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our guest today is Patrick Harker who is
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the president of the Federal Reserve
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Bank of Philadelphia and we're going to
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talk to him about a whole lot of things
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including interest rates the economy and
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dynamicism
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in the US economy Pat thank you so much
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for joining us today on knowledge at
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Wharton know thank you for having me so
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let us start with what's in the news
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right now yesterday that's August 14th
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the stock markets really got hammered
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and the administration seems to think
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that everything that's going wrong with
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the economy is because of the Federal
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Reserve do you think that's true
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no so there are a lot of factors a lot
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of forces you know pro and con in the
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economy first start with just where the
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economy is things are pretty good if you
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look at the real economy not the markets
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the real economy and we can get into
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this it's doing quite well I think
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that said there are downside risks there
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are headwinds and that many of those are
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around trade and international policy
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obviously not in our policy wheelhouse
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back up a little bit we saw that the
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interest rates were were cut by the Fed
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for the first time in a very long time
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over eight eight years and I was
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wondering if you can explain what the
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some of the thinking behind that was so
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I have to give the standard Fed
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disclaimer I can't explain the thinking
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except my own thinking
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so these remarks are mine and no one
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else in the Federal Reserve System so
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this was a situation in my mind where we
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are getting back to what I would see is
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neutral and so in December we raised
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rates 25 basis points at that time I was
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not supportive of that move because I
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thought that we didn't need to do that
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and so I think we're just recalibrating
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back to where I thought we should have
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been not with the 25 basis point cut if
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you'd think about monetary policy going
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forward do you think that there are
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likely to be more interest rate cuts
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coming again I can only state my opinion
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I do not see more cuts in a foreseeable
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future I'd like to stay where we are
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which I believe is around the neutral
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rate
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for the economy see how a lot of these
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uncertainties and issues resolve
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themselves over the coming months before
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we'd make any other move an addition to
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interest rates what are some of the
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other instruments that you think the Fed
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has at its disposal to deal with all the
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issues and headbands that you said the
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economy is facing now right so the other
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main policy tools that we use during the
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crisis really for the first time were
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large asset purchases QE and forward
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guidance and I think we've gone through
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a process now led by Vice Chair clara de
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on looking at monetary policy in our
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framework and we've done this with town
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halls all around the country we had a
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major conference that the Chicago Fed
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just recently and I think out of that at
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the academic community the Fed
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economists we have some sense of what
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worked and what didn't all the tools
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work to some extent but one of the main
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tools at work was forward guidance
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that's just saying we when we're going
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to keep rates low and we're to keep them
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for a long time low until we see certain
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things like unemployment move and and
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and one more question before I turn it
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over to my colleague Steve do you think
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the feds
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how has the feds at all changed since
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the financial crisis I think the main
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change is not in the monetary policy
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side but in supervision and regulation
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with dodd-frank and other regulations we
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have become much more involved in
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protecting and sustaining the safety and
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soundness of the regulated financial
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services industry and that's through a
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variety of tools whether it's more
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capital at the banks of banks are now
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very well capitalized liquidity
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provisioning etc so I think that's been
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the major change yeah I wanted to follow
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up on what you said about the strength
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of the economy there's a obviously a lot
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of opinions out there sure and there's
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been a lot of talk about recession or
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impending recession you know in the news
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quite recently and so some of the stats
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that are being cited to support I guess
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the downside or the headwinds that
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you're talking about or for example
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second quarter GDP was revised down by a
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point 22.1% point one is not no negative
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but it's it's it's certainly going in
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the wrong direction capital spending is
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weak a lot of people think that's a big
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deal that's a that's a portent of what
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was ahead and also and that's despite
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the fact that corporations have they're
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sitting on a lot of cash and there was a
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big corporate tax cut and another is
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that exports are down there's there's
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many other factors that that those who
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think there might be a recession coming
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would cite so let's take that let's look
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at those factors first we'll start with
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the consumer seventy percent of GDP is
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the consumer consumer continues to be
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the hero of the American economy the
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spending continues to be quite solid and
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that's really due to the foundation of
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good jobs and we're still producing jobs
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well above what we need in steady state
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steady state is around 100 110,000 jobs
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a month we're still producing at 160
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thousand a month level so and wages are
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starting to rise not across all segments
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but particularly in low-income areas
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we're starting to see wages go up so
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you've got the fundamentals of the jobs
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the inflation is stable so those two
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things are dual mandate continue to be
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strong now GDP we have estimated now for
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quite a while will go back to trend
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growth trend growth is around 2% of the
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American economy the only way to move
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that trend growth has nothing to do with
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monetary policy we don't move that trend
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growth trend growth is output per labor
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our productivity and a number of labor
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hours more people we're starting to see
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productivity took up today we had a good
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number come in and but the one issue we
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hear constantly whether it's anecdotally
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or in our survey work or outreach work
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is companies need workers one of the
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limits to their growth is they don't
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have enough qualified workers for the
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jobs I wanted to ask also about China
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because that's been in the news a lot or
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there's all sorts of things going on
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with with the trade disputes and what's
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your view on how that's affecting the
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economy now is it holding it back to
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some degree I mean that that's
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another thing that people often cite as
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a headwind I'll go back to your
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questionnaire point about business
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investments if you're sitting in a
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corporate boardroom today and you're
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about to make a multi-billion dollar
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investment in plant and equipment and
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it's related somehow to trade would you
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do it
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I wouldn't uncertainty is it's not good
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for less it shows it that's the
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fundamental problem you just nailed it
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it's the uncertainty around this when I
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talk to companies that's all they want
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is some certainty around where we're
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going and think I mean I had one contact
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who was carefully thinking about moving
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his supply chain out of China to other
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countries one of those countries was
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Mexico and then all of a sudden we're
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going to impose tariffs on Mexico and he
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was exasperated he said I don't know how
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to make a decision in this environment
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so I won't that I think it's the
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fundamental problem with respect to
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business investment right now do you see
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that changing it just seems that every
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week there's there's something like that
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I hope it does I mean I hope we get some
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certainty because that would really help
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the economy the other had one I think is
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a global economy so you've got China's
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slowing in a way that we haven't seen
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for a number of years many years
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actually Germany is now not in recession
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but they've just had some negative
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growth if they have another quarter like
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that I guess by our definition that
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would be an official recession and then
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again the trade war what about this and
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and the IMF in July said that they
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revised their forecast Alfred no I think
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that is clearly one of the downside risk
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to the economy and take those two
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examples you just gave they're very
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different in the case of Germany they're
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an export-led country exports are very
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important to them much more than US
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economy so this trade bore is weighing
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on them heavily
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and obviously it's weighing on China -
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given they're in the same situation so I
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think we have to keep coming back to
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what are these sources of uncertainty
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and how do we resolve this they're not
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monetary policy issues no I wanted to
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get back to the neutral interest rate
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that you alluded to a little bit earlier
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because there's that's another area
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where
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a lot of controversy whether that
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neutral rate what the Fed or maybe what
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Pat Harker considers the neutral rate is
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at the right level some people think it
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should be lower they base that on a lot
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of different factors not least of which
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would be inflation of course so you're
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you're happy with the with the rate do
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you understand what credit white critics
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would say that it should be a lot lower
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well the main reason you answer that
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might guess the neutral real rate in a
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nominal rate that plus inflation it's
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not something we can observe we can only
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calculate it through models and so
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there's estimates vary a lot but they
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generally hover around zero or maybe
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slightly above zero so if you believe
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that but there's a lot of uncertainty
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I'm it granted there's a lot of
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uncertainty around those estimates but
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if you believe that and add on roughly a
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two percent inflation we're kind of
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there you know to two and a quarter
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we're kind of that's that's where we are
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that it but we could be wrong
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right I mean you always have to have a
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heavy dose of humility in these policy
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jobs and recognize that we have to be
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watchful to make sure that we're not
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over under accelerating the economy by
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the way I think the situation we're in
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right now I think moving the interest
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rates 50 25 basis points it's not going
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to have a major effect
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you mentioned earlier companies are
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sitting on lots of cash then they are
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not investing because the cost of
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capitals too high
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I hear none of that from anyone right
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same thing with consumers so I I just
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don't think that well I think we need to
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adjust technically like we did in the
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last meeting to stay around neutral I
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don't think these small changes are
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going to have a demonstrable effect on
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the economy that's interesting because
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there was a Fed study out of I think
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Minneapolis not that long ago which
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looked at the effect of lowering
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interest rates on on the corporate
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activity and I think the upshot was that
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interest rates have been so low for so
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long that that you know you're at the
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point where what's a quarter point is
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that that's not going to change a
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company's thinking around whether or not
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they're going to expand they're looking
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at other
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yeah exactly speaking of inflation there
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is there's been for years now we've been
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told by some economists that high
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inflation is around the corner these
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rates are too low it's going to overheat
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the economy and so forth and that the
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unemployment rate if it gets below 5%
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and 4% now we're below 4% that that's
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going to lead to wage inflation
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pressures and so far it's not happening
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does that mean that the Phillips curve
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doesn't work anymore or is it just
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something that's happening in today's
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economy that's different what is the new
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normal for interest rates you know based
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on inflation right so should we have a
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funeral for the Phillips curve yeah well
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it's been it's for a long time and not
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just recently it's been flat for decades
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now right and so part of that people are
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starting to conduct research and really
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try to understand why I mean what's
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really happening with inflation clearly
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technological innovation and other
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factors globalization are affecting this
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but also if you peel back the US economy
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and lump all goods and services into two
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categories cyclical and a cyclical that
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is think of it as prices that move with
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the economy and with interest rates and
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those who don't we're becoming
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increasingly dominated by big sectors of
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the economy where interest rate movement
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and the cycle doesn't have a big effect
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on pricing you just have to take health
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care here's almost 20 percent of the US
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economy where prices are centrally set
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by the government and so moving 25 50
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basis points will have very little
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impact in the short to medium run in the
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long run it will right if interest rates
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move a lot because they have to build
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facilities and equipment and so forth
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but that short to medium-term
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impact of moving rates we're not seeing
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it and one of the potential reasons and
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I emphasize potential and there's more
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research that needs to be done is this
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fact that many of our goods in the
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economy right now and services are a
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cyclical in terms of their pricing
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what's your view of the idea
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around this that it's really a deficit
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of demand there's just not enough demand
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to to you know to reach full production
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full productive activity for the economy
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and that's why we're not seeing any
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inflation and that may be true if you
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expect particularly if you look at the
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global scene right so not just us
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productive capacity but globally I mean
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in certain sectors there probably is an
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oversupply right now that needs to be
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worked through it'll eventually be
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worked through them there's also this
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you know increasingly interesting
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development where there's something like
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15 trillion dollars where the financial
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instruments globally that havoc negative
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interest rates so right people are
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actually paying governments to hold
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money for them to keep it safe right
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what's your what's your view on that
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this is again you know relates to
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inflation or lack thereof it's also
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related to perhaps a lack of demand in
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places like Europe as we're just talking
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about and also what do you think can
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that happen here and what would what
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would be the result of that happening
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here
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so one thing you didn't mention is the
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yoke curve and the long end of the yield
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curve one of the most the most likely
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suspect in my mind of why the long end
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is continuing to be low is that in this
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world where people are looking for yield
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and safe assets they're buying
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Treasuries and it's the natural thing to
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do and so in that case it is going to
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affect the long end of the curve we
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don't really affect that long end in any
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meaningful way given the movements of
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the Fed Funds rate target
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I think so it's other global forces and
00:15:00
economic forces that are moving that so
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I think that is definitely true
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that we're seeing this rush the safe
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assets the US Treasuries and that's a
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good thing in the sense that people
00:15:11
still see us as a safe asset but it it
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does limit our ability to conduct
00:15:19
monetary policy across the yield curve
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so does that mean that it's it's more a
00:15:24
flight to quality than any predictor
00:15:26
letter accession be on the way yeah I
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think well that's a no
00:15:29
some recent commentary on this that I am
00:15:32
very sympathetic to that I think the
00:15:34
yield curve is an inversion in the yield
00:15:36
curve is is a signal that is correlated
00:15:39
with recessions but there's little
00:15:41
theoretical or empirical evidence to say
00:15:43
it actually is causal right so Park that
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there are a lot of other measures so you
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have to look at and we went through
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those jobs income etc that are
00:15:53
continuing to be strong so I don't think
00:15:55
you can just look at one measure and say
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well that then a recessions on its
00:15:59
wedding so the original mandate for the
00:16:02
Fed starts out with you know balancing
00:16:04
unemployment and inflation like those
00:16:07
those are the two poles that your record
00:16:09
you're asked to be looking at all the
00:16:12
time so we're in an economy where at
00:16:14
least it looks like as we've been saying
00:16:16
wrapping up all the things we've been
00:16:17
talking about here that there's very
00:16:20
little inflation and even though
00:16:21
unemployment is very low we we thought
00:16:25
it was low when it went under 5% we
00:16:27
thought it was low at 4.5 we thought it
00:16:29
was low at 4.3 so who's to say where are
00:16:31
we 3.7 now if you if there's if there's
00:16:35
not much risk of inflation why not
00:16:38
reduce rates further and see how low can
00:16:41
you go with unemployment and I would ask
00:16:44
the the opposite
00:16:46
why if if my hypothesis is correct that
00:16:52
moving rates we don't have a lot of room
00:16:54
to move rates moving rates 50 basis
00:16:57
points is not going to have a
00:16:58
demonstrable effect then it also creates
00:17:01
other risks because there's a third
00:17:03
component of the Fed not in our dual
00:17:06
mandate but very important financial
00:17:08
stability there is ample evidence that
00:17:11
these rates being this low for this long
00:17:14
start to create situations of financial
00:17:18
instability the these issues of
00:17:22
basically easy money that firms can get
00:17:26
a hold of at covenant light - no
00:17:30
covenant this is all being done
00:17:33
essentially outside the regulated
00:17:35
industry right and we don't have a
00:17:39
direct tie to that because we're not
00:17:41
responsible for
00:17:42
that those parts of the financial
00:17:44
services industry but they can
00:17:46
potentially create a situation of
00:17:49
instability and part of that and I'm not
00:17:52
a fan of using monetary policy because
00:17:54
it's a relative it is a very blunt
00:17:56
instrument to control financial
00:17:59
instabilities and asset valuations being
00:18:03
too high I'm not a fan of that because
00:18:06
it's hard to predict that said we if we
00:18:08
can avoid trying to create the
00:18:10
conditions make them even worse for such
00:18:13
a situation we should last piece if you
00:18:15
go back a couple of years ago when we
00:18:18
started normalization what did we talk
00:18:20
about we needed policy space we need a
00:18:24
policy space so we needed in the good
00:18:27
times to start raising rates so that
00:18:30
when the bad times hit they will
00:18:32
eventually we don't know when we have
00:18:34
some policies base I don't see the
00:18:37
argument for moving now to reduce policy
00:18:39
space when in my opinion things are
00:18:41
still pretty good that's what happened
00:18:44
in December right - were reducing
00:18:45
policies or you were trying to increase
00:18:48
policy space yeah but at that point I
00:18:50
think there was too much turmoil we it
00:18:53
was in my view losses inappropriate to
00:18:55
do it at that time so given that rates
00:18:59
are so low and the things you're talking
00:19:01
about make so much sense in that why
00:19:05
should we lower it more or if you do
00:19:07
lower it more it's not going to make
00:19:08
that much difference the economy we
00:19:10
talked about that
00:19:11
do you and and if we do have a recession
00:19:14
and rates were lower it reduces your
00:19:17
policy space does are we asking too much
00:19:21
of monetary policy is that and and and
00:19:25
you know if we get into trouble with
00:19:26
this economy you're you you're already
00:19:28
limited because your your rates are
00:19:31
pretty low as they are whether you go up
00:19:32
business points are down fifth alright
00:19:35
so is is there something wrong with the
00:19:38
way we're trying to steer the economy by
00:19:41
relying on just one propeller one maybe
00:19:43
that we should have - one of my biggest
00:19:46
and growing concerns and with respect to
00:19:48
the economy is not in the monetary
00:19:50
policy space
00:19:51
so we have very limited policy space as
00:19:55
you said on the monetary side
00:19:56
increasingly we have have less and less
00:19:59
on the fiscal policy side that's the
00:20:02
tool that if you look back and as
00:20:05
scholars have looked back on the Great
00:20:08
Recession I think the one conclusion
00:20:10
that is not accepted universally but
00:20:15
widely accepted is we didn't do enough
00:20:17
on the fiscal side right well think
00:20:20
about right now this is a good economy
00:20:22
and we're adding a trillion dollars a
00:20:24
year to the federal debt and on top of
00:20:28
that states have no wiggle room state
00:20:31
after state given the pension
00:20:32
liabilities that they have the unfunded
00:20:34
pension liabilities they have no no room
00:20:37
to move so when that shock negative
00:20:41
shock hits the economy how much space do
00:20:44
we really have on the fiscal side it can
00:20:47
be very effective the evidence shows
00:20:49
that it can be very effective we don't
00:20:51
have it right now what do you think
00:20:55
should be done again this is not my
00:20:59
wheelhouse but I think we have to
00:21:01
seriously think there's only two things
00:21:02
you could do right the increased revenue
00:21:05
or cut cost I mean and that and some
00:21:08
combination of those things have to be
00:21:10
dealt with so a couple of years ago when
00:21:14
you had organized this wonderful
00:21:16
conference at the Fed about FinTech we
00:21:19
had spoken about crypto currencies right
00:21:21
and one recent development in that
00:21:23
regard has been Facebook's launch of
00:21:26
libera yes its cryptocurrency how to see
00:21:30
the difference between that and Bitcoin
00:21:32
and I wonder if Facebook's version of
00:21:35
cryptocurrency might be more acceptable
00:21:37
to you know policy regulators then then
00:21:41
Bitcoin so obviously the regulatory side
00:21:43
is with the Board of Governors so I can
00:21:45
only give my opinion so I think without
00:21:48
getting into the details of Bitcoin and
00:21:50
Libre I think there's a real advantage
00:21:53
of having having a stable coin it's hard
00:21:56
to have a currency that's bouncing
00:21:59
around all the time so when you go to
00:22:00
Starbucks you don't know
00:22:02
somebody whatever coins you're gonna
00:22:04
have to use that day and so clearly that
00:22:08
is an area that will have an advantage
00:22:10
over time that said I think and it's the
00:22:13
only my opinion and I am I think I'm
00:22:16
minority opinion on this right now I do
00:22:18
think we the central bank and central
00:22:22
banks around the world need to seriously
00:22:24
start thinking about central bank state
00:22:26
stable coin currency in my view it's
00:22:29
inevitable technology is evolving it
00:22:32
we're not gonna stop that but what we
00:22:35
can do with a fiat currency we're the
00:22:39
only ones that can do it I don't
00:22:41
necessarily think we should be the first
00:22:42
movers in that I think there can be some
00:22:44
experimentation of other economies and
00:22:47
other countries to try some certain
00:22:49
things but I think we need to start to
00:22:51
think about I don't think it's in the
00:22:52
immediate horizon that we would do such
00:22:55
a thing but I do think that it is
00:22:59
inevitable and we should start
00:23:01
contemplating it now so just to make
00:23:04
sure I understand what you're saying
00:23:05
correctly is this like a digital version
00:23:08
of a fiat currency that you think
00:23:10
central banks around the world should be
00:23:11
trying to introduce yeah I mean look the
00:23:15
vast majority of money in the world is
00:23:16
digital right now it's central bank
00:23:18
money and so it's not a great leap the
00:23:22
difference is creating this kind of
00:23:24
stable coin approach again I'm not sure
00:23:28
how to do that I'm not sure when we
00:23:29
would do it but at least we should start
00:23:32
seriously thinking about it and with a
00:23:36
few questions about a paper that you
00:23:37
wrote sometimes I think it was last year
00:23:39
about Dynamis ohm and it sort of ties to
00:23:42
some of the things we've been talking
00:23:43
about the economy do you think the
00:23:45
dynamicism and the US economies and sort
00:23:47
of long-term decline and if so why oh
00:23:50
it's not I think I know I mean the
00:23:52
evidence is pretty compelling though so
00:23:55
we have this like the American story is
00:23:59
filled with lots of sub stories and
00:24:02
myths and and and that we have and we
00:24:06
hold about the American Society of the
00:24:08
American economy
00:24:09
and these are important because they're
00:24:11
based on fact and we have this myth that
00:24:13
we are this incredibly innovative
00:24:14
dynamic economy and relative to many
00:24:18
other economies we are so I think it if
00:24:21
you think about relativism we are but if
00:24:24
you look relative to our past or not
00:24:27
business formation is not what it once
00:24:29
was
00:24:30
corporations are getting larger when
00:24:32
corporations get larger they issue fewer
00:24:35
patents and the research clearly shows
00:24:37
us and also on the labor side we don't
00:24:40
move like like we used to move right so
00:24:43
one of the issues that often perplexes
00:24:46
economist is if there's a community out
00:24:48
there where the jobs went away why don't
00:24:50
you just move to where the jobs are we
00:24:53
don't do that and there's a lot of
00:24:54
social reasons why we don't do that like
00:24:57
we once did what are some of the main
00:24:59
culprits well one is if I have an aging
00:25:04
parent or my mom's taking care of my
00:25:07
kids my dads take care of my kids and I
00:25:09
can't afford daycare
00:25:10
I can't move away I gotta fix so there's
00:25:12
a lot of other issues plus there's some
00:25:15
recent research that has been coming out
00:25:17
of Philadelphia that says you know we
00:25:20
have this mythology of dynamism with
00:25:23
respect to people moving that's really
00:25:25
based on filling up the west and the
00:25:29
south right but once they were filled up
00:25:32
and a generation or two has stayed there
00:25:36
people have a preference for staying
00:25:38
where their family is and where the
00:25:40
roots are and that's a preference it's
00:25:43
not you can say it's not optimal from an
00:25:45
economic perspective but it is because
00:25:47
people have preferences and that's one
00:25:49
of their preferences important
00:25:50
preferences is not to uproot their
00:25:52
family from their family their extended
00:25:55
family so I think those factors are
00:25:58
coming in at least on the labor market
00:25:59
on the business side it's a different
00:26:02
story
00:26:03
right I think there it's the we the
00:26:06
issue about competition is really
00:26:10
important and creating competitive
00:26:13
playing fields for
00:26:15
these and startups to succeed Salinas is
00:26:18
though I think being driven by
00:26:19
technology there are these network
00:26:22
effects I said they're not going to go
00:26:24
away in certain industries but that
00:26:26
doesn't explain all industries as did
00:26:29
you see this as an American problem or
00:26:31
is it something that affects all the
00:26:33
Chiricahuas
00:26:34
no I think it is starting to affect most
00:26:35
mature economies but again we in u.s.
00:26:38
have believed and rightly so from our
00:26:41
past that we had this highly dynamic
00:26:43
economy when you get under the hood it's
00:26:47
not that way and there are things we can
00:26:49
do to restate that on the policy front
00:26:53
that I think are important that that was
00:26:56
going to be my next question which is if
00:26:57
you could wave a magic wand to restore
00:27:00
Dynamis ohm to the American economy and
00:27:02
other mature economies what would you do
00:27:04
competition policy making sure that
00:27:06
firms have a competitive playing field
00:27:09
that they can sink or swim on that and
00:27:11
they can succeed on the dynamism with
00:27:16
respect to labor markets I think there's
00:27:18
a whole host of other issues there
00:27:20
whether it's social programs with
00:27:23
respect to things like child care and
00:27:24
elder care and a whole host of other
00:27:26
things that we could think about could
00:27:28
you give an example of the competitive
00:27:30
policy that you're talking about that
00:27:32
would be better than what's going on now
00:27:34
I think just simply antitrust policies
00:27:38
I mean reinforcing them in certain
00:27:41
industries so you're saying there's too
00:27:43
much concentration and again I will say
00:27:46
that a blanket statement that that's
00:27:48
true across all industries but I think
00:27:50
in certain industries that's that's
00:27:51
quite possible what about research and
00:27:55
development do you think that there's
00:27:56
enough being spent I know that industry
00:27:59
spends quite a bit on research and
00:28:01
development but over you know any number
00:28:04
of decades the the the percentage that
00:28:07
the government spends on R&D basic R&D
00:28:10
which often leads the big break for us
00:28:12
has gone down quite a bit
00:28:14
do you see a role for government yes
00:28:18
increasing spending in R&D like quite a
00:28:20
bit yeah absolutely I mean the big shift
00:28:22
that's happened over the course of
00:28:24
several decades is companies aren't
00:28:26
spending as much on R&D
00:28:28
there's no more Bell Labs but I at that
00:28:31
scale now that was a different story
00:28:33
with a monopoly who could afford to do
00:28:35
those things that's understandable but
00:28:38
it shifted from the company the basic Rd
00:28:41
to universities and university funding
00:28:43
and with the bayh-dole act universities
00:28:46
then had an incentive to want to
00:28:47
commercialize this because they could
00:28:49
get an economic benefit from doing so
00:28:51
before that act they couldn't so it
00:28:53
really is the universities do the basic
00:28:55
R&D startups come out of the
00:28:58
universities grab it that startups most
00:28:59
often don't expect to be an operating
00:29:03
concern going forward they're looking to
00:29:05
sell their technology to get on to a
00:29:07
platform where they can integrate that
00:29:09
technology that's a reasonable thing to
00:29:12
do but it all starts like you just said
00:29:14
with the basic R&D funding because you
00:29:17
know there's a very good book out about
00:29:19
this recently I think it's called
00:29:20
jump-starting AmeriCorps jump-starting
00:29:22
America's economy by Simon Johnson he's
00:29:25
a former chief economist at the I am
00:29:26
right and it was his point which is that
00:29:30
during the boom years of the 50s and
00:29:32
coming out of World War two there was
00:29:34
this great partnership between
00:29:36
universities and business and and and
00:29:39
the government would help fund a lot of
00:29:41
fundamental basic research which might
00:29:42
take 20 years to come to fruition what
00:29:45
companies can't afford to wait 12 years
00:29:47
they need to they're looking at the next
00:29:49
quarter the next year and so that that
00:29:51
is a piece of R&D that has been kind of
00:29:54
lost so no one's taking it so no one's
00:29:57
taking those long bets only the
00:29:58
government could do that because they
00:30:00
can afford to to say well we don't it's
00:30:02
okay if it's not private so yeah it's
00:30:04
not like it's not happening I'll give
00:30:05
you one example where it's happening
00:30:06
right now quantum computer I mean the
00:30:09
government is heavily involved through
00:30:10
the National Institutes of Standards and
00:30:12
Technology and other agencies and
00:30:14
bringing together consortium of
00:30:16
companies to really do almost what the
00:30:20
moon launches I mean we know we need to
00:30:24
build these machines there's a
00:30:25
competitive race around the globe to
00:30:27
build these machines we don't actually
00:30:29
know how yet there's a lot of problems
00:30:31
to be solved between here and there and
00:30:34
so the government is convening along
00:30:36
with nonprofit institutions and
00:30:39
incorporate
00:30:41
a group to try to figure out exactly how
00:30:43
to do this that so when the big issues
00:30:47
like that come up we actually can act so
00:30:50
I think we need to do more of that so we
00:30:52
can really push the needle on the really
00:30:55
hard technical issues right to create
00:30:58
truly new products into the marketplace
00:31:02
it's interesting because another I guess
00:31:06
aspect of this is the idea that you know
00:31:09
we're in a trade where with trying to
00:31:10
win our current Dean here at Wharton has
00:31:13
made the arguments in various opinion
00:31:14
pieces that we've run saying that it's
00:31:16
it's actually a race for technology like
00:31:18
who's going to be the technological
00:31:19
leader and these the the the trade
00:31:22
aspect of it is is some fallout that
00:31:24
comes from that but that's kind of the
00:31:26
guiding principle I think right and so
00:31:28
and what's different is that of course
00:31:31
China is you know it's more of a
00:31:33
top-down situation they can they can
00:31:35
spend a lot of money on research for
00:31:37
this long-term research that we're
00:31:38
saying we're not doing here and so that
00:31:41
might be another way of if you see that
00:31:44
as a key competition going on the you
00:31:48
know increasing R&D might be another way
00:31:50
to level that playing field with that
00:31:52
government spending on R&D yeah well I
00:31:55
think nobody's willing to take the risk
00:31:57
that these long live you know long
00:32:01
gestation period technologies that's the
00:32:03
role of the government that because a
00:32:05
lot of that's is gonna fail but you're
00:32:07
just not gonna you can see that even
00:32:09
here on this campus with immunotherapy I
00:32:12
mean it took a long time to bring this
00:32:15
to market and now it's exploding on the
00:32:17
scene in healthcare it's changing the
00:32:19
very nature of healthcare and so but
00:32:22
that started with NIH funding at a very
00:32:26
basic level to move the needle no
00:32:29
company was going to do that you need
00:32:31
the government and one of the going back
00:32:34
to our earlier conversation one of the
00:32:35
things I do worry about is the crowding
00:32:38
out effect so given that if you just
00:32:40
take defense entitlements and interest
00:32:41
on the debt that's the vast vast
00:32:43
majority of the federal budget that
00:32:45
everything else is getting squeezed and
00:32:47
that has to be
00:32:49
well so so Pat thank you so much for for
00:32:53
speaking with knowledge at Wharton
00:32:55
really appreciated I thank you for more
00:33:00
insight from knowledge at Wharton please
00:33:02
visit knowledge Wharton UPenn edu
00:33:08
[Music]
00:33:13
you
