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Speaker 1: Long he Chen is a candidate for California State Controller

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Speaker 1: and David and Diane Stephy fellow in American Public Policy

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Speaker 1: Studies at the Hoover Institution, Director of Domestic Policy Studies

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Speaker 1: at Stanford University, which is certainly plenty to keep him busy.

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Speaker 1: Long he How are you great? Good morning morning? Joe

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Speaker 1: has got a thought provoking, good question for a policy

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Speaker 1: guy like you. I'm gonna start with this very simple question.

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Speaker 1: So I'm looking at the A P Pole, NBC pole,

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Speaker 1: a couple of different polls right direction, wrong direction. Somewhere

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Speaker 1: between eight or nine out of ten Americans think we're

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Speaker 1: headed in the wrong direction. You Lon e Chen, you're

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Speaker 1: walking down the street. Guy at the clipboard stoption says,

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Speaker 1: is America head in the right direction of the wrong direction?

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Speaker 1: Which box do you choose? Oh? I mean I think

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Speaker 1: it's certainly in the wrong direction, and I think the

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Speaker 1: primary reason for that is because of the state of

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Speaker 1: the economy. Okay, so that's a you're you're a wrong

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Speaker 1: direction guy. I just wanted to a dator you right

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Speaker 1: or wrong? We're wrong direction? You're a wrong direction guy.

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Speaker 1: That that's perfect. Okay, Well, let's get into the economy.

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Speaker 1: It's it struck me as Jack was talking about getting

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Speaker 1: ready for Memorial Day. The hot dogs, burgers and a

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Speaker 1: couple of condiments will probably cost you about uh so

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Speaker 1: lani U. We are obviously facing rampant inflation. Uh stock

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Speaker 1: market that's down more well eight weeks in a row,

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Speaker 1: which is the most since nineteen thirty two. Folks, Um,

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Speaker 1: We're looking at a number of financial headwinds public policy wise,

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Speaker 1: because that is your field of study. What are the

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Speaker 1: probable policy prescriptions going to be and what will they

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Speaker 1: look like as they play out trying to control an

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Speaker 1: overheated economy? Yeah, I mean the problem is this is

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Speaker 1: one of those things that once it gets going, it

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Speaker 1: is a lot harder to reverse it than it would

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Speaker 1: have been to try and slow it down, if that

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Speaker 1: makes any sense. So the primary way that we would

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Speaker 1: deal with this would be the Federal Reserve Bank can

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Speaker 1: calibrate the said funds right essentially the primary rate at

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Speaker 1: which money is lent uh and and and that can

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Speaker 1: affect essentially how hot the economy is going. And so

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Speaker 1: the Fed has two missions right, one is to ensure

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Speaker 1: full employment and economy and the other is to watch

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Speaker 1: out for for inflation, and so how do you draw

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Speaker 1: the balance between the two. Unfortunately, for the last couple

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Speaker 1: of years, we've had what people call easy money. Essentially,

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Speaker 1: you were able to borrow money for very cheaply and

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Speaker 1: you had a massive expansion and the money supply because

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Speaker 1: policymakers in Washington, in Congress, and also both President Trump

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Speaker 1: and President Biden put a lot of stimulus into the economy.

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Speaker 1: So when you combine all those factors together, you end

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Speaker 1: up with a very, very hot economy. You also have

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Speaker 1: a tight labor market, right there's pretty much people everybody

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Speaker 1: who wants to work is working now, and so the

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Speaker 1: combination of that with historically low rates has brought us

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Speaker 1: to where we are now. Now, why is the stock

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Speaker 1: market doing what it's doing. Why are we feeling all

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Speaker 1: this pressure now the as they're having to raise interest

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Speaker 1: rates very quickly and quite dramatically in order to combat

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Speaker 1: the inflationary pressure we're seeing in the economy. So the

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Speaker 1: short answer to your question is, there aren't a ton

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Speaker 1: of things that the policy makers in Washington, I mean,

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Speaker 1: the President and Congress can do. There are things they

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Speaker 1: can do to make it worse, don't get me wrong,

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Speaker 1: but in terms of making it better. There aren't a

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Speaker 1: ton of things and tools available to them to address

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Speaker 1: the challenge. It really is a question of what the

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Speaker 1: FED can do and what the FED is doing now

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Speaker 1: to try and deal with inflation. Yeah, I'm attempted to

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Speaker 1: live in the past. I like the idea of living

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Speaker 1: in the now and the future is Joe's asking the

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Speaker 1: question what we do. But the living in the past

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Speaker 1: part is why did we have to spend another however

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Speaker 1: many trillion dollars to make it this much worse? Why? God,

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Speaker 1: I wish we hadn't done that. And you know, and

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Speaker 1: and Joe Biden taking credit for the how good the

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Speaker 1: economy is in recent weeks, You tried as hard as

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Speaker 1: you could to spend another five trillion dollars, only got

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Speaker 1: stopped by one senator for spending five more trillion dollars. God,

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Speaker 1: what would inflation be to day if they if Joe

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Speaker 1: Manchin wasn't alive. Oh my god, Well, that that's exactly

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Speaker 1: the right question. I mean, it's amazing if you think

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Speaker 1: about how much worse even this problem would have been

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Speaker 1: if they've gotten their way and they passed that massive

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Speaker 1: You know, I forgot whether they called it the Green

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Speaker 1: New Deal. They kept changing the name of it, right,

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Speaker 1: and and at the end of the day, whatever it

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Speaker 1: was that they wanted to do. And here's the problem, guys.

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Speaker 1: There are policy makers in Washington and in state capitals

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Speaker 1: across the country, Sacramento being primary monkst them who were

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Speaker 1: talking about spending more. Still who're talking about while the

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Speaker 1: way that we do this is by putting even more

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Speaker 1: stimulus into the economy, as if they haven't learned the

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Speaker 1: lesson from what we're seeing now with gas prices and

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Speaker 1: prices for milk and everything else. Uh, it's tremendously irresponsible.

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Speaker 1: But unfortunately that is where the conversation is. And instead

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Speaker 1: of actually helping things that they had the potential to

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Speaker 1: actually make things worse. You know, I'm familiar with quotations

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Speaker 1: about politics, Uh, going way way back in the history

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Speaker 1: of the Republican there has always been cynicism in politics, uh,

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Speaker 1: probably starting with like the second presidential election, and there's

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Speaker 1: always been pandering. But there seems to me now in

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Speaker 1: an almost complete divorce between what you will promise people

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Speaker 1: to get to the to the polls and what you're

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Speaker 1: willing to actually do knowing it will harm the country,

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Speaker 1: because I guess my question is do the politicians who

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Speaker 1: are pushing continuing to spend money wildly in an inflationary

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Speaker 1: time do they not understand what they're doing or are

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Speaker 1: they doing it cynically? Um? You know, I think it's

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Speaker 1: the combination of a couple of them. Factors. Number one

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Speaker 1: is I think there are some people who have argued

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Speaker 1: over the last couple of years, Um, there's been an

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Speaker 1: alternate strain. To use the language of our time, there's

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Speaker 1: there's an alternate strain of thinking about monetary policy, which

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Speaker 1: is that actually, it doesn't matter how much you borrow.

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Speaker 1: It doesn't matter essentially how large your debt load is.

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Speaker 1: It just it doesn't matter, right at the end of

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Speaker 1: the day, because it's so cheap to borrow. Why does

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Speaker 1: it matter. It's it's something called modern monetary theory, And

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Speaker 1: there are some on the left, particularly on the far left,

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Speaker 1: who have espoused this, this notion that it really doesn't matter.

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Speaker 1: And so if you buy into that, and you really

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Speaker 1: are a true believer, then it doesn't matter how much

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Speaker 1: you spent. Right, So I will give some of these

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Speaker 1: guys the benefit of the doubt and say some of

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Speaker 1: them genuinely do not believe they cause the inflationary pressure

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Speaker 1: we're saying today. Some of them genuinely do not believe

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Speaker 1: they are responsible for the economic calamity that is impacting

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Speaker 1: so many families across our country right now. So that's

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Speaker 1: some percentage of them. Some percentage of them will just

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Speaker 1: say whatever it takes to get elected and and and

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Speaker 1: then when they get there, they'll deal with the consequences later.

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Speaker 1: They'll figure out how to distract and deflect, and they

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Speaker 1: don't really care about what it is they do or

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Speaker 1: don't do, because at the end of the day, politics

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Speaker 1: is about the most recent outrage or the most recent

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Speaker 1: way you can take a topic that has absolutely nothing

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Speaker 1: to do with something else and try to turn it

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Speaker 1: into the animating factor to get people out to vote

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Speaker 1: because they're so angry. Um. So yes, it's the combination

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Speaker 1: I think of idiocy and cynicism. Uh, and and and

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Speaker 1: and and that is that is why we are where

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Speaker 1: we are today. I mean it is it is galling

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Speaker 1: to me, guys. It is galling to me that you

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Speaker 1: have uh, for example, Gavin Newsom standing up there talking about, Hey,

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Speaker 1: let's go out and spend the entirety of this supposed

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Speaker 1: hundred billion dollars surplus we am in California. Instead of

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Speaker 1: investing long run in oh I don't know things we

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Speaker 1: might need like water storage and roads. Instead of actually

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Speaker 1: doing that, we're gonna do some one time political giveaways

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Speaker 1: that make him and his colleagues feel better. But at

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Speaker 1: the end of the day, don't do a single thing

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Speaker 1: to address the price of milk, the price of gas,

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Speaker 1: the price of anything else uh in in our state

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Speaker 1: or nationally. So this is the kind of politics we

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Speaker 1: end up in now, where people are so focused on

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Speaker 1: what can I do to advance my political interests as

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Speaker 1: opposed to saying, can we put the state in the

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Speaker 1: country first? Wow, that is what you just heard. Is

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Speaker 1: one of the primary reasons the major newspapers of California,

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Speaker 1: including the liberal ones, have endorsed Lon he for a

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Speaker 1: California state Controller, which keeps an eye on the purse strings. Yes,

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Speaker 1: so is the way that would work if you were

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Speaker 1: controller and Gavin Newsom was governor and he was proposing

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Speaker 1: doling out more money when we got this high inflation,

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Speaker 1: would you be going to the press and saying, I

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Speaker 1: think this is a bad idea. Well, I think the

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Speaker 1: first thing we got to do that I'd be doing

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Speaker 1: is I'd be saying, how about we get some accountability

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Speaker 1: for what we've already spent money on? And And because

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Speaker 1: this is the primary challenge, right, is that if you

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Speaker 1: don't have any sense of what the impact of your

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Speaker 1: spending has been, I think it's very difficult to then

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Speaker 1: go out and make the argument, hey, let's go spend more.

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Speaker 1: We don't have any idea what the first twenty billion did,

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Speaker 1: but gosh, the next twenty billion could be even better.

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Speaker 1: And and the point that I'm making is I'm saying, hey,

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Speaker 1: slow down a second, guys, why don't you figure out

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Speaker 1: what the first twenty billion did and where that first

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Speaker 1: twenty billion win? And then let's have a conversation about

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Speaker 1: what you want to do with this, because in my mind,

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Speaker 1: we have a couple of different ways of doing this.

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Speaker 1: In California, right, we actually have a rainy day fund,

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Speaker 1: which is supposed to be there to say for when

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Speaker 1: times aren't as good. We have a mechanism that actually

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Speaker 1: requires some of that surplus to be returned to taxpayers.

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Speaker 1: Is a novel concept, right, a tax rebate when you

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Speaker 1: have a massive surplus, So there are there are a

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Speaker 1: lot of different things that you could do with the money.

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Speaker 1: And my basic point is California is the one state

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Speaker 1: where we actually don't have accountability and transparency into how

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Speaker 1: we spend money, and so it's very hard to have

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Speaker 1: a truly rational and thoughtful debate. I know it's a

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Speaker 1: crazy concept, but it's you can't have that if you

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Speaker 1: don't have the basic information. So what I would say is,

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Speaker 1: as if I were a controller, is you know, governor,

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Speaker 1: you want to spend all this money, how about we

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Speaker 1: take a look at the efficacy of the spending you've

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Speaker 1: you've already passed. You just you're talking crazy talk lon here?

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Speaker 1: You want accountability for government programs? Holy? Who is this guy?

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Speaker 1: I got? I got one more question. And I don't

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Speaker 1: want to be, you know, a what blanket on a

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Speaker 1: Friday and everything like that. But um, I remember hearing

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Speaker 1: George Will saying one time one of the essence, essence,

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Speaker 1: the essence of being a conservative is recognizing what is.

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Speaker 1: And I just lay out for people what's coming this summer.

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Speaker 1: I mean, is it reasonable to expect prices are going

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Speaker 1: to continue to go up? Gas is going to be

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Speaker 1: more expensive, Groceries are going to be even more expensive

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Speaker 1: for the near future. Is that just a reality? Yeah,

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Speaker 1: I do think you're gonna see um prices continue to

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Speaker 1: be elevated. I think the question is how what the

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Speaker 1: trend is gonna look like. Is it going to be

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Speaker 1: as fast and as rapid as we've seen. Probably not.

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Speaker 1: I think some of this does start to level out,

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Speaker 1: but it's leveling out now at a pretty high it's

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Speaker 1: pretty high point. And I'll tell you the next thing

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Speaker 1: on the horizons, and guys is the r word. It

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Speaker 1: is recession because invariably what happens is once you reach

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Speaker 1: this point where prices become so high, you're gonna start

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Speaker 1: to see people begin to say, do I want to

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Speaker 1: spend a thousand dollars to fly to New York for vacations?

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Speaker 1: Do I want to buy? Discretionary spending is going to

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Speaker 1: go first, right, and because at some point people are

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Speaker 1: gonna say, hey, it cost me two dollars to fill

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Speaker 1: up my truck with gas. I can't afford to do

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Speaker 1: this other stuff. That's why that's why you begin to

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Speaker 1: have recessionary pressure, because the economy slows, economic activity slows,

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Speaker 1: and and that is the next thing on the horizon.

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Speaker 1: So if you look at the economic forecast, a lot

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Speaker 1: of major banks, for example of putting out now they

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Speaker 1: are talking about this country being in recession when we

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Speaker 1: get to early And the reason why they say that

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Speaker 1: is because all of the signs we're seeing are beginning

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Speaker 1: to flash yellow or red and and and they forecast

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Speaker 1: they slow down. That unfortunately, has been several years in

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Speaker 1: the making. Well yikes. Lan he Chan, candidate for California

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Speaker 1: State Controller with the Hoover Institution, Stanford University, Director of

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Speaker 1: Domestic Policy Studies. There, Lani, it's always enlightening. Perhaps not

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Speaker 1: as cheery as usual today, but again facing up the

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Speaker 1: reality is you know what adults do, right And with that,

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Speaker 1: had a good weekend. Thank you, Thank you very much,

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Speaker 1: you two. I was listening to a podcast yesterday with

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Speaker 1: a bunch of really smart people talking about how the

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Speaker 1: way experts look at things. How did we end up

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Speaker 1: in a situation where the market got rattled this week

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Speaker 1: when Target and Walmart said something that should have been

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Speaker 1: obvious to everybody. Prices are high, so people are buying

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Speaker 1: a lot less stuff, So we're gonna make a lot

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Speaker 1: less money than we have in the past. How is

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Speaker 1: that a shock? To America and the markets. The markets

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Speaker 1: got rattled by the realization that people are really feeling

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Speaker 1: the pinch of these high prices and are gonna spend

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Speaker 1: less money at Target and Walmart. Isn't that a wild

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Speaker 1: that it took their actual report to come in before

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Speaker 1: the markets got so shocked. I mean, it's just I'll

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Speaker 1: obviasily that was going to happen. Yeah, it does kind

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Speaker 1: of have the feel of the Palace elite are there

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Speaker 1: in their grand gowns, sipping their champagne, and it takes

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Speaker 1: a very long time for them to hear that the uh,

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Speaker 1: you know, the villagers are really angry, and in fact,

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Speaker 1: one just burnt down and things are not going well

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Speaker 1: out there. They're insulated in the palace, I think, and

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Speaker 1: I know we're out of time. But one of the

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Speaker 1: other things that somehow everybody missed was the so called

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Speaker 1: good news that consumer spending was up. You know why

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Speaker 1: it was up because prices were up. I bought the

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Speaker 1: same amount of milk and gas, but I spent more money.

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Speaker 1: That didn't mean I was optimistic. It costs more, And

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Speaker 1: somehow the experts missed that. Apparently extra large