One Trump legal drama draws to a close, TikTok's legal drama
gets put on a fast track and the wrestling match among inflation rates
and the markets enters a new round. This is Bloomberg Wall Street Week. I'm David Westin. This week, Niall Ferguson of the Hoover
Institution on what it means if we run out of people.
We’ll get to the maximum population probably some way before the low,
the 10 billion mark and after that population is going
to decline and decline pretty steeply. And Jennifer Huddleston of the Cato
Institute and the legal battle over who gets to own TikTok,
how much intervention would that allow the government
to have into the social media market? More generally, we begin with the markets
and in particular the credit markets, which appear to be staring down a 500
basis point Fed rate hike without much of a hiccup,
at least for so far. We welcome back now Glenn August. He's founder and CEO of Oak Hill Advisors, a significant player in the credit market,
especially when it comes to private and distressed credit.
So, Glenn, great to have you back with us. Nice to be back. Six months ago that we were together. Tell me what's happened here. How could the credit markets stare down to
they say that 500 basis points they seem to have just absorbed.
And go ahead. How about the equity markets? Up 15%
also true. So, look, the markets are up
because the economy is doing better than people expected. And the big adjustment has been
that inflation hasn't gone away and that reversed
the market's expectation. Signs of six Fed cuts down to one
one or two this year. And so when you have a resilient economy, it's good for equities
and it's very good for credit, too. And when we talked last time,
you were talking about something like one trillion dollars in debt
that was going to have to be refinanced at a different interest rate
than we'd seen before. What happened to that? It doesn't seem to have happened yet. They're just extending the time.
Are they fixing it? What's going on? So I'd say the biggest development
in the markets has been the reopening
of the syndicated markets. Again, we as a firm do syndicated markets,
private credit stressed in distressed and structured credit
and what happened is the cost of financing for what's called close
these collateralized loan obligations, which are the biggest buyers of leverage
loans. It's not the banks who buy leverage loans. It's the close that by lenders own 70
plus percent. The cost of financing has come down
50 basis points in the last six months. And with that cost coming down and with a positive economic backdrop, there's been and with very limited M&A,
private equity activity, you've had demand pick up
because the close have low cost of capital,
you've had limited supply of new deals. And guess what happens? Pricing goes up, spreads come down
and you have this very a buoyant refinancing market. So there's been a lot of refinancings
in this syndicated market, principally because of close. So we've taken a dent out of that wall,
but there's still a trillion plus of debt coming due. And that's something
we're going to have to deal with and something that we're quite excited
about. So more creativity is going on as well. I hear things about things like liability
management exercises or transactions. I hear about payments in-kind. Are these ways that creditors are defining to really restructure their capital stack
so they don't have to pay the debt. So let's separate the pieces
because pay in kind pick features is something that is 30 plus years
old, is now making a resurgence. I'll come back to that in a minute. Liability management
exercises are essentially when companies have debt coming
due in 2025, 26, 27, and because of some challenges
in the business, because of higher interest costs,
there's a sense that maybe they can't refinance at par
in a couple of years and the debt is trading at discounts,
say now again, the distress ratio, which is a percentage of the high yield market
that trades a thousand basis points over the ten year Treasury over the relevant
Treasury, five year Treasury is only 6%. So there's not a lot of stressed
and distressed debt out there. But where there
is, what companies are doing is these so-called like liability management
exercises where they're going to the debt holders and say,
Hey, we'll swap you into something that's coming
due, something that was coming due in 26. And we'll ask you to extend your maturity. If the debt might be trading at 60,
we'll offer you an 80 cent, we offer you $0.80 of recovery in something
that people perceive to be money good, so they can take their existing paper
from 60 to 80. Now they are leaving $0.20 on the table
because they have a poor claim. And so the liability management
business is a very complex business. It's super exciting. We're incredibly active in it and I do believe that is the next wave
of stressed and distressed credit on the payment and kind of pick features. What you're seeing is that you
hadn't seen that much pick issuance where you now starting to see and it's
emerging in private credit is companies are looking at their business is
and they may buy a business for $2 billion and it may be a very high growth business
and they want to do ,000,000,000 of debt issuance and rather than then
pay out cash interest, they'd rather have the debt accrue
in-kind. That's not necessarily a bad thing,
nor is it necessarily a good thing if you can if you invest in that company
and you believe that company is absolutely worth $2 billion and you're investing,
let's make it 800 million out a billion, and you pick on a small portion,
you're compounding at that rate, which they would be
in the neighborhood of ten, 11%. And it gives the company extra cash flow
where pick is a little bit more concerning is
which companies are more challenging. They don't have the cash at all. I think picks in new deals
are really about financing growth as opposed to remedying
more challenge situation. I'm going to tell you what
the risks being faced by the people
putting money into private credit. We had Jamie Dimon this week sort of come out and say
there may be hell to be paid if, in fact, I'm afraid to go south. He seems to think there's a lot of risk
he may be talking his book. I don't know.
But what's he talking about? Okay, Jamie always has incredibly
interesting things to say. At the same time,
Jamie is talking about adding more money in private credit, intentionally buying
a private credit manager. I think where he's focusing on
is that in a market where there's lots of demand,
there is sometimes a tendency for people to be too aggressive
in underwriting and there's certainly a number of players out there
that are new to private credit and may be willing to be
a bit more aggressive. That said,
when I think about the underwriting that we and many of our large peers do, and medium sized peers too, if you have 50 plus percent
equity cushion in a deal and you do a reasonable job
of underwriting the credit, even if you make some mistakes,
you have a lot of cushion. And I'll make a couple of points. One is that we did this study
and we looked at what does it mean
to have 50% equity cushion? So I did a study of the Russell MidCap,
which basically has a median EBITDA of 150 or so million kind of right down
the fairway of what we do. And I did the analysis asking how
how often did a company that is more than 50% of its equity value
in 23 years in 2000 and the answer 5% of the time and that happened in 2001 after 911 and the Internet bubble bursting
or it happened in 208 from the GFC and happened in 2022
when growth stocks got hit. And so if you do careful underwriting and you pick good companies,
you really should have sufficient cushion. The last thing I'd say in terms
of where I think Jamie was going is there's a legitimate question
on the accumulation of alternative assets by the retail investor
and by the high net worth individual. And there's certainly some concern
that Jamie expressed that maybe some of these investors went in
if they go to take their money out and they can't get out or they have losses that their congressmen
will get concerned Again, I think because the amount of cushion is so significant,
I think that outcome is less. But for sure, and we have
wealth distribution with our products. We want to make sure that the people
who are buying our products, just like the institutional investors,
understand what they're buying. I'm happy to say. Glenn August of Oak Tree
Advisors will be staying with us as we turn from the day to day
of the markets to the larger question of what they are telling us
about the state of the overall economy and whether this time
it truly is different. That's next. On Wall
Street Week on Bloomberg. This is Wall Street Week. I'm David Westin. Glenn August has stayed with us
to talk about what he sees ahead for the economy and whether the markets
truly can only go up. So if you look at markets reasonably, you sort of conclude
they only go one direction. There has to be a stop to this. How do you interpret what we're seeing? Look, there there's the macro. There's the micro, and then there's
the risks that are out there. And so from a macro standpoint,
what is clear is that the broader economy and corporates have been able to weather this meaningful increase in rates. And as I said earlier, the Fed decided not to cut rates thus far this year
because inflation is real. And you've heard Kashkari this week
and others say we've got to see more data. But I think that speaks
to the resilience of the economy today. Now, my own personal view
is that what we're benefiting from still today
is a stimulus of a couple of years ago. And the and that stimulus
is working its way through the system. And we're also still
working through post-COVID. I mean, again, it is
it is certainly at this point, years ago, four years ago, this this spring. But behaviors have changed. Consumption has changed. And so the real question is when,
when do the effects of stimulus and changes to consumption change? My sense is there is a reasonable chance we start to see some modest
slowdown in 2025. Obviously, it's a big political year, so
we'll see what happens with fiscal policy. But I think for the near-term we see a reasonably solid economy. Where we see weakness is on the very
low end of the consumer side. But that's that's it. You see a little bit of delinquencies
picking up. And so when we look at our portfolio,
again, we're credit investors, not equity investors alone. Our philosophy is to buy the company
as our mentality is, is this is all about owning companies,
but with the amount of cushion we have, again,
I think we can weather some softening. And again, I think we were in
if you go back to the 2008 to 2000, 9 to 2019 period, we were able to grow at low, low growth
and low inflation for a long time. The question is, will some of this wage
inflation start to temper where will our immigration policy be? Where will the post-COVID mentality and more will it will revert back
or will it stay the same? And so it's a delicate balancing act. But I think from a macro standpoint,
we're okay. Part of it is the stimulus
that was injected for during the great financial crisis to get us out of that. And then the pandemic, as you say,
we've had a series of crises, but how much it also is psychological
at this point. The markets and people in the markets
basically assume daddy's going to bail us out
no matter what happens. Well, I don't I don't know if it's daddy's
bailing us, because if you look at it, you know, the COVID distress
cycle was about two weeks. So it wasn't even,
you know, okay, it took six months. I think there is if
you look at the breadth of the market, clearly Nasdaq,
anything that has a eye has exploded. And one of my partners
at our recent annual meeting said if credit people are talking about,
I you know, it's real. But there is definitely a sense that there is
we on the in the earlier stages of an extraordinary growth
wave where they are and what that does. Now again, there could be ripples, too,
that that could hurt employment. Certainly there's lots of commentary
on what it could do longer term to unemployment. And maybe they'll
there'll be some interesting impacts to the to slowing down inflation
at that point in time. So I don't I look I look at equities
and they certainly their trajectory has surprised me,
especially given where rates are. But this growth trajectory and people's
fear of missing out the FOMO that's in the equity markets in credit again,
I think spreads have come in some. But as I commented earlier,
when you adjust for the quality change, it's actually reasonable. And certainly in private credit,
when I look at the opportunity, make ten plus percent on leveraged
in multibillion dollar companies at a 40 to 50% loan to value,
that feels really good to me. Still, even though spreads have come in
100 basis points, we rely on prices to actually indicate
where we should be investing our capital as individuals, as a society is the most efficient place
you're catching up with, by the way. CEOs use it for that purpose as well. Is there a danger of undermining
the reliability of prices as a way of allocating capital when the government's playing in the game?
The extent to which it's been, the government is always playing
the game again? I do think that part of the reason why M&A deal activity, buyout activity is down 40
plus percent from a couple of years ago is because rates are higher
mean the price of money and how one thinks about discounting
future cash flows is fundamental. And yes, the government plays a role
in setting the short term rate. The markets play the role and setting
the medium and longer term rates. And so I'm a big believer in the markets
and yet there obviously incredible inefficiencies and there are obviously moments
when the markets get it all wrong again. Six months ago when I sat here, the forecast was for 625 basis point cuts, 150 basis points and instead the ten years up
75 basis points. Instead, those cuts
have now gone to maybe one or two. So that's where there's opportunity. And like this opportunity in rates markets
for people want to make those calls. There's opportunity in picking
individual credit, and that's what we do. We have a portfolio of 750 companies today
across our 65, 64 billion of capital,
and we're looking at thousands more. And so you have the opportunity to pick
you have the chance to take a stand on what you believe
in good businesses, good management teams, good industries, good sponsorship,
good capital structures, right documentation, right
pricing, fair pricing. You'd rather sacrifice a little on
pricing than on quality or documentation. So I think there's an enormous opportunity
to be made in what we do and whether equities go up
ten, 15% forever. If you can make,
you know, 10% high singles, low double digit returns and credit,
that feels awfully compelling to me. Yeah, it sounds pretty good to me as well.
Thank you so much, Glenn. It's really a delight to have you with us. Thank you.
That's Glenn August of Oak Hill Advisors. Coming up, the legal drama surrounding TikTok
heated up this week in a Washington court. We'll go over the state of play with
Jennifer Huddleston of the Cato Institute. It's still a bit unclear
what the primary national security claim that proponents of this bill
that the government, as it's defending it in
court, will seek to make. That's next on Wall
Street Week on Bloomberg. This is Wall Street Week. I'm David Westin.
TikTok has challenged the law that gives it a year to separate from its parent company
and the Washington, D.C. court hearing the case this week ordered
oral arguments in September, setting up a possible Supreme Court
ruling by the end of the year. Take us through what Congress has said
and the challenges to it. Welcome now, Jennifer
Huddleston, Cato Institute senior fellow in technology policy. So, Jennifer,
thank you so much for joining us. First of all, take us into the challenge
as we understand it. What I've read, at least in the coverage,
is it's principally a First Amendment challenge whose First Amendment rights
are being really invoked here. Thank you so much for having me. As you mentioned, what's really at the heart of this debate
and at the heart of the debate over this law is this kind of question
of free speech and First Amendment rights versus
a legit national security concerns. So as you mentioned, TikTok has filed
a legal challenge to the divest or ban elements
that were in the foreign aid package, where it is explicitly
named in that portion of the law. And part of that challenge
is on the First Amendment grounds, both as it relates to the app as well
as as it relates to the app's users. There's also a separate challenge
brought by a group of TikTok users or TikTok content creators that is about the user's speech rights
separate from some of the other issues that may come up in the case
involving TikTok itself. So as far as you can tell, Jennifer,
looking at what Congress did, what it said it was doing. Is this a matter of concern
about what the expression is on TikTok or access to the data
about who's using TikTok? Because I've heard both invoked
during the discussion in Congress. It's still a bit unclear
what the primary national security claim that proponents of this bill that the government, as it's defending it
in court, will seek to make, because during the debate there have been
several different elements expressed. Some are about questions with regards
to Americans data security, which would have one set of potential solutions
to weigh against a divestiture ban. Others are more about TikTok's algorithm
and the potential that it could be used for some form of foreign influence, or even just about the type of content
that's on TikTok. And in those cases,
we're getting much more to a traditional First Amendment analysis
that we've seen play out before. A lot of questions about content
neutrality and whether or not this is a prior restraint on the speech
of the American users of TikTok. Well, as you suggest, I mean, there are
different levels of scrutiny depending on first of all, and whether it's content neutral or not,
if it's not content neutral. It's a strict scrutiny standard. It could national security trump
a strict scrutiny standard. Based on what we've seen so far. The government will have to make
a really compelling case that lays out a very strong national security argument if that's to be something
that it's able to overcome. When we look at the case involving the Montana ban of TikTok,
which was a straight ban as opposed to a divest or ban bill
at the preliminary injunction stage, what the court found
was that that particular law would not even pass intermediate scrutiny, let alone strict scrutiny. Now, that was a state level
challenge as opposed to a federal law. It was a flat out ban
as opposed to a divestiture ban. But that's probably the most similar case
that we've seen in the court so far, which would seem to indicate
that you would have a lot of skepticism and a really strong need to prove any case
when weighing it against the First Amendment
rights involved in this scenario. I'm glad you raised the Montana situation
that was a state restriction, as I understand. There was also an attempt,
an executive order at the federal level. TikTok so far has done
all right in these challenges. Does that track record to indicate anything
about how it might fare in the D.C. Circuit? I think it indicates that we have strong
First Amendment precedents when it comes to the rights
of American users of this app. The fact that this would be the government potentially foreclosing a venue for speech
that millions of Americans have chosen to access
when there could be less restrictive means to consider
if there are national security concerns. We've seen, for example, requirements
around removing TikTok from government devices
or government networks, both at a state and a federal level
that have seemed to not face the same degree of legal scrutiny as something
more like a ban or divest or ban. There are also other questions around,
you know, could there be some element of disclosure
or mandatory audit that would resolve some of these concerns
if they were valid? Short of going to step,
that would have such an impact on American speech rights as something that
could potentially take away this venue. Jennifer, you're a specialist
in technology policy, and I wonder what the possible ramifications
could be of a decision here in the D.C. Circuit for other regulation
of social media companies. I mean, for example, if the D.C. Circuit and we're actually to strike
this down, might it limit the government's ability to have other regulations
for other social media outlets? I think there's more of a question of what happens
if the D.C. Circuit upholds this. How much intervention would that allow the government
to have into the social media market? More generally,
while the bill explicitly names TikTok, it also opens the door to the government
being able to regulate other companies that may be seen
as having ties to Russia, China, North Korea or Iran, Notably,
some other companies that have been brought up in this discussion
include e-commerce platforms like Shein and Temu
that have been incredibly popular. They're also messaging
apps and video game apps that may have some degree of ties,
and it's unclear what due process rights a company has
or how tenuous those ties can be for the government to establish
that it falls under this kind of element. So while we're seeing a broader debate
around online speech, both in Congress and in the courts with things like
the net choice cases also moving forward, I think the more interesting question here
is how far could this law extend? How much could this allow the government
to intervene into social media
or app stores more generally? And into American speech
were it to fail in the courts? Jennifer, thank you
so very much for being with us today. Jennifer Huddleston of the Cato Institute. Coming up, Cold War 2 with China. That's what Niall Ferguson at the Hoover
Institution calls it. We'll ask him how it's going. What's been striking about the last decade or so has been the shift
in American attitudes. That's next on Wall Street Week on Bloomberg. This is Wall Street Week. I'm David Westin. New U.S. tariffs on imports from China and Western
concerns with Chinese overcapacity underscore the fraught relations
with the world's second largest economy. Niall Ferguson of the Hoover Institution continues to analyze
what he calls the second Cold War. In a series of columnist
for Bloomberg Opinion. And we welcome you back now to Wall Street
Week. Nialll,
thank you so much for being back with us. Let's talk about this second Cold War. And I guess a broad question I have is
what should US policy if for the matter of Western policy
or a U.S. policy be toward China
in this second Cold War? Well, I've been arguing
that we're in Cold War, too, since 2018. And at the time when I first said
there was a good deal of skepticism, there's a lot less. Now, in fact, there are no books appearing
with the title Cold War two. I should get some royalties out of those. But the key point is that in many ways
there's a big difference between Cold War one, which was with the Soviet Union
from the late forties to the mid eighties and Cold War two, which is primarily
with the People's Republic of China. And the key point
is that the Chinese economy is much larger in relative terms
and the Soviet economy ever was. I mean, the Soviets barely
got to 42% of U.S. GDP at peak the second and related point
is that we do a hell of a lot more trade with China
than we ever did with the Soviets. And so there is
this intertwining of the economies that really wasn't
a feature of Cold War one. And that means that we have to approach
the challenges of Cold War two somewhat differently. And I think to give them their due,
the Biden administration has understood this,
and they have been pursuing a primarily economic
or technological containment strategy. Its containment as in Cold War one. But the emphasis is on the technological
rather than the military. And I think that's warranted
considering that a military showdown with China
would be extraordinarily dangerous. And I think particularly at this time,
it's to be avoided at all costs. Is it possible, Neal,
to have a bifurcated strategy which is containment when it comes
to technology, but not with such a trade? I mean, we had this
talk about disengagement. People backed off of that. And then there's this de-risking, right. Because we have to be involved in them. So in a sense, for the reason you said, the Soviet Union was not that major
a player in the global economy. I mean, we had to, of course,
restrict technology transfers to the Soviet Union if we could. But the Soviets were pretty good
at stealing, say, the keys to nuclear fission. So there was some elements of economic
or technological containment in Cold War one. But I think
what's been striking about the last decade or so has been the shift
in American attitudes. If you go back to the later Obama years, there was almost an acquiescence
in China's rise. The last national security
strategy of President Obama's second term effectively recognized
that there was no stopping China's economic rise. That all changed in 2017 when Donald
Trump's national security adviser, H.R. McMaster, redrafted the U.S. National Security Strategy and emphasized that China was now a rival, a competitor, and needed to be seen as such and treated
as such. Trump himself favored tariffs as a tool,
and I think the tariffs that Trump imposed did something to check
China's growth. Though they remain highly controversial
amongst economists. But what proved to be more important
were the technological measures that began by targeting far away, which was on the point of taking over
global 5G networks. Interestingly, Joe Biden's administration
did not radically change tack on China. It basically took Trump's
policies and developed and they didn't lift the tariffs. And on the technology front,
the Biden administration, under Jake Sullivan's direction,
I think, proved even more effective at applying technological containment
to China, most obviously with respect to semiconductors. One of the big aha moments for me,
David, of the last decade was realizing that China was spending more on importing
semiconductors down on importing oil. That has turned out to be a kind of
Achilles heel for the Chinese economy. And the Biden administration has taken
that Achilles heel and given a real hard kick, if not a spear jab,
with the restrictions on the export of sophisticated semiconductors and
the things you need to make them to China. That's really set China back,
particularly in the competition to develop artificial intelligence. Neal It strikes me that President
Xi has from time to time accused the United States policy of basically
being to prevent them from growth. As I listen to you, it sounds like that
actually should be our strategy to as much as possible
prevent them from further growth. Well, I don't think it's quite that,
because if anything, it's been president seen his policies have somewhat slowed
China's growth. Remember,
he cracked down on the real estate sector. He kind of beat up on the tech sector,
even on the on the private education sector. And all of those things, I think, have had a negative impact
on the private sector in China. It's not that the US wants China
to stop growing. It's more that the US wants to prevent
China acquiring technologies that could pose a real threat
to US national security. And I don't think there's any question
that artificial intelligence as powerful and potentially very dangerous
applications in the military domain. So this is a technological containment
that I would say is intended to prevent China establishing parity
or even leading the United States in areas such as artificial intelligence or,
for that matter, quantum computing. I don't think the US would mind at all
if China's policymakers decided to grow
Chinese domestic consumption and allow Chinese households to enjoy
more of the fruits of their labors. But that's not Chinese policy,
as you know, David. Chinese
policy has pivoted in the last year towards a new manufacturing export drive
that threatens to overwhelm the world in electric vehicles,
batteries and solar cells that the Chinese can manufacture
much more cheaply than anybody else. And that's not really a policy
with which most Western policymakers are comfortable. I mean, it's one thing to compete
with the US or Europe when it comes to apparel or footwear. The stuff that China did early on
in its meteoric rise. But when you go after automobiles, I think it's clear that there's
just a greater political salience. We had one big China
shock in the early 2000s after China joined the World Trade Organization, and it took out
a lot of Western manufacturing capability. I think the prospect of a second
China shock the basically eviscerates automobiles, for example,
is not one that many policymakers in Europe or North
America are prepared to accept. So, Neal, finally,
I wonder what the economic ramifications for the United States and the West
of conducting this Cold War two, and particularly, does it inevitably lead
to higher inflation and higher interest rates
as we put tariffs on, as we constrict trade
in order to fight this war, this Cold War? Does it mean we necessarily
have to have more inflation? I think it would be very hard to claim
that this was a disinflationary policy. Globalization
in the sense of free trade, free capital movements, free labor, mobility, that all together was
a disinflationary policy in the world, saw a general disinflationary
trend in the entire Cold War period from 1991 until around about 2017 2018. I think now that we're in Cold War two,
we can expect there to be some upward pressure on inflation
from a variety of sources. If supply chains
have to move away from China, they're probably moving somewhere
somewhat more expensive. If we're putting tariffs
on, there's going to be some impact on the price of goods
somewhere along the supply chain. And of course, if we're spending more
on the military, which China certainly is and European countries
increasingly have to, then that's likely to be inflationary,
too, particularly given how fiscally constrained everybody is after
the financial crisis and pandemic and all those things that have driven up
public debt in recent years. So I'm afraid Cold War two
is likely to be a time of higher inflation and higher interest rates
just in the same way that the interwar period between the cold wars
was a time of low inflation and low rates. And one last one, Neal. What does Cold War two mean
for the climate? Because, for example,
if you're talking about electric vehicles, you're talking about solar panels, we might be helping the climate
by importing a lot of inexpensive, relatively inexpensive
green energy out of China. And yet we're saying
we don't want to do that. Well, the Chinese love to say that. And that's the argument they make with we're producing
all of these electric vehicles and using all these batteries and solar cells
and you're putting tariffs on them, you're not doing enough
to save the planet. And the correct response to that is when you manufacture these EVs
and these solar cells, what is it that you actually use
to generate the electricity? And the answer is coal. And the reality is
that China has been the leading consumer of coal over
the lifetime of of gratitude burger. I think that goes back to 2003,
a massive increase in coal consumption globally, about 80 to 85% of that increase
has been accounted for by China. You're not saving the planet if you're
buying electric vehicles from China that are manufactured with electricity,
that's produced by burning coal. That is, I think, a pretty good definition
of the law of unintended consequences. And that's why I think it's right
for the US and Europe to push back against this
great wave of Chinese exports. It's not going to save the planet
if they're building new coal fired power stations every week of the year,
which right now they are. Niall Ferguson will stay with us
as we turn from problems with China to a problem the world faces with China
as the global population moves toward its peak. That's next. On Wall Street. Week on Bloomberg. This is Wall Street Week. I'm David Westin. Niall Ferguson of the Hoover
Institution has remained with us. Niall, you wrote a short while ago
a piece for Bloomberg Opinion on the peaking of the global population
and the consequence of that. I have heard from various people
in and around Wall Street that that has been
a very influential piece. People are very concerned about that
over the long run. First of all, give us the facts of where
we think we are now, where we're headed in terms of population growth. Well, David, when you and I were young,
the world worried about a population ball. There was going to be a Malthusian crisis
named after the great 18th century political economist Thomas Malthus,
where overpopulation would lead to famine and disaster. And it was those those ideas back in the sixties and
seventies that led to some pretty drastic population policies,
not least the one child policy in China. Well, fast forward to the 2020s. And it turns out that the law of
unintended consequences has struck again. And we now are facing
significant population declines, not only in Asian countries
that drastically reduced family size, but right across the globe,
except in Africa. And it looks as if,
although you can debate the exact timing, humanity will peak in the 2060s. We'll get to the maximum population
probably some way before. Below the 10 billion mark
and after that population is going to decline and decline
pretty steeply. This is most easy to illustrate with
the case of China, where the population is forecast to decline by half by 50%
between now and the end of the century. But it's not just the Chinese story. Ultimately, it's a global story. And this is one of these trends that
I think most people haven't fully grasped because it's just a little bit out of the average person's planning
horizon, the 2060s. So so what happened? Why is it that we have, in fact,
the fertility rates going down the way they are
in so many countries around the world? Well, that's not the easiest question
I've been asked today, because explaining why in all kinds of different contexts,
couples have chosen to reduce the number of children
that they have below the replacement rate. Now, it's typically said that the average
couple has to have 2.1 children. Yes, I know there's no such thing as point
one of a child, but just above two for us to maintain population
because obviously there are some people who die prematurely,
perhaps even in childhood. So the replacement rates 2.1 per couple. But all over the world, couples have taken
that number down below two. Indeed, in countries like South Korea. The fertility rate is below
one on average. And so the one child family has become
pretty much the norm in East Asia. And it's it's rapidly
spreading around the world. Population in the United States
has continued to grow only because of immigration. It's not because of natural increase,
because in the United States, as in most Western countries, the average fertility rate fell some time ago, but below 2.1. Now, why is that? I mean, there are all kinds
of explanations that you can advance. Maybe the attitudes of women
change to family size because women began to pursue more ambitious careers
in the wake of feminism. Or maybe it's just that as societies
become more economically advanced, people decide to spend their resources
not on having more children, but on having more vacations
or or requiring yachts and McMansions. There are a bunch of different
explanations at work here. I was drilling down into the South
Korean case, and the answer that I got
from the South Koreans I talked to was, Well, it's just so expensive to raise
kids in Seoul these days. We spent
we spend a fortune on educating one kid. We just can't imagine doing it for two. And, you know, you have to ask yourself
what the rationale is for a society that invests so heavily in education that
the fertility rate falls to below one. I mean, that's a society
that's going to be very highly educated until it goes extinct,
which happens, you know, pretty quickly. If you reduce your
your fertility rate down 2.5 or point six. It begs the question of what,
if anything, governments through their policies
could do to affect this. Obviously,
we had the one child policy in China. They're trying to change that.
Not so easy. But we hear, for example,
the United States suggestions
that things like child tax credits subsidizing, making, working more flexible
may in fact, encourage more births. Do we have any evidence that, in fact,
those things might be effective? Pretty much none. I mean, governments have been trying to do
this since nearly a hundred years ago. Was Mussolini
when he was the Italian dictator who talks about a battle for births
and all kinds of incentives were created by the totalitarian regimes of the mid
20th century to increase the birth rate. None of it works. It would seem that once people
have got down to two children, it's extremely hard
to get them back up to three. When they're down to one, it's
hard to get them back up to two. So I think it's very hard to find any
evidence of a successful economic policy that change the decision making
that couples make about about family size. And this is a big problem,
if you will, Jinping, and you're staring at this dramatic
decline in population, it's already begun. I mean,
the workforce is already shrinking. And so the one child policy, which was one of the more dramatic
interventions the Chinese Communist Party did back in the days of Deng Xiaoping
has been replaced by a three child policy. But I can assure you the number of Chinese couples
I know who are planning to have three children is tiny
and it's highly unlikely in my view, that China will be able to increase
the fertility rate back above two. If you assume that the fertility rate
stays where it is in a country like China, that actually the population will fall
even faster than 50% between now
and the end of the century. And the thing that's really striking,
David, is if you look beyond 2100 into the next century,
what's what's really amazing to me is how quickly
the global population could decline. We shot up from 2 billion back in the early 1920s to where we are today
with astonishing speed and indeed the last hundred years was one of those
periods of population explosion. You can see why people in the 1970s
started to panic about it. Well, get this, if you fix that problem
so much that fertility falls well below the replacement rate, then the population of the world
could fall with almost comparable speed, certainly between now
and the end of the century, nearly all the increase in population in
the world is going to come from sub-Saharan Africa. And after they bring their family size
down, which it's highly likely they will, there just won't be any sources
of additional population. And that means the immigration option
will no longer really be available for countries
that want to continue to grow. But talk about that immigration option
in the interim period. What ramifications does that have? As you mentioned,
the United States actually has been maintaining its population
growing because of immigration. What does this mean for immigration policy in places like the United States
and other Western countries? Well, it's relatively easy
if you can just get the politics right, because there's obviously a competition
for talent in the world and the talent that's in relatively poor,
relatively crowded countries wants and you can tell this from opinion polls
to come to the United States. And if it can't make it
to the United States, to Western Europe or the U.K.,
but the United States has taken the rather odd decision to make it really difficult to migrate to the United States legally. I mean, all the kind of legal channels
are more or less blocked at the moment
or extremely hard to navigate. And so we've ended up with this
curious strategy of allowing illegal immigration across the southern border,
which is now pretty much a scene of chaos. The Canadians must be looking at this
with a smile because their immigration policy
is much more targeted on attracting talent
and making sure that the immigrants are likely to add to economic growth
and not to be a cost of some kind. So I think for Western countries,
there's an obvious argument for immigration reform
that aims at attracting the right kind of people with the right kind of talent
and doing it through legal channels rather than just having a free
for all on your on your border. I mean, I think that's the critical issue. But we have to understand that
this is not something, a gift, if you like, that will keep on giving
indefinitely sometime around the 2060s. The supply of immigrants, of potential immigrants
is going to look like it's declining. And I think it will become
an increasingly heated competition for the people with the talent. The entrepreneurship between countries
that still want to attract immigrants. Remember, not everybody wants to do this. China does not have a policy of attracting
immigrants and relatively few, if any, people choose to migrate
to the People's Republic of China. So what are the Chinese going to do
if they don't do immigration and their population is heading towards
dramatic contraction? The answer may be robots that I tried
to sum up the future of the world by saying that the Cold War to challenge
the rivalry between the United States and China
may end up being immigrants, be robots. Neal, thank you so much.
Is a really important issue, really. Thank you for bringing it to us. That is Niall
Ferguson of the Hoover Institution. Coming up, looking
for truth in all the wrong places. Campaign rhetoric around the world. That's next on Wall Street Week on Bloomberg. Finally, one more thought. The Prussian statesman and diplomat, Otto
von Bismarck said that people never lie so much as after a hunt, during a war
or before an election. We're going to put Prince
von Bismarck's epigram to the test in a series of elections
over the next month or so, in different places and in different
contexts all around the world. First off, ExxonMobil held its annual
general meeting this week in a fight with some shareholders over a proposal to
speed up the move towards zero emissions. The company didn't
just oppose the request. It sued the activist shareholders behind
it, saying it was a governance issue, not really about climate. But some big shareholders
like CalPERS sided with the activists. It was obvious we were not going
to reach agreement on this litigation. It's an absolute governance failure
by the Exxon board, which is why our vote is against the entire board,
including the CEO, Darren Woods. In the end, the board won reelection and
things went on as usual, at least for now. We're about to have another election
in the corporate world. But this one isn't so much about climate
for the planet as it is for Elon Musk's
personal ecosphere. As he puts before Tesla shareholders next month,
his request for a $46 billion payday. Refusing to accept the no answer
that's already come from the Delaware Chancery Court. Did he accomplish really incredible things that were sort of laid
out in this pay package, in this award? Absolutely. But has he really sort of shot himself
in the foot? In the political world, we move closer
to a final result in the lengthy India elections with a final answer
due on June four. As things have played out
over the last month, Prime Minister Modi's apparent lock on an historic
win looks ever so slightly less certain. And surprisingly. Although temperatures during the election have reached toward
122 degrees Fahrenheit. Climate issues have been
conspicuously absent in the campaigning. Instead, it's
been much more about the economy. And the former head of India's central bank says economic policy
likely won't change much. No matter what the outcome,
whatever government comes in will take a lot of the good stuff
that's been done and continue it. In the meantime, we have two notable elections coming up
where there are only women on the ticket. In Tokyo
this July, a prominent female opposition leader will challenge
the female incumbent mayor in one of the highest profile positions
in Japanese politics. And of course, on Sunday,
Mexico will hold its national elections where an estimated
98 million people are expected to vote. Their choice will be between a former
climate scientist, Claudia Sheinbaum, and an opposition candidate. Xochilt Gomez.
Climate will be very much on the ballot. Quite apart from this Sheinbaum background as Mexico City tied heat records
throughout last weekend and both candidates
promised to make climate a priority. Either way, we're getting a woman for
the first time as the president of Mexico. Both of them pro-business listeners touching their communities
and really caring about their constituents at all levels for the sake of the planet. We can hope that Von Bismarck's wrong
and that they're telling us the truth. This election. I'm going to do something
really outrageous. I'm going to tell the truth. That does it
for this episode of Wall Street Week. I'm David Westin.
This is Bloomberg. See you next week.
