♪ caroline: from bloomberg's world headquarters in new york, i'm caroline hyde. joe: i'm joe weisenthal. romaine: i'm romaine bostick . software and a fire to nudge the s&p to a high. joe: the question is, what'd you miss? caroline: renewed optimism is the word of the week. stimulus talk in the united states, but over in the u.k., quick approval of the covid-19 vaccine from pfizer and

biontech. new york is talking about mid-december. more and more investors are seeing 2021 as potentially supercharged economic recovery. joe, the shared optimism for recovery along with a new biden administration, it is playing out in the markets. joe: yeah, if you look at the nature of the recovery, the nature of the market moves, you see it in the rates, the steepening curve is getting notable. you look at the sectors that are moving. it is very much economic recovery. it is not like the market earlier this year when people were piling into tech and asset prices were going up. this looks like more confidence. , let'se on this comple welcome kati groenefeld. from the equity levels, equity moves not as expected. the theme of reflation, recovery, it seems pretty real. >> it did look a little shaky

this morning. all the major indexes pretty much started down, but again, it that back-and-forth on stimulus, like you are saying, it is more real. we did close in the green on the s&p 500. he saw the russell 2000 small-cap index little change. you saw the nasdaq 100 make its way back as well. losses had been pretty steep in the morning. people,e, talking to all the attention seems to be on the bond market. even though treasury yields on the 10-year only rose about a basis point you are seeing analysts talk about what that domino effect will look like if the rise does continue, because we are on three days of rising up. romaine: wild, three days of-- wow, three days of rising. we used to have a show on the network called "real yield." i think they canceled it. [laughter] romaine: aren't they still rising? katherine: that's a good point. you have 10-year grill rates that strip out the effects of

inflation. they have been dropping the past month. they spiked a little bit after the election, and that seemed to maybe take a bite out of tech. now you are seeing real yields lower again. that is giving the tech sector a little bit of breathing room. that is a pretty duration- sensitive sector. it is going to be more vulnerable to big spikes and yields than other sectors. but now as real yields continue to drive lower, about -90 basis point, that seems to be taking the pressure off the tech sector a little bit, and it has come back in recent weeks after initially really taking the brunt of the rotation trade. caroline: romaine just facing jon ferro's message and in the show because he will be quick to say "fake news, it is still there alive and kicking." on friday." we were talking to a guest earlier who said he is surprised that the delay had not stopped iots assent.

katherine: the dollar is a tricky question. it is harder to suss out the different crosscurrents from the rising yields with the stimulus taxes, to be the push behind the recent drive higher in yields. if you zoom back and you think about what tends to drive the currency market, it is a pretty zero-sum game, and it tends to rest on growth differentials. if we do get a big stimulus package in the u.s., talking $900 billion, it is not the multitrillion dollars deal that people talked about, but it is going to create a bridge for the economy until we have the vaccine, which should help some of the still struggling labor market stocks. adp was a disappointment. if that does cushion the u.s. economy and help it rebound, the growth differentials, you are seeing the euro surge, that could come into play again. romaine: i'm sure we will catch

up with you soon. as katie was just mentioning, a lot of the optimism in the market does hinge on a vaccine, does hinge on the economic recovery. there is a long road ahead. coming up next, an exclusive conversation with nobel prize-winning economist paul krugman and get his thoughts about the economic challenges ahead and hopefully here economic solutions. that is coming up next. this is bloomberg. ♪

romaine: today we are focused on the renewed optimism in markets

about the economic recovery. joe and caroline, you see that reflected in the record highs, the softness in the dollar, and the expectations for inflation. joe: yeah, if you look at break-evens, which are one market-based measure of what inflation could do over the next couple of years, we continue to see that rise. the blue year is--blue line is 10-year breakeven, highest in over a year now. that plunge in the crash is just one major, but it does speak to the degree to which inflation bets are starting -- continue to have momentum. caroline: it is 2%, though, and the main aim is to get past 2%. interesting to see if anyone can hit that. joe: for more on this, we are going to be talking with nobel laureate paul krugman, to sing with professor of economics at the graduate center of the city university of new york, and

columnist for "the new york times." thank you so much for joining us. the market looks optimistic. you see it in breakevens, you see it and sectors was -- we wee sudden blow from the virus, and once that headwind goes away, there is pent-up demand. there is people who have been saving a lot of money. i'm actually quite optimistic about rapid economic recovery starting sometime next year. that is not indefinite, but i think people are right to be okta mystic. theremistic for romaine: is a lot of money in terms of household savings fo with regards to the labor market, i'm curious as to how the makeup of our economy today is much more service-oriented than it was in the last recession and certainly 20 or 30 years ago, how that will play in the economic recovery. paul: well, there is this question, can we expect a

morning in america type of recovery, 8% growth out of -- in some ways the pandemic slump 82oks more like the '79-' slump than anything more recent. part of the argument against that is we are a service economy, not a manufacturing economy, and durable goods never selloff all that much. which i get. on the other hand, the unemployment has come out of service consumption that just fell off a cliff because people were correctly afraid and still are afraid to consume those services. once people start going back to restaurants, once people start traveling, i don't see why we can't have a lot of growth. again, not to say there are not problems further down the pike, but i haven't seen really good argument about why we can't have at least several quarters of quite rapid growth coming up. caroline: what about the

problems not just further down the pike, but right here right now? we have talked to potentially a fiscal bridge, much longer one then the democrats are talking about. is that still necessary if you think we will have great growth outside of the virus? paul: yes. first of all, the next few month are going to be extremely grim. we have this peculiar situation where out there not too far away salvation but in between's desolation and death, quite literally. ast is economic as well actual literal death. and a lot of people are going to we don'tatuitously if have a really good bridge across this. and anybody's guests -- i'm not too optimistic about the politics. the one thing to say, and it is kind of cruel -- everybody talks about the k-shaped recovery.

the people who are suffering most, and they are suffering enormously and it is our obligation to help them, they also don't have a lot of money, they don't have purchasing power in the best of times. the people being really hurt -- i am optimistic about the economy, not so much about people moving forward. we really should be above all -- actually, every effort should be redoubled given that we know that there is an end point to this full of there is no reason for people to be suffering economically and for us to be having the db we are having when there was a vaccine that is-- death tolls we are having when there is a vaccine that is around the corner. joe: we don't know if we are going to get that bridge, another stimulus to get to the vaccine. going back this summer, there were a lot of fears of what would happen if the ui expansion were not renewed when it expired at the end of july, and you warned that it could be a very big hit without that. it never got expanded at all, and yet we didn't see the hit.

consumption basically continue to rise uninterrupted. it is hard to see where the drop-off was in the charts. have you updated some of your own views on the need for stimulus? if so, what are the broader lessons you take away from what you assessed back in august and the end of july about the need for the seamless versus what you see now? paul: i still think we really needed it, and in some ways it would be less urgent now if we had done it then. it turns out that there were -- those ui checks unintentionally had a very generous program, and sufficiently so that even a lot of lower income families managed to put money aside. it turns out they had build up reserves they were able to draw on. the other thing we were really -- there had was been enough maneuvering by state and local governments to limit

the scope of cuts so far. and maybe it is enough to get here revenue to w started to recover with the economy. i don't think it was wrong to be really worried, but we did learn workers whoow-wage were so badly dependent and were laid off were more prudent, you might say, when they were receiving those ui payments then we had anticipated. they were better prepared in a way for the political impasse than the politicians were. romaine: i know we talk a lot about this being a k-shaped recovery, but the fact that this recession, the pandemic did not hit the upper class, the wealthier class, as hard as it did the lower-income classes, was that also feeding the overall recovery new matter what shape we want to call it? paul: well, the fact of the theer is that people --

bulk of the purchasing power, if weightpeople by the-- people not by their human rights but by their spending power, most of the spending power was relatively unscathed. overall, huge amount of devastation despite the cares act and all that, but for higher-income people -- we are an unequal country to start with and people on that side of that were piling up money. you are goingman, to be sticking with us for the next, we will be talking about the new biden administration policies it should pursue and what you would advise the president-elect to do. we will talk about that next. this is bloomberg. ♪

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joe: president-elect joe biden on tuesday announcing that he test one of the challenges of recoverydency, keeping from the coronavirus on track. let's bring back economist paul krugman. in the wake of the financial crisis, you were merciless against the people who like to stroke their chin and talk about reform in long-term deficit reduction. it seems like they are much quieter these days. do you think there has been significant intellectual evolution the last 10 years about appropriate policies needed to get us out of a slump? paul: oh, yeah, there has been a huge ground shifting, it is a

paradigm shift, something like that. you have ultra-respectable sayinglike larry summers debt is not to be worried about. that is very much reflected in the biden economic team. l for dogsed one plura is-- doves is a bevy so this is biden's bevy of deficit doves. fiscaling that responsibility never matters, but boy, is that not at the top of the agenda right now. credibility all those deficit scare stories of 2013 had, they don't have any credibility now. caroline: a bevy. interesting. there is also a bevy of people looking slightly different than usual economists. there was women, people of color

for are you thinking about the diversity at the table of not just the way people look at, but their thought? is there enough new thinking about the biden administration? paul: first thing to say is that this is an amazingly competent group of people, it is like different -- well, i'll say something i shouldn't, but compared to the trump team, this is a different people of people who know--different group of people who know what they are doing and talking about. so much so that i think some of them are over qualified for the positions they have. they should all be the chair of the council of economic advisers. is a group with strong progressive credentials, very different background. never mind trump, think about obama. tim geithner vs. janet yellen. aink about peter orszag,

really good guy, but compared with neera tanden, you are seeing a significant shift towards a much more progressive center-left orientation. whether they kenexa do anything different--whether they can actually do anything depends a lot on politics and in particular on the senate race in georgia, but the orientations a very different. romaine: the politics are challenging to get anything through congress. i am curious -- it seems like there were any serious lessons we could have learned from the pandemic and from how we initially responded not only in the u.s., but in other countries as well with regard to forms of fiscal stimulus and what was effectively government aid to keep money in people's pockets will i'm curious as to whether that sort of validates or vindicates the general idea here that the government involvement in the market is necessary if we are going have a functioning

economy, not only when times are bad, but when times are good. paul: well, i would like to hope so. the thing to say is also about the biden team and generally the ground shift, i believe we are going to have a brief, hopefully not too brief, period of euphoria once there is a vaccine, but underlying, we are still in an economy work we are only able to achieve full employment with very low interest rates and with substantial deficits, so the need for some kind of basically continuing fiscal stimulus over the medium-term and of course the need for lots of public investment -- infrastructure, climate change, education -- all of those things will remain. so the case for a much more market, but also prob let's fill in where the

market doesn't do it -- attitude on the part of government can i would like to think it has been vindicated by events over the past few years including the pandemic. joe: we don't know who is going to control the senate, but it is very plausible that it will be republican-controlled, in which case passing anything will be very difficult, which is leading people to what the administration could do unilaterally without the help of the senate, and one idea that has been floated that could provide some relief to some people is getting get cancellation up to $50,000. it is very controversial. some people say it is regressive, there is a lot of ambiguity. would you support something like that? paul: first of all, it's something you can do, and that is kind of important. student debt cancellation without a cap -- lots of future plastic surgeons would be

getting relief out of that. the 50k number is a different thing. among other things, you get a lot of students who didn't manage to get their degree with debt. i think how much stimulus you get out of that, there is a lot of argument about that. i think the low numbers people are putting out are probably wrong. but beyond that, he does a lot of-- it does a lot of good things in terms of balance sheets and leaving people in a position to start businesses. a $2ld love to see trillion stimulus infrastructure plan, and this is not going to do anything like that from but it is a good idea. it's a pretty good idea that biden can do even if mitch mcconnell doesn't like it. caroline: nobel laureate paul krugman, thanks so much for weighing in on all things future of the economy.

of the book "arguing with zombies." we hope he doesn't have to argue with too many of those photo fighting for the future of progressive music listening, and list.d the show 2020 was it progressive? joe: not at all, very regressive, very embarrassing. not the future at all. caroline: mine was all "frozen." [laughter] caroline: that is all for "what'd you miss." joe: "bloomberg technology" is next. this is bloomberg. ♪ are you frustrated with your weight and health?

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approve a covert vaccine. how did they beat the u.s., and is there a risk? we will have details on when you and your kids can expect the shot. amidst a big tie between salesforce and slack, zoom reports revenue up 367%. why did the