WEBVTT - The Animating Factor.  Lanhee Chen Talks to A&G

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<v Speaker 1>Long he Chen is a candidate for California State Controller

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<v Speaker 1>and David and Diane Stephy fellow in American Public Policy

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<v Speaker 1>Studies at the Hoover Institution, Director of Domestic Policy Studies

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<v Speaker 1>at Stanford University, which is certainly plenty to keep him busy.

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<v Speaker 1>Long he How are you great? Good morning morning? Joe

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<v Speaker 1>has got a thought provoking, good question for a policy

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

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<v Speaker 1>So I'm looking at the A P Pole, NBC pole,

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<v Speaker 1>a couple of different polls right direction, wrong direction. Somewhere

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<v Speaker 1>between eight or nine out of ten Americans think we're

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

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<v Speaker 1>walking down the street. Guy at the clipboard stoption says,

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<v Speaker 1>is America head in the right direction of the wrong direction?

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<v Speaker 1>Which box do you choose? Oh? I mean I think

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<v Speaker 1>it's certainly in the wrong direction, and I think the

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<v Speaker 1>primary reason for that is because of the state of

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<v Speaker 1>the economy. Okay, so that's a you're you're a wrong

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<v Speaker 1>direction guy. I just wanted to a dator you right

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<v Speaker 1>or wrong? We're wrong direction? You're a wrong direction guy.

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

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<v Speaker 1>It's it struck me as Jack was talking about getting

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<v Speaker 1>ready for Memorial Day. The hot dogs, burgers and a

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<v Speaker 1>couple of condiments will probably cost you about uh so

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<v Speaker 1>lani U. We are obviously facing rampant inflation. Uh stock

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<v Speaker 1>market that's down more well eight weeks in a row,

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<v Speaker 1>which is the most since nineteen thirty two. Folks, Um,

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

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<v Speaker 1>because that is your field of study. What are the

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<v Speaker 1>probable policy prescriptions going to be and what will they

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<v Speaker 1>look like as they play out trying to control an

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<v Speaker 1>overheated economy? Yeah, I mean the problem is this is

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<v Speaker 1>one of those things that once it gets going, it

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<v Speaker 1>is a lot harder to reverse it than it would

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<v Speaker 1>have been to try and slow it down, if that

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<v Speaker 1>makes any sense. So the primary way that we would

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<v Speaker 1>deal with this would be the Federal Reserve Bank can

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<v Speaker 1>calibrate the said funds right essentially the primary rate at

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<v Speaker 1>which money is lent uh and and and that can

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<v Speaker 1>affect essentially how hot the economy is going. And so

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<v Speaker 1>the Fed has two missions right, one is to ensure

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<v Speaker 1>full employment and economy and the other is to watch

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<v Speaker 1>out for for inflation, and so how do you draw

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<v Speaker 1>the balance between the two. Unfortunately, for the last couple

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

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<v Speaker 1>you were able to borrow money for very cheaply and

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<v Speaker 1>you had a massive expansion and the money supply because

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<v Speaker 1>policymakers in Washington, in Congress, and also both President Trump

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<v Speaker 1>and President Biden put a lot of stimulus into the economy.

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<v Speaker 1>So when you combine all those factors together, you end

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<v Speaker 1>up with a very, very hot economy. You also have

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<v Speaker 1>a tight labor market, right there's pretty much people everybody

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<v Speaker 1>who wants to work is working now, and so the

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<v Speaker 1>combination of that with historically low rates has brought us

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<v Speaker 1>to where we are now. Now, why is the stock

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<v Speaker 1>market doing what it's doing. Why are we feeling all

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<v Speaker 1>this pressure now the as they're having to raise interest

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<v Speaker 1>rates very quickly and quite dramatically in order to combat

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<v Speaker 1>the inflationary pressure we're seeing in the economy. So the

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<v Speaker 1>short answer to your question is, there aren't a ton

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<v Speaker 1>of things that the policy makers in Washington, I mean,

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<v Speaker 1>the President and Congress can do. There are things they

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<v Speaker 1>can do to make it worse, don't get me wrong,

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<v Speaker 1>but in terms of making it better. There aren't a

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<v Speaker 1>ton of things and tools available to them to address

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<v Speaker 1>the challenge. It really is a question of what the

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<v Speaker 1>FED can do and what the FED is doing now

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<v Speaker 1>to try and deal with inflation. Yeah, I'm attempted to

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<v Speaker 1>live in the past. I like the idea of living

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<v Speaker 1>in the now and the future is Joe's asking the

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<v Speaker 1>question what we do. But the living in the past

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<v Speaker 1>part is why did we have to spend another however

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<v Speaker 1>many trillion dollars to make it this much worse? Why? God,

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

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<v Speaker 1>and Joe Biden taking credit for the how good the

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<v Speaker 1>economy is in recent weeks, You tried as hard as

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<v Speaker 1>you could to spend another five trillion dollars, only got

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<v Speaker 1>stopped by one senator for spending five more trillion dollars. God,

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<v Speaker 1>what would inflation be to day if they if Joe

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

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

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<v Speaker 1>about how much worse even this problem would have been

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<v Speaker 1>if they've gotten their way and they passed that massive

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<v Speaker 1>You know, I forgot whether they called it the Green

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<v Speaker 1>New Deal. They kept changing the name of it, right,

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<v Speaker 1>and and at the end of the day, whatever it

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

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<v Speaker 1>There are policy makers in Washington and in state capitals

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<v Speaker 1>across the country, Sacramento being primary monkst them who were

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<v Speaker 1>talking about spending more. Still who're talking about while the

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<v Speaker 1>way that we do this is by putting even more

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<v Speaker 1>stimulus into the economy, as if they haven't learned the

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<v Speaker 1>lesson from what we're seeing now with gas prices and

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

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<v Speaker 1>But unfortunately that is where the conversation is. And instead

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<v Speaker 1>of actually helping things that they had the potential to

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

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<v Speaker 1>about politics, Uh, going way way back in the history

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<v Speaker 1>of the Republican there has always been cynicism in politics, uh,

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<v Speaker 1>probably starting with like the second presidential election, and there's

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<v Speaker 1>always been pandering. But there seems to me now in

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<v Speaker 1>an almost complete divorce between what you will promise people

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<v Speaker 1>to get to the to the polls and what you're

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<v Speaker 1>willing to actually do knowing it will harm the country,

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<v Speaker 1>because I guess my question is do the politicians who

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<v Speaker 1>are pushing continuing to spend money wildly in an inflationary

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<v Speaker 1>time do they not understand what they're doing or are

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<v Speaker 1>they doing it cynically? Um? You know, I think it's

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<v Speaker 1>the combination of a couple of them. Factors. Number one

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<v Speaker 1>is I think there are some people who have argued

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<v Speaker 1>over the last couple of years, Um, there's been an

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

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<v Speaker 1>there's an alternate strain of thinking about monetary policy, which

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

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<v Speaker 1>It doesn't matter essentially how large your debt load is.

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<v Speaker 1>It just it doesn't matter, right at the end of

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

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<v Speaker 1>it matter. It's it's something called modern monetary theory, And

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<v Speaker 1>there are some on the left, particularly on the far left,

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

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<v Speaker 1>And so if you buy into that, and you really

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<v Speaker 1>are a true believer, then it doesn't matter how much

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<v Speaker 1>you spent. Right, So I will give some of these

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<v Speaker 1>guys the benefit of the doubt and say some of

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<v Speaker 1>them genuinely do not believe they cause the inflationary pressure

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<v Speaker 1>we're saying today. Some of them genuinely do not believe

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<v Speaker 1>they are responsible for the economic calamity that is impacting

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<v Speaker 1>so many families across our country right now. So that's

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<v Speaker 1>some percentage of them. Some percentage of them will just

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<v Speaker 1>say whatever it takes to get elected and and and

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

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<v Speaker 1>They'll figure out how to distract and deflect, and they

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<v Speaker 1>don't really care about what it is they do or

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<v Speaker 1>don't do, because at the end of the day, politics

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<v Speaker 1>is about the most recent outrage or the most recent

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<v Speaker 1>way you can take a topic that has absolutely nothing

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<v Speaker 1>to do with something else and try to turn it

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<v Speaker 1>into the animating factor to get people out to vote

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

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<v Speaker 1>I think of idiocy and cynicism. Uh, and and and

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<v Speaker 1>and and that is that is why we are where

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<v Speaker 1>we are today. I mean it is it is galling

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<v Speaker 1>to me, guys. It is galling to me that you

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<v Speaker 1>have uh, for example, Gavin Newsom standing up there talking about, Hey,

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<v Speaker 1>let's go out and spend the entirety of this supposed

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<v Speaker 1>hundred billion dollars surplus we am in California. Instead of

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<v Speaker 1>investing long run in oh I don't know things we

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<v Speaker 1>might need like water storage and roads. Instead of actually

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<v Speaker 1>doing that, we're gonna do some one time political giveaways

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<v Speaker 1>that make him and his colleagues feel better. But at

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<v Speaker 1>the end of the day, don't do a single thing

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<v Speaker 1>to address the price of milk, the price of gas,

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<v Speaker 1>the price of anything else uh in in our state

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<v Speaker 1>or nationally. So this is the kind of politics we

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<v Speaker 1>end up in now, where people are so focused on

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<v Speaker 1>what can I do to advance my political interests as

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<v Speaker 1>opposed to saying, can we put the state in the

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<v Speaker 1>country first? Wow, that is what you just heard. Is

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<v Speaker 1>one of the primary reasons the major newspapers of California,

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<v Speaker 1>including the liberal ones, have endorsed Lon he for a

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

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<v Speaker 1>so is the way that would work if you were

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<v Speaker 1>controller and Gavin Newsom was governor and he was proposing

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<v Speaker 1>doling out more money when we got this high inflation,

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<v Speaker 1>would you be going to the press and saying, I

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<v Speaker 1>think this is a bad idea. Well, I think the

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<v Speaker 1>first thing we got to do that I'd be doing

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<v Speaker 1>is I'd be saying, how about we get some accountability

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<v Speaker 1>for what we've already spent money on? And And because

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<v Speaker 1>this is the primary challenge, right, is that if you

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<v Speaker 1>don't have any sense of what the impact of your

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<v Speaker 1>spending has been, I think it's very difficult to then

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

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

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<v Speaker 1>but gosh, the next twenty billion could be even better.

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<v Speaker 1>And and the point that I'm making is I'm saying, hey,

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<v Speaker 1>slow down a second, guys, why don't you figure out

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<v Speaker 1>what the first twenty billion did and where that first

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<v Speaker 1>twenty billion win? And then let's have a conversation about

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<v Speaker 1>what you want to do with this, because in my mind,

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<v Speaker 1>we have a couple of different ways of doing this.

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<v Speaker 1>In California, right, we actually have a rainy day fund,

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<v Speaker 1>which is supposed to be there to say for when

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<v Speaker 1>times aren't as good. We have a mechanism that actually

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<v Speaker 1>requires some of that surplus to be returned to taxpayers.

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<v Speaker 1>Is a novel concept, right, a tax rebate when you

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<v Speaker 1>have a massive surplus, So there are there are a

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<v Speaker 1>lot of different things that you could do with the money.

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<v Speaker 1>And my basic point is California is the one state

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<v Speaker 1>where we actually don't have accountability and transparency into how

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<v Speaker 1>we spend money, and so it's very hard to have

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<v Speaker 1>a truly rational and thoughtful debate. I know it's a

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<v Speaker 1>crazy concept, but it's you can't have that if you

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

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<v Speaker 1>as if I were a controller, is you know, governor,

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<v Speaker 1>you want to spend all this money, how about we

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<v Speaker 1>take a look at the efficacy of the spending you've

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

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<v Speaker 1>You want accountability for government programs? Holy? Who is this guy?

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<v Speaker 1>I got? I got one more question. And I don't

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<v Speaker 1>want to be, you know, a what blanket on a

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<v Speaker 1>Friday and everything like that. But um, I remember hearing

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<v Speaker 1>George Will saying one time one of the essence, essence,

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<v Speaker 1>the essence of being a conservative is recognizing what is.

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

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<v Speaker 1>I mean, is it reasonable to expect prices are going

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<v Speaker 1>to continue to go up? Gas is going to be

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<v Speaker 1>more expensive, Groceries are going to be even more expensive

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<v Speaker 1>for the near future. Is that just a reality? Yeah,

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<v Speaker 1>I do think you're gonna see um prices continue to

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<v Speaker 1>be elevated. I think the question is how what the

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<v Speaker 1>trend is gonna look like. Is it going to be

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<v Speaker 1>as fast and as rapid as we've seen. Probably not.

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<v Speaker 1>I think some of this does start to level out,

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<v Speaker 1>but it's leveling out now at a pretty high it's

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<v Speaker 1>pretty high point. And I'll tell you the next thing

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<v Speaker 1>on the horizons, and guys is the r word. It

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<v Speaker 1>is recession because invariably what happens is once you reach

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<v Speaker 1>this point where prices become so high, you're gonna start

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<v Speaker 1>to see people begin to say, do I want to

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<v Speaker 1>spend a thousand dollars to fly to New York for vacations?

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<v Speaker 1>Do I want to buy? Discretionary spending is going to

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<v Speaker 1>go first, right, and because at some point people are

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<v Speaker 1>gonna say, hey, it cost me two dollars to fill

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<v Speaker 1>up my truck with gas. I can't afford to do

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<v Speaker 1>this other stuff. That's why that's why you begin to

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<v Speaker 1>have recessionary pressure, because the economy slows, economic activity slows,

0:11:34.160 --> 0:11:36.280
<v Speaker 1>and and that is the next thing on the horizon.

0:11:36.360 --> 0:11:38.680
<v Speaker 1>So if you look at the economic forecast, a lot

0:11:38.720 --> 0:11:41.240
<v Speaker 1>of major banks, for example of putting out now they

0:11:41.280 --> 0:11:43.880
<v Speaker 1>are talking about this country being in recession when we

0:11:43.960 --> 0:11:47.600
<v Speaker 1>get to early And the reason why they say that

0:11:47.720 --> 0:11:50.280
<v Speaker 1>is because all of the signs we're seeing are beginning

0:11:50.280 --> 0:11:54.120
<v Speaker 1>to flash yellow or red and and and they forecast

0:11:54.160 --> 0:11:58.160
<v Speaker 1>they slow down. That unfortunately, has been several years in

0:11:58.200 --> 0:12:03.040
<v Speaker 1>the making. Well yikes. Lan he Chan, candidate for California

0:12:03.080 --> 0:12:06.760
<v Speaker 1>State Controller with the Hoover Institution, Stanford University, Director of

0:12:06.800 --> 0:12:10.680
<v Speaker 1>Domestic Policy Studies. There, Lani, it's always enlightening. Perhaps not

0:12:10.720 --> 0:12:13.680
<v Speaker 1>as cheery as usual today, but again facing up the

0:12:13.720 --> 0:12:17.400
<v Speaker 1>reality is you know what adults do, right And with that,

0:12:17.480 --> 0:12:19.960
<v Speaker 1>had a good weekend. Thank you, Thank you very much,

0:12:20.000 --> 0:12:22.480
<v Speaker 1>you two. I was listening to a podcast yesterday with

0:12:22.480 --> 0:12:27.000
<v Speaker 1>a bunch of really smart people talking about how the

0:12:27.000 --> 0:12:29.120
<v Speaker 1>way experts look at things. How did we end up

0:12:29.120 --> 0:12:32.040
<v Speaker 1>in a situation where the market got rattled this week

0:12:32.320 --> 0:12:35.360
<v Speaker 1>when Target and Walmart said something that should have been

0:12:35.400 --> 0:12:38.240
<v Speaker 1>obvious to everybody. Prices are high, so people are buying

0:12:38.280 --> 0:12:40.120
<v Speaker 1>a lot less stuff, So we're gonna make a lot

0:12:40.160 --> 0:12:41.920
<v Speaker 1>less money than we have in the past. How is

0:12:41.960 --> 0:12:45.120
<v Speaker 1>that a shock? To America and the markets. The markets

0:12:45.120 --> 0:12:48.600
<v Speaker 1>got rattled by the realization that people are really feeling

0:12:48.640 --> 0:12:50.880
<v Speaker 1>the pinch of these high prices and are gonna spend

0:12:50.920 --> 0:12:53.120
<v Speaker 1>less money at Target and Walmart. Isn't that a wild

0:12:53.559 --> 0:12:57.600
<v Speaker 1>that it took their actual report to come in before

0:12:57.640 --> 0:12:59.960
<v Speaker 1>the markets got so shocked. I mean, it's just I'll

0:13:00.000 --> 0:13:02.719
<v Speaker 1>obviasily that was going to happen. Yeah, it does kind

0:13:02.720 --> 0:13:05.760
<v Speaker 1>of have the feel of the Palace elite are there

0:13:05.800 --> 0:13:09.880
<v Speaker 1>in their grand gowns, sipping their champagne, and it takes

0:13:09.880 --> 0:13:13.120
<v Speaker 1>a very long time for them to hear that the uh,

0:13:13.160 --> 0:13:16.160
<v Speaker 1>you know, the villagers are really angry, and in fact,

0:13:16.240 --> 0:13:18.640
<v Speaker 1>one just burnt down and things are not going well

0:13:18.679 --> 0:13:21.480
<v Speaker 1>out there. They're insulated in the palace, I think, and

0:13:21.520 --> 0:13:22.719
<v Speaker 1>I know we're out of time. But one of the

0:13:22.760 --> 0:13:26.800
<v Speaker 1>other things that somehow everybody missed was the so called

0:13:26.840 --> 0:13:30.080
<v Speaker 1>good news that consumer spending was up. You know why

0:13:30.120 --> 0:13:33.240
<v Speaker 1>it was up because prices were up. I bought the

0:13:33.280 --> 0:13:36.160
<v Speaker 1>same amount of milk and gas, but I spent more money.

0:13:36.440 --> 0:13:39.319
<v Speaker 1>That didn't mean I was optimistic. It costs more, And

0:13:39.440 --> 0:13:44.440
<v Speaker 1>somehow the experts missed that. Apparently extra large