Stephen Rattner (2:42)

No, I don't think you could say that. Manufacturing output had been declining actually quite steadily going back to even before Trump. It did go up in January, but that's one month and I don't think we can draw any conclusions from that. But essentially our manufacturing continues to go down and for the most part manufacturing employment goes down. Productivity has been bouncing around a bit. We can talk about that, but no, there's no not yet, and to be fair to the president, I think you have to say not yet. Any sign that his policies have changed the trajectory of manufacturing in the United States?

David Westin (3:16)

Some of the challenge may be timing. It takes a while to build a plant, to get up and running. What kind of time horizon, you know, manufacturing. Well, are we looking at to really grow manufacturing?

Stephen Rattner (3:25)

Certainly a few years. But. But the question is that is, is anybody actually doing this? And I don't know. I would say, anecdotally, I haven't heard anybody say any CEOs or that they're rushing out to build plants here because of all this. There's obviously a huge boon in construction going on in data centers, which don't manufacture things. But it's a capital investment in the US But I don't have any sign or any idea that the number of car plants in this country is increasing because of. Because of what Mr. Trump has been doing.

David Westin (3:59)

An important tool for President Trump in his toolbox on manufacturing are tariffs. And he certainly has imposed a lot of tariffs. How does that fit with manufacturing? Can we bring back manufacturing through tariffs?

Stephen Rattner (4:12)

We can bring back some of it. Even Alexander Hamilton advocated for tariffs in a different set of circumstances. The idea was to nurture young industries in the US by using tariffs to protect them. And so there was something to be said out of it. Keynes actually advocated, surprisingly, for tariffs in the Depression, but partly because the pound was so overvalued, it was the only way Britain could end up not being flooded with imports. So there are places and roles for tariffs, but you really want to use them to protect an industry that would ultimately become very competitive globally, not as some kind of permanent way to offset the fact that other countries can perhaps make things cheaper and better.

David Westin (4:51)

There's another function that President Trump seems to be using tariffs where. Which is to extort or command negotiations with foreign countries to make investments. I mean, if we have Stellantis saying $13 billion they're going to invest, Japan is saying $500 billion they're going to invest. Is that a way to bring manufacturing back? By basically getting countries and companies to agree they're going to come invest in manufacturing plants here?

Stephen Rattner (5:15)

I have no particular reason to think it is because the tariffs are imposed on companies. The companies are separate from the countries. So the countries can't really say to the companies, go build a plant. The companies might do it if they felt that the tariffs drove them in that direction. No pun intended. But I don't see any real evidence that that's having much of an impact

David Westin (5:36)

what about particularly in automobiles? I mean, we've talked about automobiles before. What is the prospect of having more automobiles manufactured United states, either by U.S. companies or by foreign companies?

Stephen Rattner (5:49)

Look, I think right now we've kind of, we've kind of put a bit of a speed bump in front of automobiles. For four years, we told them, Build EVs. Build EVs. Build EVs. And we backed it up with tax credits. And they all rushed around to build them. Now you can see them all taking these large charges to essentially either get out of or modify their EV business because the Trump administration is anti ev. So we haven't really done the auto industry any great favors. There's also story, there was a story this week about Ford, I think, losing $900 million because of tariffs. I'm not sure whether Trump understands this or not, but when you put a tariffs on auto parts, you're actually hurting what we call the OEMs, the original equipment manufacturers in the US because the parts become more expensive.

David Westin (6:31)

We're seeing auto manufacturers overseas struggle, particularly in the UK And Germany. Does it matter whether the company is owned by, by a foreign country? I mean, why don't we just let BYD come and manufacture automobiles in the United States?

Stephen Rattner (6:45)

The first part of the answer is, do we think they want to? They have their whole ecosystem. It's like Apple moving iPhone assembly out of China. They can do it, but it's much more expensive. I would think from our point of view, you're right. People, people sometimes get confused between companies and jobs. I mean, if you want jobs, then you want the plants to be built here. And conversely, having a US Company build a plant in some other country doesn't help us in terms of jobs. If we want to talk about how do we get more economic progress here, the idea would be to make more things here rather than somewhere else.

David Westin (7:20)

When we talk about tariffs may have effects on companies or even potentially on countries in negotiating, it also has effects on consumers. I mean, what is the price to American consumers of keeping out very inexpensive BYD automobiles?

Stephen Rattner (7:35)

Well, this is something that has not gotten the kind of attention it should get. And the rough math is we sell 16 million cars here a year. BYD could sell, and they make only EVs. So it'd be EVs here at, I think conservatively at $10,000 less than a comparable US car. And so you're talking about $160 billion a year that consumers in the US are paying because we feel it's important. And I don't want To, I'm not meaning at all to be sarcastic about this, that we feel it's important to have an auto industry in the US we could just open the doors. We have 100% tariff on them now, as you probably know. Take the tariff off, open the doors, and consumers would be amazed at how inexpensive and how good these cars are.

David Westin (8:19)

So that would be great for consumers, at least in the short term. What are the strategic disadvantages to the United States, either economically or even in terms of national security, of doing that?

Stephen Rattner (8:29)

It would be great for consumers in the short run and the long run. And I don't think that the economic impact of all that would be a negative for the US Might even be a positive. But I do think there's a really important question that I don't have a great answer to, which you alluded to, which is the strategic imports. Obviously, everybody knows that In World War II we took these auto plants and they started making planes and tanks and all this other stuff. I don't think we're going to be fighting a war like that again and hopefully at any time in foreseeable future. But the question is, do you want to have that kind of industrial capacity in case we have another Covid and we want to make N26 masks or whatever? And so that's the dilemma we face. How much do you want to pay to have all this manufacturing capacity here in case we need it someday? As you probably know, manufacturing jobs now pay less on average than service jobs. So the idea that these, you know, the romantic idea that these are good jobs and so to lose these manufacturing jobs would be bad for the everyday Americans is false. We would need to replace them with other jobs. But these jobs themselves are not that great anymore. And by the way, also, they have trouble hiring people because people don't want to work on an assembly line. They can't check their iPhones, they can't do this, they can't do that. The American work culture has shifted, and being on an assembly line is not considered a particularly great way to live your life.

David Westin (9:51)

Which raises a broader question. Should we be focused on manufacturing as manufacturing to begin with, particularly in an economy that increasingly has gone to services?

Stephen Rattner (9:59)

Again, it's a debate, and I'll make a point on the other side, which is that there is a strong view, and I'm not expert enough and I'm not sure you could have quantified it, that having manufacturing near the R and D centers, near the corporate headquarters, so there's much more interaction. You can try things out and so forth. People argue for that. Now. On the other hand, if you buy an Apple phone, as you know, it'll say designed in Cupertino, made in China, or made in wherever. And so Apple seems to have done pretty well without having any manufacturing to speak of in the United States. But that's another question that people debate in terms of how much manufacturing do we need to have? I think. I do think if we're going to focus on some manufacturing, which I'm not against at all, it should really be industries of the future, not industries of the past. I think the Chips act was generally considered to be a success. It cost $50 billion, but we got a bunch of chips factories here, and they're building more and more in Arizona and elsewhere. That's the kind of stuff we should be doing, not trying to preserve some auto parts supply chain.

David Westin (11:03)

It does raise the question about productivity. If the measurement is output, you could have the same output or even more output with much fewer employees. We had that in farming in this country over the last hundred years, for example. Should we be focused on that total output? And aren't we just increasing productivity so we shouldn't worry so much about the employment?

Stephen Rattner (11:22)

You always want to increase productivity. Productivity growth is the only way an economy can actually grow and people can ultimately earn more money. And what happened in farming is that, yeah, we had half the country as farmers 100 years ago, and now we have 2% and farming, we're producing more and more agricultural products. But those people got jobs. They came to the cities, went to work in these manufacturing plants, and they got jobs. So we need to be sure there are jobs for these people who may eventually find that productivity has outgrown them. That's the only thing we need to worry about. The rest of it will take care of itself.

David Westin (11:56)

We also heard from President Trump this week that if Kevin Warsh does his job right as chair of the Fed, assuming he gets confirmed that we'll have 15% GDP growth or better. How realistic is that?

Stephen Rattner (12:08)

It is. It's a little. It always surprises me that a president who lived his life in business can know so little about economics. Economic growth is a function of two things. How many people are working and how much they actually, each of them actually produces. Number of people working isn't going to change. It's going to go up a little, down a little, whatever, but it's going to be a couple percent here or there. So the other 13% has to be people being more efficient. I don't know about you, but I feel like I'm pretty efficient now and I'm not sure I could drive another 13% efficiency out out of what I do all day. So it's all fantasy, I think. In all seriousness, if I do believe AI is a potential game changer, I do believe we could get to GDP growth because of productivity growth that we haven't seen in a while. It could be three, it could be three and a half percent. Not going to be 15%, but three or three and a half percent would be great.

David Westin (12:59)

Coming up, Getting the Most out of Our Public Buses Does Mayor Mamdani have a point?

Christina Raffini (13:12)

You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow, here to tell you about our new On Demand News report delivered right to your podcast feed. Bloomberg News now is a short 5 minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations, but they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on Bloomberg News now. And we don't wait an hour to publish breaking news. When news breaks. We'll have an episode up in your podcast feed within minutes. So you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts were all over the world. Listen to the latest from Bloomberg News now on Apple, Spotify or anywhere you listen.

Paul Sweeney (14:10)

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David Westin (14:45)

This is a story about getting what we pay for and whether we could sometimes get more by paying less. Public buses are the way millions of Americans travel to work and school every year.

Paul Sweeney (15:00)

Buses are an incredibly important part of America's transit system. 3.8 billion bus rides occurred in 2024.

David Westin (15:09)

Ed Glaeser is an economics professor at Harvard and co author of a paper on public buses for the Hutchins center at the Brookings Institution.

Paul Sweeney (15:17)

On average, that Means an American takes 10 bus rides a year. But of course, it's not like an average person does 10 rides. It's more that, you know, there are some people who take hundreds and hundreds of rides and some people who take none.

David Westin (15:29)

But as much as people rely on public buses, there is room for improvement. New York City Mayor Zoran Mamdani certainly thinks so.

Paul Sweeney (15:37)

We know that for so many New Yorkers, public transit is increasingly becoming out of reach. That is why at the heart of our campaign was a commitment to make the slowest buses in America fast and to make them free.

David Westin (15:52)

And Harvard's Glaeser agrees at least that we could do more with less when it comes to our public bus systems.

Paul Sweeney (15:59)

Lot to love about the bus, and certainly it needs to be cheaper. How much you could do with more efficient use of the existing bus system in New York versus adding to the number of buses, I'm not sure. But in general, I think the future of American public transit should have a lot of buses in it. We're just paying way, way too much for our buses. So the average electric bus in the US costs about $1.05 million. That is an astounding number. You can buy a perfectly nice 36 foot electric bus from Hyundai for $350,000. Now obviously that wouldn't necessarily be compatible with the American Disability act, but it just gives you an idea of just how expensive it is.

David Westin (16:40)

And it's not just compared to other countries that our buses seem overpriced. It's compared to other vehicles.

Paul Sweeney (16:46)

Between 1995 and 2025, the quality adjusted cost of a new car dropped by 40%. Because in the automotive industry, right, technological change happens, we get better at making things not in buses. Price of a diesel bus is slightly higher now than it was 30 years ago. Also, the prices are really varying. We found one 40 foot electric bus in a larger order costing $450,000. Another agency that was just buying 10 of them spending $950,000 per bus. That's an amazing amount of range there.

David Westin (17:18)

The heads of America's transit systems agree that there is a problem.

Christina Raffini (17:23)

We serve eight counties and within eight counties there's 40 municipalities.

David Westin (17:27)

Deborah Johnson is the head of Denver's transit system.

Christina Raffini (17:30)

When we're looking at our operative word within our moniker being regional, there's often an expectation for localized services. RTD happened to be the first public private partnership within the transit space when commuter rail was brought online back in the mid 2000s.

David Westin (17:51)

The area that Denver serves is unique, but that very uniqueness May be part of the problem. Every transit system wants to have its own particular version of the public bus.

Paul Sweeney (18:02)

The bus agencies will often specify, we want this type of engine, we want this type of seat, we want this type of other things. So it's sort of like if you were going to buy a car by sending out a request for proposals to GM and Hyundai and Toyota, and you said, look, I'm looking for a four wheeled family vehicle and you've got to make sure you buy the engine. I want this model from Honda and I want these tires from Michelin, and please bring me bids on this. And you can imagine what you would get in terms of the price of a car like that. The miracles of low cost come from scale economies, right? That's what Henry ford told us 120 years ago with vehicles. And yet that's not what we're getting with buses, precisely because we're finding roughly 70% of new buses in our data are literally unique in our data, Meaning that, you know, there's no other bus exactly like it that's being ordered by any other bus agency.

David Westin (18:54)

Johnson recognizes that the bespoke nature of public buses doesn't help with the cost. But at the same time, she says there can be good reasons to provide different buses for different geographies.

Christina Raffini (19:06)

Oftentimes transit agencies want to customize buses. They want it to be more analogous with their brand of their transit agency, putting an undue hardship on the bus manufacturer. When you want to customize windows, for instance, or you want to customize seats so you have your logo branded in to the seat, for instance. Now, keeping in mind that there will have to be some design options taken into consideration, because if you're operating a transit system in Arizona, you may need a greater cooling system as we look at H Vac, but when you think about there could be over 400 shades of white that one is using, that's not really conducive in reference to cost. I would say we have to ensure that we are being procurement smart and not procurement first. And what I mean by that is determining what it is that one needs for the betterment of their operation.

David Westin (20:03)

The industry recognizes the problem of standardization and is taking steps to address it nationwide.

Paul Skutelis (20:09)

We have come, I think, to a terrific set of recommendations that are being implemented now. By and large, they deal with the commercial terms, how we pay the bus manufacturers. We have used an old procurement model in the industry for many years, which was one that a customer places the order and maybe a year and a half or two years later, they get the vehicles delivered, but they don't pay a dime until that happens.

David Westin (20:33)

Paul Skutelis is president and CEO of the American Public Transportation Association. To what extent so far have you seen municipalities step up to, to your recommendations on standardization and pooled procurement?

Paul Skutelis (20:48)

Well, I think it's been embraced by our industry. We've come to some common understanding of what we can do to help each other, agency and producer, to make sure that we're getting good quality products that meet the needs of the agency so they can serve their customers reliably, but also provide for a more reasonable price and a more reasonable cost.

David Westin (21:07)

Johnson sits on the board of the APTA and has worked on efforts to standardize bus procurement.

Christina Raffini (21:13)

And so the purpose of the bus manufacturing task force was coming together, thinking about what we could do to streamline, to more or less ensure that there was a price that is consistent in the customization that will enable a bus manufacturer to have on their assembly line a bus that, you know, RTD and Denver could leverage, whereas it could be leveraged too, in Long Beach, California.

David Westin (21:41)

But it's not just standardization that could help bring down the price of public buses. It's also competition, something that the American public bus system pretty much lacks right now.

Christina Raffini (21:51)

So one thing that's critically important as we look at modernizing our fleet is making decisions relative to leveraging operator dollars and capital dollars as it relates to bus purchases here in the United States over the course of the past several years. Where There was, say, 10 bus manufacturers doing business in the United States over the past three years, that number has decreased substantially.

Paul Sweeney (22:19)

There's a relatively small number of companies that are providing most of the buses. So 50% of buses in the US are currently being produced by only two bus companies. So it's really not a very competitive industry.

Paul Skutelis (22:30)

We want a healthy bus industry. You asked the question a moment ago about other factors contributing perhaps to the higher prices. Here in the US we only have two manufacturers of significant size that produce buses for the public transit systems in the US Today. That needs to be at least another manufacturer, perhaps even a fourth, to provide the capacity and provide the competition that I think would be helpful in terms of helping to contain those prices.

David Westin (22:56)

And that's where the federal government comes in. Far from helping to bring down the cost of buying new buses, the government may be making the problem worse.

Paul Sweeney (23:05)

US federal money pays for about 80% of the cost of buses bought for by local transit agencies. And that certainly reduces the incentives to cut costs because the federal government is picking up the price tag at the End of the day, it also reduces flexibility because for understandable reasons, the Department of Transportation has rules about how to do bus procurement. So you can't just make it up as you go along. The most obvious of this is the buy American rules, which make it hard to harness the value of foreign competition. Which means you couldn't, if you were going to use Department of Transportation funds, you couldn't just order your $350,000 electric buses from Hyundai, even if they did satisfy the ADA requirements. But so both by funding it, it both reduces the incentives to cut costs, but also it covers procurement entities with a whole bunch of extra rules that make it difficult to be innovative, to be smart, to be nimble.

David Westin (23:57)

Federal funding and restrictions may be making public buses more expensive, but Glaeser says that there may also be ways to use the federal government to bring prices down.

Paul Sweeney (24:07)

So the most obvious is just for the federal government to throw in a maximum price per bus that they're willing to pay. Pay that might differ across types of buses. So diesel might be different from electric, but you put in a maximum. You can pull the maximum from what companies were, what transit agencies were paying for buses last year. So you could take, let's say, the price of one of these buses that was at the 25th percentile, meaning that 3/4 of the buses bought last year were more expensive, 1/4 were less expensive, and you sort of put in this cap. Now, they can still spend more if they want to spend their own money, but they're not going to get federal money to support something that's lavish. Number two, encourage agencies to work together. So, you know, try to get bundles of buses order. It wants to avoid the small bespoke orders, and at least you're getting larger bespoke orders.

David Westin (24:59)

And then there's always the possibility of opening the business up for more competition. Difficult when it comes from abroad, but maybe not impossible if done right.

Paul Skutelis (25:09)

Well, we do have laws that are on the books now through the Buy America that provide for local assembly, meaning in the US but we are staunch supporters of protecting American jobs, making sure that buses that are procured by our agencies using public funds are in fact buying u. S Made buses. We think that's really critical. Now we encourage others across the world if they want to do business in the US and to set up a bus manufacturing facility here. We welcome them. We're ready and willing to help them to settle here and provide them an understanding of our bus industry. But we think it's critically important as an industry to make sure that we are spending public dollars for goods that are produced here in the US I

Paul Sweeney (25:53)

would love to see companies like Hyundai move into having factories in the US to produce buses. And there are different ways suggested in the paper in our report to sort of make that toehold, make that on ramp easier for them to do that.

David Westin (26:08)

America wants its public buses. It needs more of them and it needs them cheaper. It's not an easy goal and will require changing the way we buy buses and maybe even who makes them. But in the end, it may be the only way we can get what we're paying for. Up next, going to Milan, not just for the Olympics, not just for the lifestyle, but for the taxes.

Christina Raffini (26:41)

I'm Carol Massar.

David Westin (26:42)

And I'm Tim Stenovec inviting you to join us for the Bloomberg Business Week daily podcast.

Christina Raffini (26:47)

Now, every day we are bringing you reporting from the magazine that helps global leaders.

David Westin (26:51)

Ahead, we've got insight on the people, the companies and trends that are shaping today's complex economy.

Christina Raffini (26:56)

That's right, Tim. We're all over global business, finance, tech news, all as it is happening in real time. And we've got complete coverage of the US Market. Close. Gotta say, basically, if it impacts financial markets, if it impacts companies, if it's impacting trends and narratives that are out there, we are on it.

David Westin (27:11)

We also have a lot of fun doing it. Bloomberg businessweek also brings you the analysis behind the headlines through conversations with our expert guests.

Christina Raffini (27:18)

And we are doing this all live each weekday. And then we bring you the best analysis in our daily podcast search for

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day and on the weekend. Check it out for a complete wrap up of your business week.

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That's the Bloomberg Business Week daily podcast. I'm Carol Massar.

David Westin (27:39)

And I'm Tim Stanovec. Subscribe today wherever you get your podcast. This is a story about finding the right balance, that balance between your bank account and your soul. Last year we brought you the story of how some people's bank accounts were causing wealthy British to leave their homeland and move to places like Italy. Now, as the world focuses on Milan and the Olympics, it turns out that it's attracting more than just the British and for reasons that go beyond favorable tax treatment. But as our colleague in Europe, Lizzie Burden, reports, the city is encountering some

Lizzie Burden (28:20)

growing pains in the upscale Porta Venezia neighbourhood of Milan. Rich Ross is right at home. The former Hollywood Executive bought this apartment with his partner in 2021, relocating from Los Angeles.

Rich Ross (28:36)

Well, every friend of ours, there are two words. Why Milan? Like why Milan? And then when we're here, they say, why here?

Lizzie Burden (28:44)

Ross is one of a number of wealthy foreign individuals now calling Milan home. Data from Henley and Partners estimated Italy added 3,600 millionaires last year, the third most in the world. While the UK, France and Germany all recorded net losses. Most of those going to Italy ended up in Milan, with many attracted by the country's flat tax regime. Initially €100,000, but since raised to 300,000. What brings you back to Italy?

Luigi de Vecchi (29:10)

The food, obviously.

Lizzie Burden (29:12)

Luigi de Vecchi is one of Europe's top dealmakers. Educated in Rome, he had stints around the world at Goldman and Citi and was hired by Evercourt to return to Italy to lead its expansion through Europe.

Luigi de Vecchi (29:24)

I think there are many places that have tax havens, but I think there is no doubt that people have taken that into consideration as so many people moved out of London but also out of Paris. I have friends that have come from all over Europe and actually the US because unfortunately this time people for different reasons decide to move. And Milan, Italy in general has become a very attractive place.

Lizzie Burden (29:50)

And do you think that it's a Milan pull factor or is it that London and other European cities are driving people away?

Luigi de Vecchi (29:57)

I think it's a combination of factors. Milan has clearly benefited from stability. Stability of the Italian government. The current Prime Minister has been, I think the third longest serving prime minister after two Berlusconi governments. But also the mayor in Milan has been around for almost 10 years. So there is a stability, even though they come from two different parts of the political equation that is very important for people to have wanted to spend time in Milan, invest in Milan.

Lizzie Burden (30:38)

It's not just Evercor. Many financial institutions have expanded their presence in Milan in recent years. A signal that perhaps the city is not just having a tax inspired moment, but is seeing a more structural shift.

Luigi de Vecchi (30:50)

We felt that we looked at the data over the last few years. There's been tremendous M and A activity here. Last year was the year of the financial services. And so this is probably only the beginning of a wave of deals that is what attracted us.

Lizzie Burden (31:07)

With the influx of affluence comes a range of businesses to accommodate it. Gary Landsberg has been heavily involved in private clubs in London, but opened the wild in the former home of fashion executive Santo Versace.

Stephen Rattner (31:20)

Well, I think, you know, we went after Milan in 2022. We acquired the building. We started to see that there was certainly a shift towards Milan even before

Luigi de Vecchi (31:34)

the non dom thing was really fully announced.

Stephen Rattner (31:37)

London previously is a wonderful international city, but what we're allowing now is cities like Milan to become wonderful international cities and in environments where the elegance and the chicness of the city is now being enhanced by an amazing expat community.

Lizzie Burden (32:01)

And now Milan is hosting the 2026 Winter Olympics, with events taking place both there and in Cortina, about four hours away in the Alps. Christophe Duby is the IOC's director of the Olympic Games.

Luigi de Vecchi (32:13)

They had the Games in 2006 in

Stephen Rattner (32:16)

the Piedmont and Piedmont region and Torino.

David Autor (32:20)

Why do you think they wanted the Games in these regions?

Luigi de Vecchi (32:23)

Because it's a great business for all the good reasons.

David Autor (32:25)

First, you get that fresh injection of private money into the Games organization itself. Sponsorship, ticketing, media rights.

Paul Sweeney (32:35)

This is super beneficial. Then you have all the connected investments

Luigi de Vecchi (32:39)

to support the Games themselves.

David Autor (32:42)

And here we're speaking about a 4.5

Paul Sweeney (32:44)

billion economic impact that has to generate as well quite some substantial fiscal revenues, which justifies, by the way, the cost

David Autor (32:53)

for security, transportation and the others. So all in all, the equation is

Paul Sweeney (32:58)

a very balanced, or I would say very positive one.

Lizzie Burden (33:01)

Yet Milan's rise has opened up problems. Housing prices have surged up about 38% in the high end sector between 2020 and 2025, according to recent real estate firm Knight Frank. And demonstrations broke out in the city ahead of the Olympics, with many fearing the Games will exacerbate cost of living concerns, even as the IOC says it'll repurpose the athlete village as student housing. What could derail the momentum that we're seeing in Milan the fastest?

Luigi de Vecchi (33:29)

I don't think that I see a change of direction in terms of foreigners coming in, but what I think is changing, and this is dangerous is, is the attitude of the Milanese. That has always been an attitude that has been very welcoming. Milanese have something very special compared to other places in Italy, they're very reserved. The beauty of Milan is hidden. So most of the big palaces have gardens that you cannot see from the outside. And Milanese don't like to show off. So some of the wealthiest families in this town are not people that you would. They drive a FIA Cinquecento, not a Ferrari. And so this influx of foreigners who are very wealthy, flashy, and sometimes flashy, could create some kind of backlash. A little bit like what I think London experienced when a lot of too many foreigners came and prices rose and some of the Londons had to move out. I think that is starting to happen here. I really hope that the authenticity of Milan and of the Milanese will not be lost because of that.

Lizzie Burden (34:44)

Oh, how do you keep that balance?

Luigi de Vecchi (34:46)

You need to continue to want to attract Italians, and therefore prices cannot necessarily start to reach for rents. The prices that we've seen elsewhere, which is a little bit what is happening at a time when salaries have not kept up.

Lizzie Burden (35:05)

Is there any sense of resentment that outsiders are coming in and getting the great properties?

Rich Ross (35:12)

I don't know if there's resentment. There's. I would say there's. I don't know if it's a worriedness. I think it's a curiosity, but it's also a little. The unknown is always very, I guess, a little scary here. But it's also been a city that has a finance capital for Italy and for Europe. It's a city that has a fashion capital for the world. So it's not like they don't. The residents here don't see people come in. It's now every business and people coming to live here, not just come for a weekend, go to a fashion show, or not come for a finance meeting and then go back to London. People come, stay and enjoy. And I think that's more of a curiosity than a concern.

Lizzie Burden (35:59)

With both mayoral and general elections in Italy next year, voters will get a chance to have their say on the country's tax regime. If the flat tax regime were to be reversed, would people leave as fast as they've come?

Luigi de Vecchi (36:13)

I think it depends on how much they like pasta. Now, the reality is that I think there is no question that for many people, the tax issue for the very wealthy, it's a real issue. It's an issue for them, it's an issue for their families, it's an issue for their legacy. So I don't think that we can look at that in isolation, but I think it would be a major factor. Having said that, I have plenty of friends that have come, as I said, over the last few years, to Italy, to Milan. They love it. They love the standard of life. And so I think that quite a few would stay.

Lizzie Burden (36:48)

Perhaps the true test of a city's growth isn't measured by the arrival of those that have already made it, but by those who are trying to make it. Milan might be a destination for the wealthy, but is it becoming a destination for those looking to get wealthy?

Luigi de Vecchi (37:02)

I think it's a very good question. There is no doubt that I could not have been. Been able to stay in Italy because I wanted to see the world. I'm often asked this question by my students and by colleagues, young colleagues, and I think the world has become more complicated. In those days when I was young, the US for this business was the place to be and to develop a career. I think there is no question that the US remains the most interesting place. But some of the brics,

Lizzie Burden (37:35)

I suppose the question is also, is Milan a place where you do a stint or is it a place you can really build a career?

Luigi de Vecchi (37:42)

Listen, there is one thing that is very important about Italy and Europe in general. Unfortunately, here we have a demographic issue. So we have 60 million people today. They're going down to 40 million by the end of this century, which basically, basically means in theory we have a big problem. In practice, whoever stays here not only will find jobs, but will have huge opportunities to blossom as an American citizen

Lizzie Burden (38:10)

taxed on worldwide income. The flat tax regime doesn't benefit Rich Ross in quite the same way it does many other high net worth individuals.

Rich Ross (38:18)

It's like an Olympic event. It's definitely bringing people in. But I think the people come for the finance and then they live for the city. And I think that's kind of unique. They're not sure how much time they're going to be here and then everyone talks about they want to spend more time here. Not less time, less a tax haven and more a place to live. Not so much. I think la dolce vita, just an easy life that's beautiful and fun and yummy.

Lizzie Burden (38:47)

Old Milan is the arts, fashion and elegance. New Milan is finance, ambitious and cosmopolitan. The real draw might be finding a mix of both.

Rich Ross (38:58)

It's balance. I think the Italians understand and have always felt that balance in life is more important than their money and more important than anything. And I think for people coming in often for monetary reasons, to understand that kind of balance is the curiosity from the outside to the Italian way.

David Westin (39:18)

Coming up, taking responsibility for the future of AI with David Autor of MIT and Eric Brynjolfsson of Stanford. This is Tom Keene inviting you to join us for the Bloomberg Surveillance podcast. It's about making you smarter every business day.

Paul Sweeney (39:41)

I'm Paul Sweeney. We bring you command complete coverage of the US Market open. We cover stocks, bonds, commodities, even crypto. All the information you need to excel.

Christina Raffini (39:49)

And I'm Alexis Christopher. Bloomberg Surveillance also brings you the analysis behind the headlines. We do that through conversations with the smartest names in economics, finance, investment and international relations.

David Westin (40:01)

We do all this live each and every weekday, then bring you the best analysis in our daily podcast search for View Bloomberg Surveillance on Apple, Spotify, YouTube, or anywhere else you listen.

Paul Sweeney (40:13)

On the east coast, listen at lunch, and on the west coast, listen as soon as you wake up.

Christina Raffini (40:18)

That's the Bloomberg Surveillance Podcast with Tom Keene, Paul Sweeney, and me, Alexis Christofforous. Subscribe today wherever you get your podcasts.

David Westin (40:26)

Bloomberg Surveillance Essential listening each and every business day. This is a story about the fault lying not in our stars, but in ourselves. To paraphrase Shakespeare, that artificial intelligence will change our world is without question at this point. But who or what will control that change is more open to debate. David Autor of MIT says it's ultimately up to us

David Autor (40:56)

Almost all the conflicts in the AI era are between competing groups of people, not between machines versus people.

David Westin (41:04)

David Autor is professor of Economics at MIT and the co director of the Labor Studies Program at the National Bureau of Economics Research. He's also emerged as one of the world's leading experts on the impacts of AI on the American worker. He spoke to us from MIT's campus in Cambridge, Massachusetts.

David Autor (41:22)

The interests of the creators may very well not be the interests of the end users. We see this with social media, for example, all the time, and so we shouldn't pretend that this is an engineering problem.

David Westin (41:33)

The problems Otter refers to are at the center of a new series of essays featuring authors like Google's Eric Schmidt and OpenAI CFO Sarah Fryer.

Paul Sweeney (41:43)

Think about that. Like over the next couple of months,

David Westin (41:45)

Stanford professor Eric Brynjolfsson helped organize the project, which they call the Digitalist Papers.

Paul Sweeney (41:51)

We made a list of people that we thought would be ideal to write about the economic implications, and we had sort of our A list, our B list, our C list, and I was just overjoyed. We never had to get past the A list.

David Westin (42:03)

All of these 22 essays address things that could be really profound, so it's hard to pick and choose. But if you were forced, what are the three or the four that you think really deserve the most attention right now?

Paul Sweeney (42:15)

Oh, you're asking me to choose between my children, but I'll pick out a few. I mean, in the beginning of the volume, we have some people setting the technological landscape. I thought Eric Schmidt did a great job describing what he calls the San Francisco Consensus. Later in the volume, people like David Autor and Neil Thompson talk about how it's changing expertise and some of the sometimes counterintuitive effects that the same technology may upskill one occupation while deskilling another occupation, depending on how that occupation was configured previously.

David Westin (42:49)

Otter says that artificial intelligence is already Reshaping the value of human expertise. And in his paper, he lays out a new economic framework to understand why which jobs will be affected by AI

David Autor (43:01)

and how it's very natural simply to think about what will be automated. And you know, you think, oh, what is exposed? Whatever is exposed to technology will shrivel up and die. But you know, if you think about it for a minute, you know, it can't be quite right because, you know, we all use lots and lots of technology and we're not primarily threatened by it, right? We're very happy to have the GPS on our phone, to have our personal computer. And so many of us are exposed. But of course we also know there's some risk. So is there such thing as good exposure? Is there such thing as bad exposure? And the way we frame that question is in terms of expertise. Your job has many, many pieces to it. Some of them are what you're essentially really good at. You're a great researcher, you're a fantastic interviewer, reporter, and then there's lots of other parts of your job that are kind of necessary but not really important or essential. If that supporting work is automated by AI or any other technology, you're happy. You're like, oh, great, now I can really focus on what I'm doing.

Paul Sweeney (43:53)

Good at.

David Autor (43:54)

It makes your expertise more valuable, allows you to specialize, to exercise your comparative advantage and strip away all the time waste. On the other hand, if technology can suddenly do the thing that you are most good at, research at reporting at skilled repair, medical diagnosis, then it's really competing with you.

David Westin (44:13)

Otter says the key lies in what tasks within a job are being automated. Are they high expertise or low for lawyers? If AI takes over the relatively low expertise job of drafting routine contracts, it may mean that you need fewer lawyers, but those that are left get paid more because the high expertise part of what they do is even more valuable.

David Autor (44:36)

There'll be fewer people doing it. Those who remain will be very specialized, right? The language translators who remain working, they will be doing diplomatic documents, legal documents. As technology encroaches, the work that remains will be more specialized, higher paid, but there'll be less of it.

David Westin (44:52)

On the other side of the coin, what happens when the high expertise tasks get automated? The barriers to entry fall, employment goes up, wages go down. Picture drivers and ride sharing apps.

David Autor (45:05)

Think of how ride hailing software changed the taxi driving industry, right? So taxi driving historically had two components to it. One was driving a car, which something most people can do, and the other was knowing your way around, which something most People did not do, could not have. I certainly don't know my way around anywhere, even wherever I've lived. And you know, ride hailing, sure, it introduces this interface for calling cars and so on, but it also integrated gps. Suddenly, to be a taxi or chauffeur driver, you don't need to know your way around, right? You can go to any city that you don't live in and drive Uber immediately because you know the phone tells you what to do. So this created all kinds of new competition. It commodified the expertise of knowing your way around the place. I think the evidence suggests that it lowered wages of people in the taxi driving industry. Incumbents did not like it, and understandably so.

David Westin (45:54)

So with this analysis, what is the most likely consequence for the labor market overall?

David Autor (46:01)

There are many, many signs that we have long term labor shortage, so we're not going to run out of jobs, but that doesn't mean there's nothing to worry about. A world in which everyone is working as a crossing guard is very different from a world in which everyone is working as a medical doctor. In the first case, people are relatively interchangeable. Most people can do that work and so that's not specialized expertise. It won't pay well. There might be a lot of people doing it, but employers won't have much incentive to treat them well. On the other hand, if everyone is doing specialized work where what they do is high stakes and it really adds a lot of value, that's a better world.

David Westin (46:31)

When you talk about what automation has done thus far, sort of pushing people to the extremes, you know, higher, higher pay, fewer people, or lower, lower pay, lots of people. Is it indeterminate what I could do to inequality?

David Autor (46:45)

That's a great question. It, I think it is indeterminate. There are two views. One is it's, it's determinate. But I just don't know. I can't see that far ahead. I think a better answer, the one that I believe in, is we have a lot of choice about this.

David Westin (46:58)

Choice is a theme that comes up often in the digitalist papers. And Stanford's Bryn Olfsen says making the right choice depends on having the right information. Given your sophisticated understanding of transformative AI, are you more confident about the upside from AI today than you were a year ago?

Paul Sweeney (47:17)

I'm confident that the capabilities are breathtaking and they're going to get better. I'm confident that the productivity benefits are there to be had, but we need to work harder at it. I'm worried that we're not going to do it in a way that create widely shared prosperity. So it's a mixed bag. But ultimately there's no predetermined future.

David Autor (47:35)

There are many, many ways for us to use AI. It's an incredibly flexible, malleable plastic technology. You could use it to try to automate people out of existence. You could also use it to collaborate with people to make them more effective. But I also think that it depends on how we invest, how we build out those technologies.

Stephen Rattner (47:55)

Right.

David Autor (47:55)

You know, China runs the world's largest surveillance state, the world's largest real time censorship apparatus, and it does that with AI. But that doesn't mean that's what AI does. Right. That's an investment in building out a capability. But you could also use that capability to say we're going to make health care more accessible and less error prone, or we're going to make education more affordable and more engaging. So we have a lot of choice about how we build out this technology. It doesn't build itself and it takes a lot of investment to make it good. Think of the billions and billions of dollars that have gone into self driving cars. AI didn't wake up one morning and say, I'm going to drive cars. Right? That was a huge, huge decision by many, many companies to build out that capacity. So it's very unlikely that we will achieve things we don't set out to do. But what we will achieve depends on what we prioritize.

David Westin (48:45)

China made the decision about surveillance. It came from top down. It didn't come to the bottom up. If there is this choice when it comes to AI in the United States, in the Western world, does the government have to have a substantial role in that or can we trust the markets to get to the right answer?

David Autor (49:01)

Well, unfortunately, I think it would be better if the public had more democratic control in this. But it's very difficult to do because AI, unlike many other technologies, is almost entirely private sector. It's not that I think the private sector has evil intentions with AI, but its objectives are much around reducing labor costs. People want to automate, but we have a collective interest in employment and in the labor market working. So I don't think the incentives of the private sector are ideally aligned for developing the technology in the direction that that would be most socially beneficial. That's not a criticism, that's just a configuration of market forces.

David Westin (49:38)

Otter says it might come down to the government to keep labor markets working and to ensure that AI transforms society for the better. The alternative might not be pretty.

David Autor (49:49)

The bad scenario is one where the value of human expertise is just liquidated very rapidly. And that would create enormous problems for society.

Paul Sweeney (49:59)

And.

David Autor (49:59)

And it wouldn't create problems of lack of material wealth. We'd have tons and tons of productivity and resources. But it would create a huge problem for distribution, for identity, and for our democracy. Most of our income distribution depends on labor, the value of labor. That's how most of us get our income. So if all of a sudden labor were devalued by machinery, most of us would have nothing to sell to the market and therefore no way to capture all the resources that are being created. Democracy depends on the idea that most people in the society are both claimants on the society and contributors to the society. And how do we contribute? We contribute with our work and we contribute with our taxation. And so if all of a sudden we had nothing to contribute from a market sense, I don't mean from a moral sense, because our labor wasn't any more valuable, but we were just claimants. And we said, well, give me my ubi. I think that would be extremely just a fundamental existential threat to the way our democracy works. I don't know how many of your viewers have seen the movie Wall E. Wall E's a future where robots have kind of are doing all the work and people just float around, you know, in kind of hovering armchairs. They weigh 300 pounds, they watch holographic TV and drink big Gulps. Right? They're just sloths sitting in lounge chairs and it looks horrible. But whenever I watch a movie, I think, well, that's the good scenario. That's the scenario where they've actually figured out the income distribution problem and then they just sit around doing nothing. It doesn't look fun, but at least they're not at war with one another. However, I don't think that's the likely scenario. I think in a world in which all the resources were generated by machinery and only a few people own that, they're the owners of the AI companies, whatever. We would have a very unequal and very fractious society. And that's how most of human history has been. So this is not just a dystopian fantasy. So I think we want to preserve the labor market because we want to preserve democracy. We don't have really great alternative models of this at present. And so that's another reason to want to use this AI opportunity well, and it is a huge opportunity. It gives us the ability to make progress on climate, on nutrition, on education, on health care, on ending world poverty and dealing with disease. Right. We have so many huge technological and social challenges that we can make faster progress on with better tools. So there's huge upside, but there's real risk.

David Westin (52:24)

That does it for us here at Wall Street Week. I'm David Westin. See you next week for more stories of capital.

Paul Sweeney (52:34)

Sam.