WEBVTT - Dr. Adam Posen Talks CPI, Global Economic Outlook

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>We're going to stay tim on the US economy. We're

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<v Speaker 2>going to broaden out as well, especially when it comes

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<v Speaker 2>to geopolitics and the global economy, something we talked about

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<v Speaker 2>with our Stu Paul yesterday.

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<v Speaker 1>We got a great voice to do this, Doctor Adam

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<v Speaker 1>Posen joins US, President of the Peterson Institute for International Economics,

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<v Speaker 1>joining us this afternoon from Washington, DC. Before we broaden out,

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<v Speaker 1>doctor Posen, want to talk about the US economy coming

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<v Speaker 1>off of that inflation print that we just talked about

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<v Speaker 1>with Mike McKee. Where do you see the US economy heading?

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<v Speaker 3>Well, thank you for having me back.

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<v Speaker 4>The main thing I think your investor listeners should be

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<v Speaker 4>thinking about is that if your plus or minus zero

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<v Speaker 4>point one, zero point two from expectation on any given

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<v Speaker 4>months print, it's not worth real information. I mean, nobody

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<v Speaker 4>has their expectations that precise. So you have to look

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<v Speaker 4>at the bigger stories. And to me, the bigger stories

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<v Speaker 4>in the are that we have a labor market that

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<v Speaker 4>isn't cratering as people used to worry about, that has

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<v Speaker 4>solid retention of employment, not huge employment growth, but solid retention.

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<v Speaker 4>We have potentially some very stimulative fiscal policies coming down

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<v Speaker 4>the pike, in that the Republican majorities in the Congress

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<v Speaker 4>may give President Trump checks to hand out ahead of

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<v Speaker 4>the midterm elections in November. They may, I hope they

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<v Speaker 4>will restore some of the funding for Obamacare insurance subsidies

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<v Speaker 4>that we're taken out in last year's bill.

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<v Speaker 3>And we've got in the end.

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<v Speaker 4>A bunch of things on the Tara front and even

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<v Speaker 4>more so on the anti migration front, that are percolating

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<v Speaker 4>through the economy. And people were premature to say, oh,

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<v Speaker 4>it all must have happened by now, or it won't happen.

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<v Speaker 4>That's not right. It takes time for businesses and households

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<v Speaker 4>and migrants to make decisions. So I with Mike, I'm

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<v Speaker 4>with a lot of people. I think the pricing of

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<v Speaker 4>three FED cuts this year is much too many.

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<v Speaker 2>So this explains, or I'm assuming this kind of explains,

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<v Speaker 2>doctor Posen, that you and Lazard CEO Peter or Zag

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<v Speaker 2>of course, formerly Director of the Office of Management and

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<v Speaker 2>Budget and director of the CBO. You guys put out

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<v Speaker 2>a column in January that the FEDS two percent inflation

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<v Speaker 2>target could be totally left in the dust. You think

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<v Speaker 2>inflation could quote surprise to the upside, potentially exceeding four

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<v Speaker 2>percent by the end of twenty twenty six. Is it

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<v Speaker 2>because of what you just laid out in terms of,

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<v Speaker 2>you know, tax cuts, federal government spending. These are things

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<v Speaker 2>that are going to be stimulative.

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<v Speaker 4>Stimulation Carols exactly and Peter and I. And I was

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<v Speaker 4>glad the co author with Peter because he knows the

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<v Speaker 4>fiscal stuff. So if he and I agree that these

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<v Speaker 4>are real likely risks to more stimulus out of fiscal

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<v Speaker 4>I'm willing to buy it or willing to sell it.

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<v Speaker 3>Actually.

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<v Speaker 4>But I think the other things that we're talking about

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<v Speaker 4>is the lagged effect of tariffs and anti migration. I

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<v Speaker 4>wrote about this in a column for Business Week magazine

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<v Speaker 4>earlier this month. I think we're talking about in Peter

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<v Speaker 4>points too from his Purchaselizard various corporate CEOs I got

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<v Speaker 4>Amazon and or the Beije books from the FED that

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<v Speaker 4>say companies are only just now passing through some of

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<v Speaker 4>these adjustments. I think there's also just the bottom line

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<v Speaker 4>that the labor market is more solid, and so if

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<v Speaker 4>we get any inflation, it's in a more tidy economy.

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<v Speaker 4>And then finally whether or not we get into the

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<v Speaker 4>new leadership at the FED. After all the attacks on

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<v Speaker 4>the FED over the last year since President Trump came

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<v Speaker 4>back into office, you have to be a little more

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<v Speaker 4>worried that the FED will not react quickly if there

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<v Speaker 4>is inflation, and that to some degree becomes self fulfilling.

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<v Speaker 4>So I think there's a lot of things going on.

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<v Speaker 4>Could be a recession. It could be that the migrants

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<v Speaker 4>really haven't left yet. They could be that the government

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<v Speaker 4>breaks down and doesn't pass these stimulus, in which case

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<v Speaker 4>inflation won't be that high. But I think each of

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<v Speaker 4>these is pretty darn likely, and cumulatively they get you

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<v Speaker 4>up to high inflation by end of the year.

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<v Speaker 1>You mentioned the FED, so I want to go there,

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<v Speaker 1>and then I want to do some demographic stuff because

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<v Speaker 1>there's a lot of questions about what the economy looks

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<v Speaker 1>like in the next few years with the decline and immigration.

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<v Speaker 1>On the FED, you said if the FED is less

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<v Speaker 1>reactive moving forward. Is that a result you think of

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<v Speaker 1>Kevin Walsh being nominated as chair of the FED.

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<v Speaker 4>I think it's a result of the desires expressed so

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<v Speaker 4>strongly by President Trump and by Secretary bessent and by

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<v Speaker 4>not just Kevin Warsh to the nominee, but all the

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<v Speaker 4>shortlisted people who would be fed chair in favor of

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<v Speaker 4>loosening policy quite a bit, and doing so in the

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<v Speaker 4>face of data which the vast majority of the Federal

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<v Speaker 4>Open Market Committee has publicly said leads them to want

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<v Speaker 4>to pause. I think should give people pause. So I

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<v Speaker 4>think there is a real issue there. I think there's

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<v Speaker 4>also genuine debate to be had. Nominee Warsh, Governor Waller

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<v Speaker 4>and others have said that some of these tariff and

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<v Speaker 4>other effects are one time shocks. They're not going to

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<v Speaker 4>be passed on We'll see. That would be very unusual.

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<v Speaker 4>But maybe they've also said or started to say that

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<v Speaker 4>productivity growth will bail us out, will be able to

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<v Speaker 4>have more growth with less inflation. That's more plausible to me,

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<v Speaker 4>But even there that's by no means for sure. There

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<v Speaker 4>was a nice piece by Jason Furman and the Wall

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<v Speaker 4>Street Journal discussing this. The angle I would take is,

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<v Speaker 4>just as Governor Waller or Kevin worsh says, with the tariffs,

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<v Speaker 4>you get a real income shock, in this case positive

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<v Speaker 4>from AI. It's indeterminate ahead of time to use a

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<v Speaker 4>fancy word. How much of that shows up as income

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<v Speaker 4>and how much of that shows up as price disinflation.

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<v Speaker 4>And my reading of the historical evidence is when you

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<v Speaker 4>get a new technology, most of the disinflation stuff comes

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<v Speaker 4>with a lag, because that only comes when companies start restructuring,

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<v Speaker 4>changing their workforces, figure out how to use this stuff,

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<v Speaker 4>whereas some of the income growth, the productivity growth you

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<v Speaker 4>get upfront just because we've all got a new toy. So, yeah,

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<v Speaker 4>I think there's room for me to be plenty wrong,

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<v Speaker 4>but I think we're going to end up pretty high

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<v Speaker 4>inflation that's behind the curve.

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<v Speaker 2>So is that the biggest realistic risk to the US economy?

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<v Speaker 2>I wanted to insert that word realistic because I think

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<v Speaker 2>we talk about risks all the time, and there's a list,

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<v Speaker 2>you know, as long as my arm and then some.

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<v Speaker 2>But I'm just curious. Is it higher inflation, is a

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<v Speaker 2>higher interest rates? Is it demographics and older population folks

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<v Speaker 2>not having babies. Is it less immigration? Is it rising debt?

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<v Speaker 2>Is it China? US tech?

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<v Speaker 4>Like?

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<v Speaker 2>What do you think is the biggest realistic risk to

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<v Speaker 2>the US economy? Maybe to the global economy?

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<v Speaker 4>Yeah, well, thank you for putting it that with Carol,

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<v Speaker 4>I would sort the risks by two categories, the realistic

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<v Speaker 4>and unrealistic, as you said, But then at what time

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<v Speaker 4>frame they hit. I think the realistic risk for the

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<v Speaker 4>US in the next three to twelve months is probably

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<v Speaker 4>inflation is the biggest risk. I'm not that worried about

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<v Speaker 4>a downside unemployment. I'm not that worried about trade wars

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<v Speaker 4>turning it to hot wars with China. I mean, I'm

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<v Speaker 4>worried about it. It'd be terrible, but I'm not that

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<v Speaker 4>worried it's likely. But if we start looking out one

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<v Speaker 4>two years, then to me, the realistic risk starts to

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<v Speaker 4>get into some of those demographic issues you and Tim

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<v Speaker 4>just mentioned, because we are cutting off a lot of

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<v Speaker 4>people from the workforce by excluding or deporting migrants, and

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<v Speaker 4>there's a lot of things that happen, for example, the

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<v Speaker 4>female labor force participation in prime age women. If you

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<v Speaker 4>don't have cheap available healthcare and cheap available childcare, and

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<v Speaker 4>the budget doesn't support that out of the federal government,

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<v Speaker 4>and healthcare is cut back if they don't pass the

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<v Speaker 4>subsidies for Obamacare, and even if they do, it's still

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<v Speaker 4>cut back. So those are the things in the next

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<v Speaker 4>couple of years. But then when we think beyond that,

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<v Speaker 4>then you've got a tug of war between the positive

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<v Speaker 4>impact of AI and the potential for large scale unemployment

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<v Speaker 4>as people adjust to AI. And there I got to say,

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<v Speaker 4>not only I, but the economics profession has no clear idea.

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<v Speaker 4>There are a few people out there are very strong opinions,

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<v Speaker 4>but there's no consensus and we're still working on that.

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<v Speaker 1>What's your best bet there? What's there's no cons We

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<v Speaker 1>don't know what's going to happen. We can't see the future.

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<v Speaker 1>But what's realistic.

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<v Speaker 4>What's realistic is productivity growth stays up as high as

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<v Speaker 4>it's now starting the trend, maybe even goes a little higher,

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<v Speaker 4>and unemployment shoots up in a couple of years, but

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<v Speaker 4>doesn't shoot up enormously, and it is disproportionately on younger people.

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<v Speaker 4>And that you get some decline in labor force participation

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<v Speaker 4>because people figure out different ways of living their lives.

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<v Speaker 4>And so the unemployment number are under states how many

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<v Speaker 4>people feel displaced?

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<v Speaker 2>Yeah, gosh, a million questions. I want to ask you,

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<v Speaker 2>when do we are we seeing kind of the fruits

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<v Speaker 2>of the gaps in wealth playing out globally and is

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<v Speaker 2>it kind of where we are? It's amazing to me

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<v Speaker 2>where people point to stock market highs. We've talked about

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<v Speaker 2>the K shaped economy a lot, but how many conversations

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<v Speaker 2>I have on a regular basis with so many Americans

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<v Speaker 2>that just find it difficult and ones that I wouldn't

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<v Speaker 2>even think so, that are probably in a decent income bracket,

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<v Speaker 2>but it's just doesn't feel so good. No.

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<v Speaker 4>I think as economists, you all are anchors. You cover everything,

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<v Speaker 4>but as economists have got to be a little bit

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<v Speaker 4>modest that sometimes when people don't feel so good, it's

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<v Speaker 4>not about the economic numbers. They may say it's about that,

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<v Speaker 4>but it's about their relative position in life. It's about uncertainty.

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<v Speaker 4>It's about through an ideological lens, is their party in power,

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<v Speaker 4>not in power?

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<v Speaker 3>Are their kids?

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<v Speaker 4>So it's not that people's feelings are unimportant, but obviously not.

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<v Speaker 4>They can vote, they can choose. But the connection, and

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<v Speaker 4>there's very clear data on this, the connection between surveys

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<v Speaker 4>of how good people feel or how confident people feel

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<v Speaker 4>has become much more tenuous in terms of linking it

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<v Speaker 4>to actual economic outcomes than it used to be. That's

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<v Speaker 4>interesting what I what I would say, Carol.

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<v Speaker 2>We have to run though, yeah quickly.

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<v Speaker 4>Yeah no, no, no, sorry, Just to say that the

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<v Speaker 4>global situation.

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<v Speaker 3>Is similar to the US. There's a lot of youth.

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<v Speaker 4>Unemployment in China and in Europe, and that we got

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<v Speaker 4>to think about.

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<v Speaker 2>Just means you want to have you come back real soon,

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<v Speaker 2>doctor Pos, and be well. Have a great weekend.