They should spend money on the Green Economy. California governor gavin newsom announcing he will says out sales of gasoline powered cars by 2035. To replace them, significant investment will be needed. We saw tesla and volkswagen making announcements in electric vehicles. Sell green eu will bonds as part of its recovery. The ecb will start buying bonds leading to environmental goals as part of its stimulus. It helps the climate and economy. As more job losses potentially become permanent, new green opportunities could be the answer. You will find parallels in history where Government Spending restructures the entire economy, especially when you look back at world war ii. What california announced today could be the beginning of this green restructuring. Joe california on its own one of the biggest car economies in the world. That state has often come out ahead in terms of green standards. Gavin newsom saying any car sold by 2035 and beyond has to be a zero emission vehicle. At new heavy duty trucks be zero omissions. Emissions. You see the mandate. Is there the investment to back this up . It does have some tremendous economic implications. I know we are a capitalist society. Throughout history it has been these types of government pushes that have been a catalyst for the next economic growth. Joe to that end, i want to bring a fellow at the Roosevelt Institute and associate at theor of Economics University of new york. You are out with a new study looking at the extraordinary Rapid Transformation of the economy during world war ii and the amount of Government Spending required to completely reorient the economy around that effort. What was your number one finding from looking at policy during that period . My colleague and i, for us there are two lessons. There is a lot more flexibility in the economy then you think when you spend on a big scale. Theou look at world war ii, military spending increased by an amount equal to 80 of total prewar gdp in a span of four years. People thought that must have meant civilian Living Standards falling, but it didnt. Consumption rose through the war. This huge influx of public dollars and the public planning process that went with it led to part of the fastest output growth we have seen. Huge increases in productivity, increases in labor force participation. The result was this Spending Program paid for itself and did not come at the expense of civilian production. Research shows it did not come at the expense of equality either. It was reducing equality in some shape or form, helped all boats rise to an extent. We worry a lot about Climate Change and a growing divide and an unequal recovery from the pandemic. How can it be a force for inclusivity . J. W. this ties into conversations around the fed, this recognition of Macro Economic policy has big implications for income distribution. What you see much more dramatically during the war period is weak labor markets are worse for people at the bottom. When you have nothing but your labor to sell, you depend on having a sellers market. The other side, a strong labor market like we saw during the war brings people into the labor force who never would have had a chance and opens up opportunities that dont exist under normal conditions. A super strong labor market which you can get by a Spending Program is the most powerful force for income inequality there is. This is great. When you talk about the parallels between now and what we saw during the wartime era, is there a sense the time we were living in back then was different enough from where we are today that some of the programs in place then may not necessarily work or have the same intended effect today . J. W. i would not want to do a cookiecutter approach of mimicking the wartime period. In some ways, the war experience is more similar to the problems facing us now than the problems we were worried about 10 or 20 years ago, both in the sense of the scale of Economic Transformation required, building up new industries from the ground up, things like aircraft and also the scale of public spending required. When you look at decarbonization, you are looking at something bigger than any Peacetime Program the u. S. Embarked on. Analogy will the be quite close. We dont have a lot of other see the kind of scale people are talking about, what that might do to the economy. It is critical we learn from the cases we do have. Joe what about the planning part specifically . We can spend 80 of gdp and not cause the consumption deprivation some people might have thought. However, a war, there are basic munitions. It is clear what you need to build. Talk about how crucial it is to get the planning part right and what mechanisms we need to do a largescale decarbonization. Here is a mandate from california, how much more centralized does it need to be to avoid being messier than it needs to be . J. W. what is called for is a mix of approaches. When you need an established industry to operate on a larger scale, just order more steel if youre talking about the steel industry, or subsidies can be appropriate or some straightforward mandate. When you are talking about a newer industry, one that exists in the private sector but not on the scale that it needs to, it is clear financing can be a huge problem. There is a big role for the government as the venture capitalist of the Green Economy. The private sector a few sectors they like to take risk but in general they dont, specially when a lot of the payoff may be public rather than private. There is a big role for channeling credit toward sectors that have commercial potential. There was an enormous amount of that during the war. Even the investment. Our by private companies was publicly financed during the war. In a sectors really knew that have to be built from the ground processing, which was a big industry, the government has to just step in and do it. We need public investments in sectors where there are too many externalities, where too much of the costs and benefits are being borne by the public anyway. The lesson is it will be a mix of approaches. The key thing is going to be scale, doing enough of everything. Caroline can a scale be achieved by a statebystate level . As we look at political risks,if come november we have the same president as we do now, likely these pushes for a Green Economy are not going to come from a federal level, but we might get statebystate loss as we law s as we see from california today. J. W. i think states have a lot more fiscal capacity than they have been willing to use so far. Big federal a very program. If we cant achieve that, it would be a mistake for a big state like california to sit on their hands. You can have Massive Public investment and financing programs carried out that the state level if that is where the political will is. You have got to go big enough. If we are talking about macroeconomic benefits on productivity growth, that comes from the scale of the program. Marc great to get your thoughts and research. An associate professor of economics over at the City University of new york. He is talking about the efforts in california, a statewide effort. What about a nationwide, continent wide effort . Coming up, we continue this focus on Government Spending and talk about europe. Europe about to make it a much figure market. We are talking about green bonds. This is bloomberg. Nowwe no change is k change is needed and it is possible. The European Green deal is our blueprint to make that transformation. At the heart of it is our mission to become the first climate neutral continent in 2050. We will not get there with the status quo. Marc president of the European Commission laying out her case for the Green New Deal in europe. Interesting because we see europe potentially going down this road. We saw germany test its market with green bonds, issuing a bunch last month in august, though i am not sure how well they have been performing. Joe they have been performing the same the yields are a little bit lower, so more in demand as designed. You can figure out which is the green bond yield. A little bit lower than the benchmark because of the favored status, the desire to get this investment for green projects. With the backing of the government, the demand is there like with any other. Been promisings not just to buy green bonds, which foster projects which are green in their focus, but sustainability link bonds, which are about holding a company to account. Looks as though the ecb could back this in some way. On the ecb and its role in monetary policy, explain how it works. The news is the ecb is going to start accepting green bonds in some way as collateral. How much is that expected to expand the market, create liquidity and continue to channel investment towards these projects . That is one thing. Christine lagarde said repeatedly she does believe the European Green deal is the way forward, which is striking to hear take what some is a political stance, to say Climate Change is real, we have to tackle it, and the European Central bank will do its part. Cities,rn countries and many voters do care about the green agenda. It makes the institutions look on the same page as the voters. What is interesting is what the European Commission is doing, because if you look at the Recovery Fund, this huge Recovery Fund for countries hit by coronavirus, they want to convert 30 of the total to be financed in green bonds. That means we could see 200 Million Euros in green bonds hit the market. This would be the European Commission tapping markets. Anything issued by the European Commission would be aaa bonds. They are creating a huge market trants that huge en anyone can buy. They believe this is a huge market for the future and whoever gets there first and gets to create a benchmark for that market will be successful. The europeans want to create that benchmark by issuing these bonds. Marc i believe urszula underline got to this point, this idea of creating a new bond yield curve that focuses on the sustainable side of things. Obviously there is a control issue and want to be out in front of this. Are you going to see the demand where they will be able to create that curve . Maria it is not just regulation, but concerns from the investment community. People want to see what is in it. That is the issue they care about. A lot of companies would tell you we want to buy, but we are not sure if in five years the europeans will consider it a green bond. This is where this rush to regulate comes from the europeans. We expect the issuance will happen over two years. You could get a lot of money entering the market. The problem as you point out, every time we talk about european issues is this has to be approved by the national parliament. Theree other issues, is political will to get this done . They believe it politically sells well. Weightel on a financial it makes sense and also makes everyone look good. Works when it is to the Climate Change focused end. We have seen so much infrastructure spent for years, actually. Pre being a journalist, i was writing about a windfarm investment in spain. How much has europe led the charge in what happens to be Climate Change focused investment . Maria they will tell you not enough. A lot of the money that will come via the Recovery Fund will be pegged to projects approved by the commission to some extent, but also approved by the institution. The money is not going to be handed out. The money will be handed out to projects we are talking about. You could expect countries like italy and spain will say we want to create new projects that will feed into that. The problem is this is happening so quickly. The Recovery Fund was approved two months ago. That was only announced this week. Year,know by april next those plans will have to be ready. The European Commission wants to look at them by april next year. Joe our thanks to maria. All kinds of interesting stuff in europe. One company that benefited from Green Investment is tesla. We dig into its latest announcement and the reaction from shareholders next. This is bloomberg. Caroline today we are focused on public investments in a Green Economy and how that could benefit the current recession. Tesla has got a pretty big boost back in the day when the u. S. Energy department loan from 2010. Tesla is an example of how successful investment could work. Right now they are focused more about battery costs, so it is a letdown for shareholders today. The future is bright. Joe yesterday was battery day. Investors did not seem to be that excited. Stock has been getting hammered lately. Batteries themselves are seen as one of the crucial technologies that needs to be cracked from a price standpoint to build in an electric d carbonized infrastructure. You see the collapse we have seen in the past decade in terms of a kilowatt hour storage of batteries and expected movement. This is the area where aggressive r d spending, theoretically from the ur progress. Could sp marc i took off for battery day. A lot of the devices, this has been the holy grail for a while where you can get Better Battery Technology in a smaller package that will power our cars. Joe that is the hope, you can power solar and wind. Lets bring in bloombergs ed ludlow. Thanks for joining us. Setting aside the investor reaction, what is the breakthrough, or what is tesla saying about the stateoftheart Battery Technology that can push them in the Industry Forward . Ed it is a roadmap to cut costs, that is what tesla stated. It underpinned what we have been talking about, which is the battery pack is central to the economics of electric vehicles. The battery accounts for nearly 40 of the 25 to battery costs. The reason the ev adoption is so low, north of 4 in terms of Global Vehicle sales, is affordability. Elon musk was talking about this in july, that he felt tesla would have failed in its mission if they did not bring a more affordable ev to market. That is why the bigticket item yesterday seemed to be this announcement tesla will bring a 25,000 ev to market in the next few years. Update,n substantive what tesla is doing to vertically integrate the work they are doing around battery sales. They want to buy them from the likes of lg can and panasonic lg chem and panasonic. If they can pass the cost down to the consumer, getting close to price parity of the Combustion Engine vehicle, we will see the adoption of electric vehicles globally pick up speed. Caroline with a lot of guidance from you, and i was talking last week to the leader of one of the Key Competitors to tesla on electric trucks. Here is what he had to say. There will need to be hundreds of suppliers making the parts. There needs to be supply chains around those suppliers for the materials. Batteries is at the center of a lot of this. Thinking about supply is important for us. Caroline he is talking supply chain there. Ed one of the announcements yesterday is tesla invested in a lithium clay claim in nevada. They want to build their own cells. That is part of the cost consideration i was talking about. Caroline ed, you were all over battery day. We thank you. We will look at tesla and its share price. Joe first thing we will look at in the morning. Caroline that is all for whatd you miss . Joe Bloomberg Technology is next. Marc have a great evening. This is bloomberg. Emily welcome to Bloomberg Technology. Stocks slumping to a twomonth low. The nasdaq tumbling, led by apple and amazon. The fed warning the economy will need more stimulus to be lifted out of the recession. Fed chair powell saying there is a long way to go before