Speaking at the 2019 SIEPR Economic Summit, Jerome Powell reiterated how the interest rate-setting Federal Open Market Committee was going to stay patient.
Cyber threats lurking in our cell phones. Tectonic shifts in trade. The powerful rise of tech giants. And the not-so-thrilling aspects of marijuana regulation.
As ominous as some of the topics were at the 2019 SIEPR Economic Summit, they are among some of today’s most pressing policy questions, according to the conference speakers.
We’ll try to be less pessimistic, the panelists quipped one after another — to little avail.
But the annual daylong Summit, in its 16th year, featured engaging insights, snappy lessons of then-and-now, and intriguing ideas as to what’s next from a slate of speakers working in the trenches of those challenges.
More than 400 leaders in business, academia and government attended the March 8 event, which kicked off with a conversation with Patrick Collison, a college dropout turned tech billionaire, and ended with an evening keynote from Federal Reserve Chairman Jerome Powell.
Highlights from the speeches and panel discussions — and opportunities to watch recordings of some sessions — are below. More information about the panelists and speakers can be found on the Summit agenda.
Patrick Collison may not be a household name, but chances are the young billionaire’s contribution plays an important — though hidden— role in your life.
Collison and his brother, John, co-founded Stripe Inc. in 2010, introducing software that has become a financial backbone of internet commerce.
In a conversation moderated by Nicholas Bloom, a Stanford economics professor and SIEPR senior fellow, Collison talked about how he went from growing up in a small Irish village to being the CEO of the San Francisco-based tech company.
Bloom plumbed the 30-year-old’s thoughts on a range of subjects. At times, the MIT-dropout sounded less like the entrepreneur and more like the economist on stage, and Collison turned his answers to the research of Bloom and other economists.
Photo by Ryan Zhang
On the value of education: “If you go to (Harvard Business School), the causal benefits are reaped the first week, just because you can say you went to HBS,” he said, notwithstanding his own experience.
On policies needed to keep Silicon Valley and America competitive: “One of the greatest acts of economic self-sabotage is playing out currently here,” Collison said.
Because of “insanely rapidly rising housing costs” and “the tragic undersupply of housing,” he said, “we have chosen to cap and asphyxiate the improbable fountain of productivity and creativity that has defined this region for the past 40 years.”
The erection of “enormously high immigration barriers to the region,” he continued, “is restricting the growth of existing firms and more importantly, inhibiting, in my opinion, the creation of new firms.”
Big corporations like Google, for instance, can afford to pay very high wages, but other businesses can’t.
“And we are disproportionately hurting those who are seeking opportunity — the lower-income groups seeking access to the opportunities of technology.”
Yet there is something to be done about it, he added, noting how California lawmakers have introduced 400 housing-related bills this legislative session.
Housing is not only a basic issue of quality of life, he said. We should treat it as a “fundamental economic justice” and “as a matter of innovation — like how do we keep up with China?”
Watch the keynote by one of the world’s youngest billionaires.
There are more computations in a single swipe of your cell phone than it takes to send a man to the moon.
That was one of many smack-your-forehead statements that Alex Stamos, the former chief security officer of Facebook, packed into the panel discussion on the era of cyber threats. Public trust, national security, and individual privacy are all under attack, explained Stamos and his fellow panelist.
Photo by Ryan Zhang
Joining Stamos on stage was Rachel Wilson, a former senior executive at the National Security Agency who is now Managing Director and Head of Wealth Management Cybersecurity at Morgan Stanley.
Whether by cell phone, the dark web, corporate hacks, or disinformation over social media, cyber warfare — in all of its pernicious forms — is now a constant. Our vulnerabilities lie both in plain sight or in less obvious corners of society, they said. Government agencies, hotel conglomerates and insurance companies are all extremely valuable targets for information.
“In the nuclear realm, you know who’s attacking whom,” Wilson said. “But in the cyber world, it’s hard to know who’s launching what.”
And for those fighting on the cyber front lines — in business and in government — as soon as you’ve “back-hacked” one threat, another has slipped in, she said.
“The unfortunate truth is that even in the Fortune 500, about 100 to 150 companies aren’t even in the game when it comes to cybersecurity,” said Stamos, who became an adjunct professor last year at Stanford’s Freeman Spogli Institute for International Studies.
The question now, he said, is how to build an environment that supports and enables businesses to battle the attacks.
Since the banking and tech titans could barely play defense, what then, should the smaller guys do now to protect their data and customers, asked panel moderator Nicole Perlroth, the cybersecurity reporter for The New York Times.
Forget laptops, use web-based devices, and put as much data as possible in the cloud, Stamos advised.
And give the job of defense to the biggest tech corporations which can dedicate small armies to detect and counteract attacks, he said.
Watch the session, which was in part, a metaphorical call to arms.
The expanding legitimacy of marijuana use has created a new marketplace laced with policy challenges.
Ten states have now legalized adult recreational use of marijuana, and more than half of the states in the U.S. have adopted medical marijuana laws. But the substance remains illegal under federal law.
“It’s tricky when states try to legalize something that’s still federally an illegal substance, and we’re seeing this come to a head now,” said Alicia Wallace, a business journalist who moderated the panel on pot’s new place in America.
Photo by Ryan Zhang
Lori Ajax, who spent more than two decades in alcohol regulation before taking the helm of California’s newborn Bureau of Cannabis Control, agreed.
“There is no comparison on the product,” Ajax said. “It’s not just joints anymore. It’s everything under the sun, which makes it very hard to regulate.”
Indeed, the product has moved way beyond bongs and rolling papers. Cannabis edibles, vapes, tinctures — even suppositories — are all gaining popularity, said fellow panelist Jonathan Caulkins, a Carnegie Mellon professor and leading expert on drug policy. And the level of THC — the primary intoxicating ingredient in cannabis — has now become five times more potent in pot, compared to pre-2000 years, he said.
What’s more, production costs are expected to only decrease, Caulkins explained.
The current $10 per gram price can eventually fall to $10 per pound, as cannabis becomes farmed as easily as tomatoes. The product, he predicted, will then be used as “loss leaders” — sort of like sugar packets — or bundled with other goods and services.
Businesses will be able to give it away the same way restaurants put out bowls of salted nuts at the bar, Caulkins said.
Meanwhile, corporations — ranging from agriculture to tobacco and liquor — are jumping into the fray of the burgeoning multibillion-dollar industry. Alcohol companies are asking if they can sell cannabis mules, or cannabis beer, Ajax said.
The California bureau’s objective is to keep consumers safe, testing for pesticides and enforcing truth-in-marketing priorities, she said. Pot providers face other legalization hurdles as well.
Imagine their responses when we tell them they now have to keep records, Ajax said, when they’ve been trying for years to not keep any records. And because they can’t legitimately open business bank accounts, state officials have a hard time with financial oversight.
But, Ajax noted, room service “still can’t put cannabis on the pillow in your hotel room. That’s not happening in California — yet.”
Watch the panel discussion to learn more, including how pot-by-drone delivery is against California law.
There was no doubt about the big theme threading the Summit panel on trade: China’s position and influence in global markets.
The panel featured three presentations, a moderated discussion and an audience Q&A, all of which included concern for China’s growing trade power, the United States’ sustained trade deficit and recent tariffs.
“There is a willingness in the Trump administration to just sort of say, ‘whatever we agreed to in the past, we don’t like it and we’re not going to abide by it,’” said Alan O. Sykes, a Stanford law professor and SIEPR senior fellow.
Photo by Ryan Zhang
The session was moderated by Judith Goldstein, chair of Stanford’s political science department and a SIEPR senior fellow.
Soon after the 2016 election, President Trump invoked Section 232 of the Trade Expansion Act, which placed import restrictions on steel and aluminum imports. The result was a 25 percent tariff on most steel imports and a 10 percent tariff on aluminum imports.
Susan Lund, a partner at the McKinsey Global Institute (MGI) — the economics research arm of the global consulting firm McKinsey & Company — said the escalation of a trade war is making business leaders nervous.
MGI recently asked more than 1,000 business executives around the world about their outlook for their global strategies.
“Seventy-five percent said they are actively rethinking their global footprint and strategy, in part in reaction to the trade tensions and uncertainty over tariffs,” Lund said.
Domestic steel producers in the United States have been especially affected by fluctuations in the import/export market, as well as the recently implemented tariffs.
China’s global market share of steel production rose from one-third to one-half between 2007 and 2017. And, as China’s GDP began to slow down in 2011, steel production increased, flooding the export market and undercutting U.S. producers.
Tamara Lundgren, President and Chief Executive Officer of Schnitzer Steel Industries, Inc., has felt these consequences and said the invocation of Section 232, the subsequent tariffs and a strengthening U.S. economy “has contributed to the current recovery in the steel industry.”
However, despite the improvements in average U.S. steel capacity and utilization, Lundgren warned that tariffs and an escalating trade war is neither “optimal or sustainable.” She said she hopes to see more creative approaches to tariffs, more dynamic trade agreements, and a modernization of the World Trade Organization.
Watch the panel on “Trade’s Trade Winds” to get the full drift.
“My day is basically your agenda from this morning,” said Mary Callahan Erdoes, Chief Executive Officer of J.P. Morgan Asset & Wealth Management, when asked by Professor Darrell Duffie about what a typical workday looks like for her.
“I’m not exaggerating,” Erdoes said during a conversation moderated by Duffie, a Stanford business school professor and SIEPR senior fellow. “Yesterday morning, we had an entire risk management meeting about cannabis stocks. Then cybersecurity is a portion of our day every day. We spend $800 million a year in cyber defense just at J.P. Morgan and the examples that Rachel [Wilson] was giving earlier are daily.”
Photo by Ryan Zhang
In her straight-talking, often humorous remarks, Erdoes referenced the Summit’s earlier sessions and received a round of laughs when she looked at Duffie — an expert on finance — and wondered “how it came about that the guy that wrote the book How Big Banks Fail is interviewing me this morning.”
Earning an MBA at Harvard Business School and rising through the ranks at various Wall Street financial firms, with a brief stint working for a Hollywood studio, Erdoes now manages more than 10,000 employees and $3 trillion in clients’ assets.
In a sweeping hour-long discussion, she touched on several key themes often debated in economists’ circles, including general market uncertainty stemming from Brexit, the challenges of banking inside China, and using big data to provide better financial services to both high net-worth clients and first-time savers.
With the Summit falling on International Women’s Day this year, Erdoes highlighted the steady progress women have been making in the financial sector, an often male-dominated industry. She said there are more women working today at J.P. Morgan’s Asset & Wealth Management division than there were in the entire asset and wealth management field just 15 years ago.
When discussing the hurdles preventing women from entering the financial sector and academic economics, Erdoes sees technological innovation playing a key role in breaking down barriers — especially when it comes to issues like maternity leave and appropriate work-life balances.
“Technology changes everything. Everything. Everything about having to be somewhere for ‘x’ amount of hours,” Erdoes said. “We need to be smarter about having flexibility.”
Erdoes opened the conversation by saying “I have no idea how I ended up doing what I’m doing,” but watch her conversation with Duffie to pick up more than a few clues that explain her success.
More than a century ago, antitrust regulation was all about corruption — keeping political and corporate power at bay.
But today, businesses have grown vastly more complex — and so too, has the job of antitrust regulators, according to panelists in the session titled, “Technology, Platforms and Competition.”
The European Union has so far taken a more aggressive regulatory stance than the United States, but there are new calls for proposed policy changes in the U.S., noted moderator Greg Rosston, a SIEPR senior fellow and director of Stanford’s Public Policy Program.
Photo by Ryan Zhang
In fact, the Summit panel came just a few hours after U.S. Senator Elizabeth Warren pledged to break up Amazon, Google, and Facebook, if she wins the next presidential election.
Many say big technology companies are not being restrained enough from monopolizing markets, and panelist Tommaso Valletti, the chief competition economist for the EU, is among them.
The challenge of blocking mergers may be one thing, he said, but the need to scrutinize them is still critical.
“It’s a bit complacent when we say we don’t have an antitrust problem,” he said. “The fact is that we are under-enforcing in some selected areas.”
Carl Shapiro, the former chief antitrust economist for the U.S. Department of Justice, said antitrust enforcement is not the end-all solution. Other federal laws will have to be introduced to deal with the challenges of privacy and other consumer rights, he said.
It may be less of a question about preventing monopolies, he said, but how to gain market efficiencies despite some corporate concentration.
As some tech companies have widened their market shares and become “superstar firms,” Shapiro said, “that’s not a breakdown in competition, it’s a manifestation, reflection of competition, I’d say.”
Antitrust enforcement approaches “are so 20th century” and need to get in sync with the modern world, Valletti said. For instance, when Facebook acquired Instagram, regulators viewed it as an expansion into the online photo arena. But the real value of the acquisition, Valletti said, was about gaining an advertising vehicle — a key revenue source for tech giants.
“These platforms are attention growers,” he said. They try to get you online as much as possible to learn about us.
Watch the discussion and catch the simmering undertones of a hot-button policy issue.
As eyes across the world stay focused on any monetary policy moves of the Federal Reserve, its chairman made clear at the SIEPR Summit that he and his colleagues at the Central Bank do not see an immediate need to make adjustments to interest rates.
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Jerome Powell reiterated how the interest rate-setting Federal Open Market Committee was going to stay patient.
“With nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures, the committee has adopted a patient, wait-and-see approach to considering any alteration in the stance of policy,” he said.
However, “evolutionary” changes may be at hand, Powell said, as the Fed works out the details of a plan to “normalize” its balance sheet later this year and as it reaches out for public input on how it could better communicate its policy stance and guidance.
Powell made reassurances that the Fed was also going to be very cautious as it deals with inflation rates — where it has hovered around the prescribed target of 2 percent but keeps inching lower, something that is a sign of today’s times, and a far cry from the days past of high inflation.
The fact that inflation is low, and unemployment is very low is “to some extent, unchartered territory,” Powell said during a follow-up conversation with Mark Duggan, SIEPR’s director. He agreed there are challenges today in determining whether the inflation rate is being measured properly. Still, the Fed remains committed to keeping inflation under control, and being transparent in its decision-making, he said.
“Thank you for the opportunity to speak here today,” Powell said, “at a place dedicated to scholarship supporting policies to better peoples’ lives.”
Watch Jerome Powell’s full remarks — and don’t miss a rare joke about monetary policy.