Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, you know,
Speaker 1: one of the big things that we've been talking about
Speaker 1: maybe a little bit on the podcast, but I would say, uh,
Speaker 1: finance media, ecomedia in general, is this idea of the
Speaker 1: monetary to fiscal handoff. Oh yeah, that is the big theme,
Speaker 1: and it's sort of the big thing that a lot
Speaker 1: of people are hanging their hopes on for economic growth.
Speaker 1: So the spiel that you've been hearing a lot is
Speaker 1: that monetary policy has failed in various ways to lift
Speaker 1: inflation and to boost economic growth in a significant way,
Speaker 1: and so it is now up to the government side
Speaker 1: to actually enact fiscal stimulus and do it that way. Right.
Speaker 1: I think there's like a couple of things going on.
Speaker 1: I mean, I think a there's the fact that people
Speaker 1: have been pretty disappointed with the pace of growth in
Speaker 1: the wake of the financial crisis. There's the fact that
Speaker 1: in uh much of the developed world, there may literally,
Speaker 1: according to some people, being no further scope for monetary
Speaker 1: policy as rates are more or less pinned a zero.
Speaker 1: So even if things are okay now there's this expectation
Speaker 1: that central banks don't have a lot of Jews. And
Speaker 1: you know something that we have talked about, just this
Speaker 1: idea that um, you know, in the wake of the
Speaker 1: financial crisis, growth aside, that all of the sort of
Speaker 1: old rules and old frameworks are being questioned once again. Yeah,
Speaker 1: I think that's right, But of course I guess the
Speaker 1: key thing in all of this is that it's not
Speaker 1: central banks you are going to be responsible for the
Speaker 1: next phase. It's governments, right, And with governments you tend
Speaker 1: to get a hecky dose of politics and often disagreement. Right.
Speaker 1: That's the tricky part because one in theory nice thing,
Speaker 1: and it's debatable whether it's nice, but one in theory
Speaker 1: nice thing about relying on monetary policy is it can
Speaker 1: be conducted by ostensibly independent institutions that don't have to
Speaker 1: go so much by political whims or worry about getting
Speaker 1: re elected. Whereas when you rely on fiscal policy, you
Speaker 1: rely on elected officials, often who have who have counter
Speaker 1: goals to each other. Maybe politicians don't want to boost
Speaker 1: the economy when their opposition is in power. Things like that. Uh,
Speaker 1: Fiscal policy arguably reacts much slower, so although it sounds
Speaker 1: nice to have a handoff, so to speak, it's a
Speaker 1: it's a lot trickier than just saying we need to
Speaker 1: rely more on fiscal policy. Yeah, which is why it's
Speaker 1: what is it now? And we're still talking about the
Speaker 1: possibility of a big round of fiscal stimulus in a
Speaker 1: lot of places, even though it feels like we've been
Speaker 1: talking about it for a long time, right, and even
Speaker 1: in places which every economist almost in the entire world
Speaker 1: would say, yes, please spend more money. A good example
Speaker 1: of that would say be Germany. It just doesn't matter.
Speaker 1: It's so much more arbitrary and unpredictable when you're going
Speaker 1: to get the fiscal response than uh than say monetary policy,
Speaker 1: which can be adjusted extremely quickly. And this is something
Speaker 1: that I remember we spoke about with Lord Robert Skidelski.
Speaker 1: He was talking about the need for a sort of
Speaker 1: automatic fiscal stabilizer that could kick in when the economy
Speaker 1: was in trouble and sort of bypass whatever political gridlock
Speaker 1: might otherwise stop it from happening. Well, that is a
Speaker 1: perfect way to introduce our guest, because our guest has
Speaker 1: been doing work on exactly this question. So how do
Speaker 1: you get fiscal policy to work in a timely manner,
Speaker 1: in a predictable manner, in a matter that's not as
Speaker 1: much about the um the political cycles, in a manner
Speaker 1: that's actually well targeted and time to avoid or mitigate
Speaker 1: the effects of recession. And that is going to be
Speaker 1: our discussion today. Great, I can't wait, all right, So,
Speaker 1: without further ado, I want to bring in Claudia Psam.
Speaker 1: She is the director of macroeconomic Policy at the Washington
Speaker 1: Center for Equitable Growth. And Uh, Claudia, thank you very
Speaker 1: much for joining us. Yeah, thank you for having me
Speaker 1: on the show. I'm really excited. Awesome. Well, before we
Speaker 1: get into your work, and uh, we've we've talked about
Speaker 1: this work you've been doing in terms of improving the
Speaker 1: speed and efficacy, UM and predictability of fiscal policy, just
Speaker 1: tell us a little bit about your background. You were
Speaker 1: at the Federal Reserve for a long time, right, Yes,
Speaker 1: so I was at the Federal Reserve Board of Governors
Speaker 1: in d C until last November. So I'm very new
Speaker 1: being on the outside. And I think my education as
Speaker 1: a macro economist at the FED so very much in
Speaker 1: the monetary policy space was unique because I started in
Speaker 1: the summer of two thousand and seven. My first forecast
Speaker 1: as a consumption expert at the Board was in January
Speaker 1: of two thousand eight. My first year learning how to
Speaker 1: do macro forecasting was a birth by fire. As one
Speaker 1: of my colleagues, did you get it right? No one
Speaker 1: got it right. And I think for me it was
Speaker 1: interesting because in my first year, just like a lot
Speaker 1: of people out of grad school, I had an immense
Speaker 1: amount of impostor syndrome. But at some point I realized
Speaker 1: every single macro economist at that point in time should
Speaker 1: be having impostor syndrome, because that first year I learned
Speaker 1: how to do macro forecasting when none of the forecast
Speaker 1: models worked. I mean, they never work in a recession.
Speaker 1: It's just it's such a severe contraction. That's not no
Speaker 1: one would ever forecast a recession like it happened next
Speaker 1: year because we just we don't have a way to
Speaker 1: predict that. They're very unpredictable by nature. So I, like
Speaker 1: I said, I had a very different education in macro forecasting,
Speaker 1: and frankly it has damaged me in terms of believing
Speaker 1: that the economy always recovers and that we should trust
Speaker 1: our models, our expertise, even among a really strong, hard
Speaker 1: working group of economists, I think strongly we've missed it
Speaker 1: before the recession, in the financial crisis, but frankly the recession,
Speaker 1: how slow it was, how much we didn't understand that.
Speaker 1: That was really my hardest time as a forecaster at
Speaker 1: the board. Can I just say I had a really
Speaker 1: similar experience because I got into really financial financial journalism
Speaker 1: in September of two thousand eight, and I remember even
Speaker 1: financial journalists that have been doing this for ten years
Speaker 1: were really confused about everything that was happening, and I
Speaker 1: was just writing about it, and I felt a little
Speaker 1: bit uncomfortable. But then I realized that actually no one
Speaker 1: had any idea what was going on at that time,
Speaker 1: so everyone was pretty much starting from ground zero. So
Speaker 1: I kind of wanted to ask you when you saw
Speaker 1: the health of the consumer actually start to deteriorate before
Speaker 1: the Great Recession, But obviously, since you made your first
Speaker 1: forecast in January two eight, that doesn't really apply. So
Speaker 1: let me ask instead, when did you see the health
Speaker 1: of the consumer start to really pick up after that recession.
Speaker 1: So I think as background to this my research, my dissertation,
Speaker 1: I used household survey data, responses from household to major
Speaker 1: surveys like the Michigan Survey, Healthy Retirement Survey, Healthy Retirement Study.
Speaker 1: This is an unusual background. I am a macro economist,
Speaker 1: I was trained to be a macro economist, but my
Speaker 1: research has primarily been applied microeconomics. So studying household behavior
Speaker 1: by looking at household behavior is opposed to just it
Speaker 1: all aggregated up. And I remember late in two thousand
Speaker 1: and seven because I started to go to briefings and
Speaker 1: get a sense of where I had landed, and there
Speaker 1: was a discussion about consumer sentiment from the Michigan Survey
Speaker 1: and how it had really started to deteriorate. And it
Speaker 1: was puzzling given all the other macroeconomic data that was
Speaker 1: coming in, like consumer spending personally, it just didn't quite connect.
Speaker 1: And I can remember being in a boardroom briefing. There
Speaker 1: was an exchange between the governors and the staff saying, well,
Speaker 1: what's up with consumers? And you know our best well,
Speaker 1: we don't know, and then it went into oh, this
Speaker 1: is fusehold. We should call him up and see what's
Speaker 1: going on. And no one shut down this conversation, And
Speaker 1: I was just about ready to crawl under my chair
Speaker 1: because those five household and having worked on a lot
Speaker 1: of household surveys, they are chosen to be representative of
Speaker 1: all adults, all households in the United States. So the
Speaker 1: idea that we were brushing it off is some inconvenient
Speaker 1: data point that didn't set in with the rest. That
Speaker 1: really caused some alarm bells. But I was really knew.
Speaker 1: I wasn't, you know, in a place to jump up
Speaker 1: in the boardroom and correct governor and you know, staff
Speaker 1: that were senior to me. But in hindsight, and this
Speaker 1: was a project I worked on when I was at
Speaker 1: the Council of Economic Advisors and and sixteen I did
Speaker 1: a retrospective for the senior staff there. Jason Furman was
Speaker 1: the chair, and it was about how we can look
Speaker 1: back on the consumer sentiment data the both the expectations
Speaker 1: and then the recovery. I paid a lot of attention
Speaker 1: to the income expectations and you can see how households
Speaker 1: were they got it and not because they're excellent forecast
Speaker 1: they were living this right. And so I spent a
Speaker 1: lot of time with the Michigan Survey thinking hard. I mean,
Speaker 1: these data are hard to work with. There are there
Speaker 1: is some noise, you know it. You know, the people
Speaker 1: answer questions and it's not clear what they intend by
Speaker 1: what they're saying. But you put it all together, there's
Speaker 1: a lot there to learn. So I feel like they
Speaker 1: were telling us early on, which makes sense. It was
Speaker 1: a consumption lead recession. The housing markets started to turn
Speaker 1: south before it was showing up in the whole economy clearly,
Speaker 1: and frankly you saw early in two thousand eleven two
Speaker 1: tents we broke them. The income expectations series moved in
Speaker 1: a way from Americans are by nature optimistic, they had
Speaker 1: a discreete shift in becoming much more pessimistic about their
Speaker 1: income ex expectations. I talked with Richard Kurtin at the time,
Speaker 1: who has run the Michigan Survey since year I was born,
Speaker 1: so back, you know, forty plus years, and he agreed
Speaker 1: with me, there's basically only other two series, the interest
Speaker 1: rate expectations around the time of vulcre In, these income
Speaker 1: expectations after the Great Recession, those are the only two
Speaker 1: series you can point to, and just there is a
Speaker 1: level shift, very abrupt, and that that meant something, and
Speaker 1: that was something I spent a lot of time repeatedly
Speaker 1: in forecast meetings among staff pointing to you know, and
Speaker 1: it was one of many things that were considered. There
Speaker 1: was a lot to learn from households. Now when we
Speaker 1: look back, we can see they were they were right.
Speaker 1: That was a big part of my life as a
Speaker 1: forecaster over a decade at the FED, and it was
Speaker 1: where I was bringing my research, expertise, my passions about
Speaker 1: the fact that economists really need to listen to people
Speaker 1: and we need to be creative about a way to
Speaker 1: take what people are telling us one by one or
Speaker 1: community by community, and figure out how to roll it
Speaker 1: up in a way that the Federal Reserve, who really
Speaker 1: does need to make policy for the country as a whole,
Speaker 1: how they can integrate those voices and when they're especially
Speaker 1: when they're puzzling, into our frameworks and use that to
Speaker 1: guide monetary policy. I already feel like we could do
Speaker 1: a massive to our discussion on just what that's like
Speaker 1: being a staffer at the FED, and I I hope
Speaker 1: you write a book on it, because now I just
Speaker 1: have a million more questions on that alone. But in
Speaker 1: the interest of time and everything, I want to skip
Speaker 1: ahead a little bit, and I feel like when we
Speaker 1: get to discussing the structure of how to do fiscal stimulus,
Speaker 1: your work on household consumption is going to be very
Speaker 1: relevant to that. But before we get to that, this
Speaker 1: idea now today that okay, we need some sort of handoff,
Speaker 1: that we need to put more emphasis on fiscal policy,
Speaker 1: that we can't just have this central bank be the
Speaker 1: economic stabilizer of last resort. Where do you think that's
Speaker 1: mostly coming from. Do you think it's coming from the
Speaker 1: slow pace of recovery? Is that the fact that rates
Speaker 1: are zero and there's there's perception that central banks are
Speaker 1: out of AMMO? Or is it kind of what you're
Speaker 1: saying in terms of the soul searching among economists that
Speaker 1: just the models, the basic models that have been used
Speaker 1: for so long, just don't work as as people thought.
Speaker 1: So I would point to a number of factors. I'll
Speaker 1: keep it brief in terms of sticking to what I
Speaker 1: think are the three main ones, and starting with the
Speaker 1: idea of economist soul searching, which was your last point.
Speaker 1: I do think that's a piece of it. I have
Speaker 1: been discouraged by how limited the soul searching among economists
Speaker 1: macroeconomists has been over the last decade. I don't, Well,
Speaker 1: I have reasons for that, but we'll set those aside,
Speaker 1: and I think where the soul searching has begun and
Speaker 1: I'll take whatever we can get is in terms of
Speaker 1: monetary policy. So the zero lower bound has complicated to
Speaker 1: how economists, how the Federals Reserve approaches their mandate from Congress.
Speaker 1: So and right now the Federal Reserve is undergoing a
Speaker 1: framework review. I do not have high hopes for those
Speaker 1: outcomes this summer, but I am so happy that we
Speaker 1: are having that discussion in a very serious, model based way.
Speaker 1: So I think that is great. So that's one piece,
Speaker 1: because it be hard not to have a rethink. I
Speaker 1: think the rethink is coming from monetary policy itself. Now,
Speaker 1: a second factor that I personally think is why we
Speaker 1: are having this debate is fiscal policy did not show
Speaker 1: up in the way it has in previous recessions. In
Speaker 1: the beginnings, you had Bush passing the tax cuts, you
Speaker 1: had the American Recovery and Reinvestment Act, as you know,
Speaker 1: Obama's first big economic policy in two thousand nine. So
Speaker 1: on the front end, we saw some aggressive fiscal policy
Speaker 1: responses completely on target. Now, what we didn't see is
Speaker 1: that as the recovery went on, Congress pulled back on
Speaker 1: fiscal policy support to the economy in a way that
Speaker 1: was markedly different than past recessions. So and again I
Speaker 1: studied consumer behavior. I followed very closely because of my
Speaker 1: job as a consumption forecaster, each of these stimulus packages
Speaker 1: that went out broadly to households. So what we saw
Speaker 1: at the end of twenty twelve, the payroll tax cut,
Speaker 1: which was the last of these big stimulus two households.
Speaker 1: It ended the unemployment rate was still notably elevated, and
Speaker 1: they just they pulled back for for reasons. There were
Speaker 1: discussions about debt that to me is a big problem.
Speaker 1: And then because they did that, and this was an
Speaker 1: important part of the automatic stabilization direct payments to households
Speaker 1: that I'm sure we'll get to talking about in a
Speaker 1: few minutes. The reason that I had the automatic piece,
Speaker 1: and it wasn't just about when it turns on. It
Speaker 1: was a commitment to keep doing the payments until the
Speaker 1: unemployment rate came down. That is very specifically a reaction
Speaker 1: from the fact that when Congress had to get together
Speaker 1: and do it in a discretionary way, like they had
Speaker 1: to vote on it in real time. They didn't do it.
Speaker 1: They pulled back on the economic support. So I think
Speaker 1: that's the second one. The third one is the economy
Speaker 1: told us we are not We did not approach this
Speaker 1: in a way that was sufficient. The tools that we
Speaker 1: had going into recession and the recovery just didn't didn't
Speaker 1: do it. This was a slow and long recovery. The
Speaker 1: unemployment rate stayed high for way too long. Both of
Speaker 1: these are destructive. They hurt people, they hurt businesses, they
Speaker 1: hurt the economy, I mean productivity ground, They're just there
Speaker 1: are so many bad consequences that we have seen in
Speaker 1: the economy that this has forced a discussion about, Okay,
Speaker 1: what more can we do? What are the tools that
Speaker 1: we haven't put on the table that we have to
Speaker 1: think hard about right now? So just before we get
Speaker 1: to the automatic stabilizer bit, I just want to dig
Speaker 1: in a little bit more, but like, why the focus
Speaker 1: on fiscal policy specifically as a way of um of
Speaker 1: boosting the economy. And I know that sounds I know
Speaker 1: that sounds like a weird question, but I just remember
Speaker 1: after the financial crisis, there was so much emphasis on
Speaker 1: monetary policies. So why did you, as a researcher decide
Speaker 1: to look more at the fiscal side of things instead
Speaker 1: of talking about, you know, how the fet should be
Speaker 1: calibrating its rates, or maybe if we went to negative
Speaker 1: interest rates that would help, or maybe we should do
Speaker 1: more QWI or a different form of kuwi. How did
Speaker 1: you settle on fiscal So it was my job. So
Speaker 1: as one of the experts at the board, and keep
Speaker 1: in mind there are five hundred economists at the Federal
Speaker 1: Reserve Board who are working on supporting the board in
Speaker 1: in many different dimensions, my job was to understand consumers,
Speaker 1: their behavior, how they were reacting to many things in
Speaker 1: the economy, income changing, their wealth being decimated. Uh So
Speaker 1: I had to think about a lot of dimensions, but
Speaker 1: an important dimension was how is the government supporting these households. Now,
Speaker 1: it may seem counterintuitive, Federal Reserve officials do not go
Speaker 1: to the Hill, or at least the very rare occasion,
Speaker 1: do not go to the Hill and tell Congress how
Speaker 1: to do their job. You can point to episodes where
Speaker 1: Bernanky as the chair went and in some sense, in
Speaker 1: a very macro button down way, begged Congress to do more,
Speaker 1: but that isn't the federal and they certainly won't comment
Speaker 1: on exactly what do we think that whatever fiscal program
Speaker 1: is doing to the economy, what you know, what are
Speaker 1: the effects? They will never say that in public, but
Speaker 1: in private we have to know that because monetary policy
Speaker 1: needs to work around the edges, so to speak. So
Speaker 1: my research program right my first forecast in two thousand
Speaker 1: eight was when we put the Bush stimulus payments into
Speaker 1: the forecast, so right out of the gate, I was
Speaker 1: working on research. I was fortunate that my adviser, Matthew
Speaker 1: Shapiro at Michigan and his colleague Joel Slimrod had a
Speaker 1: research program already going on measuring household responses the spending
Speaker 1: response to fiscal stimulus, and the board was more than
Speaker 1: happy to put the financial resources into continuing to run
Speaker 1: these household surveys. And again they were done on the
Speaker 1: Michigan Survey, and uh, Matthew and Joel were generous to
Speaker 1: let me join in on the project and that measuring
Speaker 1: fiscal stimulus. We worked on the stimulus payments in two
Speaker 1: thousand eight, we worked on making work pay in two
Speaker 1: thousand nine and ten the payroll tax cut in two thousands,
Speaker 1: eleven and twelve. So this was a huge part of
Speaker 1: my research program, and at every stage I was presenting
Speaker 1: in the boardroom the results from those findings those surveys.
Speaker 1: In addition to this thing about the board, we don't
Speaker 1: march in there and just say well, this is my
Speaker 1: view and my research. As a staff member, I was
Speaker 1: doing very serious study of the other papers that were
Speaker 1: being written at the time. Jonathan Parker and Nick Alaylis,
Speaker 1: with very different co authors at different points in time,
Speaker 1: did the research that economists, they can't deny it was
Speaker 1: a gold standard research. Ben Bernankee was clear to let
Speaker 1: me know that their work was gold standard. In my
Speaker 1: mind was not that's okay, but they had for various reasons.
Speaker 1: I won't get into the wonky economist details, but they
Speaker 1: were able to run a study that was everything economists
Speaker 1: want to see in terms of evidence, and they showed
Speaker 1: very clearly that households, when you send them the money,
Speaker 1: they spend it. Now, to normal non economist people, this
Speaker 1: will seem obvious to economists. They believe that you give
Speaker 1: people money and then they calculate the annuity value and
Speaker 1: they like spend it out in five dollar increments over
Speaker 1: the rest of their life, and so that if that
Speaker 1: is the truth, then fiscal stimulus giving money to households
Speaker 1: is not going to be effective. Monetary policy is the
Speaker 1: only game in town according to a lot of the
Speaker 1: models we went into before the Great Recession, and frankly,
Speaker 1: they is they couldn't not send out money. And Congress
Speaker 1: has done this often. This is a way for Congress
Speaker 1: to show the American people like we're doing something to
Speaker 1: help you. After the stimulus payments that Bush sent out,
Speaker 1: after we've been able to study and see it. Economists
Speaker 1: understand the vast majority of them except the fact that
Speaker 1: this works. People spent. So that's a big reason why
Speaker 1: we can have this conversation now, because there's a view
Speaker 1: that there's efficacy behind these policies. I I you know,
Speaker 1: I don't want to do too much economist bashing, but
Speaker 1: at some point we should just do a serious tracy
Speaker 1: of things that are obvious to literally everyone else accept economists,
Speaker 1: such as the fact that if you give people cash
Speaker 1: that's a good thing, that they'll spend it and that
Speaker 1: that will help them. Whereas if you look at it
Speaker 1: through a model, somehow it doesn't happen, but that's a
Speaker 1: that's an aside. So we have these different models for
Speaker 1: how to give households money directly. There's the form that
Speaker 1: bushed it a couple of times, like just cut everyone
Speaker 1: to check. There's payroll tax cuts so that suddenly after
Speaker 1: the tax cut, each paycheck you get a little more
Speaker 1: than you had before. There is there's an employment or
Speaker 1: unemployment insurance so that people lose their job they get
Speaker 1: some sort of money from the government to keep them going.
Speaker 1: So various programs, and we'll get to um the best
Speaker 1: way to design that in a second. But before we
Speaker 1: do that, I want to get to something that has
Speaker 1: made our guest semi famous, I would say, and that
Speaker 1: is helping to answer the question of when, Because it's
Speaker 1: one thing to say, okay, government should give households money,
Speaker 1: but we all know the political problems and uh so
Speaker 1: then you have to arise. So if it's going to
Speaker 1: be done automatically in a downturn or before a downturn,
Speaker 1: you need some sort of trigger so that the payments
Speaker 1: start and they don't and too soon. Claudia, you have
Speaker 1: done work directly on this to the point that there
Speaker 1: now exists the some rule which is now this thing
Speaker 1: out there in the world, which is a rule that
Speaker 1: exists for guiding the government for when to start uh
Speaker 1: spending money to support household So talk to us about
Speaker 1: that part first, this sort of framework that you've developed
Speaker 1: or indicator that you've developed to tell to design a
Speaker 1: program for when the checks start to go out. Yes,
Speaker 1: so that what's been referred to as the SOM rule.
Speaker 1: I have been blown away by the response. I but
Speaker 1: I understand why. So when you spoke with Lord Robert
Speaker 1: Skodowski in the in the conversation mentioned the importance of
Speaker 1: having fiscal rules. So this is not an area that
Speaker 1: economists have had a robust discussion. There has been a
Speaker 1: robust discussion about there being monetary policy rules of various
Speaker 1: kinds that would guide the Fed in some cases central
Speaker 1: banks being held ac ounable to following a rule or
Speaker 1: at least explaining when they deviate from it. So the
Speaker 1: idea that we'd have a fiscal rule, and this is
Speaker 1: absolutely essential for doing anything that's an automatic stabilizer, because
Speaker 1: you have to know when to hit go in a
Speaker 1: responsible way, so you're not blowing a hundred billion dollars
Speaker 1: when there's no reason to so. First to describe the
Speaker 1: SO rule. So what it is is, I look at
Speaker 1: the monthly unemployment rate. This is the statistic on the
Speaker 1: economy that we want. I know several economists that if
Speaker 1: you ask them, if you were stuck on a desert island,
Speaker 1: you could only have one data series to understand the economy.
Speaker 1: That's it. They want the unemployment rate. Totally makes sense.
Speaker 1: I agree. So what I do is I take the
Speaker 1: monthly unemployment rate. I take this three month moving average.
Speaker 1: Is important. Monthly data bumps around, and you don't want
Speaker 1: to overreact to some wiggle in the data, so we
Speaker 1: smooth it out, look at three month moving averages. And
Speaker 1: then what I do is in every month, and keep
Speaker 1: in mind the unemployment rate comes out very soon after
Speaker 1: the month ends, so this is a very quick read
Speaker 1: on the economy. I compare my figure the three month
Speaker 1: average in a month has just come out, and I
Speaker 1: look back over the prior twelve months. And what I
Speaker 1: do is I compare the current month to that low
Speaker 1: over the prior twelve months. I calculate the change. When
Speaker 1: that change is a half a percentage point or more,
Speaker 1: this is a small increase. It's a half a percentage
Speaker 1: point or more. We are in a recession. So I
Speaker 1: look back at recessions in the past, specifically from nineteen
Speaker 1: seventy on. The some rule turns on in every single
Speaker 1: recession two to four months in and there are no
Speaker 1: false positives, so it doesn't turn on outside of a recession.
Speaker 1: And that's a big deal when you're when you need
Speaker 1: a rule to turn on fiscal policy. Now, there there
Speaker 1: are some alternative measures that people have turned to. Economists
Speaker 1: and market watchers look at for a recession, and they
Speaker 1: you can't use them for fiscal rules or they would
Speaker 1: be very substandard. So one that the there is a
Speaker 1: recession dating committee. Their job is to look at a
Speaker 1: whole host of data and they are the ones who
Speaker 1: call the recession. They will specify the quarter, the month
Speaker 1: in which the economy peaked, so that's its highest point
Speaker 1: downhill from there, so they call the peak, which that's
Speaker 1: the beginning of the recession. That announcement comes from them
Speaker 1: often a year after the recession is begun, okay, So
Speaker 1: we can't wait a year to send the checks out, okay,
Speaker 1: because that's just you've lost an opportunity to move quickly
Speaker 1: in a recession. Okay, so that's not going to work.
Speaker 1: The next rule of thumb that's often talked about is
Speaker 1: two quarters of a negative a decline in GDP. Okay,
Speaker 1: this is also not going to work because GDP, unlike
Speaker 1: the unemployment rate, comes out with more of a lag.
Speaker 1: You have to get past the end of the quarter
Speaker 1: about a month afterwards you get a read on GDP growth.
Speaker 1: You'd have to get you know, more than six months
Speaker 1: into a recession to see this, and GDP growth revises
Speaker 1: a lot. There's a lot of source data that comes
Speaker 1: in later that if you look at the GDP growth
Speaker 1: data through the recession, if you look at the annual revisions,
Speaker 1: which is a forecaster. I did look at those very carefully.
Speaker 1: According to that data, our first read was not negative enough. Right,
Speaker 1: So there's both a delay and not as clear of
Speaker 1: a picture as you would want to do stimulus. So
Speaker 1: the rule that I developed could be used, like you
Speaker 1: could use is this to kick on fiscal stimulus. And
Speaker 1: I think even to myself, it was a surprise at
Speaker 1: the response because and I mean I have many FED
Speaker 1: colleagues and former FED even officials who have no They
Speaker 1: are not impressed. They were like, well, we knew this
Speaker 1: a small increase in the unemployment rate, it's bad news.
Speaker 1: After the Sum rule became big, I checked with my
Speaker 1: former boss, Andrew Figura, and I'm like, please tell me
Speaker 1: I did not scoop our internal rule, and he said no.
Speaker 1: But we use as a rule of thumb as a
Speaker 1: three tense increase an unemployment rate. And that's for the FED. Remember,
Speaker 1: the Fed can move faster. If the Fed cuts a
Speaker 1: quarter point, it's not like the deficit blows up. So
Speaker 1: they actually use something a little faster. It has false positives.
Speaker 1: Remember I was really looking for something accurate. So but
Speaker 1: it's in the spirit small rising the unemployment rate or
Speaker 1: bad news. What was shocking to me. And this is
Speaker 1: one of my complaints with the Fed. We bring in
Speaker 1: a lot of information, we think hard about it. We
Speaker 1: know a lot of stuff about the economy, and we
Speaker 1: often don't share it. And so I knew a small
Speaker 1: increase in the unemployee rate was bad news. I frankly
Speaker 1: knew the Sam rule, which I did not name it
Speaker 1: the Sam rule. It was a recession indicator in my chapter.
Speaker 1: I knew it was going to work. I mean I
Speaker 1: spent a lot of Saturday afternoons with the spreadsheet, and
Speaker 1: in the end I pulled all the real time data,
Speaker 1: which is a little extra wonky flourish at the end,
Speaker 1: so I was looking at the unemployment rate as we
Speaker 1: would have seen it in the that actual time. The
Speaker 1: unemployee rate does revise a little bit um, but this
Speaker 1: was important for my approach. It worked. I was blown
Speaker 1: away by the response. My series with my name attached
Speaker 1: to the variable is in Haveor and Bloomberg and then
Speaker 1: it's in FRED. They gave me a FRED T shirt.
Speaker 1: It's like my favorite piece of clothing for those For
Speaker 1: those who don't know, the FRED is the St. Louis
Speaker 1: Federal Reserve Database website charting tool. And if you're like,
Speaker 1: if you don't have a Bloomberg, of course the Bloomberg
Speaker 1: is the best thing in the world. But if you
Speaker 1: don't have a Bloomberg, it is the best website in
Speaker 1: the world for playing around with analyzing economic data. And
Speaker 1: the fact that your indicator got in there is extremely
Speaker 1: cool and I just want to say that. But yeah,
Speaker 1: and an important piece of FRED again, Bloomberg is great.
Speaker 1: The terminals is that it's free. Anybody can get on
Speaker 1: FRED and download the series take a look at it,
Speaker 1: understand what it is. I've been contacted by individuals in
Speaker 1: state governments who are thinking about how could we integrate
Speaker 1: this into It's time to bump up our food stamps.
Speaker 1: It's time to do something at the state level. It
Speaker 1: was then clear to me, and actually I had reactions
Speaker 1: from people who work follow economic policy in d C,
Speaker 1: not monitor terry policy, who told me, they said, Claudie,
Speaker 1: I can't believe this works. And so I realized that
Speaker 1: while at the FED we got this and frankly, like
Speaker 1: financial people who uh do economic forecasting on Wall Street,
Speaker 1: a lot of them have come from the FED and training.
Speaker 1: They knew this. To their clients, knew this, this has
Speaker 1: been a newsletters. But the people in state governments, the
Speaker 1: people doing fiscal policy in d C, they didn't know.
Speaker 1: So that really opens up a whole avenue for policy,
Speaker 1: especially policy rules, fiscal policy rules to be put in place,
Speaker 1: and that could be huge. So I'm proud of this.
Speaker 1: I have a teenage daughter. She about a month ago,
Speaker 1: looked at me in the car and she's like, Mom,
Speaker 1: are you afraid that you've peaked with the somb rule?
Speaker 1: And I was like, oh my gosh, teenagers are the
Speaker 1: best to keep your ego and check UM. But I
Speaker 1: told her, I said, you know, if I'm going to
Speaker 1: be a one trick Onny, this is the trick I
Speaker 1: want like this. This is big and can help people.
Speaker 1: So your idea, though, basically solves two big problems when
Speaker 1: it comes to physical stimulus. So it allows people to
Speaker 1: recognize that a recession is coming. And your idea about
Speaker 1: direct stimulus payments to individuals that allows everyone to pre
Speaker 1: agree on a method too combat that recession. And you
Speaker 1: mentioned some state governments talking about ways that they might
Speaker 1: incorporate it. How hopeful are you that your idea gets
Speaker 1: sort of integrated on UM an official level or maybe
Speaker 1: even a federal level in the US. So I think
Speaker 1: it's really important, right because what I've developed right now
Speaker 1: and what's gotten a lot of attention, is how to
Speaker 1: say we're in a recession. Okay, if that's not paired
Speaker 1: with a policy response that is swift and vigorous, I
Speaker 1: worry about negative responses from consumers, businesses, and markets. Right.
Speaker 1: So I had a friend joke with me the other day.
Speaker 1: It wasn't funny, but joked with me that, oh, the
Speaker 1: next recession, it could be the PSALM recession, and I
Speaker 1: was like, oh, don't, don't do this to me. Because
Speaker 1: there is an aspect of recessions, and again having studied
Speaker 1: consumer expectations, is often referred to as animal spirits. There's
Speaker 1: a part of recessions that get into a very negative
Speaker 1: downward spiral. So if you think there's a recession coming,
Speaker 1: or frankly, households look around and they see people in
Speaker 1: their family, their friends losing their jobs. That can create
Speaker 1: a lot of anxiety up and down the income distribution
Speaker 1: because the vast majority of Americans are one paycheck sometimes
Speaker 1: cut in overtime hours away from having serious financial distress.
Speaker 1: So even if they don't end up losing their job,
Speaker 1: there's a chance they could someone in their family could.
Speaker 1: And so often if they're able to, they will cut
Speaker 1: back in their spending. You know, maybe they're thinking about
Speaker 1: buying a car and they're like, oh, yeah, let's let's
Speaker 1: wait on that because I don't want to commit to
Speaker 1: these payments. Then if I lose my job, it'll just
Speaker 1: be really painful. So if that happens, that's really bad.
Speaker 1: And that's that you see that in recessions, this happens
Speaker 1: so I'm hopeful that we put policies in places in place,
Speaker 1: like the direct payments to households. The it lead households
Speaker 1: know ahead of time, and this could be a positive
Speaker 1: mitigating factor. They would know ahead of time the government
Speaker 1: has their back, the government is going to send them checks.
Speaker 1: This is really straightforward. I think monetary policy is so important.
Speaker 1: Monetary policy is not straightforward. We are never going to
Speaker 1: get the communications clear enough that households will understand the
Speaker 1: Feds got our back. I think it's really important in
Speaker 1: that regard, we'd commit to it. People would know ahead
Speaker 1: of time. It's not just they'd get the money, they
Speaker 1: know that the government is really trying hard to short
Speaker 1: circuit the recession, make it shorter, make it less severe.
Speaker 1: That could have really positive effects on consumers. You could
Speaker 1: have positive effects on employers. They might not be as
Speaker 1: apt to lay people off because they're like, Okay, this
Speaker 1: is we're just gonna ride this out. This isn't gonna
Speaker 1: last long. So there could be huge positive effects. But
Speaker 1: I really worry that if the some rule, this great
Speaker 1: session indicator isn't paired with a commitment to have a
Speaker 1: policy response, it might not turn out well. So I'm
Speaker 1: very motivated right now to work with people on the
Speaker 1: hill to get this figured out. So I'm I'm curious
Speaker 1: if if we got a big enough policy response because
Speaker 1: the Psalm rule, the recession indicator actually flashed up, would
Speaker 1: you then start getting false positives in the recession indicator.
Speaker 1: I guess what I'm asking is is the goal to
Speaker 1: make the effects of the recession less worse than they
Speaker 1: would otherwise be, or is the goal to completely stave
Speaker 1: off the recession that's coming. So remember my indicator says
Speaker 1: we're in a recession. The early stages of a recession,
Speaker 1: it's clear when it starts moving up. So when you
Speaker 1: get to a three tense increase, I mean this, this
Speaker 1: will cause consternation, and maybe in a discretionary way, Congress
Speaker 1: gets ahead of it. I mean the Fed, I said,
Speaker 1: three tents gets them worried. Like there they are likely
Speaker 1: to be moving and at this point they're gonna be
Speaker 1: likely getting real creative about how to deal with the
Speaker 1: zero lower bound. As a macroeconomist, I no longer have
Speaker 1: enough optimism to really say this. But if in some
Speaker 1: way this was enough, and I think there's a lot
Speaker 1: of other automatic stabilizers the Congress ought to be thinking
Speaker 1: very seriously about. But say Congress went big early in
Speaker 1: a recession, there is a possibility that the economic data
Speaker 1: would turn around in such a way that when the
Speaker 1: recession dating Committee at the NBR looks back, they're like, yeah,
Speaker 1: I'm not so sure there's really something there, because remember
Speaker 1: it's not a done deal until they say a recession started.
Speaker 1: I mean, frankly, if if there was that scenario and
Speaker 1: people said the thumberil didn't work, we gave we supported
Speaker 1: all these households, we supported unemployed people, I mean, my goodness,
Speaker 1: I'll take that one. You know, the some non recession
Speaker 1: will just fine with me. That's what I was gonna say.
Speaker 1: So like the question of false positives. Of course, like
Speaker 1: in financial markets, people look at the inverted yield curve.
Speaker 1: But just you know, going back to your point, if
Speaker 1: the worst thing that happens is that households got some
Speaker 1: support and we never really had a declared recession, uh,
Speaker 1: that doesn't seem like a particular disaster in any respects.
Speaker 1: There's one more component to this that I really want
Speaker 1: to make sure we don't miss, and that is the
Speaker 1: right way to structure these household payments, and you talked
Speaker 1: about your work sort of doing the microeconomics of households.
Speaker 1: What is the best way to do it? I mean,
Speaker 1: we have the Bush we we really had it twice
Speaker 1: under Bush, right, I believe we had it in a
Speaker 1: two thousand one or two thousand two they cut a
Speaker 1: check to everyone. Then we had the one in two
Speaker 1: thousand seven. Then we had the payroll tax cuts under Obama,
Speaker 1: which kind of does this accepted only goes to people
Speaker 1: who have payrolls. Based on your research, what is the
Speaker 1: best way to get the most bang for the economic
Speaker 1: buck of sending people cash? So my proposal is to
Speaker 1: send out checks, big checks like five thousand dollars, calibrated
Speaker 1: off how large the economy is, how much spending there
Speaker 1: was going into the recession, So everybody gets a check,
Speaker 1: and frankly, I want those checks to go to everybody.
Speaker 1: That there were some limits on who got the tax
Speaker 1: rebates the fiscal payments in two thousand one and two
Speaker 1: thousand eight. So I want us to go go broad.
Speaker 1: So that's a big piece of it. We already talked
Speaker 1: about this SOM rule. They need to go out as
Speaker 1: soon as possible. The only way to guarantee, that is,
Speaker 1: to get the logistics in place. I in developing my proposal,
Speaker 1: You're right, I drew on my research the other research
Speaker 1: that went on about all these household payments. Sadly, our
Speaker 1: research program we had a lot of different policy responses
Speaker 1: to study because they kept going. So my read of
Speaker 1: that research is direct payments checks really clear, tell people
Speaker 1: they're coming, and do it fast. Now a peace that
Speaker 1: maybe people will think as a sidebar, but I think
Speaker 1: it is important for making all this happen. Is if
Speaker 1: Congress pre commits to doing these payments, then that will
Speaker 1: give the Internal Revenue Service the time to put logistics
Speaker 1: in place. I read for my research for my policy proposal.
Speaker 1: I read the Inspector General reports from the Treasury looking
Speaker 1: back on the two eight stimulus payments. These are fascinating reads.
Speaker 1: I learned a lot looking at them. And essentially everyone
Speaker 1: who worked at the Internal Revenue Service and Social Security
Speaker 1: Administration who worked on this ought to get a gold
Speaker 1: medal for it because they hustled in a way that
Speaker 1: is almost impossible to believe. So they were a old
Speaker 1: to work together because an important piece of the two
Speaker 1: thousand eight stimulus payments, and I am fully on board
Speaker 1: with this. Is they wanted to get it to people
Speaker 1: who did not even have a tax liability two thousand one,
Speaker 1: when entirely through the tax system, have more thoughts on that,
Speaker 1: but setting that aside, when entirely through internal Revenue Service,
Speaker 1: the only people that got it were once who had
Speaker 1: filed a tax return. Many recipients of Social Security benefits
Speaker 1: do not file tax returns, So in two thousand and eight,
Speaker 1: the Social Security Administration did a huge push to tell
Speaker 1: Social Security recipients that they needed to file tax returns.
Speaker 1: They helped get that going, so you had that was
Speaker 1: not a perfect take up, but I mean they really
Speaker 1: they really moved the Internal Revenue Service, got all the
Speaker 1: pieces in place. What's a little bit fascinating is it
Speaker 1: the government they don't have all of our bank account
Speaker 1: numbers or are mailing addresses to send checks. My brother,
Speaker 1: who is has been in agriculture, he never files his
Speaker 1: taxes electronically because he doesn't want the government to know
Speaker 1: his bank account number. So he is not alone and
Speaker 1: in any case, so that actually creates a challenge to
Speaker 1: get the money out. If you know that this these
Speaker 1: checks that we want to get them out, it would
Speaker 1: give you an opportunity to make sure that that infrastructure
Speaker 1: is always in place. It would give you a chance
Speaker 1: to work to try and get people outside of Social
Speaker 1: Security administration who do not receive benefits. So think about
Speaker 1: individuals who received food stamps. They have cards that they
Speaker 1: used to do payments. Those are run at the state level.
Speaker 1: That is an even bigger logistical lift. But there's no
Speaker 1: reason that we can't do that. So if you put
Speaker 1: all of that infrastructure in place, and of course that
Speaker 1: something Congress would have to fund if they were to
Speaker 1: create an automatic, stabilized like direct payments. But wow, that's
Speaker 1: huge and is another little wonky detail. Stimulus payments at
Speaker 1: this point cannot go out during act season, no matter
Speaker 1: how amazing the internal revenue services they are fully on it.
Speaker 1: During tax season. Recessions can happen in tax season, right,
Speaker 1: So if you had a parallel structure that was in place,
Speaker 1: we could do it any time and we could get
Speaker 1: it to everybody. So I think that would be important.
Speaker 1: And this is not just my personal opinion, this is
Speaker 1: my read of the research that this was the most
Speaker 1: effective way in terms of the spending response. I think
Speaker 1: it was the most effective in terms of the political economy.
Speaker 1: Again having worked on these household survey data, so my
Speaker 1: research is very much ask household, what did you do
Speaker 1: with the check or what did you do with the
Speaker 1: extra bump you've got in your your payrolls from making
Speaker 1: work pay or the payroll tax credit. When we worked
Speaker 1: on the Making Work Pay, it was amazing to us
Speaker 1: how many individuals did not even know what making work
Speaker 1: pay was. There was one woman that had some very
Speaker 1: choice comments about what it meant to her to get
Speaker 1: another thirty bucks a month in her paycheck. I mean
Speaker 1: these not only was it completely missed. That was the
Speaker 1: most common era when people fired their tax returns that
Speaker 1: they didn't claim the making work tax credit. Now the
Speaker 1: i R S fixed all of that and people, you know,
Speaker 1: it showed up in their tax returns, but that just
Speaker 1: shows you people did not know. I have many reservations
Speaker 1: about us doing stealth stimulus right because I think that
Speaker 1: the way that households react, how much anxiety they have
Speaker 1: about what's happening in the economy. That's a real thing.
Speaker 1: So why in the world would you want to send
Speaker 1: the money and they don't know it? Now being a
Speaker 1: little strong here, because there is some research. Dick Saylor
Speaker 1: and other behavioral economists had said before this that if
Speaker 1: people don't know they're going to put it in a
Speaker 1: mental account, it's just kind of in their bank and
Speaker 1: they're like, oh, I've got an extra hundred dollars and
Speaker 1: they go spend it. I don't think that's policy. And
Speaker 1: we have data now that really contradicts that, And we
Speaker 1: have the fact that households were clueless and just didn't
Speaker 1: help in terms of they're thinking the government had their back.
Speaker 1: And then finally, and I talked about this and my
Speaker 1: policy proposal. What you want to do is short circuit
Speaker 1: the recession. You want to get it out fast. I
Speaker 1: think it's much better to do it in one fell swoop,
Speaker 1: one check. Any of these things that go through payrolls,
Speaker 1: they are spread out across a year, spread out across
Speaker 1: two years. Well that that does support households in a
Speaker 1: regular way, smaller dollars at each paycheck. But why do that,
Speaker 1: Like you want to do you want to move fast
Speaker 1: if you have any chance of shortening the recession, it's
Speaker 1: right at the beginning. So I think there's a lot
Speaker 1: And as you can tell, I've thought a lot about
Speaker 1: the different policies. I've thought about them both in terms
Speaker 1: of the research, and I watched it in real time
Speaker 1: in the consumer spending data, and it hurt, like it
Speaker 1: hurt to see that, like the household spending wasn't coming
Speaker 1: back and households were really becoming pessimistic. How is the
Speaker 1: health of the US consumer now? I see a lot
Speaker 1: of positive but I again I want to frame that
Speaker 1: positive in in a shadow to some extent. So we
Speaker 1: are now past the tenth year of this expansion that
Speaker 1: in any other time would be Wow, this is a
Speaker 1: big deal. I look at that ten years of expansion
Speaker 1: and I see a lot that isn't good. The recovery
Speaker 1: took way too long. The unemployment rate and these are
Speaker 1: like people not with jobs, right, this is bad. It
Speaker 1: stayed up way longer than it should have. There is
Speaker 1: a lot of research and you can talk to people
Speaker 1: this is not It's not hard to figure out being
Speaker 1: out of a job long term. Unemployment was really elevated.
Speaker 1: So being out of a job for a long time
Speaker 1: these have consequences, negative consequences for careers. I really feel
Speaker 1: for those students who came out onto the job market
Speaker 1: in two thousand nine. You don't have to look too
Speaker 1: hard at like the student loan data, the wages they
Speaker 1: entered with. I mean, they got slammed. And this this
Speaker 1: is not the kind of thing that, oh, we're in
Speaker 1: the tenth year of the expansion, all is good. It's
Speaker 1: never going to be all good for them. When I
Speaker 1: look at the consumer spending data now, and while I
Speaker 1: haven't been a forecaster for the last two years, I
Speaker 1: still follow the data more than this probably a reasonable
Speaker 1: person would. Uh So I look at the consumer spending data.
Speaker 1: Consumption is seventy pc of GDP. Those numbers are good.
Speaker 1: Income is good on aggregate on average, right, I can
Speaker 1: the last two years I managed to survey at the
Speaker 1: were to governors, the survey of household economics and decision making.
Speaker 1: There are and always have been groups of individuals and communities.
Speaker 1: So if you think of people of color, rural areas,
Speaker 1: areas that have been hit hard by trade, less educated,
Speaker 1: I mean, I can point to several groups that have
Speaker 1: been on the margins of the economy have not shared
Speaker 1: in what we see in the aggregates, the averages they
Speaker 1: deserve more in terms of the economic policy and support
Speaker 1: they are benefiting from the expansion. Going longer. I find
Speaker 1: that incredibly encouraging. It's like way overdue, but there there's
Speaker 1: so much upside and potential by bringing them into the economy,
Speaker 1: So I see a lot of good things. I firmly
Speaker 1: disagreed earlier this year when the yield curve inverted, the
Speaker 1: Yoeld curve is a very wonky thing, or not wonky.
Speaker 1: The Yeld curve is a very unpredictable, i'd almost say
Speaker 1: unreliable at this point, signal of a recession down the road.
Speaker 1: It's a forecasting device. It is not a recession indicator
Speaker 1: like I was using. There's a lot of research that
Speaker 1: says with these massive balance sheets that the Federal Reserve has,
Speaker 1: that it is not going to behave financial markets are
Speaker 1: not behaving the way they have in the past. Setting
Speaker 1: that outside. When that came out, I was like, I
Speaker 1: don't think, I'm not real worried, and there was a
Speaker 1: lot of discussion about a recession is coming now. Frankly,
Speaker 1: that's been very good for our recession ready volume, and
Speaker 1: people have been thinking about a recession more than I
Speaker 1: would have ever thought when I was working on my
Speaker 1: chapter early last year. But what there was a lot
Speaker 1: of discussion about OH investment manufacturing, their contracting. Actually, when
Speaker 1: I came back from the White House, I worked on
Speaker 1: business investment because to be a generalist at the board,
Speaker 1: you have to be a specialist in multiple areas. It's
Speaker 1: a lot of fun. So I came back and I
Speaker 1: worked on business investment. And that was actually a period
Speaker 1: for the first time ever we had seen the business
Speaker 1: sector business investment contract and we did not have a recession.
Speaker 1: So the fact that we were seeing a contraction business
Speaker 1: investment is temper cent of the economy. Consumers look just fine.
Speaker 1: I'm like this, this is hard hitting these industries. It's
Speaker 1: hard hitting people who work in these industries. A recession
Speaker 1: is broad based, it's across industries, it's across the country.
Speaker 1: And to me, this did not look like something that
Speaker 1: was going to spread to the entire economy. And the
Speaker 1: numbers really aren't there unless it starts kicking around. I mean,
Speaker 1: there are orange lights flashing, and financial sectors they feel
Speaker 1: like they're always are. So I'm not saying that I
Speaker 1: completely write it off, but I personally looking at the
Speaker 1: data and not just my recession indicator. Forecasters should never
Speaker 1: just look at one series. I see nearly no way
Speaker 1: that we are in a recession by the end of
Speaker 1: this year, and frankly, I don't unless we find some
Speaker 1: really big unforced policy errors to pull out of the cabinet.
Speaker 1: I see no reason why we have to be in
Speaker 1: a recession anytime soon. So I worry this is one
Speaker 1: more piece to put in here. I worry a lot
Speaker 1: about the discussion saying the FED has no ammunition. I
Speaker 1: worry a lot about the discussions where Congress just could
Speaker 1: never agree on this. Even if we got in a
Speaker 1: recession right now, there's no way they'd even agree to
Speaker 1: do any stimulus. I find those very worrying because they
Speaker 1: do not calm They do the opposite of calming consumers
Speaker 1: and businesses and financial markets, and I don't think those
Speaker 1: are really necessary discussions to have. The FED is incredibly creative.
Speaker 1: I mean, they did stuff that was totally out of
Speaker 1: the playbook, and they got more I mean having been there,
Speaker 1: like there's more in the playbook, and they were like
Speaker 1: one European disaster away from doing some other things. So
Speaker 1: like I'm not I'm not as worried about the FED.
Speaker 1: I don't think they're going to be as effective fiscal
Speaker 1: policy we need it. I think, you know, everybody's a
Speaker 1: Kinesian in the foxhole, like Congress will get it together.
Speaker 1: They always have so like I don't. So I really
Speaker 1: I find those discussions like the doom and gloom in
Speaker 1: forecasting discussions and market watching. I think we should stop,
Speaker 1: Like I think it's bad. Claudia, that was awesome. It's
Speaker 1: so great to have you on. I think that's a
Speaker 1: great place to leave it there. And I'm confident just
Speaker 1: based on listening to this that that you didn't peak
Speaker 1: with the sumb role. But either way, it was really
Speaker 1: it was awesome, really great. Appreciate you joining us. Yeah, no,
Speaker 1: thank you both. I really appreciate a lot of fun.
Speaker 1: Thanks so much, Claudia. That was great. Thanks Claudia, Tracy.
Speaker 1: I really think that conversation helps move the ball forward.
Speaker 1: Maybe not this particular episode of the podcast having a
Speaker 1: big effect per se, but in terms of like wrapping
Speaker 1: our heads around what it means for the handoff or
Speaker 1: what it means for fiscal stimulus to kick in. I
Speaker 1: really feel like a lot of the ideas that Claudia
Speaker 1: expressed are really important for this discussion that everyone is having.
Speaker 1: I have so many thoughts Joe. So number one is
Speaker 1: we need to have Claudia back on to do an
Speaker 1: episode on what it was like in the FED and
Speaker 1: just give us all the gossip about everything that's going
Speaker 1: on and tell us how to decode all the FED
Speaker 1: statements and all of that. The other thing is she's
Speaker 1: got some great quotes like monetary very policy needs to
Speaker 1: work around the edge, Like that's a really good description
Speaker 1: of it um and I think that's sort of starting
Speaker 1: to become a not consensus theory, but you can see
Speaker 1: people sort of moving towards it, right. Yeah, No, absolutely,
Speaker 1: I totally agree. There were so many like different individual
Speaker 1: insights observations that you had that we could have, like
Speaker 1: each one of those could have been probably a separate conversation.
Speaker 1: So we should definitely have her back. But you know,
Speaker 1: right now it's still generality. As you'll have like some
Speaker 1: sort of like uh, you know, very big name and
Speaker 1: economics say o, time for fiscal fiscal policy makers to work,
Speaker 1: but with no idea of when that is or why
Speaker 1: that is, or what are the thresholds for when they
Speaker 1: should kick in. It feels kind of arbitrary. What do
Speaker 1: you spend the money on? All kinds of things. And
Speaker 1: I really feel like this was very helpful in sort
Speaker 1: of saying, Okay, yes, we get it, we need fiscal
Speaker 1: stimulus to stave off for sessions, but what does that
Speaker 1: actually mean? And it feels like this is very fruitful avenue.
Speaker 1: It's a concrete proposal, that's for sure. And more than that,
Speaker 1: it also comes with the PM role, which is the
Speaker 1: recession indicator, so it can actually give you that exact
Speaker 1: trigger point for when the checks you're going to get
Speaker 1: mailed out. And I thought the point that you and
Speaker 1: she also made, which is like who cares if you
Speaker 1: get a false positive? The okay, so the recession doesn't
Speaker 1: actually get declared. So then you ended up spending a
Speaker 1: little bit of money for a few months to help
Speaker 1: households that had gone into unemployment and everyone else. It's
Speaker 1: not a big deal. And whatever sort of cost there
Speaker 1: is to doing that, it is far less than allowing
Speaker 1: a sustained recession to take place, just given the lifetime
Speaker 1: hits that that has to people's entire income and so forth.
Speaker 1: I think your last point is probably valid, but I'm
Speaker 1: sure there are some people out there who will think
Speaker 1: that sending a bunch of money at a time when
Speaker 1: there isn't a recession adds up to something. This is
Speaker 1: your innate m m tier from within speaking. Now someone
Speaker 1: will pick up on it and probably complain, And that's
Speaker 1: going back to the beginning of the conversation. Like that
Speaker 1: is the difficulty with all of this. There is politics
Speaker 1: running through all of it. When when you're trying to
Speaker 1: make it as objective as possible, right, and that's its
Speaker 1: own separate thing, because there is still this element of like, look,
Speaker 1: this is public money, the idea of public money. Can
Speaker 1: you do it in a democratically accountable manner fiscal policy
Speaker 1: and have it be automatic and just sort of set
Speaker 1: a rule and have Congress go on vacation or does
Speaker 1: not need to vote there it raises sort of thorny issues.
Speaker 1: There's always this tension of how do you do things
Speaker 1: in an efficient way and in a democratic way? And
Speaker 1: I think that's another whole area that needs to be discussed.
Speaker 1: But at least this sort of provides some framework for
Speaker 1: sort of bridging the gap between the automatic aspect of
Speaker 1: monetary policy and the democratic aspect of fiscal policy. Yeah,
Speaker 1: it's it's definitely an interesting one. It's a framework, yes,
Speaker 1: all right, Uh, this has been another episode of the
Speaker 1: All Thoughts Podcast. I'm Tracy Alloway. You can follow me
Speaker 1: on Twitter at Tracy Alloway, and I'm Joe Wisn't Thal.
Speaker 1: You can follow me on Twitter at the Stalwart. And
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