WEBVTT - A Soft Landing Is Getting Harder 0:00:13.800 --> 0:00:17.400 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.520 --> 0:00:19.680 My name is Mike Reagan. I'm a senior editor at 0:00:19.680 --> 0:00:24.079 Bloomberg and I'm Moldana across asset reporter with Bloomberg. Add 0:00:24.120 --> 0:00:26.720 this week on the show. Well, we hate to sound 0:00:26.760 --> 0:00:29.400 like a broken record around here, but when it comes 0:00:29.400 --> 0:00:34.400 to financial markets, it's all about inflation again. Both the 0:00:34.440 --> 0:00:36.920 stock and bond markets got off to a roaring starts 0:00:36.960 --> 0:00:40.599 of the year following a disastrous twenty twenty two. I've 0:00:40.640 --> 0:00:43.600 made hopes that last year's surge and consumer prices had 0:00:43.720 --> 0:00:47.560 finally been tamed, but that strong start has mostly been 0:00:47.600 --> 0:00:50.920 reversed following some higher than expected inflation readings both in 0:00:50.960 --> 0:00:53.880 the US and Europe. So where do we stand now? 0:00:54.120 --> 0:00:56.880 Are these recent reports just potholes on the road to 0:00:56.920 --> 0:01:00.360 the normalization of inflation or is something else going went on? 0:01:00.920 --> 0:01:03.080 And what does it all mean for the path of 0:01:03.200 --> 0:01:06.480 interest rates. We'll get into it with a very influential 0:01:06.520 --> 0:01:09.560 economist who's best known for being Vice Chair of the 0:01:09.600 --> 0:01:12.760 Federal Reserve and a member of President Bill Clinton's Council 0:01:13.000 --> 0:01:16.680 of Economic Advisors in the nineteen nineties. He's got a 0:01:16.720 --> 0:01:19.440 new book out and it's all about the history of 0:01:19.560 --> 0:01:24.400 monetary and fiscal policy in the US. But first, vil Donna, 0:01:24.440 --> 0:01:27.200 I have to say I'm excited about this guest for 0:01:27.240 --> 0:01:29.520 two reasons. One, I think he's the perfect guest to 0:01:30.400 --> 0:01:34.360 sort of talk about all the issues affecting markets these days. 0:01:35.120 --> 0:01:37.640 But also, do you remember how excited I got a 0:01:37.680 --> 0:01:41.680 few weeks ago? Unreasonable, I will admit, unreasonably excited when 0:01:41.720 --> 0:01:45.120 I got to ride the Dinky. Yes, I remember? You 0:01:45.200 --> 0:01:49.040 remember what the dire happy it's Is it a train 0:01:49.160 --> 0:01:52.680 or a bus? It's a train. It's it's the shortest 0:01:52.800 --> 0:01:55.440 I believe, maybe our guests can correct me. It's the 0:01:55.560 --> 0:02:00.360 shortest train line commuter train line in the US. It's 0:02:00.360 --> 0:02:02.400 like two and a half miles. It goes from Princeton 0:02:02.480 --> 0:02:07.200 Junction to Princeton to Princeton University or Princeton Town the 0:02:07.240 --> 0:02:09.919 town Okay, well, yes, yes to both. Yeah, it lands 0:02:10.000 --> 0:02:13.040 right on campus. You were not as excited when I 0:02:13.040 --> 0:02:15.320 got to ride that as No, because how long of 0:02:15.400 --> 0:02:17.880 a ride? Is that? A minute? Like it's like I 0:02:17.919 --> 0:02:20.119 think it's like five minutes. Okay, So you can't even 0:02:20.160 --> 0:02:23.400 sit down, you can't even have a snack. You can 0:02:23.639 --> 0:02:25.799 you have to snack quickly. You have to snack quickly. 0:02:26.120 --> 0:02:29.680 That's what makes it exciting, is the superlative of the 0:02:29.720 --> 0:02:34.040 shortest ever train line. I've never I've never been on it. 0:02:34.080 --> 0:02:35.799 Maybe you and I can make a trip out there. 0:02:36.040 --> 0:02:38.280 We should, We should. I think our guests has been 0:02:38.320 --> 0:02:40.920 on it, including our guests. I bet he's written it. 0:02:41.200 --> 0:02:45.320 I have many times. Okay, well, before you tell us more, 0:02:46.560 --> 0:02:50.040 it's the person speaking is Alan Blinder. He's a professor 0:02:50.040 --> 0:02:53.000 of economics at Princeton and he's a former FED vice chair. 0:02:53.040 --> 0:02:55.640 Thanks so much for joining us on the podcast. Oh, sure, 0:02:55.639 --> 0:02:59.919 you're welcome. How has the dinky been riding it? Well? 0:03:00.040 --> 0:03:01.840 Have it it lately? I mean that's the way to 0:03:01.880 --> 0:03:05.040 get to New York. I used to go to New 0:03:05.120 --> 0:03:08.799 York quite a lot. Two things happened. The obvious one 0:03:08.880 --> 0:03:12.400 is the pandemic, and I don't go there very much anymore. 0:03:12.400 --> 0:03:16.240 The non obvious one is we had some grandchildren, little 0:03:16.240 --> 0:03:19.840 ones in Washington, so my wife and I now go 0:03:19.960 --> 0:03:23.200 south more often than we own North. Oh, let's get 0:03:23.240 --> 0:03:26.639 into sort of the current state of the markets. And 0:03:26.880 --> 0:03:29.280 by the way, congratulations on your book. I'm about halfway 0:03:29.320 --> 0:03:32.000 through it. It It really fascinating and I think just a 0:03:32.160 --> 0:03:36.080 really important read for anyone who wants to get an 0:03:36.080 --> 0:03:39.760 overview of sort of how we got where we are 0:03:39.800 --> 0:03:43.600 and sort of the the dynamic between monetary and fiscal 0:03:43.640 --> 0:03:47.920 policy and sometimes frictions. I guess you could say, but 0:03:48.080 --> 0:03:51.880 I'm curious how you're thinking right now about inflation. Yoyo'd 0:03:52.120 --> 0:03:55.760 op ed in the Wallstreet Journal earlier this year in 0:03:55.800 --> 0:04:00.040 which you were very optimistic that perhaps we've seen the 0:04:00.120 --> 0:04:02.320 worst of inflation. You look at sort of the first 0:04:02.360 --> 0:04:05.160 half of the year twenty twenty two versus the second half. 0:04:05.640 --> 0:04:08.800 It was super hot, double digit inflation in the first half, 0:04:08.800 --> 0:04:12.080 and then back closer to the Fed's target in the 0:04:12.120 --> 0:04:15.000 second half. You know, if you look at it month 0:04:15.000 --> 0:04:17.520 over month on an annualized basis, I think it was 0:04:17.600 --> 0:04:21.200 three months annualized basis. Correct me if I'm wrong. But 0:04:21.279 --> 0:04:24.800 we have seen sort of renewed concern about inflation. The 0:04:25.400 --> 0:04:29.680 January numbers were a little hotter, both pc and CPI. 0:04:30.200 --> 0:04:35.000 This week, the market's reacting pretty strongly to France, Spain, 0:04:35.200 --> 0:04:40.240 and Germany reputing hotter than expected inflation. How are you 0:04:40.279 --> 0:04:42.719 thinking about it now? Is it still is there still 0:04:42.720 --> 0:04:46.000 reason to be optimistic that we're trending in the right direction. 0:04:46.120 --> 0:04:48.800 You know, is this just sort of a pothole on 0:04:48.839 --> 0:04:51.320 that road to normalization or is there any reason to 0:04:51.360 --> 0:04:54.360 be more concerned. I think it's more of a pothole 0:04:54.400 --> 0:04:58.240 with one big exception. And this is my beef with 0:04:58.279 --> 0:05:01.520 the Bureau of Labor Statistics that I usually love, it's 0:05:01.640 --> 0:05:04.839 one of the great statistical agencies in the world. But 0:05:04.960 --> 0:05:07.479 what they did after I wrote that Wall Street Journal 0:05:07.520 --> 0:05:11.280 piece that you correctly referred to, this is going to 0:05:11.360 --> 0:05:16.839 send very wonkish change the seasonal adjustment factors. So it's 0:05:16.880 --> 0:05:19.400 no longer true. If you look at the year when 0:05:19.400 --> 0:05:23.360 I wrote that piece, it was true that roughly speaking, 0:05:23.400 --> 0:05:28.919 inflation in twenty twenty two was about eleven percent annual 0:05:29.040 --> 0:05:31.680 rate in the first half and about a two percent 0:05:31.800 --> 0:05:34.479 annual rate in the second half. Of Wow, that's quite 0:05:34.480 --> 0:05:38.560 a difference. It's nothing like that now because of changing 0:05:38.560 --> 0:05:43.159 the seasonals, which you know, struck me as dirty pool 0:05:43.760 --> 0:05:47.200 for a prognosticator. I was looking at what turned out 0:05:47.200 --> 0:05:53.280 to be wrong data. That said, the qualitative story that 0:05:53.400 --> 0:05:56.039 old lower inflation in the second half than in the 0:05:56.120 --> 0:06:01.640 first half remains true. That did not disappear from the data. 0:06:01.720 --> 0:06:06.440 It's also mostly universal. I won't say every country, but 0:06:06.480 --> 0:06:09.800 it's certainly true in Europe and in most other countries. 0:06:10.200 --> 0:06:13.880 But in terms of magnitude, nothing like what it was 0:06:14.000 --> 0:06:16.919 before they change the data. And that's the sense in 0:06:16.960 --> 0:06:19.400 which I view it as a kind of a pothole, 0:06:20.200 --> 0:06:23.600 but a pothole now on a road that's not as 0:06:23.680 --> 0:06:28.920 deeply declining as we used to think, but declining. That's important. 0:06:29.160 --> 0:06:31.440 So can you tell us more about this because this 0:06:31.480 --> 0:06:35.839 piece it did come out a couple of weeks ago 0:06:36.279 --> 0:06:38.880 before we got the minutes from the last FED meeting. 0:06:38.920 --> 0:06:41.800 But you said the FED now has a good chance 0:06:41.880 --> 0:06:46.400 at a soft economic landing. Yeah, because of this data revision, 0:06:46.440 --> 0:06:50.160 I'm revising that we whole revise things where we get 0:06:50.240 --> 0:06:54.240 new data. I'm revising that to be a little less optimistic. 0:06:54.640 --> 0:06:56.400 I think they still have a chance, but it's a 0:06:56.440 --> 0:06:59.640 tougher chance than it was, you know, just to repeat 0:07:00.120 --> 0:07:03.640 with the old data. By late in twenty twenty two, 0:07:04.080 --> 0:07:06.360 we are pretty close to the target where the FED 0:07:06.440 --> 0:07:09.200 wanted to be, but with the new data, we're not 0:07:09.279 --> 0:07:13.160 quite as close. And among other things, that means we 0:07:13.200 --> 0:07:16.800 have to fed as likely to raise interest rates more. Okay, 0:07:16.800 --> 0:07:18.800 I have a bunch of follow up questions about this, 0:07:18.920 --> 0:07:21.960 because there's a bunch of debates going on, you know, 0:07:22.360 --> 0:07:25.800 especially when I'm hearing people on bloom or TV or 0:07:26.000 --> 0:07:29.160 people I talked to on a daily basis, A lot 0:07:29.200 --> 0:07:31.679 of them are saying that a six percent Fed funds 0:07:31.760 --> 0:07:34.640 rate is a real possibility. To what extent you would 0:07:34.640 --> 0:07:38.560 agree with that, No, I'd bet against that. It's not 0:07:38.920 --> 0:07:42.400 beyond the realm of the possible. You're reminding me a 0:07:42.440 --> 0:07:45.200 bit when I was on the FED in ancient times 0:07:45.640 --> 0:07:49.040 in the nineteen nineties. You're too young to remember this. 0:07:50.720 --> 0:07:54.600 When we were tightening in ninety four ninety five, market 0:07:54.720 --> 0:07:59.200 sentiments at one point, not just for a day, for 0:07:59.280 --> 0:08:02.160 a while was that we were going to go up 0:08:02.160 --> 0:08:05.280 to eight percent on the federal funds rate. I remember 0:08:05.280 --> 0:08:08.280 sitting there in my office in Washington saying, are those 0:08:08.320 --> 0:08:12.360 people crazy? We're not going to go anywhere near eight percent. 0:08:12.440 --> 0:08:14.880 But in those days you weren't allowed to say anything. 0:08:15.520 --> 0:08:17.880 Those are the days when the FED was mum and 0:08:17.960 --> 0:08:22.640 if the markets flew off in some wild direction, Alan Greenspan, 0:08:22.720 --> 0:08:26.200 who was the chairman, wouldn't do anything to bring them back. Eventually, 0:08:26.320 --> 0:08:30.240 events brought them back, and in fact, we topped out 0:08:30.280 --> 0:08:35.000 coincidentally at six percent, not eight percent, so I'd be 0:08:35.080 --> 0:08:37.559 surprised if we get to six. I want to get 0:08:37.600 --> 0:08:40.320 into that idea of the Fed staying mom and sort 0:08:40.320 --> 0:08:44.000 of compare and contrast that with today. But first, before 0:08:44.040 --> 0:08:47.839 we do that, I think two things have shifted in 0:08:48.160 --> 0:08:51.000 the sort of the market's view of where the Fed's 0:08:51.080 --> 0:08:53.880 rate is going to go. One is exactly how high 0:08:54.200 --> 0:08:56.400 it's going to go, and we can debate five and 0:08:56.400 --> 0:08:58.720 a quarter, five and a half or six. But I 0:08:58.760 --> 0:09:02.120 think what's we're alarming to investors these days is the 0:09:02.120 --> 0:09:05.480 notion that it's going to stay there for a while. Um. 0:09:05.880 --> 0:09:07.719 You know, we we came into this year. If you 0:09:07.760 --> 0:09:09.880 look at the dot plot, uh you know, which is 0:09:09.920 --> 0:09:13.960 the feds uh individual members projections of where they see 0:09:14.000 --> 0:09:17.600 the FED funds rate or even market pricing in the 0:09:17.640 --> 0:09:22.319 SOFA or Fed funds futures markets that you know, it 0:09:22.400 --> 0:09:25.640 seemed to be at an unanimous consensus almost that that 0:09:26.040 --> 0:09:29.960 rate would peak maybe this spring early summer, and then 0:09:30.120 --> 0:09:32.960 immediately come down, that the Fed would pivot and start 0:09:33.040 --> 0:09:36.200 cutting rates. That seems to be you know, that dot 0:09:36.240 --> 0:09:39.320 plot hasn't been updated yet, but I'm assuming what it 0:09:39.480 --> 0:09:41.839 is that that that pivot's not no longer going to 0:09:41.880 --> 0:09:44.840 be there, and in the pricing of the you know, 0:09:44.960 --> 0:09:49.120 SOFA and FED funds futures market, it's no longer there either. 0:09:49.720 --> 0:09:53.760 Is that the correct interpretation and view of the rest 0:09:53.760 --> 0:09:55.520 of the year, do you think? I think so? I 0:09:55.559 --> 0:09:58.319 think the markets were getting were, frankly a little bit 0:09:58.320 --> 0:10:03.320 wacky when they had, as you correctly characterize, view that 0:10:03.360 --> 0:10:05.000 the FED was going to go up to a peak 0:10:05.000 --> 0:10:08.360 and then write down that's not what usually happens with 0:10:08.600 --> 0:10:13.800 monetary policy. The much more likely scenario always was it 0:10:13.840 --> 0:10:17.080 was going to go up to some peak, and one 0:10:17.120 --> 0:10:19.720 could debate, and people did debate where that peak would be, 0:10:20.120 --> 0:10:23.240 and then hang around there for a while see what happens. 0:10:23.520 --> 0:10:25.520 The same thing is true when the FED is going down. 0:10:26.320 --> 0:10:28.840 It goes down for a while, it flattens out, usually 0:10:29.480 --> 0:10:33.200 to wait and watch, wait and watch what, among other things, 0:10:33.200 --> 0:10:36.240 the effects of the policy it's already promulgated, and then 0:10:36.400 --> 0:10:41.559 keep moving if necessary, or reverse if that seems appropriate. 0:10:41.640 --> 0:10:45.200 So I never thought that was a likely scenario, and 0:10:45.200 --> 0:10:47.600 I'm glad to see the markets don't believe it anymore. 0:10:48.480 --> 0:10:51.240 And what about the debate that the FED will have 0:10:51.320 --> 0:10:54.720 to rethink it's two percent target. And we've had guests 0:10:54.760 --> 0:10:58.960 on this podcast as well arguing that maybe they should 0:10:58.960 --> 0:11:03.360 be rethinking that two percent just isn't very realistic. So 0:11:03.480 --> 0:11:05.920 let me assure you of one thing, and then I 0:11:05.960 --> 0:11:11.200 elaborate slightly. There is no debate inside the FIT. None. Zero. 0:11:11.800 --> 0:11:15.080 It is not going to happen. Bet your whole portfolio 0:11:15.160 --> 0:11:17.960 on it, all right, if the FIT is not changing 0:11:17.960 --> 0:11:23.200 its target. Now, a broader question, which is interesting to 0:11:23.320 --> 0:11:26.400 economists and historians we're talking about a book on economic 0:11:26.440 --> 0:11:29.680 history here, is whether it should have set a higher 0:11:30.360 --> 0:11:34.000 number when it did latch onto a target not two. 0:11:34.960 --> 0:11:37.440 I think that's quite debatable, and I think I'd be 0:11:37.520 --> 0:11:40.160 on the side of yes, it should have gone higher. 0:11:41.080 --> 0:11:45.640 So why do I say both? Because and the reason 0:11:45.800 --> 0:11:48.360 it's the same answer to the reason. Why is there 0:11:48.400 --> 0:11:51.200 no debate at the FIT? Because it would look like caving, 0:11:51.320 --> 0:11:54.360 giving in, surrendering. We can't do it, So we're going 0:11:54.400 --> 0:11:58.600 to make our target easier. And immediately people would start saying, oh, 0:11:58.640 --> 0:12:00.160 you went up to three, how do I know you 0:12:00.200 --> 0:12:02.439 don't go up to four? And those are the kinds 0:12:02.440 --> 0:12:06.480 of reasons why the FED will never ever. Ever, well, 0:12:07.000 --> 0:12:09.840 ever is much too long. Let's say for the next 0:12:09.880 --> 0:12:12.800 thirty five years that it is not going to think 0:12:12.800 --> 0:12:17.440 about changing the target. What would have been, in your view, 0:12:17.440 --> 0:12:20.760 a better target than two. I thought three would be 0:12:20.760 --> 0:12:23.360 better than two. And the main reason is what we 0:12:23.360 --> 0:12:29.920 were experiencing before the pandemic with zero quote zero interest rates, 0:12:30.440 --> 0:12:33.120 that if it was three rather than two, the FED 0:12:33.160 --> 0:12:37.640 would have had more room as the economy crater to 0:12:37.880 --> 0:12:42.360 push the economy out of the crater with lower interest rates, 0:12:42.040 --> 0:12:45.320 as if it had started with interest rates one hundred 0:12:45.320 --> 0:12:47.960 basis points higher than it did, or would add one 0:12:48.000 --> 0:12:52.040 hundred basis points more easy before it had to resort 0:12:52.120 --> 0:13:02.760 to the so called unconventional policies. Well, and I think 0:13:02.840 --> 0:13:06.400 maybe an important distinction to draw is the idea of 0:13:06.480 --> 0:13:09.559 while the FED may not change that two percent target, 0:13:09.720 --> 0:13:13.160 I assume that that doesn't necessarily mean that they won't 0:13:13.400 --> 0:13:16.800 pause or pivot before it gets to two. Right, Absolutely, 0:13:17.280 --> 0:13:20.120 I think they'll pause, not pivot, That's what we're talking about. Before. 0:13:20.200 --> 0:13:25.440 They'll pause once inflation gets low enough and is falling, 0:13:26.600 --> 0:13:29.400 so the two percent, so to speak, is in sight, 0:13:30.040 --> 0:13:32.760 then they'll pause to see, all right, is it going 0:13:32.800 --> 0:13:34.760 to two? Is it not going to two? How's the 0:13:34.840 --> 0:13:41.000 economy look? And so what about other areas within the economy? 0:13:41.280 --> 0:13:43.360 Actually hear this question a lot, and I asked this 0:13:43.440 --> 0:13:45.360 question a lot when I'm talking to people. Look where 0:13:45.400 --> 0:13:50.560 actually are we seeing any weakness? Or I'm thinking about 0:13:50.559 --> 0:13:52.880 the housing market. I get a ton of notes in 0:13:53.080 --> 0:13:56.559 my inbox on a daily basis that says, the housing 0:13:56.600 --> 0:13:59.640 market now is also showing some signs of pricking up 0:13:59.640 --> 0:14:04.200 and of a turnaround, and the consumer remains strong, etcetera. 0:14:04.440 --> 0:14:07.840 Where might you point to even show any weakness right now? 0:14:08.000 --> 0:14:10.840 I point to the housing market, and I'm getting the 0:14:10.920 --> 0:14:13.760 same email says you're getting or some of them. And 0:14:13.840 --> 0:14:16.280 if you look at the graphs that accompany with them, 0:14:16.360 --> 0:14:18.840 it looks like it's gone down, down, down a usual 0:14:18.880 --> 0:14:22.440 way and then a tiny little uptick. Let me see 0:14:22.440 --> 0:14:25.080 that uptick grow over a month, and then I'll start 0:14:25.080 --> 0:14:28.040 getting worried. And the reason I say that is that 0:14:28.240 --> 0:14:33.040 classically for decades, if you ask people on the fed 0:14:33.680 --> 0:14:36.960 away from microphones, so it's stop being recorded by Bloomberg, 0:14:37.920 --> 0:14:40.800 where do you think you can do your damage or 0:14:40.920 --> 0:14:44.880 help for that matter, If it's the other direction on 0:14:44.960 --> 0:14:49.680 the economy, they'll say, housing, Housing is by far the 0:14:49.720 --> 0:14:54.880 most sensitive to interest rates, and to me, despite these 0:14:54.920 --> 0:15:00.400 little blips of optimism, very lately housing as well down, 0:15:00.440 --> 0:15:03.840 and that's what you'd expect. The second place, by the way, 0:15:03.920 --> 0:15:07.000 is more puzzling, and I can't figure it out, which 0:15:07.080 --> 0:15:12.440 is automobile purchases. They generally respond to interest rates a lot. 0:15:13.040 --> 0:15:14.760 And the reason I can't figure it out of the 0:15:14.800 --> 0:15:17.480 reasons maybe there are people that are more expert in 0:15:17.520 --> 0:15:20.920 the auto market than I is. As you remember, we 0:15:21.040 --> 0:15:24.680 had all these shortages the manufacturers couldn't make enough cars 0:15:24.680 --> 0:15:27.000 because they couldn't get enough chips and so on and 0:15:27.040 --> 0:15:32.360 so forth, and there have been some unusual fluctuations, so 0:15:32.400 --> 0:15:37.640 you wouldn't want to attribute those down drafts to interest rates, 0:15:38.480 --> 0:15:41.800 and that sort of confused the whole picture. So I 0:15:41.800 --> 0:15:44.160 don't know what to make of automobiles if and I 0:15:44.240 --> 0:15:46.280 just haven't studied it enough. Maybe if I had, i'd 0:15:46.280 --> 0:15:49.640 have a clearer pictures. But those are the two places, 0:15:50.320 --> 0:15:54.160 and the third, which is also down, is business investment. 0:15:54.720 --> 0:15:58.600 The worst of this past recession caused by the pandemic 0:15:59.200 --> 0:16:04.440 was in concert sumer services. Anybody who was expecting the 0:16:04.480 --> 0:16:11.280 FEDS tightening to affect spending on consumer services was not 0:16:11.360 --> 0:16:15.520 paying attention to history. It doesn't have any effect zero. 0:16:16.600 --> 0:16:20.680 Now that's a big hunk of the economy. But even 0:16:20.720 --> 0:16:23.400 in the good old days when nobody questioned whether the 0:16:23.480 --> 0:16:27.000 FED could push the economy around, like the Volker days 0:16:27.080 --> 0:16:30.400 or the Greenspan days, nobody on nobody at the FED. 0:16:30.400 --> 0:16:32.800 I don't want to speak about the whole earth. No 0:16:32.800 --> 0:16:37.480 nobody at the FED ever thought they were able to 0:16:37.520 --> 0:16:41.560 either push up or push down consumer spending on services. 0:16:42.600 --> 0:16:46.320 You know, Professor, It's it's interesting how one hundred percent 0:16:46.360 --> 0:16:50.400 of the discussion around fighting inflation these days relates to 0:16:51.000 --> 0:16:53.680 monetary policy and what the FED can or can't do. 0:16:54.320 --> 0:16:56.400 A part of your book that I found really fascinating 0:16:56.480 --> 0:17:00.040 is you get into the sixties during the present and 0:17:00.160 --> 0:17:05.400 see of JFK and LBJ and how the the Keynesian 0:17:05.440 --> 0:17:09.560 economists had really come into power and you know, and 0:17:09.680 --> 0:17:13.600 influence under both of those administrations, and you know, the 0:17:13.640 --> 0:17:17.960 notion of you know, using fiscal spending to boost demand, 0:17:18.520 --> 0:17:21.879 don't let worries about the deficit really handcuff you in 0:17:21.920 --> 0:17:25.359 that sense, And you talk about how Keynesians sort of 0:17:25.359 --> 0:17:29.399 got a bad rap back then because inflation accelerated pretty 0:17:29.440 --> 0:17:33.000 pretty fast during the Vietnam War because of all the 0:17:33.040 --> 0:17:39.720 defense outleads and Keynesians were actually advising on fiscal restraint 0:17:39.960 --> 0:17:44.439 to to to to bring down inflation. And as you 0:17:44.520 --> 0:17:46.359 point out, I think you know, and this to me 0:17:46.440 --> 0:17:50.159 is kind of relates to today's world two with modern 0:17:50.640 --> 0:17:54.719 monetary theory, in that it's very easy for a politician 0:17:54.960 --> 0:17:57.720 to go out there and promise lower taxes, more spending, 0:17:57.760 --> 0:18:03.320 that sort of thing. It's pretty much political suicide to 0:18:03.320 --> 0:18:07.720 to suggest some kind of fiscal constraint and higher taxes, 0:18:07.800 --> 0:18:12.520 less spending in order to help reduce inflation. Is it 0:18:12.600 --> 0:18:16.440 just a lost cause to ever think that fiscal policy 0:18:17.080 --> 0:18:20.200 could or will ever be used in the fight against inflation? 0:18:20.320 --> 0:18:24.600 Is it just too politically impossible to even consider anymore. Yes, 0:18:24.720 --> 0:18:28.199 in a word, I wish it weren't true, but I 0:18:28.240 --> 0:18:31.040 think it is true. One of the things I discovered 0:18:31.119 --> 0:18:35.240 in reminded myself, i should say, in researching and writing 0:18:35.280 --> 0:18:38.720 this book is and this is to your point, the 0:18:38.840 --> 0:18:44.960 last time fiscal policy was used deliberately by the government 0:18:45.440 --> 0:18:47.760 to take some steam out of the economy to fight 0:18:47.800 --> 0:18:52.719 inflation was nineteen sixty eight nineteen sixty eight. That's a 0:18:52.760 --> 0:18:56.240 long time. There had been other episode since sixty eight 0:18:56.680 --> 0:19:01.440 in which fiscal policy turned contractionary, but that was always 0:19:01.600 --> 0:19:05.720 motivated by concerns about the deficit, not about concerns about 0:19:05.720 --> 0:19:09.159 the economy. I was in the Clinton administration and that 0:19:09.240 --> 0:19:12.760 was an example. Right, we promulgated and barely got through 0:19:12.800 --> 0:19:16.240 Congress by the skin of our teeth, or more accurately, 0:19:16.280 --> 0:19:19.879 by Al Gore breaking a tie vote in the Senate, 0:19:20.640 --> 0:19:26.560 a contractionary fiscal policy to reduce the deficit. It was 0:19:26.640 --> 0:19:29.840 not to bring down inflation. The inflation was three percent. 0:19:30.560 --> 0:19:32.840 Most of us thought, oh, three percent, We were just 0:19:32.840 --> 0:19:36.399 talking about three percent inflation. Believe me, Bill Clinton was 0:19:36.440 --> 0:19:39.879 not concerned that the inflationary was three percent and that 0:19:39.960 --> 0:19:44.239 was terrible. He was concerned about the budget deficit. So 0:19:44.520 --> 0:19:49.120 there have been some episodes like that, but none since 0:19:49.359 --> 0:19:54.639 These Keynesian economists who were referring to finally convinced Johnson 0:19:54.920 --> 0:19:59.040 that we needed to raise taxes because of the Vietnam inflation, 0:19:59.320 --> 0:20:03.120 and then john after a year and a half of cajoling, 0:20:03.560 --> 0:20:07.240 finally convinced Congress to do it. It was a really 0:20:07.280 --> 0:20:14.080 hard fight. Since then, there's been no fiscal contraction for 0:20:14.480 --> 0:20:21.080 demand management reasons. I love taking all the different scenarios 0:20:21.160 --> 0:20:24.399 and historical time periods that you talk about in the 0:20:24.400 --> 0:20:28.160 book and then comparing them to maybe developments that we've 0:20:28.160 --> 0:20:30.439 seen over the last ten years or so. And you 0:20:30.560 --> 0:20:33.399 said recessions at the end of the fifties and the 0:20:34.160 --> 0:20:36.560 two recessions at the end of the fifties and at 0:20:36.560 --> 0:20:39.679 the start of the sixties, they didn't see Congress or 0:20:39.720 --> 0:20:42.600 the White House coming in to help mitigate things. And 0:20:43.119 --> 0:20:45.960 obviously that is very different from what we saw during 0:20:46.000 --> 0:20:48.200 the COVID pandemics. So maybe you could talk a bit 0:20:48.200 --> 0:20:52.639 about that and how things have changed. Yeah, those episodes 0:20:52.680 --> 0:20:56.320 that you talked about were in the United States, though 0:20:56.359 --> 0:21:00.600 not in Europe in the pre Kansian era. Came Zianism 0:21:00.640 --> 0:21:07.840 was considered back then a strange foreign doctrine. Probably some 0:21:07.880 --> 0:21:11.280 people were calling it communist. I was once called a 0:21:11.400 --> 0:21:14.040 Malice Keynesian. I haven't figured out what that is yet, 0:21:15.640 --> 0:21:22.080 But in those days in the Eisenhower administration, the Keynesian 0:21:22.200 --> 0:21:26.240 ideas had just not caught on in the American political world. 0:21:26.520 --> 0:21:30.240 They had in the academic world absolutely. I mean I 0:21:30.400 --> 0:21:34.200 was a young student back in the sixties and we 0:21:34.200 --> 0:21:37.000 were taught that kind of stuff, but an academia, no, 0:21:37.720 --> 0:21:42.240 and that was one of the things that was revolutionary, 0:21:42.520 --> 0:21:46.280 though it took a long time. In Kennedy's call for 0:21:46.359 --> 0:21:50.520 a tax cut, which he first made in nineteen sixty two, 0:21:51.520 --> 0:21:54.720 let's note the dates. It finally passed in nineteen sixty 0:21:54.840 --> 0:22:00.880 four and only after he was tragically assassinated. We can't 0:22:00.960 --> 0:22:05.040 run history again, but my best guess is it never 0:22:05.080 --> 0:22:09.080 would have passed where Kennedy not assassinated, if he was 0:22:09.080 --> 0:22:12.000 still alive and trying to push it through Congress. There 0:22:12.080 --> 0:22:17.560 was tremendous resistance to Kenzie and ideas, largely because they 0:22:17.600 --> 0:22:20.760 were going to raise the deficit in that if it's 0:22:20.840 --> 0:22:23.719 Kenzie and in that direction. A few minutes ago we 0:22:23.720 --> 0:22:25.960 were talking about Kenzie and in the other direction, trying 0:22:26.000 --> 0:22:29.719 to throttle back demand. But if it's Keynesianism in the 0:22:29.760 --> 0:22:34.480 expansionary direction, it's going to raise the deficit, something Ronald 0:22:34.560 --> 0:22:38.480 Reagan should have known in nineteen eighty one. Maybe he did, 0:22:38.560 --> 0:22:43.240 but that's another story. But the point is that these 0:22:43.320 --> 0:22:47.440 ideas were foreign and considered kind of revolutionary back then. 0:22:48.400 --> 0:22:52.040 Not anymore, but back then, yeah, Well, I wonder. You know, 0:22:52.960 --> 0:22:56.000 I still feel like the debate hasn't been settled on 0:22:56.480 --> 0:22:59.920 exactly how we got where we are today with inflation, 0:23:00.200 --> 0:23:02.320 and maybe it can't be settled. But you know, your 0:23:02.320 --> 0:23:06.720 book really points out the various drivers of inflation throughout history. 0:23:06.760 --> 0:23:10.320 You know, it was UH in the sixties, first JFK's 0:23:10.400 --> 0:23:14.040 tax cuts and then the big spending on the Vietnam War. 0:23:14.560 --> 0:23:16.760 Then later in the seventies it was the you know, 0:23:16.800 --> 0:23:19.360 the oil price shock obviously played played a big role. 0:23:20.240 --> 0:23:22.520 I feel like these days we've gotten hit with it 0:23:22.560 --> 0:23:24.879 all at once. You know, we had the Trump tax cuts, 0:23:25.080 --> 0:23:30.440 the covid UH spending, the were in Ukraine, and the 0:23:30.480 --> 0:23:33.680 oil price shock, not to mention all the supply chain 0:23:34.000 --> 0:23:36.800 disruptions during the pandemic. So how in your head, how 0:23:36.840 --> 0:23:40.400 do you sort of assign the blame for the inflation 0:23:40.480 --> 0:23:46.000 inflation problem between you know, fiscal policy, monetary policy that 0:23:46.119 --> 0:23:49.480 arguably stayed too loose for too long, the oil shock, 0:23:49.600 --> 0:23:51.479 on and on. How do you sort of assign the 0:23:51.520 --> 0:23:54.280 influence of each on on where we are now? Your 0:23:54.320 --> 0:24:00.840 list is exactly right. Assigning a portioning the blame is 0:24:00.960 --> 0:24:07.520 harder and controversial, But my list would put the supply 0:24:07.720 --> 0:24:12.840 disruptions in the recovery from COVID on the top of 0:24:12.880 --> 0:24:16.280 the list. They were pervasive all over the place. It 0:24:16.359 --> 0:24:20.560 wasn't like just one thing. And then would put the 0:24:20.600 --> 0:24:26.080 supply shocks which were not one hundred percent but very 0:24:26.200 --> 0:24:32.240 much exacerbated by the war in Ukraine. And then the 0:24:32.280 --> 0:24:37.640 excessive stimulus of the economy. Now that's the one that's 0:24:37.680 --> 0:24:42.000 most controversial. People that want to blame Joe Biden or 0:24:42.119 --> 0:24:46.840 Donald Trump before him latch onto the tremendous fiscal stimulus. 0:24:46.880 --> 0:24:50.520 And it was of tremendous fiscal stimulus, and that's the 0:24:50.600 --> 0:24:52.920 kind of thing that you expect to be at least 0:24:52.960 --> 0:24:59.600 somewhat inflationary. But my view is that the forces clobbering 0:24:59.680 --> 0:25:05.280 the economy over the head, we're so powerful that giving 0:25:05.400 --> 0:25:10.480 some upward impetus to the economy, a substantial upward impetus, 0:25:10.600 --> 0:25:12.679 was necessary if we aren't going to go into a 0:25:12.760 --> 0:25:16.320