know, they have different levels of academic preparation

by the time they're 18.

That's not the fault of standardized test scores.

That is a reflection of rampant inequality and class gaps

and opportunities and schools and family background and all sorts of things

that affect a student's likelihood of excelling in college when they're 18.

And so, again, throwing out the metrics that show us these gaps exist

don't mean the gaps don't exist.

They just make us

make it harder for us to identify them and know to where to put our efforts.

We in the media cover this subject a great deal, I would say.

We tend, I think, to focus on Ivy League schools.

I'm saying somebody comes from years in Michigan, not an Ivy League school.

Maybe I'm a little bit insecure about that,

but give us a sense of how big a problem it is in the Ivy League schools

as opposed to the state schools like I came from.

I'm really glad you brought this up.

And I'm proud to teach

at one of these flagship state universities, the University of Maryland.

But so let me be clear that all of the media emphasis

and even our public leaders talk about

what's happening in admissions at these private elite schools.

The Ivy League, all eight schools combined

serve less than 1% of the 10.8

million students enrolled in four year institutions in this country.

So whatever these schools are doing in admissions,

whether it comes to their testing regime or legacy admissions,

is really not that material to the story of higher education in this country.

I mean, it's very frustrating to me how much attention we give these schools,

given that the flagship universities, the University

of Michigan, University of Maryland, the SUNY system, the CUNY system,

they serve so many more students than all of the Ivies put together.

But here's another way to look at this.

Over the past 30 years, our country has produced

a million more college, four year college degree holders than in 1990.

So we went from just over a million to just over 2 million.

Do you know how many more degrees were granted by the Ivies combined?

Find an additional 3500.

So when it comes to expanding access to higher education,

the story is just not at the elite private schools.

And so we need to be talking about

what's happening at the state schools, the public schools, their lack of funding.

That's where the real story is.

And finally, Melissa, we just had a new budget proposed by the federal government.

You spent a lot of time looking at that.

I know you're concerned about the deficit and the debt that we're building up.

At the same time, what did you see in that budget,

if anything, that could help this problem of really making sure

we're supporting kids coming from less fortunate families?

What I would have liked to see in the budget

is a much bigger allocation of funding towards

spending on kids, towards spending on less advantaged groups.

I mean, we spend more on interest on the debt

at this point than we do on all federal programs aimed at children.

If we want to equip more students to be in a position to thrive in college,

if we want to close class gaps to build up our workforce,

we need to be shifting the budget not just away from deficit spending

and interest payments,

but really to have a more dedicated, focused and forward looking investment.

And that means in in kids and younger generation in this country.

That's what I would have liked to have seen in the budget.

Melissa, it's always a treat to have you with us.

Thank you so much for joining us.

That's Mirzakhani of the University of Maryland.

Coming up, paying the price for leadership

from Congress to the C-suite.

That's next on Wall Street Week

on Bloomberg.

Finally, one more thought.

One of the great leaders of the 20th century, Winston Churchill,

said that the price of greatness is responsibility.

We've been watching as some people striving for greatness

are being held responsible.

Like House Speaker Mike Johnson, who found a way to get the Congress

to keep the government funded, only to be confronted

with one of his own Republican colleagues trying to kick him out of his job.

We need a new speaker.

This is not personal against Mike Johnson.

He's a very good man and I have respect for him as a person.

But he is not doing the job where President Xi of China, who aspires

to greatness by making sure he holds the reins of power in his economy.

But may end up bearing responsibility for its slowing growth.

I think this is all about state control.

You know, Xi Jinping is all about control.

And right now, China is all about Xi Jinping.

This week, we saw the price of greatness in the corporate world.

As Boeing CEO Dave Calhoun announced that he'd be stepping down

after a series of problems with Boeing planes undermined confidence

in his leadership, especially from his airline customers.

But everybody's worried about Boeing.

We've got to get Boeing back to the point where it produces an impeccable product.

And Nelson Peltz continues to do his debt level best to hold Bob Iger responsible

after years of great performance as Disney CEO, as his proxy

battle comes to a climax at the annual shareholders meeting on Wednesday.

This really is a story not necessarily about Nelson Peltz, though.

Disney is actually sort of pushing that that line.

But really, it's more about the governance of the company itself.

But perhaps the strangest example of someone trying to hold a leader

responsible comes from NBC, which last Friday announced

it would be adding Ronna McDaniel as an on air contributor just two weeks

after she stepped down as chair of the Republican National Committee.

In a memo to staff, this NBC senior vice president for politics

said that, quote, It couldn't be a more important moment to have Ms..

McDaniel on the team.

Well, other members of the NBC team begged to disagree.

Chuck Todd, Rachel MADDOW, Joe

Scarborough, and Mika Brzezinski all very publicly objected.

It's a pretty strong terms to what their leadership had done.

And so NBC promptly reversed course and decided that

Miss McDaniel would not be joining its team after all.

Look, let me deal with the elephant in the room.

Yeah, I think our bosses owe you an apology

for putting you in this situation, because I don't know what to believe.

Trust me, this isn't the first time that those in the newsroom

have challenged decisions made by leadership.

When I ran ABC News, there were any number of times

that my colleagues took issue with things I was doing

everything from getting leaner.

DiCaprio a role on an Earth Day special to using digital technology

to cut the size of some of our crews in the field.

I even had some internal pushback when I brought George STEPHANOPOULOS on,

and it came from none other than Peter Jennings, the journalist journalist.

Peter told me I was making a big mistake because George had not been trained

in the craft.

And even worse, he'd spent time in the Clinton White House several years before.

Looking back on it now, the issue seems almost quaint

given the first rate reporter, interviewer and anchor George has become.

And in fairness to Peter, after he'd worked with him for a few months,

he came back to me to say he'd been wrong, that George had the instincts

and the work ethic of the best journalists in our newsroom.

But then again, I'm not aware that George STEPHANOPOULOS ever

challenged the legitimacy of an election that he'd lost.

We should all be concerned about the care, custody, integrity of every ballot.

But that's all I'm saying. And you know what?

This is a

viewpoint of a lot of Republicans, and they think Joe Biden's the president.

But they also think there were problems and both can be true.

That does it for this episode of Wall Street Week.

I'm David West and this is Bloomberg. See you next week.