Wall Street Week — Blue Wave Economic Impacts, European Welfare Woes

[00:00:00] David Weston: This is Wall Street week. I'm David Weston bringing you stories of capitalism. Americans are reeling from the high cost of diesel and other fuel in the wake of the Iran conflict. We visit one state where people could break even or even come out ahead. Plus we continue our site visits with regional Fed presidents this time with Richmond's Tom Barkin on his visit to a manufacturing plant in Union South Carolina. And demonstrations in the streets of Paris showed the stress on the French social welfare system. Can Europe still afford what it put in place decades ago. But we start with the aftermath of the midterm elections this week and what they may mean for the policies or lack of policies on the economic issues that matter to voters. We talked with Glenn Hubbard of the Columbia Business School who served as chair of the Council of Economic Advisers under President George W. Bush. I think there are two messages and I don't think the press has really [00:01:14] Glenn Hubbard: picked up on them. The first is that voters want what works. The second is that voters want you to actually look at their problem. I think there's a view that well the Democrats won because their ideas are better. Well they may or may not be. But that's not what the electorate was saying. I think the electorate is just saying give me something that works. Affordability is an example. But really we've had decades of big change in the economy. Politicians on both sides of the aisle have nodded but have not offered solutions. And I think voters are sick of it. [00:01:44] David Weston: So if the Democrats turn to you tomorrow and said OK what plan should we pursue in the new Congress that would address some of the affordability concerns. What would you suggest they look at. [00:01:54] Glenn Hubbard: Well let me start 30,000 feet and then lay on the plane. So 30,000 feet it ought to be about two things. One is economic growth. It's still the case. Growth makes everything in life easier makes us better off. But the others have a full participation economy. Don't be glib and say AI will make us better off the same way globalization would or any other technological change. Tell us how we all can participate. Going down to the landing field how are you going to prepare people for those new jobs. Give the voters some specific ideas. And on affordability talk about electricity. Talk about permitting reform. Going to the housing market and talk about why it costs so much to build particular places. I don't think they're going to do any of that. But I think that's the thing that needs to be done. Do they need to address tariffs and trade? Because I think most [00:02:42] David Weston: Americans heard President Trump talk a lot about tariffs and associated it with a failure or not perhaps fairly with higher prices. I do [00:02:50] Glenn Hubbard: think they need to address it. But maybe not for the reason people think it. Tariffs did raise prices and Americans did bear the burdens of tariffs. Everything your econ 101 professor taught you is still true. But I think what the president saw and by the way Joe Biden saw it too was that the public is concerned about America's competitiveness and stand in the world. So I think anybody who says I want to renew trade I want to reduce tariffs also has to have in mind how am I going to help again more Americans come into this economy and participate in it fully. So I do think tariff reduction is what people have in mind but only if it's married with well how are you really going to help. When you talk about including more people in the pie. Meaningful work. In other words making sure that let's say we say AI has enormous promise for the economy. GDP can grow by a lot more. Productivity is greater. All sounds good on average. But you and I are individual people. There are other individual people that will watch your show. The question in their mind is am I one of those people. So we need a policy that says everybody's going to be in the boat. Doesn't mean we all get the same thing. But we all are going to get changed opportunities rather than just saying well the tech sector will work it out. I think that's cold comfort for a lot of people. [00:04:05] David Weston: Have we ever done that. I mean there was trade adjustment assistance as I recall with the auto [00:04:10] Glenn Hubbard: industry back in the 80s. Yeah. That didn't really pan out. Well yes and no. So trade adjustments I have sometimes quipped that it helped four people in a chicken or something. It came about in the 1962 trade bill because I think President Kennedy had the right intuition that you did have to help people adjust. To me it doesn't matter whether a shot comes from trade or internally you should always help people adjust. Trade adjustment assistance has worked in some areas. For example wage insurance programs. So I think rather than calling a trade adjustment assistance what could we design. Bigger picture we've done this much larger ways. The most obvious examples land grant colleges. It's an old one. We had an agrarian economy. We wanted to make a manufacturing economy. We democratized education and did just that. The GI Bill after World War II is another example. So I think programs as small as trade adjustment assistance aren't going to fit the bill. You would need somebody who articulates a moonshot not to build too much on President Kennedy aphorisms to make that clear [00:05:15] David Weston: to the public. That sounds like a big government program. I'm not sure that the country is ready for that right now and I'm not sure we have [00:05:21] Glenn Hubbard: the money for it. I don't think it's a big government program. I think it's a it's a big idea. Remember the land grant colleges were literally just land grants. It was up to others to raise the funds. I think what's necessary is to change the tune in Washington that we do notice everybody and we do want everybody to participate in the economy and a shot across the bout of business leaders. You can help in this regard or by the way you too will face the political pressures and regulatory pressures to do so. One of the big issues that I think [00:05:53] David Weston: should have been in the agenda but I didn't hear me talking about is the debt and deficit because we're gonna [00:05:57] Glenn Hubbard: have to pay for things sooner or later. Well let me let me give you a crazy optimist take because the social security trust funds run out in 2032. Now those are actually meaningless accounting fictions but they matter a lot in Washington. Whoever the next president is he she Democrat Republican doesn't matter. They will face that as will currently elected senators. It's going to be on their watch. So I think we're finally the point where the public has both the right and responsibility to say David you're running for office. Tell me what you're going to do about social security. Is this taxes. Is it benefits. Is it whatever. So I think we will have progress there. The other thing that sadly gives me optimism is that I do think interest rates will be higher for longer. That will set up a negative fiscal loop as the government refinances its debt and we will have to have a discussion of what we're going to do. We all know it's unpopular and we all [00:06:53] David Weston: know what we need to do. One of the things that was different at least in my experience about this election was that you could say capitalism was on the ballot. We had democratic socialists of America candidates coming forward with socialists avowedly socialist platform. Did they make a difference. [00:07:09] Glenn Hubbard: It was it serious or was that mainly just attention. I think it's mainly attention but there's a deeper story there. I don't think most voters are even thinking at the level of do I want Adam Smith's capitalism or Karl Marx's socialism. I think what they're thinking is I want an economic system that works for everybody and we don't have one. And if somebody wants to come along and call that socialism I'll at least listen to that man or woman. So I think it's incumbent on both sides to deliver a message in the middle that says of course this economic system can work for many more people. And it has. And here's how. [00:07:42] David Weston: Whatever the new Congress does the definitive results of the midterm elections put to rest concerns about whether they would be accepted despite President Trump's past criticism of the process. Professor Robert Post is the former dean of the Yale Law School where he teaches a course on preserving the integrity of the electoral system. So professor there's been a lot of talk and concern about these 2026 midterm elections and whether they would go off without a hitch. In fact you teach a course on protecting the election 2026. In retrospect did it need protection. Leading up to the election there were [00:08:18] Speaker 3: just enormous worries because we'd seen a lot of initiatives seemingly designed to undercut the election. There was the attempt to cut off mail-in ballots and use the post office for that. There was the attempt to get voter rolls so they could take people off the rolls. There were the various lawsuits. There are endless subpoenas to election officials. So it looked at the time before the election that the Trump administration was trying to make people lose faith in the institution of the election. Trying to make people not trust the outcome of the election. And because the Trump administration had all the resources of the federal government which are considerable there was great fear about how far he would go. And of course when we have somebody who did January 6th that fear could go in many different directions. That could be really terrible. So there was this apprehension about what would happen on November 3rd. I remember feeling that. It was astonishing how happy I was that there was no crisis. That people just voted and their and their votes were reported honestly and fairly as far as I could tell. That was amazing. And it was such a relief. [00:09:33] David Weston: Every election is about who gets elected but it's also about us who we are the people who are voting. And I wonder what you think this election tells us about some of our institutions. And start with state and local government who really run and by constitution are supposed to run elections. What did we learn [00:09:49] Speaker 3: about them. Well we learned that state and local governments are enormously resilient. They were put under pressure by the federal government. And you know liberals used to grow up thinking about the federal government as the government as the guarantor. And now we think about the state and local officials as the guarantor. And we see as the great strength of the American elections that they're run by local officials [00:10:14] David Weston: who take great pride in what they do. We're on Bloomberg. And at Bloomberg we focus on the economy and on business commerce. And obviously the democratic process is critical for governing the country first and foremost. But it also the rule of law is important for contracts for U.S. Treasuries which are promises to repay. What is the risk to our economy and to our markets to our businesses if in fact we really put into question [00:10:44] Speaker 3: the rule of law. I think that's a very deep and an accurate point. And in the first Trump administration I had tried to get business support to support the rule of law. And what we have seen in this administration is quite beyond anything we saw in the first Trump administration. In the first two years of the second Trump administration we have seen an executive that really doesn't care about the rule of law. It acts first and then it attempts to explain to a court later. And it has politicized the Justice Department in ways that if I were a business person I would be terrified. Up next the cost of gasoline and [00:11:22] David Weston: diesel fuel was one of the things on Americans minds as they went to the polls this week. But it looks a bit different in the state of Alaska which is making money off of high fuel prices and even returning part of it to its citizens. This is a story of hidden winners. The ongoing war in Iran has been deeply unpopular in the U.S. Oil prices have surged hitting Americans in the wallet across the 50 states. But President Trump insists that the conflict will benefit Americans in no small part because of its role as a net [00:12:00] Speaker 4: petroleum exporter. I could just see the fake headlines. President Trump is talking about all the money they're making while people are suffering at the pump. That'll be the headline. But I said I don't give a damn. I'm going to say it. We'll make it a freaking fortune. Rugged remote and sparsely populated. [00:12:20] David Weston: Alaska is often called the last frontier and its economy is perhaps as unusual as its landscape. [00:12:27] Speaker 5: We liken Alaska's economy to a three-legged stool. One leg of the stool is held up by our petroleum industry. The other leg of the stool is federal government spending which has been increasing over the last decade or two. And then the third leg of the stool is everything else. Our mining, timber, tourism industries. So what we've seen over the last decade or so under declining oil prices is that that oil leg has gotten a little shakier as the federal government leg has gotten a little sturdier. So maybe now it's a bit more like a rocking chair than a stool. But the resurgence in oil prices over the last year has brought in both new revenue to the state government but also pinched consumers. Alaska ranks among the highest states in revenue per resident coming from oil production but it [00:13:01] David Weston: also spends more on energy per person than any other state. Brett Watson is a professor of natural resource economics at the University of Anchorage, Alaska. Now as we're entering into winter, increasingly people are finding kind of eye-watering prices for home heating fuel oil. Prices are considerable. [00:13:19] Speaker 5: $10 a gallon up to $20, $20 a gallon in some places for this heating fuel oil. Essentially the prices that those communities are seeing right now are going to be locked in for the rest of the winter. And we'll see no variation until the next barge arrives in the spring. So the prices that they're paying today are what they should expect to pay for the rest of the winter. Those higher prices hurt households and will continue to hurt them through the winter. But unlike most other U.S. consumers, Alaskans will also benefit, both directly and indirectly, because their state is a major oil producer. [00:14:01] David Weston: It's a state that is unique in many ways. Roughly 80 percent of its communities cannot be reached by road. And as we explored two years ago, it's also a state with its own sovereign wealth fund. [00:14:15] Speaker 6: The United States has over $330 billion in sovereign wealth funds, but the largest one is the one in Alaska. [00:14:22] Speaker 7: This is a very popular topic in Alaska every year. It's like, how much is the dividend going to be this year? When are we getting it? Don't we get any direct deposit? [00:14:30] Speaker 8: It's uniquely Alaskan, to be honest with you. It's a way for Alaskans to store their non-renewable resource, especially oil, mining. [00:14:40] David Weston: Each year, every Alaskan gets a dividend from the fund. Lee Cruz is the deputy commissioner of revenue in Alaska. [00:14:47] Speaker 9: So we have both a royalty as well as a production tax. So our royalty is between 12 and a half and 16.6 percent. That largely depends on where the leases were granted and when they were granted. Out of that, 25 to 50 percent goes to the principal of the permanent fund. And that also depends on the when and where those leases were issued. Half a percent goes into the public school trust fund, and then the rest of it goes to our general fund. Now also, we have our production tax, which is essentially a net profits tax. That's a 35 percent tax on the oil that's produced, and that all goes to our general fund. I'd say the only other thing on top of that is we do have a 9.4 percent corporate income tax. And so, you know, when those corporations are seeing an increase in revenues from the increase in both production and price of oil, we also see that benefit as well. Our spring revenue forecast estimated oil at 75 a barrel. So at 75 a barrel, we also estimate that for every dollar increase that the price per barrel sees, you'll have an additional 45 million in revenues to the state. [00:15:52] Speaker 5: So this year, compared to the state's forecasted revenue from last December, the state will probably, year to date, has probably brought in another $1.3 billion that were unforecasted. So the windfall revenues associated with this oil price shock, $1.3 billion. On a household basis, that's almost $5,000 per household. [00:16:12] David Weston: This year, with that increased revenue, the state was able to pay out a dividend of $1,000 to every Alaskan, plus an extra $200 energy rebate payment. So that's $5,000 perhaps per household of net increased revenue for the state. First of all, what does that mean for the state budget? [00:16:31] Speaker 5: So the state's budget varies pretty considerably with oil prices. Because of oil price volatility, the state's budget is also quite volatile. As I said, the state passed a balanced budget on a forecasted oil price last year of $55 a barrel. Obviously, oil prices are considerably higher than that today. And so that's where this windfall amount comes from. Now, the state budgeted what they call the waterfall provision. They said, okay, if we raise an extra $200 million that we didn't expect, let's invest that in our state's education system. If we get another $200 million that we didn't expect, we'll add that to our state's permanent fund dividend distribution this year. And so Alaskans, every Alaska man, woman and child this last October, beginning of October, received another $200 on top of their ordinary permanent fund dividend payment as a so-called energy rebate. And it's likely the case that come January when the legislature reconvenes, there'll be discussions about potentially adding another energy rebate supplement. [00:17:30] David Weston: Watson estimates higher oil prices caused by the war could cost rural Alaskans thousands of dollars a year, even as they are due to receive increased payments from their permanent fund that may cover or even exceed their increased out-of-pocket costs. But they don't hit all Alaska residents equally. Around Anchorage, higher costs to households are roughly offset by the money returned by the government. In more remote areas, they may not be. [00:17:57] Speaker 4: Your oil price, so it's coming down. But your country is making an absolute fortune because of the situation in the Middle East. Alaska is a big beneficiary. Everybody is a benefit, the whole country. [00:18:11] David Weston: President Trump has said when it comes to fuel prices, actually, the United States is going to benefit because we are a net exporter as a country. We can quibble with that one way or the other. But it sounds like maybe that is true for the state of Alaska. [00:18:25] Speaker 5: That's certainly how I would characterize the situation, that the potential windfall for the state in terms of our revenue situation should likely exceed on an average basis the increase in expenditures at a household level. So really, the state has an opportunity to make every citizen of the state whole if the state correctly determines appropriation decisions. [00:18:45] David Weston: But for Alaska, the question is not just whether it can get more per barrel for the oil it produces. There's also the question of whether it can produce more in the future. We will drill baby drill. Oil production peaked in Alaska in 1988 and has declined for decades. But there are signs of activity picking up again. And the Trump administration has made it a focus to expand oil and gas production in the state. [00:19:14] Speaker 10: We're not comparable to the Permian Basin where the Bakken plays, right? That's kind of like the fast food of oil and gas. We're very much more fine dining. Steve Wilkowski is the president and CEO of the Alaska Oil and Gas Association. Steve Wilkowski: So the Trans-Alaska Pipeline System or TAPS, as we call it, is the absolute artery that brings the lifeblood of Alaska's economy and Alaska's private sector to life. Steve Wilkowski: And it wasn't that long ago where we saw investment leave Alaska, the TAPS throughput, that means the oil coming down the pipeline, was under rapid decline. Steve Wilkowski: And at that 2012 study, the federal government said, hey, look, in a low price environment, we could talk about decommissioning the pipeline as early as this year. Steve Wilkowski: The impacts of what that would look like for Alaska can't be undersold. I mean, we would be having a much, much harder discussion. Steve Wilkowski: In this high price environment, if the state was driving zero benefit from higher oil prices. Steve Wilkowski: So what Alaska's leaders did is they looked at our tax structure. Steve Wilkowski: They provided some incentives to both develop and keep our legacy fields in Prudhoe Bay online. Steve Wilkowski: Again, these are 40, 50 year old oil fields. We've got a member company called Hillcorp based out of Houston. Steve Wilkowski: They've been doing incredible work getting some of these old legacy fields like Milney Point back to their nameplate. Steve Wilkowski: Capacity in production, which is like unheard of. Steve Wilkowski: And then we created a tax and a fiscal system that actually incentivized new entrants to come back. Steve Wilkowski: So we saw companies like Santos Repsol come in, invest in PICA. Steve Wilkowski: We just had first oil come online this summer, an additional up to 80,000 barrels. Steve Wilkowski: And so I think you've seen this stable, predictable fiscal system that's durable. Steve Wilkowski: Right. So the durability there is the state retains some profit at a low price environment. Steve Wilkowski: And then as prices rise, the state derives benefit from that. Steve Wilkowski: It takes a long time to bring Alaska projects online. Steve Wilkowski: So we just can't pivot on a dime. Steve Wilkowski: We're unlike the shale place right where we can't, you know, turn a couple of rigs on, Steve Wilkowski: throw some fraction and get an additional 10, 20,000 barrels. Steve Wilkowski: These are long lead items. Steve Wilkowski: I think part and parcel of that, it is absolutely critical that one thing we're talking to them about all the time now is this permitting reform. Steve Wilkowski: So, you know, you look at a project like Willow, which is one of our most significant new projects coming online. Steve Wilkowski: It took over three years, over a thousand days to permit that satellite production facility and their associated processing facility. Steve Wilkowski: So the need for permitting reform for tighter deadlines and to have agencies stay on task and not to deal with differing permit strata in each different agency Steve Wilkowski: and for it to be combined under one effort is absolutely critical for us to be able to bring that online. Steve Wilkowski: For now, Alaska is cashing in on the net effects. [00:22:08] David Weston: Steve Wilkowski: While many Alaskans are feeling it daily as they pump their gasoline, statewide the benefits appear to be outweighing the costs, Steve Wilkowski: which means that although most Americans disapprove of the war in Iran, in part because it means less money in their pocket, Steve Wilkowski: Alaska might be a quiet winner. [00:22:26] Speaker 10: Steve Wilkowski: And you can go back and I can point you to legislative testimony where, you know, I was testifying in front of the Senate, Steve Wilkowski: the Alaska State Senate Resources Committee. Steve Wilkowski: And the chairman says, we're not celebrating war, but we've been gifted with a high commodity price because of this conflict. Steve Wilkowski: And it makes some decisions that we have to make easier. Steve Wilkowski: I will have to say, I am a serving member of the Alaska Air National Guard. Steve Wilkowski: I have colleagues deployed in the Middle East right now. Steve Wilkowski: You'll never see myself or the Alaska Oil and Gas Association celebrate conflict that rises the commodity price. Steve Wilkowski: Again, I pivot back to the national security argument that thank God we are energy independent here in Alaska or in America. Steve Wilkowski: Because one thing we're not talking about is rationing or shortages like there. Steve Wilkowski: There are countries in Asia right now that have had to tune down, you know, general aviation schedules and ration fuel. Steve Wilkowski: We don't have that problem. Steve Wilkowski: I do realize it still means that families do struggle at the pump and to pay for heating oil. Steve Wilkowski: But it is an interesting paradox. [00:23:27] David Weston: Steve Wilkowski: Coming up, President Trump has made manufacturing in the U.S. a priority, as did President Biden before him. Steve Wilkowski: We go on a trip to South Carolina with the Richmond Fed President Tom Barkin to see how manufacturing is holding up in his district. Steve Wilkowski: This is a story about the good old days. Steve Wilkowski: Much of the American economic story has been told in its manufacturing plants, exemplified by Henry Ford's creation of the assembly line in Detroit in 1913. Steve Wilkowski: But as essential as manufacturing has been to the growth of the American economy through the years, it has changed profoundly over time. Steve Wilkowski: The promise of seeing that change firsthand is what brought Richmond Fed President Tom Barkin to a small city in South Carolina, where Bloomberg's Michael McKee joined him. [00:24:23] Speaker 11: Steve Wilkowski: In Union, South Carolina, a town of some 8,000 people over 500 miles from Henry Ford's Detroit, amidst the hum and clatter of the factory floor, steel and aluminum move through a seamless production line. [00:24:41] Speaker 12: Steve Wilkowski: What we have is we have automated assembly lines, which take metal stamp parts and put them together into the geometry for our customers. Steve Wilkowski: This plant does primarily hoods and doors. [00:24:51] Speaker 11: Steve Wilkowski: Gestamp has been building here in Union for years, and the scale of that investment is easy to see. Steve Wilkowski: Brian Brunzel helps oversee the company's U.S. operations. [00:25:03] Speaker 12: Brian Brunzel: If you look at this facility, you can tell that our business is extremely capital intensive, and we're putting in assets that are here for 30 years. So we're planning long term and committing to Union County. [00:25:14] Speaker 11: Steve Wilkowski: Gestamp's investment comes amid a broader pickup in U.S. manufacturing, with factory activity expanding for 10 straight months. Steve Wilkowski: So you're able to obviously spend capital and buy equipment, but you said employees are the hard part? [00:25:29] Speaker 12: Steve Wilkowski: Human resource is really the key to our business. Steve Wilkowski: The equipment is going to function. Steve Wilkowski: It's going to function as designed, but without the right people to maintain it, to make sure that we have longevity with it, to program it, to operate all the robots you said you saw out there, we're no good. Steve Wilkowski: So it's really the core of our business is our people. Steve Wilkowski: And we're working on new initiatives related to digitalization and those things, but they're not to replace our people. Steve Wilkowski: They're just to give our people better tools to manage our business in the future. [00:25:56] Speaker 11: Steve Wilkowski: The union plant currently employs roughly 600 people and shows just how blurred the lines are between manufacturing and technology. Steve Wilkowski: Many of the factory's jobs increasingly require specialized technical skills. Steve Wilkowski: Are robots or AI going to take more jobs or how does that play out here? [00:26:15] Speaker 12: Steve Wilkowski: No, in fact, they create more skilled positions, more high paying jobs and more opportunity for our employees. Steve Wilkowski: The robotics require people to program the robots, to work through the controls. Steve Wilkowski: You know, we look at digitalization, artificial intelligence as more of a support role for our employees and not something that's going to take their positions. [00:26:34] Speaker 11: Steve Wilkowski: And building that kind of workforce increasingly starts outside the plant itself, with local schools and training programs helping feed workers into those technical jobs. Steve Wilkowski: Tell me about the investments you've made in South Carolina and what you have planned for the future. Steve Wilkowski: How is it affecting the area? [00:26:51] Speaker 12: Steve Wilkowski: This plant's been through, I think, three or four major expansions with our partnership with our OEM partners. Steve Wilkowski: As far as the union area, we're doing some really interesting things. Steve Wilkowski: First of all, we've got job shattering with the local high schools to give people the opportunity to see what a technical career looks like for them, how that could be very beneficial to them. Steve Wilkowski: And then the other thing we're doing is we're starting an apprenticeship program to give people the opportunity to learn, you know, tool and die and maintenance to provide themselves and their family a good living in training right here. Steve Wilkowski: And one of the messages when you come in to Gestamp is once you're in the door, you can do whatever you want. Steve Wilkowski: We'll provide you the opportunity if you show the initiative. [00:27:29] Speaker 11: Steve Wilkowski: And you probably talked about that with Tom Barkin. [00:27:32] Speaker 12: Steve Wilkowski: Yeah, he was very interested in how we're developing people. Steve Wilkowski: And, you know, Mr. Barkin was very supportive of those things. Steve Wilkowski: And he had a very good understanding of how a lot of those technical resources and tool and die and things have left the country, actually. Steve Wilkowski: And now we're redeveloping them for our use in these plants. [00:27:50] Speaker 11: Steve Wilkowski: Those connections between a company, its workers and the community around it are part of what Richmond Fed President Tom Barkin came to Union to see up close. [00:27:59] Speaker 13: Steve Wilkowski: We'll come through your stump. Steve Wilkowski: We'll like it if you're hiring a bunch of people and you're not raising crisis. [00:28:06] Speaker 11: Steve Wilkowski: Because while the data can show what is happening in the economy, Barkin says getting out into his district helps him understand what's behind it. [00:28:14] Speaker 13: Steve Wilkowski: Well, I told my board when I took the job that we have a beautiful 24-story tower in Richmond, right on the interstate. Steve Wilkowski: It's literally an ivory tower. Steve Wilkowski: And I said, it's just hard to figure out the economy from the tower. Steve Wilkowski: And, you know, we do get the data. Steve Wilkowski: We study the data. Steve Wilkowski: You can study it from your office. Steve Wilkowski: You can study it from your car. Steve Wilkowski: I've just committed myself to being in the market talking to people about what's actually happening. Steve Wilkowski: And I think you learn a lot about what's behind the data. Steve Wilkowski: So you try to understand the data better. Steve Wilkowski: I think you actually do get some insight on turning points before you otherwise would because you're talking to people who are giving you live information on hiring and firing or on pricing or on input cost pressures or on demand. [00:28:53] Speaker 11: Steve Wilkowski: Barkin oversees the Federal Reserve's fifth district stretching from Maryland and Washington, D.C. through Virginia and the Carolinas. Steve Wilkowski: And depending on where he goes, the economy can look very different. Steve Wilkowski: Is it a uniform view across the district? [00:29:08] Speaker 13: Steve Wilkowski: It's definitely not a uniform view across my district. Steve Wilkowski: Now, my district has D.C. and Maryland in it and it has South and North Carolina in it. Steve Wilkowski: In D.C. and Maryland, you've got an economy very tied to government spending. Steve Wilkowski: And I'd say that's a much more challenged environment. Steve Wilkowski: In the Carolinas, you've got 2 percent workforce growth every year. Steve Wilkowski: Housing is being built. Companies are moving here. People are moving here. Steve Wilkowski: It's a much more vibrant economy. [00:29:33] Speaker 11: Steve Wilkowski: You've got a lot of manufacturing in your district. Steve Wilkowski: How are the manufacturers feeling about tariffs? What are they telling you? [00:29:39] Speaker 13: Steve Wilkowski: Very much depends on where you come from. So we see big differences by sector. Steve Wilkowski: Pharmaceutical, for example, big investments being made in North Carolina and Virginia Steve Wilkowski: based on some of those deals that have been struck in the context of the pharmaceutical tariffs. Steve Wilkowski: On the other hand, in South Carolina, I talked to a lot of foreign assemblers who may be importing their parts Steve Wilkowski: from overseas, but assembling locally and being tariffed on the parts that are coming in from overseas, and they don't like it. Steve Wilkowski: Really, I'd say weighted average manufacturing in my district is net positive, but big differences based on what impact you're seeing. [00:30:16] Speaker 11: Steve Wilkowski: Now, when you put together the data that you get and then the insights that you get, how far ahead does that help you see the economy? [00:30:24] Speaker 13: Steve Wilkowski: Well, I think what you hear is today, or maybe it was yesterday, what you see in the data might be last month or maybe the month before that. Steve Wilkowski: And I think seeing the future requires a lot of courage and a lot of synthesis and a lot of insight. Steve Wilkowski: I'm not sure you see a ton of the future just from a conversation. Steve Wilkowski: But when you have a lot of conversations and you add it up, then every so often, you know, I have an insight that comes from that, Steve Wilkowski: about how people are going to deploy AI, you know, whether people are going to start laying people off or start investing in growth. Steve Wilkowski: So you do your best to figure out the future. But I think it's difficult. I'll tell you two things I do try to ask whenever I'm with somebody. Steve Wilkowski: One is, what are your budget assumptions for next year? Because if you understand what they're budgeting in terms of headcount or compensation increases or price increases, Steve Wilkowski: that tells you something about what's coming. And the second is, do you have any plans in process to lay people off? Steve Wilkowski: Because it actually takes a few months to put a layoff plan in process. And if people are starting to think about it, Steve Wilkowski: that'll give you at least a couple months head start on what's happening in the jobs market. Steve Wilkowski: What did you learn today? Steve Wilkowski: We're trying to understand what's happening in the economy. And so we talked a lot about demand, which still seems to be solid. Steve Wilkowski: The thing I'm particularly trying to push on is, do people still have the ability to pass on their input costs to their customers in terms of prices? Steve Wilkowski: And we had a lot of conversation about the ability to do that or not do that. And my sort of base question is, are we in 2016 or are we in 23 or are we in a different year? And I don't think we're in 2023 anymore. But I also don't think we're back in 2016. [00:32:08] Speaker 11: Steve Wilkowski: At Gestamp, that question is playing out in real time, with demand holding up even as the company adjusts to a changing market. Steve Wilkowski: You make auto parts and the automobile industry seems to be seeing declining sales, a bit of a slowdown. Are you seeing the same? [00:32:25] Speaker 12: Steve Wilkowski: We see strong sales with some of our core customers. Obviously, there was a big rotation out of battery electric vehicles over the last years. I think some of the automakers need to recover Steve Wilkowski: from some of those investments. But so I guess the answer your question, there's pockets that are doing really well and there's pockets that are struggling. [00:32:44] Speaker 11: Steve Wilkowski: What about the outlook for sales going forward? [00:32:49] Speaker 12: Steve Wilkowski: I think in the U.S. we see pretty consistently 16 million vehicle sales coming in the future years. We're expecting most of our customers will maintain their market position or maybe even grow a little bit. So I think it's going to be strong. [00:33:04] Speaker 11: Steve Wilkowski: But in a business built around long term investment, changes in the market can take time to absorb. [00:33:10] Speaker 12: Steve Wilkowski: Our customers are very focused on reducing costs right now. They've had a lot of things in the changing environment related to some inflationary topics or tariffs or things like that. So there's a real focus we see on costs. The other thing we see is really a shift back to the internal combustion engine. Two or three years ago, everything was focused on the battery electric vehicle. And now we're shifting back to the internal combustion engine right now. And Steve Wilkowski: And they're doing new developments and we're seeing new opportunities associated with that. [00:33:39] Speaker 11: Steve Wilkowski: How nimble is your company if we suddenly shift back to electric vehicles? [00:33:43] Speaker 12: Steve Wilkowski: I mean, I think we're as agile as anybody in the space, but I mean, you're in the building, you see it. We're very capital intensive. There's a lot of investment in the business we're in. Stability is our friend. If we have a stable environment and we can do that, but switching back very quickly would be difficult, but no more difficult for us than anyone else. [00:34:01] Speaker 11: Steve Wilkowski: Ultimately, the strongest and most important measure of stability is whether customers keep coming back. [00:34:07] Speaker 12: Steve Wilkowski: Our biggest concern about that is keeping the consumer buying cars. We need a strong consumer and strong car. Our business works really well when we're selling the amount of cars we're supposed to sell. Our customers are getting the sales they have in the market and we're making the parts we need. So as long as the cars are competitive and people are able to buy the cars, our business works very well. [00:34:29] Speaker 11: Steve Wilkowski: It is that broader search for stability and certainty that Barkin says he hears from businesses across his district. Steve Wilkowski: What's the mood among the business people that you talk to throughout your district? [00:34:39] Speaker 13: Steve Wilkowski: Well, so it's very, it's very torqued and the way I would describe it is their business by and large is doing fine. Steve Wilkowski: When you talk to people about the businesses, earnings are strong, margins are holding up. People feel pretty good about their business, but they don't like the macro environment around it. Uncertainty is something you hear a lot about, a call for stability. [00:35:03] Speaker 11: Steve Wilkowski: Here in Union, the machinery, much like the economy around it, keeps moving despite no shortage of forces that could slow it down. Years of automation, rising costs and uncertainty have all tested the sector. And yet the American manufacturing engine keeps humming. For Barkin, understanding that balance is at the heart of the job and ultimately the choices the Fed has to make. [00:35:27] David Weston: Steve Wilkowski: Up next, the streets of Paris erupt as a cherished social welfare system clashes with some harsh economic realities. We look at the costs and the benefits of Europe's approach to public welfare. Steve Wilkowski: This is a story about promises, the ones governments make to their people, and what it takes to honor them when the bill comes due. In the wake of World War Two, Europe built a robust social welfare system, including pensions, employment support, housing and education. But as the population ages, people are feeling the repercussions of paying the price for all that's been promised, particularly as other spending priorities such as defense and tech become urgent. And when people don't feel they're getting what they were promised, Steve Wilkowski: Those repercussions can spill into the streets. Steve Wilkowski: In mid-September, student protests swept across France, triggered initially by demands for more resources for the country's schools. Steve Wilkowski: The youth of France may be dissatisfied with how much is spent on education, and they may be right. Steve Wilkowski: But it's not because the country scrimps on social spending overall. Steve Wilkowski: France spends nearly a third of its GDP on social protection in a country where 35% of the population is 55 or older, and France isn't alone. Steve Wilkowski: Nine countries in the European Union spend at least a quarter of their GDP on public social spending. Steve Wilkowski: And the median age has increased in every EU member state except for Germany and Malta. Steve Wilkowski: Anton Hemmerich is a professor at the European University Institute, and his studies focus on the welfare state and social policy. [00:37:22] Speaker 14: Steve Wilkowski: I think if you look at the countries of Western Europe, in particular, they spend about, you know, 30% of GDP on social outlays. Steve Wilkowski: And that goes from social protection, social insurance, pensions. Steve Wilkowski: And if you include education, it's about 70% of the public purse. [00:37:40] David Weston: Steve Wilkowski: The European social welfare system was built in the wake of World War II, when the population was young and growing, and the economy was resurging after the devastation of the war. Steve Wilkowski: Today is a very different story. Steve Wilkowski: France has more than 17 million direct pension recipients, a number that is growing faster than the workers that support it. [00:38:02] Speaker 15: Steve Wilkowski: The trends we're seeing are, of course, closely related to population aging. Steve Wilkowski: All OECD countries are aging, and European countries perhaps are among the group of faster aging countries. Steve Wilkowski: There is more and more pensioners for fewer and fewer contributors. Steve Wilkowski: And so it's going to be a difficult fiscal situation. [00:38:21] David Weston: Steve Wilkowski: Monica Kweiser is the head of social policy at the OECD. [00:38:25] Speaker 15: Steve Wilkowski: Now, countries are fully aware of that, and they're trying to remedy the situation mostly by looking at pensions. Steve Wilkowski: Why pensions? Steve Wilkowski: Pensions are a big chunk of social spending. Steve Wilkowski: And pensions are relatively easy to manage because it's only about money in and money out. Steve Wilkowski: And there's a saying in the United States which says that pensions are the third rail of politics. Steve Wilkowski: Touch it and you die, which means that politically speaking, it is very, very difficult for political parties, for governments to address pension reform. Steve Wilkowski: Because the sad truth is, even though people should be working longer, the vast majority of people do not want to work longer. Steve Wilkowski: And so touching the retirement age is something that is hugely unpopular in all countries. [00:39:09] David Weston: Steve Wilkowski: The politics of changing pensions are difficult everywhere. Steve Wilkowski: But the need for more money for retirees in Europe comes at a time when it also needs to find resources for other pressing needs. [00:39:23] Speaker 15: Steve Wilkowski: We're seeing mostly in Europe right now, we are really seeing this tension between the necessary increases for defense spending and the needs for social benefits. Steve Wilkowski: But not only that, also other investments, for example, public investments in infrastructure. Steve Wilkowski: One of the reasons why the youth here in France were protesting is that the education infrastructure is crumbling. Steve Wilkowski: So this is a real tension that will be increasing because we know that in almost all countries we will see increased pension spending. Steve Wilkowski: Those countries that invested early in more capital-funded pensions are able to shoulder this burning more easily because they can draw down existing reserves. Steve Wilkowski: Those countries that have no reserves, for them it's got much more difficult. [00:40:06] David Weston: Steve Wilkowski: But not everyone agrees that there must be a choice between social welfare spending or defense spending. [00:40:11] Speaker 14: Steve Wilkowski: There is a bit of a debate going on which I really dislike in Europe of sort of, you know, is there a trade-off between warfare and welfare? Steve Wilkowski: And really, it's a misguided way of looking at the issues. Steve Wilkowski: I mean, again, if you look at sort of, you know, the country comparison across Europe, I mean, countries like Finland, Sweden, Norway, the Netherlands, they're all spending more than 2% of GDP on the military. Steve Wilkowski: It's the countries that have more, let's call them passive welfare states, you know, France, Italy and Spain. Steve Wilkowski: They spend far less on defense, you know, there must be a trade-off somewhere, but it, you know, it doesn't stand up to the evidence. [00:40:51] David Weston: Steve Wilkowski: And some believe there are ways to address the fiscal pressures from things like pensions, if there is the political will to do so. Steve Wilkowski: Christian Freeland dealt with these issues as deputy prime minister and finance minister of Canada. Steve Wilkowski: Isn't there an inherent problem there, an inherent sort of generation rift, as it were, as you get a larger percentage of population who are eligible for pensions, and a smaller who are actually in the workforce? [00:41:16] Speaker 16: Steve Wilkowski: Well, it's a problem if you fail to do two things. If you fail to move the pension age up, as people live longer, and France has tried to do that, but failed, but France has a much younger retirement age than the Nordic countries that are doing, you know, well fiscally. Steve Wilkowski: And it's also a problem if your government hasn't looked ahead and moved beyond a pay-as-you-go pension system, because you're counting on young people to pay for old people. Steve Wilkowski: It doesn't have to be that way. You can create various kinds of savings systems, which countries, you know, like Australia, like Canada, like Denmark have done, that shift the burden of people's pensions away from a pay-as-you-go system. [00:42:06] Speaker 15: Steve Wilkowski: We need definitely reforms of the welfare states, of pension systems in many countries, but we also need to rethink within the companies that employ these older workers. And then I think the very difficult topic will be healthcare. [00:42:19] David Weston: Steve Wilkowski: Those seeking social welfare reforms point to a few smaller European countries where it's already working. [00:42:25] Speaker 14: Steve Wilkowski: The best performing welfare states are all small countries, and it's Denmark, the Netherlands, Austria, Switzerland. That is not really happening in a majoritarian world. Steve Wilkowski: In a majoritarian, big country like France. So French people think about the welfare state not as an intergenerational contract. They equate the welfare state purely with pensions. Steve Wilkowski: And, you know, if you look at the comparison, Denmark spends a third on the young, a third on the adult population and a third on the elderly. France spends half of the social budget on the elderly and then, you know, a quarter on the young and a quarter on the adult population. Steve Wilkowski: And so, yes, there is something to small and big countries. [00:43:11] Speaker 15: Steve Wilkowski: They do receive maybe a good, fairly generous public benefit in a system in a Scandinavian country. But then you have to pay taxes on it. So the government recoups part of the spending by taxing the benefit. And then you take into account the fact that there's obligatory private spending in some countries, which make it mandatory to have private pensions or occupational pensions. And you count all the tax breaks. And then you come to the surprising conclusion that countries like, for example, Denmark and U.S. Steve Wilkowski: in total spending aren't that far away from each other, which is quite an interesting way to look at social spending. So as always, the devil is in the details. And you really have to look at the structure, how these social welfare states function and how much particularly public, private and tax systems are involved in giving the overall benefit to the populations. [00:44:01] David Weston: Steve Wilkowski: The stakes for reforming the social welfare systems of larger European countries, such as France and Italy, are high, not just for their people, but for economic growth and the ability to compete in the global economy. Steve Wilkowski: What does the social welfare system, taken as a whole in Europe, mean for competitiveness and economic growth in Europe? [00:44:21] Speaker 15: Steve Wilkowski: Yeah. Steve Wilkowski: I think for investors, we see for competitiveness and investors' decisions, there's many other factors that also play a role: the size of the market, the skills of the population, how well they are received in the countries that they invest in, what other benefits they have. So I think reducing it just to a discussion about the social welfare state and the costs is too short. Steve Wilkowski: Because it's also about keeping your workers in good health, offering childcare and having an overall package that makes it attractive for workers to contribute, to be productive and attractive for investors to invest in. [00:44:59] David Weston: Steve Wilkowski: In much of Europe, there's a real deficit problem. How much of that do you think is because of the social welfare system? [00:45:04] Speaker 16: Steve Wilkowski: It is definitely driven significantly by a poorly thought out and constructed social welfare system. Steve Wilkowski: A Canadian politician who I love, the premier of Manitoba, a guy called Wab Kanu, likes to say the economic horse needs to pull the social cart. Steve Wilkowski: And I think if you are a person, a leader who believes in a strong social safety net, you need to also believe in fiscal responsibility. Steve Wilkowski: And the European countries that are successful in having a well-funded social safety net that isn't pulling the economy down because of creating a debt burden, Steve Wilkowski: are the ones that have been thoughtful about, yes, building a social safety net, but only building one that the country can afford. Steve Wilkowski: Countries like France and Italy that have kind of leaned over their skis are facing a really challenging situation. Steve Wilkowski: But I would say, David, the United States is not immune. And actually, interestingly, America's fiscal problems actually, ultimately, Steve Wilkowski: in many ways resemble Europe's fiscal problems. [00:46:19] David Weston: Steve Wilkowski: If the economic horse has to pull the social cart, is politics in the driver's seat? Steve Wilkowski: You have to be able to do it politically and sell it. And is that doable at this point? [00:46:31] Speaker 16: Steve Wilkowski: Emmanuel Macron has tried very, very hard to grapple with France's outsized spending on seniors. Steve Wilkowski: Yeah. And politically, that has been impossible for him to do. Steve Wilkowski: What I worry about, you know, for Europe, maybe for the United States, is usually these deep structural fiscal problems can only be solved when you have a crisis. Steve Wilkowski: The reason that Canada has a well-funded pension system is because we had a near-death fiscal experience in the 1990s. Steve Wilkowski: And that created the political will to restore our public finances to a sustainable path. Steve Wilkowski: If that's what it takes, then we could all be in for a really rough ride. [00:47:21] David Weston: Steve Wilkowski: Next, the risk of election uncertainty for U.S. business and the economy. Steve Wilkowski: The polls have closed on the U.S. election this week, but that doesn't necessarily mean that it's over. Steve Wilkowski: Yale law professor and former dean Robert Post explains why failing to accept election losses is not just bad sportsmanship, but potentially a risk for democracy. Steve Wilkowski: Historians will pour over this election, the events leading up to it, what actually happened in the election itself. Steve Wilkowski: But as you know, journalism is sometimes said to be a first rough draft of history. Steve Wilkowski: Based on what we know right now, do you think the reason it came off, apparently largely without a hitch, was because special preparations were taken or because it just wasn't that close an election? [00:48:14] Speaker 3: Steve Wilkowski: It's impossible to know. I know that there were enormous preparations taken. Steve Wilkowski: There were legions of lawyers on standby. There was mobilization if ICE agents would come to a precinct and try to create chaos. Steve Wilkowski: There were scenario planning in precincts throughout the country, and election officials were on edge the whole time. Steve Wilkowski: So it's impossible to know what was being planned on the administration side. Steve Wilkowski: But my best guess, and this is just a guess, it's just from ignorance, is that the internal polling of the administration was showing it that this was going to be a blowout election. Steve Wilkowski: You could tell that from where Trump was traveling in the week before the election to safe districts like South Carolina, safe states like South Carolina, and so forth. Steve Wilkowski: So they knew that something really, from their perspective, terrible was in the offing. Steve Wilkowski: And if they were to attempt to disturb an election in which they were going to lose badly, it would come off as a terrible thing. Steve Wilkowski: It would boomerang awfully, just the way the Ramaswamy ad boomeranged. Steve Wilkowski: And so I think their better judgment was, let's just let it be. Let's just take it on the chin. [00:49:28] David Weston: Steve Wilkowski: The courts have all also been involved in this election, right up to the Supreme Court denying some emergency stay application out of California, as I recall, very soon before the election. Steve Wilkowski: How did the courts come out of this in terms of how they protect our processes? [00:49:43] Speaker 3: Steve Wilkowski: Well, the lower federal courts in particular have been astonishing. They were astonishing in the 2020 election, and they have held to legal standards. Steve Wilkowski: The Supreme Court in its various decisions have been, some of them, been quite good. For example, they let a lower court decision stand that prohibited Trump from using the post office to suppress ballots. Steve Wilkowski: But the lower federal courts have been mainstays of democracy. They have followed the law, and those are Republican judges and Democratic judges. And I'm very proud of how our legal system has functioned. [00:50:23] David Weston: Steve Wilkowski: Where is the room for improvement? One doesn't need to agree with all the accusations made by the Trump administration about irregularities to think we can always improve our electoral process. Steve Wilkowski: Given what we've been through, where is there room for improvement? [00:50:38] Speaker 3: Steve Wilkowski: Well, I think the election officials could be better resourced in all the states. They're all doing this on a shoestring. They do not have the resources necessary. They depend very heavily on volunteer labor. Steve Wilkowski: My view is that our election systems tend to be run by partisan officials in most states. I don't think that's a very safe system. I think there should be administrative expertise that's nonpartisan, which runs elections. Steve Wilkowski: It's a set of very technical problems that should be decided by experts who know how to run elections and not put into the hands of politicians. I mean, the actual on the ground running of the election, which is mostly at the county level, is very heavily nonpartisan and done by experts. Steve Wilkowski: But it very rapidly runs into layers of control, which are political. And then, you know, under certain scenarios, you could have had political officials who would refuse to certify the results of the election. Steve Wilkowski: If this were not such a blowout election, those scenarios could very well have come to pass. In a blowout election, if you do that, you just look like a jerk because it's plain the way in which the electorate is thinking. Steve Wilkowski: But if this were a close election, there could be political officials who would just be very political in the way in which they would manipulate the electoral system. And that would be a bad thing. Steve Wilkowski: So I would say resources. I would say more nonpartisan expertise in the supervision of elections at the state level are two very important things that we could be doing. Now we could get into other issues like gerrymandering. Steve Wilkowski: We now gerrymander districts. And I think that's very unhealthy. The gerrymandering of the Republican Party in this election turned out to have backfired because they were calculating Steve Wilkowski: districts that would remain Republican under a scenario of, say, Trump plus five, Trump plus six. And this turned out to be even greater than that. And so it it had the reverse effect. Steve Wilkowski: It created district more possibilities for Democratic flips of district in most of the scenarios. But in a normal election year, the gerrymandering creates a partisanship and a polarization which is not healthy for the state of the country. [00:52:54] David Weston: Steve Wilkowski: Given the concerns you and others have raised, some might say that democracy itself was on the ballot this time. If so, how did it do? Did it win? [00:53:04] Speaker 3: Steve Wilkowski: Democracy won. So to think about democracy and whether it wins or loses, we have to have a definition of democracy. And I think the fundamental idea of democracy is that we live in a country that's very large, has a lot of people in it, and the people Steve Wilkowski: in it tend to disagree a lot. So what kind of political system can we have in which we can live with each other, even though we disagree with each other? Steve Wilkowski: That's the essence of a democracy, that we can be together. We can be part of the same country. We can identify with the country. And we have room for disagreement. So what kind of political system allows that? Steve Wilkowski: Well, we put our disagreements to a test, a fair test of what people actually believe. And we allow ourselves to be governed with how they vote in these tests. Steve Wilkowski: We call those tests election. And people have to have faith that the election is fair, that their votes will be counted, that they can have an Steve Wilkowski: an effect in the election, and that if they lose, they can persuade others that they made a mistake and they can change the result in the next election. Steve Wilkowski: So democracy at root is about trust. It's about confidence that we have the institutions which will allow us to live together. Even though we disagree now, I can change your mind later. We have to believe that that's true. Steve Wilkowski: And so in this election, we demonstrated that we can change. Aristotle wants to find democracy as taking turns. Citizens take turns governing itself. This was an example of taking turns. We have different people now who will be governing in the Congress. That's enormously important. But the deep issue for our democracy is that we're so evenly divided. And not only are we evenly divided, we're polarized. We tend to demonize our opponents. Steve Wilkowski: In politics. And if we demonize them, then we want to take every advantage of them. We want to we want to distort those fair elections. We want to undermine the trust in elections. And once we do that, then we begin to take away the meaning of democracy altogether. That is why the administration's efforts to undermine trust in the fairness of this election, the way, for example, the Trump administration has consistently Steve Wilkowski: taken as an article of faith that the 2020 election was rigged and unfair. Once you do that, then you undermine the basic Steve Wilkowski: supports for democracy itself. We have to commit ourselves to fairness, which means, as you've asked in your previous question, commit ourselves to the rule of law that defines what a fair election is. If we don't have that in common, then democracy is at risk. So this election was one point in time. Steve Wilkowski: But we will really know how our democracy is faring when we see the next point in time and whether the trust of both sides can be reestablished, whether if if the Democrats use this as a as a platform to undermine Republicans and to demonize the opposition. And so to increase polarization, then our democracy would put further at risk. [00:56:09] David Weston: Steve Wilkowski: That does it for us here at Wall Street Week. I'm David Westin. See you next week for more stories of capitalism. [00:56:19] Speaker ?: Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you. Steve Wilkowski: Thank you.