White House, CEO, Bloomberg discussed on Bloomberg Businessweek


A fascinating look inside. What once was really a TV pioneer really defined. What we watch but fallen behind right? It's a different world when it comes to content creation and distribution. And of course, the magazine known for its survey of MBA programs business schools. We've got a little bit of an update from recruiters what they're looking for. And how they rank the top b schools. It's also interestingly, not all the same does very fascinated by that. Plus, we take you to El Salvador where there's a city of coffins of sort building up an economic take on a pretty tragic political scene there. But I care we've got something from the economic. Section President Trump's overhaul of taxes that resulted in the tax cuts and jobs act of 2017 cut the corporate tax rate by a lot. But just I think the question is did it result in companies going out and doing a bunch of spending. And that as a result help the economy, you know, who's got the answer to that question. The guy in front of us the guy in front of us one of our all time favorites here at Bloomberg TIMMY, Hiti he's an economist with our Bloomberg economics team here with us in New York. So maybe he I felt like reading your story. It was a really good reminder of how economics actually works in real life. So as you try and analyze this tax cuts and jobs act. How do you do it? It's very difficult. And I think I want to start out by saying, and this is in the economists on the one hand on the other is that this is a very hard thing to measure a lot of other people have taken a stab at it and the range of estimates and impacts is quite broad that being said, I put a lot of time into looking at okay. We've had a lot of promises from the White House about what this is gonna do for the economy. We've heard about consumer spending we've heard about investment, but are we actually going to see that second piece actually gonna see abuse from investment and the takeaway from this pieces. Yes, this is very big. And so this plays into the supply side argument a little bit that you will see something from tax cuts, but also kind of puts a puts a bit of a cap on and says like even if you get something really talking about a tenth of a percentage point here to growth last year and this year. All right. So Carol was an econ major take a step back with an English major. This is where we take a step back and remind us supply side, demand demand-side basic definitions. Sure, so supplies out economists believe that if you deregulate, and you give tax cuts that will help incentivize businesses to invest their view is what's keeping this businesses. From investing is actually the government demand. Economist will tell you look that matters. But what matters more. Is where we are in the economic cycle raise their demand for those products. So that was essentially the framework with which I started with we put together a model that looks at both of those things are puts components from both tax cuts, and these other demand side effects turns out demand siders win in this case. And that's because these demand side capacity constraints output gab, those kinds of things matter much more than tax cut capital spending did increase right after the tax after the corporate tax cuts. That's right. And so I think this is where a little tricky because you see a number go up a year after something happens doesn't mean that that is the reason that the tasks for the reason that number wasn't effect. We can say that that's a true one to one correlation. Exactly. And so in order to do that we have put together a counterfactual kind of situation which would have been like if we hadn't had tax cuts. You talk a lot about the effective tax rate. Go into a little bit of that. And why that's important to discuss when we're chatting about this. Absolutely. Again. This is you know, you see a lot of the times in the headlines. Well, tax rates were thirty five percent for corporations are dropping on twenty one percent. That's a fourteen percentage. Point decrease sounds like a lot, right? Here's the thing though there. They're all these other pieces of tax reform and just the structure of the tax code that don't involve the actual rate, but do change the amount of taxes that businesses pay. So one thing to look as effective tax rate, which is the amount the businesses reported pain in taxes divided by the corporate profits. That's a better measure of the overall tax for businesses that is much lower and the change that number from the tax code from the TC J was also much lower. Well, and what's so interesting to in? This goes to the politics of this right is what is ultimately behind. A lot of the rhetoric is this idea of people just feel more confident CEOs feel confident because even if the numbers don't bear it out. They just feel like I got a little more money to play with with consumers. This whole notion of animal spirits. That's something I understand a little bit more than all these terms. Right. So how does that play into it? Sure. So if we look at what the model showed us return. To pieces the mattered quite a bit. The first is the output gap. So that's kind of this measure of how far the economy is from neutral. That's a little hard to do because from from potential is hard to do because you can't measure potential and the second was this animal spirits as business confidence. I mattered quite a bit quite a bit more than tax cuts, actually. And so that makes sense if you step back and think about it, right? If you're a CEO and you're thinking, oh, there's demand for my product my existing facilities. Can't meet that demand. Which is what that Alpa gap is supposed to measure, and I feel good about the future of the of of my economic prospects. I'm gonna invest right? So that's the animal spirits component of John Maynard Keynes is brought up and others have brought up and it's similar to the consumer side consumers do something similar, right? The go have more money. Do I feel good about the future or don't feel bad? And you put that in the back, and that's a similar to businesses. It's important to have this discussion. Right. Because as you say the White House comes out with estimates. And said, hey, look, we did this we cut taxes the corporate tax rate businesses are spending and look at what he did to the economy. I think they say like a full percentage point to say, and as you say there. Lots of different estimates out there. So we kind of have to be smart when we hear this stuff. Absolutely. And that's hard because there's so many elements, and because there's these things are so easy to fudge around the margins and the models are all different. But I think the important thing to note the results came out, I wouldn't say to my expectations. We did you know standard scientific theory. Here we test says, but I think when you get these kinds of things if you can find other work that supports those hypotheses as a results, and it's usually like you starting to build a house right out of break. One piece at a time, so TIMMY, he Bloomberg economics. Jason unite love talking to him because we first of all kind of a lesson reminding us about basic economic principles supply side versus demand side and reminding us maybe.

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