December 20, 2024 • 37 mins
On this episode of Wall Street Week, we look at a $105 trillion inheritance wave that is likely to concentrate the dynamics of wealth, the erosion of statistical data in the US, and the balance between regulating competition and fostering innovation in the European Union. We also explore the state of civics with Centerview Partners Senior Counselor Richard Haass.
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Speaker 1 (00:13):
This is Wall Street Week.
Speaker 2 (00:15):
I'm David Weston bringing you stories of capitalism. This week,
the price of regulating competition around the world. We spoke
with former EU Commissioner Margareta Vesteier on her very last
day and the job, about what she has meant for
Europe's tech industry and a growing threat for the data
at the center of our economy. How US statistical agencies
(00:39):
are grappling with shrinking budgets even before cuts to the
overall federal budget. But we begin with a story about
one hundred and five trillion dollars. That is the size
of the gross domestic product of the entire world, and
also the amount of money researchers tell us Americans will
inherit over the next twenty five five years. If that
(01:01):
seems large, that's because it is.
Speaker 3 (01:06):
It's definitely the biggest number we've ever seen. We've been
looking at this research for over a decade now.
Speaker 2 (01:13):
Chase Horton is a senior analyst that Cerooly Associates, and
he's the lead author of a new report quantifying how
much wealth in the US will be given out or
passed on over the next two and a half decades.
It's a big jump from the numbers to really found
a few years ago, and he thinks he knows why.
Speaker 3 (01:32):
It's really a confluence of three trends. Over the past
dozen or so years, we've seen a substantial amount of
wealth creation, So privately held wealth by households in the
United States has increased essentially one hundred percent since we
were looked at this in twenty eleven, and that's on
an inflation adjusted basis. In addition, we also have seen
wealth become increasingly concentrated among fewer wealthier households, and those
(01:56):
wealthier households are more likely to be survived by their assets,
so they're not going to be spending those assets down
like the rest of us. And we've also seen wealth
concentration among older households, so more wealth is held today
by households that are over the age of sixty than
we've seen in a long time. And it's also the
highest portion. If you look at the ratio of expected
(02:17):
to wealth transfer in the next twenty five years as
a ratio of overall wealth held today, we see about
eighty percent of the wealth held today going to be
in motion over the course of the next twenty five years.
And when we first looked at this about a decade ago,
that ratio is closer to fifty percent of assets in motion.
So the ratio of wealth expected to be changing hands
(02:38):
in the next twenty five years is significant and much
greater than what we even saw a decade ago.
Speaker 2 (02:43):
More money getting passed down over a relatively short time,
and for the one in five who receive any inheritance
at all, the share of their net worth coming from
that inheritance rather than their earned income is on the rise.
A new Bloomberg analysis shows today your financial status has
more to do with who your parents are than at
(03:04):
any time in recent history. That inherited money now accounts
for at least a quarter of the wealth for the
average inheritor, but many economists think that figure is much higher,
including former Treasury Secretary than Wall Street Week contributor Larry Summers.
Speaker 4 (03:21):
If you account what happens when somebody gets an inheritance
and then they invest it, and that builds up more wealth,
that probably the vast majority is certainly a majority of
the wealth in our economy is related to inheritance, and
that's of course a complicated thing. On the one hand,
family values are good, on the other hand, it's not
(03:43):
like it's equally distributed. It's not like it's even as
unequally distributed as income. It's not even like it's as
unequally distributed as the rest of wealth. It's really very
much a phenomenon about a very small action of the population.
Speaker 2 (04:02):
Given how much wealth is being transferred, one might think
we may see a wider distribution of that wealth as well,
but don't count on it.
Speaker 3 (04:12):
We constantly get asked, will this be redistributive in terms
of wealth in the United States, And from what we've
seen in the numbers is we don't really think that
that's an expectation that people should have. You know, we
see a significant amount of the wealth, over fifty percent
is held by high net worth households, so those that
are ten million or more in net worth, and that
(04:33):
makes up around two percent of the population, and we
expect a lot of that wealth to go to the
top two percent of inheritors. So we don't really see
any sort of reason or thing to make us believe
that this is going to be, you know, widely distributed
beneficially for all Americans.
Speaker 2 (04:51):
All that concentrated wealth being passed down echoes what the
United States saw back in the Gilded Age of the
late nineteenth century, which led President Teddy Roosevelt to call
for a graduated inheritance tax on big fortunes properly safeguarded
against evasion. And Andrew Carnegie, who became the richest man
in the world in nineteen oh one when he sold
(05:13):
his steel company to John D. Rockefeller, agreed saying, of
all forms of taxation, this seems the wisest. In nineteen sixteen,
Congress enacted the federal estate tax that's been with us
in some form or another ever since. But today that
tax doesn't apply to the vast majority of the one
hundred and five trillion dollars passing hands.
Speaker 4 (05:36):
I think there's a lot of good that's come in
this country out of family businesses, family farms, of family assets.
I do think the extent to which this avoids taxation,
even among the very wealthiest people is something that is
very bizarre. Your study estimated that there'll be about two
(05:59):
and a half trillion dollars of wealth passing this year.
The collections on the inheritance tax are only going to
be about one percent of that two and a half
trillion dollars. Of course, relatively limited inheritances shouldn't get taxed.
Of course, you have to treat family farms in appropriate ways.
(06:24):
But two and a half trillion dollars passing and the
vast majority of that being among five percent or one
percent of the people who die, and only collecting one
percent of it in taxes. I do think we can
do better.
Speaker 2 (06:40):
There is little reason to expect that the inheritors will
pay any more in taxes under the next Trump administration.
In his first term, mister Trump worked with Congress to
cut the number of people subject to the tax to
near historic lows, and in campaigning for a second term,
advocated eliminating it altogether. But there is one way the
(07:01):
great wealth Transfer will reduce inequality. Women are set to
inherit more money than ever before.
Speaker 5 (07:09):
Enormous amounts of this are going to women, because first,
you have to think that men and women have different
life expectancies, So first the money goes to the wife.
Speaker 2 (07:18):
Emily Green is head of wealth management at Elevest, a
financial firm that focuses on working with women. Wealth advisors, brokers,
real estate agents and others could be well positioned for
a windfall as the wealth transfer accelerates in the next
few years, and Green says she and her team have
seen firsthand the shift from men to women and this.
Speaker 5 (07:41):
Next generation millennials and such, there's a lot more single
women there have been in prior generation, So there's a
lot more women controlling the wealth as this inheritance comes
down than there was previously. It's really going to change
the way that we invest, spend, give all these different
types of things because women are going to get this
huge amount of money.
Speaker 2 (08:01):
How far along are we in the process of this
wealth transfer.
Speaker 5 (08:04):
We're still really early. We're still really early.
Speaker 2 (08:07):
Until now, women have gotten a smaller share of inherited
wealth than men, but Soorooly estimates that over the next
quarter century, gen Z women will become the first to
receive at least half of the country's inheritance, and that
Green says, has major implications for the way that money
will be spent and invested in the future.
Speaker 5 (08:29):
And you have seen women tend to hire, women tend
to give philanthropically, women tend to invest more in other women.
They can give more politically, they can look to make
sure that the people in office are reflecting them. You
think about businesses and so the more women can start
their own businesses and do these things, that changes society
as well. If you look at women business owner numbers,
(08:49):
they're great entrepreneurs. Women have the money to create businesses.
They can create businesses that serve them. So even think
about healthcare healthcare. For a long time, drugs were only
tested on men, and so when we think about healthcare,
if women can create healthcare companies that are focusing on
fifty percent of the population as well, you are changing things.
There's a lot of opportunity within these spaces because there's
(09:10):
a lot of companies that just aren't focusing on women
and how they're actually thinking about this.
Speaker 2 (09:15):
An economy that's better suited to fulfill the needs of
the whole population rather than just fifty percent of it
is certainly an improvement. But what about the eighty percent
of Americans who don't stand to inherit anything? Will rising
inequality way on economic dynamism?
Speaker 1 (09:32):
How much does it matter?
Speaker 2 (09:34):
Big questions and easy enough to ask, But when it
comes to answering them, what's best for the US economy
might not be what's best for your family, and one
of those will always come first. Just to push it
and get a little personal here. You wrote a paper
in nineteen eighty one. I think you were still a
PhD candidate at the time. Now you've had a very
(09:55):
successful career, I hope done reasonably well, have a fan,
have a granddaughter.
Speaker 6 (10:02):
Have your views.
Speaker 2 (10:03):
Changed on the intergenerational transfer wealth sort of that late
in your career as opposed at the very beginning.
Speaker 4 (10:10):
I think at the very beginning, I didn't really think
of it as a personal issue at all. I thought
about it as just part of understanding the savings process
in the economy. Now I think about wanting to help
my children now that I have a grandchild, help my grandchild,
(10:31):
but certainly not to the point where they're not living
their own lives professionally and doing their own work. Is
the philosophy that I have. I take advantage of the
law as it is written, and I find it troubling
that the law affords me as many opportunities to avoid
(10:55):
paying taxes in completely legal ways.
Speaker 7 (11:00):
As it does.
Speaker 4 (11:01):
And I think there are all kinds of changes in
the estate tax law that would make that law function
in a fairer and more equitable way.
Speaker 2 (11:14):
Those changes are unlikely to come soon, if at all,
and until they do, the economy may grow more dynastic,
forcing us to come to grips with how much of
our wealth is truly ours and how much we owe
to future generations coming up. As Europe struggles to get
its tech sector on the map, we examine the role
(11:36):
that competition policy may play and the trade offs between
taking the lead in regulation and spurring innovation. That's next
on Wall Street Week.
Speaker 6 (11:47):
You're listening to Bloomberg Wall Street Week with David Weston
from Bloomberg Radio. This is Bloomberg Wall Street Week with
(12:10):
David Weston from Bloomberg Radio.
Speaker 2 (12:15):
This is a story about trade offs, in particular the
tradeoff between making sure firms don't dominate an industry and
making sure that those same firms have the incentives to
innovate and grow so that they can drive the economy.
It's a tradeoff being made differently in the US and
Europe when it comes to the tech sector. Bloomberg's Max
(12:35):
Ramsey tells us about the EU's self assigned role as
the world's regulator in chief.
Speaker 8 (12:43):
The European economy is facing a slow agony as it
struggles to compete with the US and China. So said
none other than former ECB President Mario Draghi in September,
pointing to sluggish growth and productivity.
Speaker 9 (12:57):
Growth has been slowly down for a long time in Europe,
but we've ignored it. We until I would say, until
two years ago, we would never have such a conversation
as the one we're having today because things were sort
of going well. And now we cannot ignore it any longer.
(13:19):
Now conditions have changed. Europe is nowadays stuck in a
static industrial structure populated by meat technology companies which are
already mature. The problem is not that we lack smart people,
and we don't lack certainly good ideas, but there are
(13:42):
too many barriers to commercialize in innovations and scaling the
map in the European Union.
Speaker 8 (13:51):
The numbers helped show the scale of the gap between
Europe and the US despite having a larger population. The
European Union's GDP sits around nineteen trillion dollars. That's compared
to twenty nine trillion dollars for the US. The stock
six hundred's market cap is about fourteen trillion dollars versus
over fifty trillion for the S and P five hundred.
(14:14):
One criticism has been that Brussel's aggressive approach to regulation,
especially with big technology companies, has held corporate Europe back
versus its global rivals. The person at the center of
this policy for the past decade is Margreta Vestaya, the
EU's Format Competition Commissioner. We spoke to her on her
final day as the bloc's top antitrust enforcer.
Speaker 10 (14:37):
What that has been sort of mid live in Danish politics,
in European politics, was to make sure that everybody has
a fair chance of making it and making sure that
the market provides for thats that the market serves customers.
That has been you know, the thrend of these ten
years from me.
Speaker 8 (14:57):
It's a mancha that has resulted in some of the
toughest rules in the world for big tech. Another way
to put it, if you can't beat Silicon Valley at
its own game, regulate it. Vestia has overseen some of
the EU's most high profile cases, taking on the world's
biggest companies and issuing over twenty five billion euros in
fines for abuses of dominance and cartel violations.
Speaker 7 (15:20):
Today is a big win.
Speaker 8 (15:22):
She won a record thirteen billion euro tax judgment against
Apple and oversaw one of the Eve's landmark pieces of regulation,
the Digital Markets Act. We asked about her rise from
Danish politician to perhaps the most feared name in Silicon Valley.
Speaker 10 (15:39):
I don't really know how to prepare for being on
the front page of one of the US main papers.
It's important to figure out how to go with it.
I came, of course from executive positions in Denmark. I
was the Deputy Prime Minister. That several experiences as a minister.
But I think the most important point is that you've
(16:00):
believe in what you do. That's the cases that we
have thoughts, that they have been fought with great work
by the teams, with very strong evidence. I think that's
the kind of preparedness that you need, that you believe
that this is a strong case and you have something
valuable to say.
Speaker 8 (16:17):
And from her point of view, things have gotten better.
Speaker 10 (16:20):
I definitely think that we have made progress. The world
was different ten years ago. How we looked at technology
was very different. Ten years ago, nobody was really asking
questions to say is this really fair? Is this a
good way to behave in the marketplace? That has changed completely.
You know, now people have much more nuanced views. I
(16:43):
think seeing all the good things that comes with technology,
but also realizing that we really need to take care
both to make sure that the market remains open, but
also that technology is not addictive, is not providing rapid
holes or dark patterns or anything else that may manipulate
(17:04):
us as humans in ways that undermine how society works.
Speaker 8 (17:08):
But today, Vestia's legacy faces a challenge from those who
say regulation has her Europe, stopping it from creating massive
technology companies to rival the US or China. We put
this to Roxanne Vasa, a woman at the very heart
of Europe's tech scene.
Speaker 7 (17:25):
What I sum up.
Speaker 11 (17:27):
Versus europe regulation, Well, I mean I think Europe definitely
has the image and the reputation of always wanting to regulate,
and they're good at it.
Speaker 8 (17:40):
Vasa is the director of Station F, a startup campus
in Paris. She's also a scout for Sequoia Capital and
an angel investor herself.
Speaker 11 (17:49):
And I definitely think regulation does in some cases slow
things down. It creates complexity. In some cases, it's not
even clear when the regulations are first coming out exactly
what they apply to and what we need to do
to comply with them, so it can be quite quite
difficult to navigate, especially for young innovative companies that don't
have a lot of resources and a lot of time
(18:10):
to spend on that kind of thing.
Speaker 8 (18:12):
All that she says can bring some disadvantages for companies
in Europe compared to their rivals in North America.
Speaker 11 (18:19):
I think in the US there's a lot more flexibility.
The consumer is potentially less protected because of those discrepancies,
but as we mentioned, there's less room for innovators to
play with. So I think there are two very different approaches,
and I think the European approach will naturally dissuade some
types of innovation from happening here.
Speaker 8 (18:40):
Margaret Tavastaya takes a different view.
Speaker 10 (18:43):
We're talking a lot these days about competitiveness. The paradox
is that you can have competition without having competitiveness, but
you cannot have competitiveness without competition. So really important to
maintain that strive that everybody should challenged. If you achieve
a very strong market position, it comes with responsibility. So
(19:07):
to some degree, I think a lot of people can
mirror themselves in what we are asking your market participants
in their own lives. If someone is rich and powerful,
they have responsibility. If someone is small with very few
means well they should have a better chance of making it.
Speaker 8 (19:25):
This view has informed the flagship technology regulation for the
EU and by extension, much of the world over the
past ten years.
Speaker 10 (19:33):
I think it's important here to see while some regulation
like the dinal Markets Act is opening the marketplace.
Speaker 7 (19:40):
Regulation like the AI.
Speaker 10 (19:42):
ADS makes AI safe to use, which means again that
it opens the market for many more use cases where
people may otherwise scare off. So I think it's important
to look at regulation and say, okay, that is market creating,
that is market opening, that is enabling innovation. And then
look at regulation where you have reporting obligations that you
(20:04):
may not need or that implementation have been done in
a way that was overly strict, where with new technology
or going through things, I would say, why did we
do that in such a complicated manner?
Speaker 7 (20:17):
There are much easier ways to.
Speaker 10 (20:19):
Do this, So I think it's really important to do that,
And the new Commission has obliged itself to go through
the entire.
Speaker 7 (20:27):
Body of regulation to.
Speaker 10 (20:29):
Weed out the overlaps what is unnecessary in order to
make life easier for businesses speak and.
Speaker 1 (20:35):
Small station FSA.
Speaker 8 (20:37):
Vasa also says that while regulation can sometimes slow tech innovation,
it can also create opportunities, and she's optimistic about the
future of Europe's startup culture.
Speaker 7 (20:48):
I think it's.
Speaker 11 (20:48):
Interesting we don't also talk about the opportunities that some
regulations can create. And when I say that something specifically
of climate tech, the climate tech industry, I do think
that the regulation obviously is causing a lot of headache
for some companies that have to comply, but it is
also creating a lot more opportunity and a lot more
(21:08):
interest for this category in Europe. I would say actually
that Europe has made a huge cultural shift, maybe over
the last five years. If I'm looking specifically at France,
ten years ago, it was definitely not a thing to
be an entrepreneur. It was almost considered crazy, why don't
you go get a real job essentially, but that has
(21:29):
one hundred percent change today and I think just about
everybody wants to be a founder. So I think this
cultural shift that we're seeing in France and the rest
of Europe is also catching up with It has changed
a lot of things. And when I actually look at
how people build companies in the US and in Europe,
I mean obviously structurally in Europe, things are very different.
It means something very different to build a company buttural,
(21:54):
the kind of mindset of entrepreneurs is almost identical. I
would say it's actually maybe become even a little bit
more balanced recently. I think with AI, we've seen the
US having to step in a bit more, deciding to
regulate a bit more now, or have to see if
that continues with the new presidency.
Speaker 8 (22:11):
The u's tough approach to regulation hasn't always pleased its partners.
President Trump notably attacked the Stayre, saying she hates the
United States, perhaps worse than any person I've ever met.
Now she hands over to her successor today, Saidribeta of Spain.
With massive antitrust decisions to take against American companies Apple, Alphabets, Google, Meta,
(22:35):
and X, owned by Trump confidant Elon Musk, could face
billions in fines or even mandatory divestment orders. We ask
Drewbera how she hopes to deal with the new administration.
Speaker 12 (22:47):
I will try to anticipate how to say cooperative relations
in this fields. I think that all American consumers and
European consumers worldwide consumers to benefit when we pay attention
on how the market does work, and I was said,
and this is quite clear that before in the previous
(23:12):
Trump bandit there was also some involvement, relevant involvement and
coordination between the competitition competition policies and decisions between the
two authorities. So I hope that we can work together.
Speaker 8 (23:25):
As for Vestias, she may be backing away from the
front lines of antitrust enforcement, but she's hardly fading away.
Speaker 10 (23:32):
Well, what the future brings, I don't know. What I
know is that I bought myself a domain, which is
dot eu because it may be that the European Commission
is done with me.
Speaker 7 (23:45):
But I'm so not done with Europe.
Speaker 2 (23:50):
Coming up, numbers make the world of Wall Street go around,
but the reliability of those numbers may be at risk
as we continue to cut government costs. Next on Wall
Street Week.
Speaker 6 (24:22):
This is Bloomberg Wall Street Week with David Weston from
Bloomberg Radio.
Speaker 2 (24:29):
This is a story about numbers here at Bloomberg. Numbers
are our business. They move markets and help us understand
the economy, and so we need them to be timely
and accurate. Our colleague Molly Smith tells us about the
risk of not getting the numbers that we need.
Speaker 13 (24:49):
One of President elect Donald Trump's earliest priorities. When he
steps back into the Oval office in January, We'll be
shrinking the government by cutting regulations, spending, and headcount.
Speaker 14 (25:01):
For God, this is an important day. It's the beginning
of a journey. You've heard what DOGE is all about,
the Department of Government and efficiency. It's a new thing,
and this is a new day in Washington and a
new day in America.
Speaker 13 (25:13):
A slim down federal government could present a threat to
a handful of statistical agencies that have been sounding the
alarm on their cash crunch for years. The Census Bureau,
the Bureau of Economic Analysis, and the Bureau of Labor
Statistics are all under financial strain. The BLS collects and
analyzes US employment data, and it lays claim to what
(25:33):
could be the single most important piece of information in
the world of finance, the monthly Jobs Report.
Speaker 15 (25:40):
Every year, BLS lost purchasing power right salaries for the workers.
We're going up, but the budget was not.
Speaker 13 (25:53):
Erica Groschen is intimately familiar with the BLS's fight for funding.
She served as its commissioner under President Obama from twenty
thirteen to twenty seventeen.
Speaker 15 (26:02):
You start almost two years beforehand, so one you've got
one budget kind of in process, and you're pulling together
the next year's budget. The department sends that budget to
OMB and from all of the departments, so the Department
of Commerce, Labor, et cetera. The OMB helps the White
(26:24):
House pull together what's called the President's budget. Then it
goes to the House and to the Senate, and each
of those appropriations committees winnows it down further. So it's
a long drawn out, complicated process where you're continually giving
up on ideas and necessities that you really wanted to
(26:46):
be funded.
Speaker 13 (26:47):
The BLS, Census Bureau and the BEEA how to combine
two point two billion dollar budget last year just zero
points zero three percent of federal spending after adjusting for inflation.
BLS funding has slumped almost twenty percent since twenty ten.
Speaker 16 (27:04):
Congress, unlike its predecessors in the nineteenth century, has lost sight,
in my opinion, of the value of the statistical system.
Speaker 13 (27:13):
Andrew Reemer at George Washington University has been researching the
role of policy and agency funding for twenty years.
Speaker 16 (27:20):
Back in the day two hundred plus years ago, the
primary customer for the data was Congress. There was no internet.
Data were if it was published, it was published way late.
No one could really use it. Our world has changed,
and so we're on Wall Street week. The first Friday
of every month, the stock market does something on the
(27:40):
basis of the numbers that come out on Friday morning
regarding unemployment and jobs.
Speaker 1 (27:46):
The FED needs that data.
Speaker 16 (27:49):
The second thing that happens when that data come out
first Friday of the month is that Chairman Powell goes
in front of the cameras and says what it means
for the FED cutting or not cutting interest rates up
the street from me as a target. Target relied on
census data to determine it's going to be in my neighborhood.
Every business, every retail business, every factory uses federal data
(28:11):
to figure out where it's going to invest and how
much it's going to invest. If those data are bad,
companies lose money.
Speaker 13 (28:19):
The data isn't just important on paper. It has real
market consequences, which we saw play out when a weaker
than expected print helped trigger a six point four trillion
dollar global wipeout in August.
Speaker 1 (28:32):
Well, here is a downside surprise. It's going to catch
the market's attention.
Speaker 16 (28:35):
One hundred and fourteen thousand jobs created last month, according
to the BLS.
Speaker 13 (28:40):
Michael Collins at PGIM Fixed Income sees the difference in
the quality of the data and the effect it has
on how he makes his investment decisions.
Speaker 17 (28:49):
The data is probably less reliable today than it's been,
But that being said, we have so much more data
right than we've ever had. I mean, you think back,
you know, the nineteen to forties, fifties and sixties, and
you look at the old newspaper clippings, I mean the
limited amount and the and the poor timeliness of the data.
People are still managing money and making you know, big
(29:10):
investments on those releases. Today we're actually, you know, have
the benefit of having so much macro data, micro data,
uh you know, contemporaneous data, leading data, lagging data, and
so we have the flexibility to put it all together
and try to, you know, paint a bigger picture. And
we're really looking, you know, at each piece of data
(29:31):
as a as a component to the bigger picture.
Speaker 1 (29:34):
Does it support our thesis or.
Speaker 17 (29:36):
Does it you know, make us think twice about our
thesis and maybe pause before we put on a trade
or an investment that that will benefit from from from
our view, and by the time you get the revisions
right that it is so backward looking that it doesn't
reflect market behavior going forward.
Speaker 3 (29:53):
Right.
Speaker 17 (29:54):
The markets are very forward looking beasts, as you know, Uh,
they will take each data point and try to extrapolate
the trend up or down on any of these different
indicators or series. So when you do a revision, all
it does is kind of reset maybe the level, but
it doesn't really.
Speaker 1 (30:14):
Change the forward looking trend.
Speaker 17 (30:16):
So either way, the data to investors like us, long
term investors.
Speaker 1 (30:20):
Are not that important.
Speaker 17 (30:23):
What's important is how the markets are going to respond
to activity in the future. So we're always trying to
stay obviously one step ahead of the data, right, to
try to take the data and again try to paint
a picture of the direction of these different indicators, and
we will certainly make investments and put on trades and
(30:43):
put on positions that we think are consistent with our
view on which way the data is pointing. If you
get a revision, by then it's real, it's really moot.
Speaker 13 (30:54):
In August of this year, the BLS found itself unprepared
to handle a delay in releasing a scheduled revision to
its jobs data. The figures were finally released about thirty
minutes after they were supposed to come out, but not
before a handful of firms, including B and P, Prryba,
and Mazuo got the numbers because they called the BLS
and asked. The follout from the glitch was made worse
(31:17):
by the massive revision, highlighting another issue plaguing the BLS
and other statistical agencies, declining response rates to surveys.
Speaker 15 (31:26):
Because response rates are falling, then you're not actually getting
sixty thousand households every month, you're getting substantially less than that,
and so you're really missing out on smaller groups, racial groups,
industry groups, veterans, etc. If you want to know what's
(31:49):
going on with the various groups, the information just won't
be as good. Response rates are falling for all surveys
all across the world, all kinds of surveys. There's what it's.
Speaker 7 (32:03):
Called in the field.
Speaker 15 (32:04):
It's called survey fatigue. So people get a lot of
requests and when it first started, there were very few surveys.
And another factor in all of this has been the
demonization of government.
Speaker 13 (32:16):
Grosshan says the lack of trust in the government and
its data creates a feedback loop of low response rates
and inaccurate data.
Speaker 15 (32:23):
So a conversion of the top ranks of the staff
in the statistical agencies to political appointees threatens to undermine
trust in the agencies. And when you undermine trust, you
interfere with their ability to fulfill their mission.
Speaker 16 (32:46):
If you had come here a few years ago, these
streets didn't exist it.
Speaker 13 (32:50):
Zach Brandon and Aaron Olver saw firsthand how data from
statistical agencies turned into cash for their hometown of Madison, Wisconsin, but.
Speaker 18 (32:58):
Really start earlier in two thousand and five, two thousand
and four. But the report that I think set the
groundwork for what came out of the Chips Act was
this the study that came from Brookies in twenty nineteen.
They looked at population, they looked at types of jobs,
they looked at share of bachelor's degrees, They looked at
(33:19):
stem R and D investments, they looked at.
Speaker 1 (33:21):
PhDs per capita.
Speaker 18 (33:23):
So all that is federal data that's collected, and so
those data sets become important to put together the composite.
Speaker 13 (33:31):
Fifteen Wisconsin companies specializing in healthcare technology as well as
higher education institutions came together last year to seek the
designation as a so called tech hub under the Chips
and Science Act. The state earned forty nine million dollars
in federal funding, which is expected to create nine billion
dollars worth of economic development and more than thirty thousand jobs.
Speaker 18 (33:53):
There's sexy headlines and then there's discernible data, right, and
so you have to look past the headlines, and also
to look past scale, because if you just looked at size,
if you just said, you know, well, who has the
most of these employees, you would just stay in those
five cities, you know, you'd go to New York wherever
there was scale. But what you're really looking for is
a bit of a needle in the haystack. You're looking
(34:15):
for density. What you're looking for is where is this
bubbling up now? And that if you could add an
accelerant to it, So where has the spark occurred? And
if we could add an accelerant, where will it catch fire?
What are the solutions to global challenges that the US
can develop? So health being one of those, So personalized medicine,
thinking about BioHealth is going to be a big part
(34:36):
of the future economy in this country.
Speaker 1 (34:39):
So where are those companies? Where does that research exist?
Speaker 18 (34:41):
And I think that's what you saw in this technology
hub that's developed within Wisconsin, is that if you start
in Milwaukee and you make your way to Madison, you've
got more than one hundred companies that touch health in
some way. And some of the largest companies in the
world that are doing health care, health delivery, health research,
health R and D happen to be based in this corridor.
Speaker 1 (35:03):
But if you weren't looking at data, you wouldn't have
noticed that.
Speaker 13 (35:07):
Brandon says that despite his city's rapid tech growth, it
could stumble without federal support, and other cities could miss
out on future investment if statistical agencies continue to lose resources.
Speaker 1 (35:19):
It's really hard to be the dominant innovation economy in
the world. It's not that hard to undo.
Speaker 18 (35:28):
It, right, and slowly ticking away, knocking off pieces of
what got us here will set us on us certainly
on a downward trajectory. And so if you're worried about
global competitiveness, if you're worried about understanding China's rise and
innovation and matching that against the US rise and innovation,
you need data to be able to understand what the
future looks like.
Speaker 13 (35:49):
Understanding that future as best we can will always be valuable,
no matter whose data we use to do it. So,
if the government can't survey and put out its own figures,
can the private sector pick up the slack? Erica Groschen says,
It's not so simple.
Speaker 15 (36:03):
It's a huge opportunity, but it's not a substitute. Why
a private sector company would never have the incentive to
create the long history of data that the statistical agencies
do that really help you to put current conditions in perspective.
They don't have the incentive to be as transparent.
Speaker 13 (36:24):
For now, government data and private surveys continue to go
hand in hand, but no matter who generates them, good
numbers will always cost money. The question is do we
value them enough to keep paying the bill.
Speaker 2 (36:40):
That does it for us? Here at Wall Street Week,
I'm David Weston. This is Bloomberg. See you next week
for more stories of capitalism.
This is Wall Street Week.
Speaker 2 (00:15):
I'm David Weston bringing you stories of capitalism. This week,
the price of regulating competition around the world. We spoke
with former EU Commissioner Margareta Vesteier on her very last
day and the job, about what she has meant for
Europe's tech industry and a growing threat for the data
at the center of our economy. How US statistical agencies
(00:39):
are grappling with shrinking budgets even before cuts to the
overall federal budget. But we begin with a story about
one hundred and five trillion dollars. That is the size
of the gross domestic product of the entire world, and
also the amount of money researchers tell us Americans will
inherit over the next twenty five five years. If that
(01:01):
seems large, that's because it is.
Speaker 3 (01:06):
It's definitely the biggest number we've ever seen. We've been
looking at this research for over a decade now.
Speaker 2 (01:13):
Chase Horton is a senior analyst that Cerooly Associates, and
he's the lead author of a new report quantifying how
much wealth in the US will be given out or
passed on over the next two and a half decades.
It's a big jump from the numbers to really found
a few years ago, and he thinks he knows why.
Speaker 3 (01:32):
It's really a confluence of three trends. Over the past
dozen or so years, we've seen a substantial amount of
wealth creation, So privately held wealth by households in the
United States has increased essentially one hundred percent since we
were looked at this in twenty eleven, and that's on
an inflation adjusted basis. In addition, we also have seen
wealth become increasingly concentrated among fewer wealthier households, and those
(01:56):
wealthier households are more likely to be survived by their assets,
so they're not going to be spending those assets down
like the rest of us. And we've also seen wealth
concentration among older households, so more wealth is held today
by households that are over the age of sixty than
we've seen in a long time. And it's also the
highest portion. If you look at the ratio of expected
(02:17):
to wealth transfer in the next twenty five years as
a ratio of overall wealth held today, we see about
eighty percent of the wealth held today going to be
in motion over the course of the next twenty five years.
And when we first looked at this about a decade ago,
that ratio is closer to fifty percent of assets in motion.
So the ratio of wealth expected to be changing hands
(02:38):
in the next twenty five years is significant and much
greater than what we even saw a decade ago.
Speaker 2 (02:43):
More money getting passed down over a relatively short time,
and for the one in five who receive any inheritance
at all, the share of their net worth coming from
that inheritance rather than their earned income is on the rise.
A new Bloomberg analysis shows today your financial status has
more to do with who your parents are than at
(03:04):
any time in recent history. That inherited money now accounts
for at least a quarter of the wealth for the
average inheritor, but many economists think that figure is much higher,
including former Treasury Secretary than Wall Street Week contributor Larry Summers.
Speaker 4 (03:21):
If you account what happens when somebody gets an inheritance
and then they invest it, and that builds up more wealth,
that probably the vast majority is certainly a majority of
the wealth in our economy is related to inheritance, and
that's of course a complicated thing. On the one hand,
family values are good, on the other hand, it's not
(03:43):
like it's equally distributed. It's not like it's even as
unequally distributed as income. It's not even like it's as
unequally distributed as the rest of wealth. It's really very
much a phenomenon about a very small action of the population.
Speaker 2 (04:02):
Given how much wealth is being transferred, one might think
we may see a wider distribution of that wealth as well,
but don't count on it.
Speaker 3 (04:12):
We constantly get asked, will this be redistributive in terms
of wealth in the United States, And from what we've
seen in the numbers is we don't really think that
that's an expectation that people should have. You know, we
see a significant amount of the wealth, over fifty percent
is held by high net worth households, so those that
are ten million or more in net worth, and that
(04:33):
makes up around two percent of the population, and we
expect a lot of that wealth to go to the
top two percent of inheritors. So we don't really see
any sort of reason or thing to make us believe
that this is going to be, you know, widely distributed
beneficially for all Americans.
Speaker 2 (04:51):
All that concentrated wealth being passed down echoes what the
United States saw back in the Gilded Age of the
late nineteenth century, which led President Teddy Roosevelt to call
for a graduated inheritance tax on big fortunes properly safeguarded
against evasion. And Andrew Carnegie, who became the richest man
in the world in nineteen oh one when he sold
(05:13):
his steel company to John D. Rockefeller, agreed saying, of
all forms of taxation, this seems the wisest. In nineteen sixteen,
Congress enacted the federal estate tax that's been with us
in some form or another ever since. But today that
tax doesn't apply to the vast majority of the one
hundred and five trillion dollars passing hands.
Speaker 4 (05:36):
I think there's a lot of good that's come in
this country out of family businesses, family farms, of family assets.
I do think the extent to which this avoids taxation,
even among the very wealthiest people is something that is
very bizarre. Your study estimated that there'll be about two
(05:59):
and a half trillion dollars of wealth passing this year.
The collections on the inheritance tax are only going to
be about one percent of that two and a half
trillion dollars. Of course, relatively limited inheritances shouldn't get taxed.
Of course, you have to treat family farms in appropriate ways.
(06:24):
But two and a half trillion dollars passing and the
vast majority of that being among five percent or one
percent of the people who die, and only collecting one
percent of it in taxes. I do think we can
do better.
Speaker 2 (06:40):
There is little reason to expect that the inheritors will
pay any more in taxes under the next Trump administration.
In his first term, mister Trump worked with Congress to
cut the number of people subject to the tax to
near historic lows, and in campaigning for a second term,
advocated eliminating it altogether. But there is one way the
(07:01):
great wealth Transfer will reduce inequality. Women are set to
inherit more money than ever before.
Speaker 5 (07:09):
Enormous amounts of this are going to women, because first,
you have to think that men and women have different
life expectancies, So first the money goes to the wife.
Speaker 2 (07:18):
Emily Green is head of wealth management at Elevest, a
financial firm that focuses on working with women. Wealth advisors, brokers,
real estate agents and others could be well positioned for
a windfall as the wealth transfer accelerates in the next
few years, and Green says she and her team have
seen firsthand the shift from men to women and this.
Speaker 5 (07:41):
Next generation millennials and such, there's a lot more single
women there have been in prior generation, So there's a
lot more women controlling the wealth as this inheritance comes
down than there was previously. It's really going to change
the way that we invest, spend, give all these different
types of things because women are going to get this
huge amount of money.
Speaker 2 (08:01):
How far along are we in the process of this
wealth transfer.
Speaker 5 (08:04):
We're still really early. We're still really early.
Speaker 2 (08:07):
Until now, women have gotten a smaller share of inherited
wealth than men, but Soorooly estimates that over the next
quarter century, gen Z women will become the first to
receive at least half of the country's inheritance, and that
Green says, has major implications for the way that money
will be spent and invested in the future.
Speaker 5 (08:29):
And you have seen women tend to hire, women tend
to give philanthropically, women tend to invest more in other women.
They can give more politically, they can look to make
sure that the people in office are reflecting them. You
think about businesses and so the more women can start
their own businesses and do these things, that changes society
as well. If you look at women business owner numbers,
(08:49):
they're great entrepreneurs. Women have the money to create businesses.
They can create businesses that serve them. So even think
about healthcare healthcare. For a long time, drugs were only
tested on men, and so when we think about healthcare,
if women can create healthcare companies that are focusing on
fifty percent of the population as well, you are changing things.
There's a lot of opportunity within these spaces because there's
(09:10):
a lot of companies that just aren't focusing on women
and how they're actually thinking about this.
Speaker 2 (09:15):
An economy that's better suited to fulfill the needs of
the whole population rather than just fifty percent of it
is certainly an improvement. But what about the eighty percent
of Americans who don't stand to inherit anything? Will rising
inequality way on economic dynamism?
Speaker 1 (09:32):
How much does it matter?
Speaker 2 (09:34):
Big questions and easy enough to ask, But when it
comes to answering them, what's best for the US economy
might not be what's best for your family, and one
of those will always come first. Just to push it
and get a little personal here. You wrote a paper
in nineteen eighty one. I think you were still a
PhD candidate at the time. Now you've had a very
(09:55):
successful career, I hope done reasonably well, have a fan,
have a granddaughter.
Speaker 6 (10:02):
Have your views.
Speaker 2 (10:03):
Changed on the intergenerational transfer wealth sort of that late
in your career as opposed at the very beginning.
Speaker 4 (10:10):
I think at the very beginning, I didn't really think
of it as a personal issue at all. I thought
about it as just part of understanding the savings process
in the economy. Now I think about wanting to help
my children now that I have a grandchild, help my grandchild,
(10:31):
but certainly not to the point where they're not living
their own lives professionally and doing their own work. Is
the philosophy that I have. I take advantage of the
law as it is written, and I find it troubling
that the law affords me as many opportunities to avoid
(10:55):
paying taxes in completely legal ways.
Speaker 7 (11:00):
As it does.
Speaker 4 (11:01):
And I think there are all kinds of changes in
the estate tax law that would make that law function
in a fairer and more equitable way.
Speaker 2 (11:14):
Those changes are unlikely to come soon, if at all,
and until they do, the economy may grow more dynastic,
forcing us to come to grips with how much of
our wealth is truly ours and how much we owe
to future generations coming up. As Europe struggles to get
its tech sector on the map, we examine the role
(11:36):
that competition policy may play and the trade offs between
taking the lead in regulation and spurring innovation. That's next
on Wall Street Week.
Speaker 6 (11:47):
You're listening to Bloomberg Wall Street Week with David Weston
from Bloomberg Radio. This is Bloomberg Wall Street Week with
(12:10):
David Weston from Bloomberg Radio.
Speaker 2 (12:15):
This is a story about trade offs, in particular the
tradeoff between making sure firms don't dominate an industry and
making sure that those same firms have the incentives to
innovate and grow so that they can drive the economy.
It's a tradeoff being made differently in the US and
Europe when it comes to the tech sector. Bloomberg's Max
(12:35):
Ramsey tells us about the EU's self assigned role as
the world's regulator in chief.
Speaker 8 (12:43):
The European economy is facing a slow agony as it
struggles to compete with the US and China. So said
none other than former ECB President Mario Draghi in September,
pointing to sluggish growth and productivity.
Speaker 9 (12:57):
Growth has been slowly down for a long time in Europe,
but we've ignored it. We until I would say, until
two years ago, we would never have such a conversation
as the one we're having today because things were sort
of going well. And now we cannot ignore it any longer.
(13:19):
Now conditions have changed. Europe is nowadays stuck in a
static industrial structure populated by meat technology companies which are
already mature. The problem is not that we lack smart people,
and we don't lack certainly good ideas, but there are
(13:42):
too many barriers to commercialize in innovations and scaling the
map in the European Union.
Speaker 8 (13:51):
The numbers helped show the scale of the gap between
Europe and the US despite having a larger population. The
European Union's GDP sits around nineteen trillion dollars. That's compared
to twenty nine trillion dollars for the US. The stock
six hundred's market cap is about fourteen trillion dollars versus
over fifty trillion for the S and P five hundred.
(14:14):
One criticism has been that Brussel's aggressive approach to regulation,
especially with big technology companies, has held corporate Europe back
versus its global rivals. The person at the center of
this policy for the past decade is Margreta Vestaya, the
EU's Format Competition Commissioner. We spoke to her on her
final day as the bloc's top antitrust enforcer.
Speaker 10 (14:37):
What that has been sort of mid live in Danish politics,
in European politics, was to make sure that everybody has
a fair chance of making it and making sure that
the market provides for thats that the market serves customers.
That has been you know, the thrend of these ten
years from me.
Speaker 8 (14:57):
It's a mancha that has resulted in some of the
toughest rules in the world for big tech. Another way
to put it, if you can't beat Silicon Valley at
its own game, regulate it. Vestia has overseen some of
the EU's most high profile cases, taking on the world's
biggest companies and issuing over twenty five billion euros in
fines for abuses of dominance and cartel violations.
Speaker 7 (15:20):
Today is a big win.
Speaker 8 (15:22):
She won a record thirteen billion euro tax judgment against
Apple and oversaw one of the Eve's landmark pieces of regulation,
the Digital Markets Act. We asked about her rise from
Danish politician to perhaps the most feared name in Silicon Valley.
Speaker 10 (15:39):
I don't really know how to prepare for being on
the front page of one of the US main papers.
It's important to figure out how to go with it.
I came, of course from executive positions in Denmark. I
was the Deputy Prime Minister. That several experiences as a minister.
But I think the most important point is that you've
(16:00):
believe in what you do. That's the cases that we
have thoughts, that they have been fought with great work
by the teams, with very strong evidence. I think that's
the kind of preparedness that you need, that you believe
that this is a strong case and you have something
valuable to say.
Speaker 8 (16:17):
And from her point of view, things have gotten better.
Speaker 10 (16:20):
I definitely think that we have made progress. The world
was different ten years ago. How we looked at technology
was very different. Ten years ago, nobody was really asking
questions to say is this really fair? Is this a
good way to behave in the marketplace? That has changed completely.
You know, now people have much more nuanced views. I
(16:43):
think seeing all the good things that comes with technology,
but also realizing that we really need to take care
both to make sure that the market remains open, but
also that technology is not addictive, is not providing rapid
holes or dark patterns or anything else that may manipulate
(17:04):
us as humans in ways that undermine how society works.
Speaker 8 (17:08):
But today, Vestia's legacy faces a challenge from those who
say regulation has her Europe, stopping it from creating massive
technology companies to rival the US or China. We put
this to Roxanne Vasa, a woman at the very heart
of Europe's tech scene.
Speaker 7 (17:25):
What I sum up.
Speaker 11 (17:27):
Versus europe regulation, Well, I mean I think Europe definitely
has the image and the reputation of always wanting to regulate,
and they're good at it.
Speaker 8 (17:40):
Vasa is the director of Station F, a startup campus
in Paris. She's also a scout for Sequoia Capital and
an angel investor herself.
Speaker 11 (17:49):
And I definitely think regulation does in some cases slow
things down. It creates complexity. In some cases, it's not
even clear when the regulations are first coming out exactly
what they apply to and what we need to do
to comply with them, so it can be quite quite
difficult to navigate, especially for young innovative companies that don't
have a lot of resources and a lot of time
(18:10):
to spend on that kind of thing.
Speaker 8 (18:12):
All that she says can bring some disadvantages for companies
in Europe compared to their rivals in North America.
Speaker 11 (18:19):
I think in the US there's a lot more flexibility.
The consumer is potentially less protected because of those discrepancies,
but as we mentioned, there's less room for innovators to
play with. So I think there are two very different approaches,
and I think the European approach will naturally dissuade some
types of innovation from happening here.
Speaker 8 (18:40):
Margaret Tavastaya takes a different view.
Speaker 10 (18:43):
We're talking a lot these days about competitiveness. The paradox
is that you can have competition without having competitiveness, but
you cannot have competitiveness without competition. So really important to
maintain that strive that everybody should challenged. If you achieve
a very strong market position, it comes with responsibility. So
(19:07):
to some degree, I think a lot of people can
mirror themselves in what we are asking your market participants
in their own lives. If someone is rich and powerful,
they have responsibility. If someone is small with very few
means well they should have a better chance of making it.
Speaker 8 (19:25):
This view has informed the flagship technology regulation for the
EU and by extension, much of the world over the
past ten years.
Speaker 10 (19:33):
I think it's important here to see while some regulation
like the dinal Markets Act is opening the marketplace.
Speaker 7 (19:40):
Regulation like the AI.
Speaker 10 (19:42):
ADS makes AI safe to use, which means again that
it opens the market for many more use cases where
people may otherwise scare off. So I think it's important
to look at regulation and say, okay, that is market creating,
that is market opening, that is enabling innovation. And then
look at regulation where you have reporting obligations that you
(20:04):
may not need or that implementation have been done in
a way that was overly strict, where with new technology
or going through things, I would say, why did we
do that in such a complicated manner?
Speaker 7 (20:17):
There are much easier ways to.
Speaker 10 (20:19):
Do this, So I think it's really important to do that,
And the new Commission has obliged itself to go through
the entire.
Speaker 7 (20:27):
Body of regulation to.
Speaker 10 (20:29):
Weed out the overlaps what is unnecessary in order to
make life easier for businesses speak and.
Speaker 1 (20:35):
Small station FSA.
Speaker 8 (20:37):
Vasa also says that while regulation can sometimes slow tech innovation,
it can also create opportunities, and she's optimistic about the
future of Europe's startup culture.
Speaker 7 (20:48):
I think it's.
Speaker 11 (20:48):
Interesting we don't also talk about the opportunities that some
regulations can create. And when I say that something specifically
of climate tech, the climate tech industry, I do think
that the regulation obviously is causing a lot of headache
for some companies that have to comply, but it is
also creating a lot more opportunity and a lot more
(21:08):
interest for this category in Europe. I would say actually
that Europe has made a huge cultural shift, maybe over
the last five years. If I'm looking specifically at France,
ten years ago, it was definitely not a thing to
be an entrepreneur. It was almost considered crazy, why don't
you go get a real job essentially, but that has
(21:29):
one hundred percent change today and I think just about
everybody wants to be a founder. So I think this
cultural shift that we're seeing in France and the rest
of Europe is also catching up with It has changed
a lot of things. And when I actually look at
how people build companies in the US and in Europe,
I mean obviously structurally in Europe, things are very different.
It means something very different to build a company buttural,
(21:54):
the kind of mindset of entrepreneurs is almost identical. I
would say it's actually maybe become even a little bit
more balanced recently. I think with AI, we've seen the
US having to step in a bit more, deciding to
regulate a bit more now, or have to see if
that continues with the new presidency.
Speaker 8 (22:11):
The u's tough approach to regulation hasn't always pleased its partners.
President Trump notably attacked the Stayre, saying she hates the
United States, perhaps worse than any person I've ever met.
Now she hands over to her successor today, Saidribeta of Spain.
With massive antitrust decisions to take against American companies Apple, Alphabets, Google, Meta,
(22:35):
and X, owned by Trump confidant Elon Musk, could face
billions in fines or even mandatory divestment orders. We ask
Drewbera how she hopes to deal with the new administration.
Speaker 12 (22:47):
I will try to anticipate how to say cooperative relations
in this fields. I think that all American consumers and
European consumers worldwide consumers to benefit when we pay attention
on how the market does work, and I was said,
and this is quite clear that before in the previous
(23:12):
Trump bandit there was also some involvement, relevant involvement and
coordination between the competitition competition policies and decisions between the
two authorities. So I hope that we can work together.
Speaker 8 (23:25):
As for Vestias, she may be backing away from the
front lines of antitrust enforcement, but she's hardly fading away.
Speaker 10 (23:32):
Well, what the future brings, I don't know. What I
know is that I bought myself a domain, which is
dot eu because it may be that the European Commission
is done with me.
Speaker 7 (23:45):
But I'm so not done with Europe.
Speaker 2 (23:50):
Coming up, numbers make the world of Wall Street go around,
but the reliability of those numbers may be at risk
as we continue to cut government costs. Next on Wall
Street Week.
Speaker 6 (24:22):
This is Bloomberg Wall Street Week with David Weston from
Bloomberg Radio.
Speaker 2 (24:29):
This is a story about numbers here at Bloomberg. Numbers
are our business. They move markets and help us understand
the economy, and so we need them to be timely
and accurate. Our colleague Molly Smith tells us about the
risk of not getting the numbers that we need.
Speaker 13 (24:49):
One of President elect Donald Trump's earliest priorities. When he
steps back into the Oval office in January, We'll be
shrinking the government by cutting regulations, spending, and headcount.
Speaker 14 (25:01):
For God, this is an important day. It's the beginning
of a journey. You've heard what DOGE is all about,
the Department of Government and efficiency. It's a new thing,
and this is a new day in Washington and a
new day in America.
Speaker 13 (25:13):
A slim down federal government could present a threat to
a handful of statistical agencies that have been sounding the
alarm on their cash crunch for years. The Census Bureau,
the Bureau of Economic Analysis, and the Bureau of Labor
Statistics are all under financial strain. The BLS collects and
analyzes US employment data, and it lays claim to what
(25:33):
could be the single most important piece of information in
the world of finance, the monthly Jobs Report.
Speaker 15 (25:40):
Every year, BLS lost purchasing power right salaries for the workers.
We're going up, but the budget was not.
Speaker 13 (25:53):
Erica Groschen is intimately familiar with the BLS's fight for funding.
She served as its commissioner under President Obama from twenty
thirteen to twenty seventeen.
Speaker 15 (26:02):
You start almost two years beforehand, so one you've got
one budget kind of in process, and you're pulling together
the next year's budget. The department sends that budget to
OMB and from all of the departments, so the Department
of Commerce, Labor, et cetera. The OMB helps the White
(26:24):
House pull together what's called the President's budget. Then it
goes to the House and to the Senate, and each
of those appropriations committees winnows it down further. So it's
a long drawn out, complicated process where you're continually giving
up on ideas and necessities that you really wanted to
(26:46):
be funded.
Speaker 13 (26:47):
The BLS, Census Bureau and the BEEA how to combine
two point two billion dollar budget last year just zero
points zero three percent of federal spending after adjusting for inflation.
BLS funding has slumped almost twenty percent since twenty ten.
Speaker 16 (27:04):
Congress, unlike its predecessors in the nineteenth century, has lost sight,
in my opinion, of the value of the statistical system.
Speaker 13 (27:13):
Andrew Reemer at George Washington University has been researching the
role of policy and agency funding for twenty years.
Speaker 16 (27:20):
Back in the day two hundred plus years ago, the
primary customer for the data was Congress. There was no internet.
Data were if it was published, it was published way late.
No one could really use it. Our world has changed,
and so we're on Wall Street week. The first Friday
of every month, the stock market does something on the
(27:40):
basis of the numbers that come out on Friday morning
regarding unemployment and jobs.
Speaker 1 (27:46):
The FED needs that data.
Speaker 16 (27:49):
The second thing that happens when that data come out
first Friday of the month is that Chairman Powell goes
in front of the cameras and says what it means
for the FED cutting or not cutting interest rates up
the street from me as a target. Target relied on
census data to determine it's going to be in my neighborhood.
Every business, every retail business, every factory uses federal data
(28:11):
to figure out where it's going to invest and how
much it's going to invest. If those data are bad,
companies lose money.
Speaker 13 (28:19):
The data isn't just important on paper. It has real
market consequences, which we saw play out when a weaker
than expected print helped trigger a six point four trillion
dollar global wipeout in August.
Speaker 1 (28:32):
Well, here is a downside surprise. It's going to catch
the market's attention.
Speaker 16 (28:35):
One hundred and fourteen thousand jobs created last month, according
to the BLS.
Speaker 13 (28:40):
Michael Collins at PGIM Fixed Income sees the difference in
the quality of the data and the effect it has
on how he makes his investment decisions.
Speaker 17 (28:49):
The data is probably less reliable today than it's been,
But that being said, we have so much more data
right than we've ever had. I mean, you think back,
you know, the nineteen to forties, fifties and sixties, and
you look at the old newspaper clippings, I mean the
limited amount and the and the poor timeliness of the data.
People are still managing money and making you know, big
(29:10):
investments on those releases. Today we're actually, you know, have
the benefit of having so much macro data, micro data,
uh you know, contemporaneous data, leading data, lagging data, and
so we have the flexibility to put it all together
and try to, you know, paint a bigger picture. And
we're really looking, you know, at each piece of data
(29:31):
as a as a component to the bigger picture.
Speaker 1 (29:34):
Does it support our thesis or.
Speaker 17 (29:36):
Does it you know, make us think twice about our
thesis and maybe pause before we put on a trade
or an investment that that will benefit from from from
our view, and by the time you get the revisions
right that it is so backward looking that it doesn't
reflect market behavior going forward.
Speaker 3 (29:53):
Right.
Speaker 17 (29:54):
The markets are very forward looking beasts, as you know, Uh,
they will take each data point and try to extrapolate
the trend up or down on any of these different
indicators or series. So when you do a revision, all
it does is kind of reset maybe the level, but
it doesn't really.
Speaker 1 (30:14):
Change the forward looking trend.
Speaker 17 (30:16):
So either way, the data to investors like us, long
term investors.
Speaker 1 (30:20):
Are not that important.
Speaker 17 (30:23):
What's important is how the markets are going to respond
to activity in the future. So we're always trying to
stay obviously one step ahead of the data, right, to
try to take the data and again try to paint
a picture of the direction of these different indicators, and
we will certainly make investments and put on trades and
(30:43):
put on positions that we think are consistent with our
view on which way the data is pointing. If you
get a revision, by then it's real, it's really moot.
Speaker 13 (30:54):
In August of this year, the BLS found itself unprepared
to handle a delay in releasing a scheduled revision to
its jobs data. The figures were finally released about thirty
minutes after they were supposed to come out, but not
before a handful of firms, including B and P, Prryba,
and Mazuo got the numbers because they called the BLS
and asked. The follout from the glitch was made worse
(31:17):
by the massive revision, highlighting another issue plaguing the BLS
and other statistical agencies, declining response rates to surveys.
Speaker 15 (31:26):
Because response rates are falling, then you're not actually getting
sixty thousand households every month, you're getting substantially less than that,
and so you're really missing out on smaller groups, racial groups,
industry groups, veterans, etc. If you want to know what's
(31:49):
going on with the various groups, the information just won't
be as good. Response rates are falling for all surveys
all across the world, all kinds of surveys. There's what it's.
Speaker 7 (32:03):
Called in the field.
Speaker 15 (32:04):
It's called survey fatigue. So people get a lot of
requests and when it first started, there were very few surveys.
And another factor in all of this has been the
demonization of government.
Speaker 13 (32:16):
Grosshan says the lack of trust in the government and
its data creates a feedback loop of low response rates
and inaccurate data.
Speaker 15 (32:23):
So a conversion of the top ranks of the staff
in the statistical agencies to political appointees threatens to undermine
trust in the agencies. And when you undermine trust, you
interfere with their ability to fulfill their mission.
Speaker 16 (32:46):
If you had come here a few years ago, these
streets didn't exist it.
Speaker 13 (32:50):
Zach Brandon and Aaron Olver saw firsthand how data from
statistical agencies turned into cash for their hometown of Madison, Wisconsin, but.
Speaker 18 (32:58):
Really start earlier in two thousand and five, two thousand
and four. But the report that I think set the
groundwork for what came out of the Chips Act was
this the study that came from Brookies in twenty nineteen.
They looked at population, they looked at types of jobs,
they looked at share of bachelor's degrees, They looked at
(33:19):
stem R and D investments, they looked at.
Speaker 1 (33:21):
PhDs per capita.
Speaker 18 (33:23):
So all that is federal data that's collected, and so
those data sets become important to put together the composite.
Speaker 13 (33:31):
Fifteen Wisconsin companies specializing in healthcare technology as well as
higher education institutions came together last year to seek the
designation as a so called tech hub under the Chips
and Science Act. The state earned forty nine million dollars
in federal funding, which is expected to create nine billion
dollars worth of economic development and more than thirty thousand jobs.
Speaker 18 (33:53):
There's sexy headlines and then there's discernible data, right, and
so you have to look past the headlines, and also
to look past scale, because if you just looked at size,
if you just said, you know, well, who has the
most of these employees, you would just stay in those
five cities, you know, you'd go to New York wherever
there was scale. But what you're really looking for is
a bit of a needle in the haystack. You're looking
(34:15):
for density. What you're looking for is where is this
bubbling up now? And that if you could add an
accelerant to it, So where has the spark occurred? And
if we could add an accelerant, where will it catch fire?
What are the solutions to global challenges that the US
can develop? So health being one of those, So personalized medicine,
thinking about BioHealth is going to be a big part
(34:36):
of the future economy in this country.
Speaker 1 (34:39):
So where are those companies? Where does that research exist?
Speaker 18 (34:41):
And I think that's what you saw in this technology
hub that's developed within Wisconsin, is that if you start
in Milwaukee and you make your way to Madison, you've
got more than one hundred companies that touch health in
some way. And some of the largest companies in the
world that are doing health care, health delivery, health research,
health R and D happen to be based in this corridor.
Speaker 1 (35:03):
But if you weren't looking at data, you wouldn't have
noticed that.
Speaker 13 (35:07):
Brandon says that despite his city's rapid tech growth, it
could stumble without federal support, and other cities could miss
out on future investment if statistical agencies continue to lose resources.
Speaker 1 (35:19):
It's really hard to be the dominant innovation economy in
the world. It's not that hard to undo.
Speaker 18 (35:28):
It, right, and slowly ticking away, knocking off pieces of
what got us here will set us on us certainly
on a downward trajectory. And so if you're worried about
global competitiveness, if you're worried about understanding China's rise and
innovation and matching that against the US rise and innovation,
you need data to be able to understand what the
future looks like.
Speaker 13 (35:49):
Understanding that future as best we can will always be valuable,
no matter whose data we use to do it. So,
if the government can't survey and put out its own figures,
can the private sector pick up the slack? Erica Groschen says,
It's not so simple.
Speaker 15 (36:03):
It's a huge opportunity, but it's not a substitute. Why
a private sector company would never have the incentive to
create the long history of data that the statistical agencies
do that really help you to put current conditions in perspective.
They don't have the incentive to be as transparent.
Speaker 13 (36:24):
For now, government data and private surveys continue to go
hand in hand, but no matter who generates them, good
numbers will always cost money. The question is do we
value them enough to keep paying the bill.
Speaker 2 (36:40):
That does it for us? Here at Wall Street Week,
I'm David Weston. This is Bloomberg. See you next week
for more stories of capitalism.
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