1 00:00:00,200 --> 00:00:02,639 Speaker 1: He kind of that grows the economy from the middle 2 00:00:02,640 --> 00:00:05,480 Speaker 1: out the bottom up instead of just the top down. 3 00:00:05,480 --> 00:00:08,920 Speaker 1: When that happens, everybody does well. This vision is a 4 00:00:08,960 --> 00:00:12,760 Speaker 1: fundamental break from the economic theory that has failed America's 5 00:00:12,760 --> 00:00:14,800 Speaker 1: middle class for decades now. 6 00:00:18,960 --> 00:00:21,720 Speaker 2: President Joe Biden this week launched an ambitious bid to 7 00:00:21,840 --> 00:00:26,079 Speaker 2: persuade Americans he's boosted the US economy, with a speech 8 00:00:26,160 --> 00:00:29,080 Speaker 2: describing how his legislation in the past two and a 9 00:00:29,120 --> 00:00:32,520 Speaker 2: half years would grow the economy long term and boost 10 00:00:32,560 --> 00:00:34,400 Speaker 2: the position of ordinary Americans. 11 00:00:34,960 --> 00:00:37,080 Speaker 1: And I'm not here to declare victory on the economy. 12 00:00:37,080 --> 00:00:39,120 Speaker 1: I'm here to say we have a plan that's turning 13 00:00:39,159 --> 00:00:42,560 Speaker 1: things around incredibly quickly. Well, you have more work to do. 14 00:00:42,800 --> 00:00:45,159 Speaker 2: It showed that Biden will put the economy at the 15 00:00:45,159 --> 00:00:48,560 Speaker 2: center of his re election campaign. It's a strategy, though 16 00:00:49,000 --> 00:00:53,440 Speaker 2: not without risks. You'd think, given inflation and now mortgage 17 00:00:53,520 --> 00:00:56,360 Speaker 2: rates are both sword in the Biden years, and most 18 00:00:56,480 --> 00:00:59,560 Speaker 2: voters appear to race him poorly on his handling of 19 00:00:59,560 --> 00:01:02,200 Speaker 2: the econom In fact, you'd think it would be the 20 00:01:02,240 --> 00:01:05,800 Speaker 2: Republican candidates for president who'd be wanting to focus on 21 00:01:05,840 --> 00:01:08,280 Speaker 2: the state of the US economy. But we're not hearing 22 00:01:08,360 --> 00:01:11,160 Speaker 2: much of that at all. So what's going on and 23 00:01:11,200 --> 00:01:13,679 Speaker 2: how important is it for President Biden and his team 24 00:01:14,040 --> 00:01:16,800 Speaker 2: that we don't have a US recession in the next 25 00:01:16,880 --> 00:01:20,280 Speaker 2: twelve months. Well, let me chat first to senior Bloomberg 26 00:01:20,360 --> 00:01:24,479 Speaker 2: reporter Nancy Cook in DC, who's already spending a chunk 27 00:01:24,480 --> 00:01:26,720 Speaker 2: of her time out on the campaign with some of 28 00:01:26,720 --> 00:01:30,800 Speaker 2: these wanna be presidents. Nancy, thanks as ever for joining 29 00:01:30,880 --> 00:01:34,039 Speaker 2: us on Stephanomics. I guess we should just ask the 30 00:01:34,040 --> 00:01:37,880 Speaker 2: basic question, is the economy a positive or a negative 31 00:01:37,920 --> 00:01:39,680 Speaker 2: of President Biden's hopes of re election? 32 00:01:39,840 --> 00:01:42,959 Speaker 3: Do you think I think that President Biden's problem is 33 00:01:43,000 --> 00:01:45,800 Speaker 3: he just has not been able to get credit for 34 00:01:46,080 --> 00:01:48,760 Speaker 3: the good parts of the economy. The US has one 35 00:01:48,800 --> 00:01:52,120 Speaker 3: of the strongest labor markets we have ever seen. Unemployment 36 00:01:52,200 --> 00:01:56,000 Speaker 3: is very low. Unemployment is also low among women, it's 37 00:01:56,120 --> 00:02:00,920 Speaker 3: low among African Americans. You know, there has been a 38 00:02:00,960 --> 00:02:05,240 Speaker 3: big boom in infrastructure spending. The US is trying to 39 00:02:05,480 --> 00:02:10,040 Speaker 3: wrestle manufacturing away from China and build more semiconductor factories here. 40 00:02:10,320 --> 00:02:13,519 Speaker 3: So there's a lot of interesting things happening in the economy. 41 00:02:13,639 --> 00:02:18,040 Speaker 3: Despite the historically high inflation and a lot of bright 42 00:02:18,120 --> 00:02:21,040 Speaker 3: spots for the White House. But it has just been 43 00:02:21,160 --> 00:02:23,280 Speaker 3: very hard for the Biden White House to sell the 44 00:02:23,280 --> 00:02:26,360 Speaker 3: American public on the idea that the economy is good 45 00:02:26,400 --> 00:02:29,640 Speaker 3: and for people to feel okay about it. You know, 46 00:02:29,680 --> 00:02:33,920 Speaker 3: a majority of Americans cannot name a single accomplishment that 47 00:02:34,000 --> 00:02:36,600 Speaker 3: the Biden White House has done, and that has really 48 00:02:36,639 --> 00:02:39,639 Speaker 3: dogged them. So I would argue that their problem moving 49 00:02:39,680 --> 00:02:42,440 Speaker 3: forward as they try to make economics a centerpiece of 50 00:02:42,480 --> 00:02:45,680 Speaker 3: the campaign, is more of a sales pitch problem than 51 00:02:45,720 --> 00:02:48,040 Speaker 3: an actual policy problem. 52 00:02:48,480 --> 00:02:50,720 Speaker 2: Well, you know, as you mentioned, he has passed these 53 00:02:50,720 --> 00:02:54,160 Speaker 2: massive bills, the Infrastructure Bill, the Inflation Reduction Act, which 54 00:02:54,160 --> 00:02:58,120 Speaker 2: is obviously more about the green transition and investing in 55 00:02:58,520 --> 00:03:03,800 Speaker 2: being carbon neutral. You've also and you saw we've also 56 00:03:03,840 --> 00:03:06,400 Speaker 2: seen the Chips Act. All of those things seem to 57 00:03:06,440 --> 00:03:11,840 Speaker 2: be triggering construction booms in some key election battlegrounds like 58 00:03:11,919 --> 00:03:15,799 Speaker 2: Ohio and Pennsylvania. Hasn't any of that helped him? 59 00:03:16,160 --> 00:03:17,959 Speaker 3: Well, I think that part of the problem with all 60 00:03:18,080 --> 00:03:20,880 Speaker 3: of the legislation and the money that has been allocated 61 00:03:20,880 --> 00:03:25,120 Speaker 3: to these projects is that they are long term, you know, investments. 62 00:03:25,480 --> 00:03:27,919 Speaker 3: And so for instance, last year I was in Ohio 63 00:03:28,000 --> 00:03:30,200 Speaker 3: with President Biden. We were standing in the middle of 64 00:03:30,240 --> 00:03:35,280 Speaker 3: a field of chips at a chips factory where you know, 65 00:03:35,400 --> 00:03:40,080 Speaker 3: eventually the White House and local officials hope people without 66 00:03:40,160 --> 00:03:42,680 Speaker 3: college degrees can make you know, one hundred and twenty 67 00:03:42,720 --> 00:03:46,240 Speaker 3: thousand dollars a year producing these chips. And that is 68 00:03:46,280 --> 00:03:49,960 Speaker 3: really a huge part of the White House's message to voters. 69 00:03:50,200 --> 00:03:53,320 Speaker 3: You know, we are creating really good, high end manufacturing 70 00:03:53,360 --> 00:03:55,560 Speaker 3: jobs in the US. But part of the problem is 71 00:03:55,560 --> 00:03:59,240 Speaker 3: that there's no guarantee that that factory, or that the 72 00:03:59,280 --> 00:04:03,080 Speaker 3: infrastructure projects or the bridges and roads that are being 73 00:04:03,120 --> 00:04:05,880 Speaker 3: funded by these investments, that the White House and Congress 74 00:04:05,880 --> 00:04:08,200 Speaker 3: has passed that those things will be done by twenty 75 00:04:08,240 --> 00:04:10,640 Speaker 3: twenty four. And so part of the White House's challenge 76 00:04:10,680 --> 00:04:13,760 Speaker 3: is to convince people to sort of make them aware 77 00:04:13,840 --> 00:04:17,880 Speaker 3: of projects that are in process right now. 78 00:04:17,880 --> 00:04:20,400 Speaker 2: Obviously, when you look at the Republican side, it's, to 79 00:04:20,480 --> 00:04:25,039 Speaker 2: put it politely, it's not exactly a traditional campaign that 80 00:04:25,080 --> 00:04:29,200 Speaker 2: we're seeing, but what in general a Republican candidates saying 81 00:04:29,200 --> 00:04:31,560 Speaker 2: about the economy. I mean, this is a time when 82 00:04:31,600 --> 00:04:34,080 Speaker 2: you would think, you know, if he's not popular on 83 00:04:34,120 --> 00:04:36,040 Speaker 2: a handling of the economy, that would be an opportunity 84 00:04:36,080 --> 00:04:36,719 Speaker 2: for the opposition. 85 00:04:37,400 --> 00:04:39,880 Speaker 3: You would think that you would think that Republicans day 86 00:04:39,920 --> 00:04:42,039 Speaker 3: in and day out, would be hitting the White House 87 00:04:42,120 --> 00:04:45,200 Speaker 3: on the last two and a half years of historically 88 00:04:45,279 --> 00:04:48,360 Speaker 3: high inflation, or hitting them on the amount of money 89 00:04:48,440 --> 00:04:51,120 Speaker 3: that Congress and the White House has allocated to all 90 00:04:51,120 --> 00:04:54,520 Speaker 3: of these bills, which are not you know, typically you know, 91 00:04:54,600 --> 00:04:58,719 Speaker 3: Republican priorities. Instead, what we have seen from the Republican 92 00:04:58,760 --> 00:05:02,320 Speaker 3: candidates so interesting is really a doubling down on culture 93 00:05:02,360 --> 00:05:05,839 Speaker 3: wars and sort of fear based messages. They're talking about 94 00:05:05,880 --> 00:05:08,640 Speaker 3: threats from China, but not really in terms of the economy. 95 00:05:08,680 --> 00:05:14,360 Speaker 3: They're talking about, you know, fears about transgender athletes participating 96 00:05:14,360 --> 00:05:18,200 Speaker 3: in women's sports. They're talking about well they're not talking 97 00:05:18,240 --> 00:05:20,800 Speaker 3: as much about abortion, but they're talking about sort of 98 00:05:21,400 --> 00:05:24,080 Speaker 3: people getting their guns taken away. So it's a lot 99 00:05:24,120 --> 00:05:26,400 Speaker 3: of these culture war messages, and I think that it 100 00:05:26,520 --> 00:05:29,039 Speaker 3: just goes to show you how in the US the 101 00:05:29,120 --> 00:05:32,440 Speaker 3: Republican Party has just really changed so much over the 102 00:05:32,520 --> 00:05:35,600 Speaker 3: last decade. This used to be a party which was 103 00:05:35,640 --> 00:05:38,159 Speaker 3: seen as much more affiliated with like country clubs and 104 00:05:38,240 --> 00:05:41,320 Speaker 3: business groups. Now we have one of the leading Republican 105 00:05:41,360 --> 00:05:45,719 Speaker 3: candidates Florida Governor Ron De Santis waging a huge battle 106 00:05:45,760 --> 00:05:49,960 Speaker 3: with Walt Disney Corporation over their tax status and some 107 00:05:50,040 --> 00:05:54,200 Speaker 3: building permits, and you know, some legislation that he has 108 00:05:54,240 --> 00:05:57,200 Speaker 3: in Florida that dealt with how people talked about gender 109 00:05:57,240 --> 00:06:00,640 Speaker 3: and schools. So it's just, you know, there are Publican party, 110 00:06:00,640 --> 00:06:04,440 Speaker 3: I would say, has just really transformed itself into something 111 00:06:04,560 --> 00:06:06,919 Speaker 3: that people wouldn't recognize from a decade ago, when they 112 00:06:06,960 --> 00:06:11,400 Speaker 3: were much more concerned with tax cuts, the economy, you know, 113 00:06:11,480 --> 00:06:15,920 Speaker 3: putting forward fiscal proposals. Interestingly, we have not seen any 114 00:06:16,040 --> 00:06:20,760 Speaker 3: economic plans from the top two Republican candidates Florida Governor 115 00:06:20,839 --> 00:06:24,520 Speaker 3: Rohnda Santis or former President Donald Trump outlining what they 116 00:06:24,560 --> 00:06:26,800 Speaker 3: would do with the economy in a second term. And 117 00:06:26,880 --> 00:06:29,680 Speaker 3: I think that's really telling about how the economy is 118 00:06:29,720 --> 00:06:32,159 Speaker 3: being handled by Republicans at this point. 119 00:06:33,160 --> 00:06:36,640 Speaker 2: And it's interesting you mentioned briefly abortion, but that was 120 00:06:36,680 --> 00:06:39,440 Speaker 2: one of the cultural issues they weren't necessarily talking a 121 00:06:39,480 --> 00:06:42,320 Speaker 2: lot about. I mean, famously, in that the midterms last year, 122 00:06:42,760 --> 00:06:46,080 Speaker 2: there was this expectation that the state of the economy 123 00:06:46,760 --> 00:06:50,120 Speaker 2: would play badly for Democrats and would be a big 124 00:06:50,160 --> 00:06:53,040 Speaker 2: help for getting the Republicans into office. Ironically, it was 125 00:06:53,480 --> 00:06:57,320 Speaker 2: the cultural issues and particularly abortion, that seemingly made a 126 00:06:57,360 --> 00:07:02,400 Speaker 2: big difference to the Democratic showing in those midterms. I 127 00:07:02,400 --> 00:07:03,919 Speaker 2: guess it is a bit of a gamble for the 128 00:07:03,920 --> 00:07:07,000 Speaker 2: Republicans to stick with the with the culture issues. 129 00:07:07,440 --> 00:07:09,960 Speaker 3: It is, and what we saw with you know, the 130 00:07:09,960 --> 00:07:12,640 Speaker 3: Democrats too, though. I mean, Biden is going to be 131 00:07:12,720 --> 00:07:14,680 Speaker 3: talking about the economy this week, but I don't want 132 00:07:14,720 --> 00:07:17,760 Speaker 3: to discount the role that some of the culture issues 133 00:07:17,800 --> 00:07:20,560 Speaker 3: will play for Democrats. To this, White House is very 134 00:07:20,600 --> 00:07:24,640 Speaker 3: heavily playing up Republicans' efforts to restrict abortion access in 135 00:07:24,680 --> 00:07:28,120 Speaker 3: the US as a very key campaign message. They're calling 136 00:07:28,160 --> 00:07:32,000 Speaker 3: out Republicans past messages on cutting Social Security and Medicare, 137 00:07:32,360 --> 00:07:35,280 Speaker 3: which is not something that former President Trump wants to do, 138 00:07:35,360 --> 00:07:37,600 Speaker 3: but what some of the other candidates have talked about. 139 00:07:37,800 --> 00:07:40,840 Speaker 3: They're making that a key message. And so they're really 140 00:07:40,960 --> 00:07:45,760 Speaker 3: the Democrats overall messages trying to paint Republicans as extreme 141 00:07:46,720 --> 00:07:51,760 Speaker 3: on the policy positions, from abortion to entitlements to you know, 142 00:07:51,840 --> 00:07:55,280 Speaker 3: these culture war issues. And the Republicans, meanwhile, are just 143 00:07:55,400 --> 00:07:58,760 Speaker 3: really trying to you know, make Americans quite fearful of 144 00:07:58,800 --> 00:08:02,600 Speaker 3: a second term of President Biden both you know, what 145 00:08:02,720 --> 00:08:06,600 Speaker 3: they view as his inept handling of the country, but 146 00:08:06,720 --> 00:08:09,040 Speaker 3: also calling out things like his age and whether or 147 00:08:09,120 --> 00:08:13,000 Speaker 3: not he is up to really have a second term. 148 00:08:13,560 --> 00:08:16,120 Speaker 2: How wide does the White House will have a recession 149 00:08:16,160 --> 00:08:18,880 Speaker 2: in the US in the next six to eight months. 150 00:08:19,560 --> 00:08:22,000 Speaker 3: The White House has always done a lot of happy 151 00:08:22,040 --> 00:08:26,120 Speaker 3: talk with the economy and has never really acknowledged, you know, 152 00:08:26,160 --> 00:08:29,160 Speaker 3: the likelihood of a recession. I think that what I'm 153 00:08:29,200 --> 00:08:31,840 Speaker 3: hearing from people is that if there is a recession, 154 00:08:32,480 --> 00:08:35,400 Speaker 3: and this is from economists, from business leaders in DC, 155 00:08:35,960 --> 00:08:39,560 Speaker 3: you know, it would be a more mild one, you know. 156 00:08:39,679 --> 00:08:42,840 Speaker 3: CEOs I don't think are totally freaked out about a 157 00:08:42,880 --> 00:08:46,080 Speaker 3: big recession. And so I think the question for the 158 00:08:46,080 --> 00:08:48,560 Speaker 3: White House and the Biden campaign is when does that 159 00:08:48,600 --> 00:08:52,079 Speaker 3: recession come. You know, if companies are cutting jobs and 160 00:08:52,160 --> 00:08:54,760 Speaker 3: laying people off, which we're already seen in some sectors 161 00:08:54,800 --> 00:08:58,319 Speaker 3: like the tech sector, it's much better for the Democrats 162 00:08:58,320 --> 00:09:00,920 Speaker 3: if that comes earlier in the year then later in 163 00:09:00,960 --> 00:09:04,600 Speaker 3: the year. Typically, you know, the summer before an election 164 00:09:04,800 --> 00:09:07,480 Speaker 3: is when American voters really start to clue into what's 165 00:09:07,520 --> 00:09:10,800 Speaker 3: going on. And so, you know, the best bet for 166 00:09:10,840 --> 00:09:13,000 Speaker 3: the Democrats is if the recession comes in the first 167 00:09:13,040 --> 00:09:16,520 Speaker 3: two quarters, not in the summer or in the fourth quarter, 168 00:09:16,600 --> 00:09:18,120 Speaker 3: when people will have to go to the polls. 169 00:09:20,480 --> 00:09:22,520 Speaker 2: And of course, if we have a recession, it'll be 170 00:09:22,520 --> 00:09:27,040 Speaker 2: because the US Central Bank has in effect had to 171 00:09:27,080 --> 00:09:32,120 Speaker 2: cause one to get inflation out of the economy in 172 00:09:32,200 --> 00:09:34,640 Speaker 2: other parts of the world, and I guess in some 173 00:09:35,040 --> 00:09:37,880 Speaker 2: quarters in the US we're starting to see criticism of 174 00:09:38,320 --> 00:09:41,880 Speaker 2: the Feed that there's it's inflicting harm on the American 175 00:09:41,920 --> 00:09:46,560 Speaker 2: people for no great gain. Do you think if things 176 00:09:46,600 --> 00:09:50,040 Speaker 2: do turn sour economically and we start to see a 177 00:09:50,080 --> 00:09:53,400 Speaker 2: lot of job losses, do you think that Democrats will 178 00:09:53,640 --> 00:09:56,000 Speaker 2: start to be a bit more critical of the Federal Reserve. 179 00:09:56,800 --> 00:10:00,240 Speaker 3: We have seen Democrats on Capitol Hill, like Senator with 180 00:10:00,320 --> 00:10:03,720 Speaker 3: Warren and other progressives be critical of the FED and say, 181 00:10:03,760 --> 00:10:05,840 Speaker 3: you know, now is not the time to raise interest rates, 182 00:10:05,920 --> 00:10:09,000 Speaker 3: or we should not raise them any further. The Biden 183 00:10:09,080 --> 00:10:12,040 Speaker 3: White House has been trying to stay totally mum on 184 00:10:12,120 --> 00:10:16,840 Speaker 3: criticizing the FED because they do not want to seem 185 00:10:16,920 --> 00:10:19,880 Speaker 3: like they are former President Donald Trump in any way. 186 00:10:20,280 --> 00:10:22,640 Speaker 3: You know, as you remember, he really was quite critical 187 00:10:22,679 --> 00:10:25,520 Speaker 3: of the FED. He was quite critical of j Powell. 188 00:10:26,000 --> 00:10:29,600 Speaker 2: Despite having carefully selected I know, not given Janet yet 189 00:10:29,679 --> 00:10:30,679 Speaker 2: in a second term. 190 00:10:30,920 --> 00:10:33,840 Speaker 3: He was You're right, but he you know, really started 191 00:10:33,840 --> 00:10:37,200 Speaker 3: attacking the FED during his presidency, and the Biden White 192 00:10:37,200 --> 00:10:39,240 Speaker 3: House tries to act like Biden is the grown up 193 00:10:39,280 --> 00:10:42,120 Speaker 3: in the room. Trump is not, and so part of 194 00:10:42,120 --> 00:10:44,239 Speaker 3: the way that they do that is by not attacking 195 00:10:44,480 --> 00:10:47,079 Speaker 3: you know, independent institutions like the Federal Reserve or the 196 00:10:47,120 --> 00:10:49,640 Speaker 3: Department of Justice or these other agencies. 197 00:10:50,760 --> 00:10:52,800 Speaker 2: Well see how they managed to stick to that down 198 00:10:52,840 --> 00:10:55,000 Speaker 2: the road. But meantime, Nancy Cook, thank you. 199 00:10:55,000 --> 00:10:56,680 Speaker 3: So much, thanks for having me. 200 00:11:02,000 --> 00:11:04,000 Speaker 2: So I want to go a little deeper into the 201 00:11:04,080 --> 00:11:08,160 Speaker 2: economics and the politics of all this with two excellent guests, 202 00:11:08,320 --> 00:11:12,000 Speaker 2: Michael Strain, director of economic policy Studies at the American 203 00:11:12,160 --> 00:11:17,079 Speaker 2: Enterprise Institute, and our own Anna Woll, Bloomberg's chief US economist. 204 00:11:17,360 --> 00:11:21,160 Speaker 2: Thank you very much for joining me, both of you. Anna, 205 00:11:21,280 --> 00:11:24,679 Speaker 2: maybe just start with you just to sketch out roughly 206 00:11:25,400 --> 00:11:29,240 Speaker 2: where the US economy is now, but also in broad strokes, 207 00:11:29,840 --> 00:11:32,959 Speaker 2: how you'd expect it to evolve over the next eighteen 208 00:11:33,000 --> 00:11:35,320 Speaker 2: months or so leading up to the twenty twenty four 209 00:11:35,679 --> 00:11:36,400 Speaker 2: general election. 210 00:11:36,960 --> 00:11:40,640 Speaker 4: Yeah, so, I think the one word that well described 211 00:11:40,760 --> 00:11:45,760 Speaker 4: the US economy right now is belold trend growth. So 212 00:11:46,080 --> 00:11:47,520 Speaker 4: it's the US. 213 00:11:47,320 --> 00:11:49,160 Speaker 2: Economy, isn't that three words? 214 00:11:50,360 --> 00:11:57,800 Speaker 4: There's dashes in betweets, So the economy is expanding. It 215 00:11:58,040 --> 00:12:02,079 Speaker 4: has defied forecasts. Are recessions last year? We called that 216 00:12:02,280 --> 00:12:05,360 Speaker 4: last year. Around June of last year, half of the 217 00:12:05,440 --> 00:12:08,600 Speaker 4: country in a poll says that they think the country 218 00:12:08,640 --> 00:12:11,320 Speaker 4: is already in a recession. But it seems like as 219 00:12:11,400 --> 00:12:15,520 Speaker 4: of now the data says nope, the economy expanded. But 220 00:12:15,840 --> 00:12:20,480 Speaker 4: looking forward, our call has been and remained to be 221 00:12:20,760 --> 00:12:23,760 Speaker 4: that there will be a recession towards the end of 222 00:12:23,800 --> 00:12:26,880 Speaker 4: this year. And the reason for this timing is that 223 00:12:27,360 --> 00:12:30,840 Speaker 4: a lot of headwinds is supposed to hit the economy 224 00:12:30,880 --> 00:12:34,839 Speaker 4: around the fourth quarter this year. So first, you have 225 00:12:35,160 --> 00:12:39,640 Speaker 4: household excess savings running out. We're already seeing the lower 226 00:12:40,160 --> 00:12:42,960 Speaker 4: end of the income sector running out of savings and 227 00:12:43,120 --> 00:12:47,080 Speaker 4: they have been resorting to credit cards and running down 228 00:12:47,120 --> 00:12:50,640 Speaker 4: their existing savings in order to finance spending habits. That 229 00:12:50,800 --> 00:12:53,200 Speaker 4: is one key factor for why we think that the 230 00:12:53,200 --> 00:12:56,760 Speaker 4: economy is finally running out of steam. The other headwinds 231 00:12:56,760 --> 00:13:01,600 Speaker 4: include the student loan forbearons could be expiring later this year, 232 00:13:01,800 --> 00:13:06,360 Speaker 4: which takes away another kitchen for household Alan Greenspan has 233 00:13:06,440 --> 00:13:13,000 Speaker 4: two favorite economic activity indicators. One is corrugated box shipments 234 00:13:13,040 --> 00:13:16,960 Speaker 4: and second is railcar loadings, and both of them have 235 00:13:17,080 --> 00:13:20,679 Speaker 4: been tanking in recent months, which seems to suggest that 236 00:13:20,760 --> 00:13:24,560 Speaker 4: consumer demand are finally softening. So if a recession does 237 00:13:24,600 --> 00:13:29,400 Speaker 4: happen around Q four this year, usually unemployment rate spikes 238 00:13:29,440 --> 00:13:33,600 Speaker 4: only two quarters, two or three quarters after what the 239 00:13:33,679 --> 00:13:37,559 Speaker 4: economy is formally in a recession. So yeah, GDP growth 240 00:13:37,600 --> 00:13:40,400 Speaker 4: may decline in fourth quarter, first quarter next year, but 241 00:13:40,520 --> 00:13:44,000 Speaker 4: an unemployment rate really only peaks around if that's the case, 242 00:13:44,200 --> 00:13:46,880 Speaker 4: third quarter a fourth quarter next year, which is right 243 00:13:46,960 --> 00:13:52,400 Speaker 4: around the presidential election. Our baseline is for unemployment rate 244 00:13:52,480 --> 00:13:56,520 Speaker 4: to rise to around four point nine percent in the 245 00:13:56,559 --> 00:13:59,480 Speaker 4: third quarter of twenty twenty four, So that's a couple million, 246 00:13:59,520 --> 00:14:02,920 Speaker 4: one or two million decrease in jobs. So that would 247 00:14:02,960 --> 00:14:05,120 Speaker 4: be a serious headwind for Biden. 248 00:14:05,520 --> 00:14:07,760 Speaker 2: And just briefly, and a lot of people had been 249 00:14:08,120 --> 00:14:11,400 Speaker 2: wrong footed by the resilience of the US economy so 250 00:14:11,559 --> 00:14:14,240 Speaker 2: far and sort of dodging a recession so far, not 251 00:14:14,559 --> 00:14:17,920 Speaker 2: least the Federal Reserve. What probability are you putting on 252 00:14:17,960 --> 00:14:21,200 Speaker 2: that recession forecast, how much chance is there do you 253 00:14:21,240 --> 00:14:23,280 Speaker 2: think that we could actually dodge it? And I guess 254 00:14:23,480 --> 00:14:25,600 Speaker 2: the follow up to that is, just is it going 255 00:14:25,640 --> 00:14:27,320 Speaker 2: to be a deep recession or is it possibly one 256 00:14:27,360 --> 00:14:31,280 Speaker 2: of those ones that ends up not being felt as deeply. 257 00:14:31,640 --> 00:14:36,000 Speaker 4: In the past year, the economy demonstrated resilience, but in 258 00:14:36,040 --> 00:14:38,720 Speaker 4: the second half of this year we see a loss 259 00:14:38,720 --> 00:14:42,560 Speaker 4: of resilience because of this combination of shocks. So how 260 00:14:42,640 --> 00:14:47,080 Speaker 4: deep the recession would be depends on what combination of 261 00:14:47,240 --> 00:14:52,120 Speaker 4: negative shocks do we get. So if you have a 262 00:14:52,160 --> 00:14:57,000 Speaker 4: combination of severe El Nino or weather forecasters are currently 263 00:14:57,000 --> 00:14:59,840 Speaker 4: saying there's a chance of at least fifty six percent 264 00:15:00,400 --> 00:15:06,120 Speaker 4: of strong El Nino. If you have also a China slowdown, 265 00:15:06,160 --> 00:15:09,640 Speaker 4: which tends to be very bad for investment, and on 266 00:15:09,680 --> 00:15:12,440 Speaker 4: the other hand, also you have the FED continuing to 267 00:15:12,600 --> 00:15:18,160 Speaker 4: raise rates because inflation is high and credit standards start 268 00:15:18,200 --> 00:15:21,000 Speaker 4: tightening in the wake of the banking crisis in the US. 269 00:15:21,720 --> 00:15:25,720 Speaker 4: I just don't see how the economy could survive all 270 00:15:25,720 --> 00:15:29,680 Speaker 4: these shocks. But again, it depends on what combination of 271 00:15:29,720 --> 00:15:30,560 Speaker 4: shocked you see. 272 00:15:30,960 --> 00:15:33,200 Speaker 2: Michael Strain, You've listened very patiently to all this. Are 273 00:15:33,240 --> 00:15:37,400 Speaker 2: you broadly in line with Anna's assessment of the economy 274 00:15:37,600 --> 00:15:38,280 Speaker 2: looking ahead? 275 00:15:38,480 --> 00:15:41,240 Speaker 5: Yeah, I think we are broadly in line. I expect 276 00:15:41,360 --> 00:15:44,680 Speaker 5: a recession will hit the precise time we give that 277 00:15:44,760 --> 00:15:48,600 Speaker 5: as difficult, but I think the slowdown will start, likely 278 00:15:48,640 --> 00:15:51,160 Speaker 5: at the fourth quarter of this year, maybe a little 279 00:15:51,160 --> 00:15:55,000 Speaker 5: bit earlier than that. I think that consumers have been 280 00:15:55,400 --> 00:16:00,400 Speaker 5: buoyed by the cushions that Anna mentioned in Those are 281 00:16:00,400 --> 00:16:05,880 Speaker 5: deflating student dead forbearance, excess savings that resulted from really 282 00:16:05,920 --> 00:16:10,760 Speaker 5: generous pandemic era fiscal policy transfers to households. I am 283 00:16:10,800 --> 00:16:15,720 Speaker 5: probably more concerned than Anna seems to be about consumers 284 00:16:15,840 --> 00:16:19,960 Speaker 5: running out of steam and not heavily business investment dropping off. 285 00:16:20,160 --> 00:16:22,920 Speaker 5: I kind of expect to see both, but yes, I 286 00:16:22,920 --> 00:16:24,040 Speaker 5: think we're broadly aligned. 287 00:16:24,440 --> 00:16:28,640 Speaker 2: We do already have consumer confidence and the consuman sentiment 288 00:16:28,800 --> 00:16:32,840 Speaker 2: very low. Because inflation is felt so deeply by households, 289 00:16:32,880 --> 00:16:35,880 Speaker 2: even with or without a recession, or even without a 290 00:16:35,920 --> 00:16:40,520 Speaker 2: big significant rise in unemployment, we know inflation is hitting everybody, 291 00:16:40,600 --> 00:16:42,760 Speaker 2: not just people who might be at risk of losing 292 00:16:42,800 --> 00:16:45,600 Speaker 2: their jobs. This is already not a pretty picture for 293 00:16:45,800 --> 00:16:50,520 Speaker 2: a president to be campaigning for re election. And you 294 00:16:50,560 --> 00:16:53,320 Speaker 2: also potentially have a recession coming up in the months 295 00:16:53,320 --> 00:16:55,640 Speaker 2: before the election. So I guess the striking thing to 296 00:16:55,760 --> 00:16:59,920 Speaker 2: us has been why Republican candidates on the stump haven't 297 00:17:00,080 --> 00:17:02,560 Speaker 2: in talking more about the state of the economy on 298 00:17:02,600 --> 00:17:03,520 Speaker 2: the campaign trail. 299 00:17:03,920 --> 00:17:07,440 Speaker 5: Yeah, it's confusing. I think there are two explanations for that. 300 00:17:08,240 --> 00:17:12,760 Speaker 5: One explanation is that the fundamental problem with the economy 301 00:17:12,880 --> 00:17:17,359 Speaker 5: is that economic demand substantially outpaced the productive capacity of 302 00:17:17,400 --> 00:17:20,359 Speaker 5: the economy to meet that demand, and that's manifesting itself 303 00:17:20,400 --> 00:17:22,720 Speaker 5: in inflation, and people just like inflation, and that's showing 304 00:17:22,800 --> 00:17:25,840 Speaker 5: up in the poll numbers. President Biden's handling of the 305 00:17:25,880 --> 00:17:31,399 Speaker 5: economy is not favorably by many Americans. But the flip 306 00:17:31,440 --> 00:17:35,080 Speaker 5: side of that is that labor demand is extremely strong. 307 00:17:35,200 --> 00:17:39,760 Speaker 5: We have a really strong job market, very low unemployment. 308 00:17:39,920 --> 00:17:43,520 Speaker 5: We are adding lots and lots of jobs every single 309 00:17:43,560 --> 00:17:47,679 Speaker 5: month after month, and nominal wages are growing at a 310 00:17:47,720 --> 00:17:50,760 Speaker 5: really rapid rate. Now, the purchasing power of those wages 311 00:17:50,840 --> 00:17:53,439 Speaker 5: is being eaten away by inflation, but what's actually in 312 00:17:53,480 --> 00:17:56,400 Speaker 5: your paycheck is the number on your paycheck is growing 313 00:17:56,440 --> 00:17:58,720 Speaker 5: at a pretty rapid rate. And so it may be 314 00:17:58,800 --> 00:18:03,040 Speaker 5: that candidates don't quite know how to navigate that. Criticizing 315 00:18:03,080 --> 00:18:08,720 Speaker 5: the president on economic performance kind of invites a question, Okay, well, 316 00:18:08,720 --> 00:18:12,000 Speaker 5: what would you do? And you don't want to put 317 00:18:12,000 --> 00:18:15,119 Speaker 5: yourself in a position of rooting for a weaker labor market, 318 00:18:15,440 --> 00:18:16,919 Speaker 5: but you don't want to put yourself in a position 319 00:18:16,960 --> 00:18:20,800 Speaker 5: of rooting of rooting for a recession, And you don't 320 00:18:20,800 --> 00:18:22,680 Speaker 5: want to put yourself in a position of even really 321 00:18:22,760 --> 00:18:26,439 Speaker 5: rooting for what's being described as a soft landing. And 322 00:18:26,480 --> 00:18:28,359 Speaker 5: so that could be part of it. But I also 323 00:18:28,400 --> 00:18:32,440 Speaker 5: think that the candidates, through a combination of the role 324 00:18:32,680 --> 00:18:37,880 Speaker 5: that President Trump is playing in this primary cycle and 325 00:18:38,119 --> 00:18:41,520 Speaker 5: just how early it is in the calendar, the candidates 326 00:18:41,520 --> 00:18:46,120 Speaker 5: don't have fleshed out economic policy agendas and policy plans, 327 00:18:46,240 --> 00:18:49,440 Speaker 5: and so that makes it hard, I think, to try 328 00:18:49,440 --> 00:18:51,160 Speaker 5: to turn the focus to the economy. 329 00:18:51,720 --> 00:18:54,240 Speaker 2: That's interesting, you've captured something in that answer that I 330 00:18:54,359 --> 00:18:57,800 Speaker 2: was that we've seen also in terms of governments around 331 00:18:57,800 --> 00:19:01,480 Speaker 2: the world actually dealing with the popular response to interest 332 00:19:01,560 --> 00:19:05,760 Speaker 2: rate rises. It's hard to be setting yourself against an 333 00:19:05,800 --> 00:19:10,520 Speaker 2: overheating economy and somehow arguing in order to get inflation down, 334 00:19:10,760 --> 00:19:14,400 Speaker 2: arguing for less money in people's pockets. It's a very 335 00:19:14,400 --> 00:19:17,440 Speaker 2: awkward place for any politician to be in where many candidates, 336 00:19:17,440 --> 00:19:21,200 Speaker 2: I mean famously Governor DeSantis in Florida has been taking 337 00:19:21,320 --> 00:19:24,440 Speaker 2: an economic tack, or at least been talking about some 338 00:19:24,520 --> 00:19:26,919 Speaker 2: economic issues, is in sort of picking fights with the 339 00:19:26,960 --> 00:19:32,360 Speaker 2: business community on the sort of anti woke agenda. It's 340 00:19:32,400 --> 00:19:35,680 Speaker 2: an odd place for a Republican to be. How does 341 00:19:35,720 --> 00:19:36,600 Speaker 2: it play with voters? 342 00:19:36,640 --> 00:19:40,399 Speaker 5: Do you think I'm not sure that it will play 343 00:19:40,440 --> 00:19:43,280 Speaker 5: that well. I think we have to wait and see. 344 00:19:43,920 --> 00:19:46,760 Speaker 5: But Disney is a very popular. 345 00:19:46,600 --> 00:19:51,119 Speaker 2: Company, and not just with people's children and not just with. 346 00:19:52,240 --> 00:19:55,520 Speaker 5: And I think if you are a person who spends 347 00:19:55,520 --> 00:19:57,680 Speaker 5: a lot of time on social media, or spends a 348 00:19:57,760 --> 00:20:01,040 Speaker 5: lot of time really kind of following the day to 349 00:20:01,160 --> 00:20:04,879 Speaker 5: day happenings in American politics, and you're a conservative, that 350 00:20:05,040 --> 00:20:07,439 Speaker 5: this might be appealing to you. But in order to 351 00:20:07,440 --> 00:20:10,560 Speaker 5: be successful, certainly in the general election, you have to 352 00:20:11,040 --> 00:20:15,920 Speaker 5: appeal to independent votership, to appeal to voters who don't 353 00:20:15,960 --> 00:20:19,120 Speaker 5: pay attention to the kind of hour by hour, day 354 00:20:19,119 --> 00:20:22,639 Speaker 5: by day swings in the news cycle. And you know this, 355 00:20:24,040 --> 00:20:27,320 Speaker 5: I'm skeptical that this will be all that appealing to 356 00:20:27,400 --> 00:20:28,560 Speaker 5: many of those voters. 357 00:20:28,800 --> 00:20:31,800 Speaker 2: And one thing we have seen under President Trump and 358 00:20:31,840 --> 00:20:34,320 Speaker 2: President Biden, but very strikingly in the last few years 359 00:20:34,400 --> 00:20:38,320 Speaker 2: under President Biden, is this activist turn in US economic policy. 360 00:20:38,560 --> 00:20:40,560 Speaker 2: With President Trump, it largely took the form of tax 361 00:20:40,600 --> 00:20:43,399 Speaker 2: cuts and the trade wars with China. But under President 362 00:20:43,400 --> 00:20:48,280 Speaker 2: Biden we've had these big spending on green energy, infrastructure, 363 00:20:48,400 --> 00:20:53,520 Speaker 2: the Chips Act, and this explicit industrial policy goal of 364 00:20:53,680 --> 00:20:59,640 Speaker 2: reindustrializing the US economy. Initially, on the economics, I mean, 365 00:21:00,240 --> 00:21:04,000 Speaker 2: is there a coherent strategy there for raising growth in 366 00:21:04,040 --> 00:21:07,639 Speaker 2: the lasting way, increasing the potential growth rate of the 367 00:21:07,720 --> 00:21:10,800 Speaker 2: US economy, or is this just another form of pumping 368 00:21:11,000 --> 00:21:12,119 Speaker 2: money into the economy. 369 00:21:12,480 --> 00:21:15,920 Speaker 4: My understanding is that these you know, the Chips Act, 370 00:21:16,000 --> 00:21:19,960 Speaker 4: the work underpinning the Chips Act was already in the 371 00:21:20,000 --> 00:21:24,560 Speaker 4: works under President Trump, and so Biden's administration is just 372 00:21:24,680 --> 00:21:28,560 Speaker 4: formalized those work that was already started when we were 373 00:21:28,840 --> 00:21:31,960 Speaker 4: having a trade war with China, when the Trump administration 374 00:21:32,200 --> 00:21:36,560 Speaker 4: just realized that we're just having too much reliance on 375 00:21:36,680 --> 00:21:39,159 Speaker 4: imports from China. But in any case, in terms of 376 00:21:39,200 --> 00:21:42,560 Speaker 4: the impact on the economy from Chips Act and the 377 00:21:42,600 --> 00:21:47,240 Speaker 4: Infrastructure Act, it's major. We're starting to see the impact, 378 00:21:47,359 --> 00:21:52,600 Speaker 4: and the impact is number one. It prolonged the labor 379 00:21:52,640 --> 00:21:56,960 Speaker 4: shortages in certain sectors, for example, in construction sectors. During 380 00:21:57,000 --> 00:22:02,400 Speaker 4: the pandemic, the construction sector was already experiencing severe shortage 381 00:22:02,440 --> 00:22:07,440 Speaker 4: of workers, so the ratio of job opening in the 382 00:22:07,520 --> 00:22:11,440 Speaker 4: construction to unemployed was around one point seven one point eight. 383 00:22:12,000 --> 00:22:15,399 Speaker 4: And now as the rest of the economy is coming 384 00:22:15,440 --> 00:22:21,080 Speaker 4: back into balance, there's less shortages elsewhere. The construction sector 385 00:22:21,320 --> 00:22:25,240 Speaker 4: remains very tight because of demand to build these factories 386 00:22:25,280 --> 00:22:29,600 Speaker 4: and these roads. There was a massive spike in manufacturing 387 00:22:29,640 --> 00:22:33,200 Speaker 4: construction starting around the last couple of months ago and 388 00:22:33,560 --> 00:22:37,800 Speaker 4: it seems to be continuing unabated. And our very preliminary 389 00:22:38,400 --> 00:22:42,120 Speaker 4: estimate of the total job impact of the Infrastructure Act 390 00:22:42,720 --> 00:22:45,960 Speaker 4: is that a minimum number is that it could boost 391 00:22:46,480 --> 00:22:49,680 Speaker 4: jobs by over half a million over a span of 392 00:22:50,119 --> 00:22:52,760 Speaker 4: a couple of years. I think in the longer, in 393 00:22:52,840 --> 00:22:56,080 Speaker 4: the media medium term, we will start to see the 394 00:22:56,119 --> 00:23:01,200 Speaker 4: growth enhancing impact. Over time. It will boost supply as well, 395 00:23:01,600 --> 00:23:05,440 Speaker 4: but that is a longer term trajectory. In the short term, 396 00:23:05,520 --> 00:23:08,639 Speaker 4: what you what these acts do is boosts a demand 397 00:23:08,680 --> 00:23:11,800 Speaker 4: without immediate impact on the supply. So in a way, 398 00:23:11,920 --> 00:23:16,520 Speaker 4: it could actually worsen the inflationary impact. So if Powell's 399 00:23:17,359 --> 00:23:21,119 Speaker 4: aim is to bring down nominal wages and then you 400 00:23:21,160 --> 00:23:26,080 Speaker 4: will have the persisting the jobs. Labor shortage in construction 401 00:23:26,240 --> 00:23:28,920 Speaker 4: sector is not contributing to that goal. 402 00:23:29,320 --> 00:23:31,200 Speaker 2: Yeah, no, that's absolutely so it is making the federal 403 00:23:31,200 --> 00:23:35,000 Speaker 2: reserves job harder. Potentially, Michael, we look at these big 404 00:23:35,119 --> 00:23:39,440 Speaker 2: pieces of legislation and then very big amounts of spending 405 00:23:39,480 --> 00:23:41,880 Speaker 2: that are being talked about. In a few years time, 406 00:23:42,000 --> 00:23:44,919 Speaker 2: we will there will be a significant change in the 407 00:23:45,160 --> 00:23:48,240 Speaker 2: in the visible change in the structure of the US 408 00:23:48,320 --> 00:23:50,960 Speaker 2: economy in some of these areas. Or are we overdoing 409 00:23:51,000 --> 00:23:51,360 Speaker 2: it a bit? 410 00:23:51,840 --> 00:23:51,959 Speaker 1: Uh? 411 00:23:52,640 --> 00:23:57,879 Speaker 5: I think that is overdoing it a bit. They're there, maybe, uh, 412 00:23:58,359 --> 00:24:04,359 Speaker 5: some noticeable changes in kind of very narrowly defined sectors. 413 00:24:04,400 --> 00:24:08,919 Speaker 5: And so the Chips Act, for example, very well. Could 414 00:24:09,280 --> 00:24:11,240 Speaker 5: we could look back on that and say, you know, 415 00:24:11,280 --> 00:24:17,720 Speaker 5: that really bolstered US production of semiconductors, although even there, 416 00:24:17,920 --> 00:24:21,240 Speaker 5: I think we would be talking about kind of a relative, 417 00:24:21,280 --> 00:24:24,720 Speaker 5: a relatively marginal effect. We're not going to reach a 418 00:24:24,760 --> 00:24:29,359 Speaker 5: situation where half of the global supply of semiconductors are 419 00:24:29,400 --> 00:24:33,159 Speaker 5: produced in Ohio and Michigan or anything like that. The 420 00:24:33,840 --> 00:24:38,800 Speaker 5: Infrastructure Bill, which was passed with bipartisan support, I think 421 00:24:39,080 --> 00:24:44,080 Speaker 5: will have a big effect on the economy and specifically 422 00:24:44,080 --> 00:24:47,000 Speaker 5: on the nation's infrastructure. But it won't reshape the structure 423 00:24:47,080 --> 00:24:51,200 Speaker 5: of the economy, but it will improve productivity and increase 424 00:24:51,280 --> 00:24:55,680 Speaker 5: the kind of quality and and and I guess quantity 425 00:24:55,680 --> 00:25:04,320 Speaker 5: of American infrastructure. The Inflation Reduction Act, which is really 426 00:25:04,359 --> 00:25:08,040 Speaker 5: a kind of a green energy bill, I think the 427 00:25:08,080 --> 00:25:12,040 Speaker 5: effects of that remain to be seen. It's extremely controversial 428 00:25:12,400 --> 00:25:15,680 Speaker 5: because it threatens to launch a kind of subsidy race 429 00:25:15,840 --> 00:25:19,200 Speaker 5: between the US and Europe and the UK. The British 430 00:25:19,240 --> 00:25:23,080 Speaker 5: Prime Minister Rishi Sunak was just here in Washington trying 431 00:25:23,160 --> 00:25:27,120 Speaker 5: to minimize the damage that the Infliction Reduction Act would 432 00:25:27,119 --> 00:25:31,120 Speaker 5: do to the UK economy. Emanuel Macron, the President of France, 433 00:25:31,560 --> 00:25:35,000 Speaker 5: warned that the Infliction Reduction Act might fracture the West 434 00:25:35,520 --> 00:25:38,160 Speaker 5: was the phrase that he used. And so that might 435 00:25:38,320 --> 00:25:42,400 Speaker 5: again have a marginal effect on increasing kind of green 436 00:25:42,520 --> 00:25:46,320 Speaker 5: energy production in the US. But you know, the world 437 00:25:46,320 --> 00:25:50,439 Speaker 5: won't just sit still while that happens. And that's a 438 00:25:50,520 --> 00:25:57,880 Speaker 5: lesson we learned from the Trump trade war introduced tariffs 439 00:25:58,280 --> 00:26:01,760 Speaker 5: on imports from China. You would think that would have 440 00:26:01,840 --> 00:26:04,560 Speaker 5: a big effect on the US manufacturing tittor it would 441 00:26:04,560 --> 00:26:07,760 Speaker 5: boost manufacturing employment. It turns out that it didn't. And 442 00:26:08,000 --> 00:26:11,760 Speaker 5: the two reasons why it didn't are that it increased 443 00:26:12,000 --> 00:26:17,919 Speaker 5: the price of intermediate inputs in production that US manufacturers 444 00:26:18,080 --> 00:26:20,640 Speaker 5: import a lot from abroad, it turns out, and those 445 00:26:20,680 --> 00:26:24,080 Speaker 5: imports became more expensive. And then China than just on 446 00:26:24,119 --> 00:26:27,080 Speaker 5: its hands and allowed the US to engage in this regime. 447 00:26:27,119 --> 00:26:30,760 Speaker 5: It retaliated, and the kind of best evidence shows that 448 00:26:30,800 --> 00:26:33,400 Speaker 5: the net effect of all of these, of all these 449 00:26:33,440 --> 00:26:37,080 Speaker 5: different effects is that manufacturing employment went down, not up. 450 00:26:37,320 --> 00:26:40,359 Speaker 5: Something very similar could happen with the Inflation Production Act. 451 00:26:40,520 --> 00:26:43,000 Speaker 5: Something very similar could even happen with the Chips Act. 452 00:26:43,200 --> 00:26:48,240 Speaker 5: It's just difficult for the US Congress to say, Okay, 453 00:26:48,240 --> 00:26:52,359 Speaker 5: we're going to be a semiconductor manufacturing leader, or okay 454 00:26:52,400 --> 00:26:54,840 Speaker 5: we're going to launch all these green energies. 455 00:26:55,080 --> 00:27:01,880 Speaker 2: If it were that easy, everybody would do it. It's 456 00:27:01,920 --> 00:27:05,520 Speaker 2: striking even the words reindustrialization. Of course, those of us, 457 00:27:05,600 --> 00:27:08,960 Speaker 2: you know, as economists. I was always taught that there's 458 00:27:09,000 --> 00:27:12,160 Speaker 2: no fight, there's no fighting de industrialization. At some level 459 00:27:12,200 --> 00:27:16,239 Speaker 2: if your advance developed economy, that you're inevitably moving on 460 00:27:16,280 --> 00:27:18,800 Speaker 2: a path to have manufacturing be a smaller part of 461 00:27:18,840 --> 00:27:21,320 Speaker 2: the economy. That's what we were taught for years. The 462 00:27:21,440 --> 00:27:24,960 Speaker 2: idea that you're going to reverse that in a meaningful way, 463 00:27:25,600 --> 00:27:29,959 Speaker 2: it seems it's certainly challenging to the orthodoxy. But Michael, 464 00:27:29,960 --> 00:27:32,080 Speaker 2: one thing that many of my colleagues have pointed out 465 00:27:32,080 --> 00:27:35,200 Speaker 2: to me is that there is undeniably an investment boom, 466 00:27:35,400 --> 00:27:38,520 Speaker 2: manufacturing investment boom underway, in part as a result of 467 00:27:38,520 --> 00:27:41,720 Speaker 2: some of this legislation or expectations around it, and it's 468 00:27:41,800 --> 00:27:46,399 Speaker 2: most intense in the New South and other parts of 469 00:27:46,440 --> 00:27:51,600 Speaker 2: America that are primarily strong Republican stronghold. So I just 470 00:27:51,680 --> 00:27:53,480 Speaker 2: wonder how does that play. On the one hand, it 471 00:27:53,480 --> 00:27:57,280 Speaker 2: seems like a Democrat administration is doing a lot to 472 00:27:57,359 --> 00:27:59,520 Speaker 2: help Republican parts of the country. But I guess if 473 00:27:59,560 --> 00:28:01,920 Speaker 2: you're trying to turn those Republican parts of the country 474 00:28:01,960 --> 00:28:04,640 Speaker 2: a bit more Democrat, it might be just the right 475 00:28:04,680 --> 00:28:05,120 Speaker 2: thing to do. 476 00:28:06,440 --> 00:28:08,520 Speaker 5: Well maybe, I mean, there's you know, there's a reason 477 00:28:08,560 --> 00:28:11,640 Speaker 5: why the Infrastructure Bill was bipartisan and had support among 478 00:28:11,720 --> 00:28:13,800 Speaker 5: Republicans in the Congress, and there's a reason that the 479 00:28:13,840 --> 00:28:18,080 Speaker 5: Chips Act was bipartisan support among Republicans in the Congress. 480 00:28:18,320 --> 00:28:21,040 Speaker 5: Republican members of the Senate from those states thought that 481 00:28:21,080 --> 00:28:24,840 Speaker 5: the bill would would help their states, and it very well. 482 00:28:24,880 --> 00:28:27,119 Speaker 5: May I would take a little bit of issue with 483 00:28:28,440 --> 00:28:33,000 Speaker 5: one argument that animated earlier, which is that these bills 484 00:28:33,280 --> 00:28:36,639 Speaker 5: will create a bunch of jobs. The way that I 485 00:28:36,680 --> 00:28:40,880 Speaker 5: think about it is that these bills will not kind 486 00:28:40,920 --> 00:28:45,640 Speaker 5: of increase total US employment, but instead, what they will 487 00:28:45,640 --> 00:28:49,280 Speaker 5: do is they will shift jobs from one part of 488 00:28:49,280 --> 00:28:54,440 Speaker 5: the economy into manufacturing, or shift jobs from one part 489 00:28:54,480 --> 00:28:58,400 Speaker 5: of the economy into a kind of manufacturing adjacent or 490 00:28:58,440 --> 00:29:03,720 Speaker 5: infrastructure adjacent sector. And you know, that's that's hard to do, 491 00:29:04,120 --> 00:29:10,040 Speaker 5: and we're seeing that right now. Semiconductor companies are talking 492 00:29:10,040 --> 00:29:13,200 Speaker 5: about how hard it is to fulfill these ambitions because 493 00:29:13,240 --> 00:29:17,760 Speaker 5: they can't find workers. The administration is imposing other dovestic 494 00:29:17,840 --> 00:29:21,640 Speaker 5: policy goals as a condition for government contracts, like providing 495 00:29:22,120 --> 00:29:26,840 Speaker 5: childcare facilities and things of this nature, and are these 496 00:29:26,880 --> 00:29:30,440 Speaker 5: are exactly the kinds of frictions. But in the case 497 00:29:30,480 --> 00:29:34,080 Speaker 5: of reallocating workers across sectors, that's kind of an economic friction. 498 00:29:34,600 --> 00:29:38,120 Speaker 5: In the case of imposing other dovestic policy goals, that's 499 00:29:38,120 --> 00:29:41,320 Speaker 5: more of a political economy friction. Both those types of 500 00:29:41,360 --> 00:29:45,280 Speaker 5: frictions have been present every time the government tries to 501 00:29:45,920 --> 00:29:49,640 Speaker 5: kind of step in and make big structural change to 502 00:29:49,680 --> 00:29:52,520 Speaker 5: the economy from Washington, and I expect those kinds of 503 00:29:52,600 --> 00:29:55,200 Speaker 5: frictions are going to are going to continue, if not grow, 504 00:29:55,840 --> 00:29:58,680 Speaker 5: and I think it would basically be seen how all 505 00:29:58,720 --> 00:30:01,000 Speaker 5: that shakes out. To be clear, I do think that 506 00:30:02,000 --> 00:30:04,360 Speaker 5: at the end of the day, we will have more 507 00:30:04,520 --> 00:30:07,520 Speaker 5: green energy. The green energy industry in the US will 508 00:30:07,520 --> 00:30:09,720 Speaker 5: be relatively larger and stronger than it would have been, 509 00:30:10,200 --> 00:30:12,800 Speaker 5: so many conductors in the US will be relatively larger 510 00:30:12,800 --> 00:30:15,760 Speaker 5: and stronger than they would have been. But the magnitude 511 00:30:15,760 --> 00:30:17,880 Speaker 5: of that boost, I think is an open question. 512 00:30:18,440 --> 00:30:21,120 Speaker 2: It's sort of full circle to the beginning of our 513 00:30:21,160 --> 00:30:24,240 Speaker 2: conversation around the lack of capacity in the US economy 514 00:30:24,240 --> 00:30:27,840 Speaker 2: and the issue of overheating. One thing we do know 515 00:30:28,040 --> 00:30:29,840 Speaker 2: is that a lot of this is costing a lot 516 00:30:29,840 --> 00:30:32,840 Speaker 2: of money and for this period, and that you know, normally, 517 00:30:32,880 --> 00:30:36,520 Speaker 2: when you have an economy that's at least that has 518 00:30:36,560 --> 00:30:39,200 Speaker 2: been running quite hot, you would be looking at a 519 00:30:39,240 --> 00:30:44,000 Speaker 2: pretty favorable fiscal situation. But that's not the case right now. 520 00:30:44,120 --> 00:30:48,200 Speaker 2: Anna very briefly, what are we looking at in terms 521 00:30:48,280 --> 00:30:51,640 Speaker 2: of government borrowing right now, but also sort of looking 522 00:30:51,680 --> 00:30:54,160 Speaker 2: further out because that again has often been part of 523 00:30:54,200 --> 00:30:56,000 Speaker 2: the discussion and the campaign trail. 524 00:30:56,400 --> 00:30:59,720 Speaker 4: Yeah, so the US is embarked on it as a 525 00:31:00,200 --> 00:31:05,320 Speaker 4: sustainable fiscal path. We estimate that the May CBO baseline 526 00:31:05,400 --> 00:31:09,280 Speaker 4: has put the federal debt to GDP ratio on a 527 00:31:09,320 --> 00:31:12,400 Speaker 4: path to reach about close to one hundred and twenty 528 00:31:12,400 --> 00:31:17,240 Speaker 4: percent of GDP by twenty twenty eight, and the debt 529 00:31:17,280 --> 00:31:22,720 Speaker 4: deal that Republicans struct with the Biden administration barely did 530 00:31:22,800 --> 00:31:26,840 Speaker 4: anything to it. By our estimation, it only knocked off 531 00:31:26,880 --> 00:31:31,760 Speaker 4: about two percentage point off the off that one hundred 532 00:31:31,720 --> 00:31:37,680 Speaker 4: and twenty debt to GDP ratio. In fact, my team 533 00:31:37,840 --> 00:31:42,520 Speaker 4: used a more realistic set of assumptions, and we calculate 534 00:31:42,600 --> 00:31:45,120 Speaker 4: that in fact, the debt to GDP ratio should be 535 00:31:45,160 --> 00:31:48,560 Speaker 4: rising to about one hundred and thirty percent of GDP 536 00:31:48,760 --> 00:31:52,840 Speaker 4: by twenty twenty eight, and then by twenty twenty eight, 537 00:31:53,200 --> 00:31:57,200 Speaker 4: half of the annual fiscal deficit would be due to 538 00:31:57,440 --> 00:32:01,600 Speaker 4: interest payments because the FED has been raising interest rate 539 00:32:01,880 --> 00:32:04,840 Speaker 4: very fast, and that funds rate is at five point 540 00:32:04,920 --> 00:32:08,440 Speaker 4: two five percent and it looks like Powell has been 541 00:32:08,440 --> 00:32:11,560 Speaker 4: telling us it could go up by another fifty BIPs, 542 00:32:11,600 --> 00:32:16,080 Speaker 4: and so it's entirely feasible. I think that in a 543 00:32:16,120 --> 00:32:20,080 Speaker 4: couple of years you would see annual fiscal deficit running 544 00:32:20,120 --> 00:32:24,400 Speaker 4: at about over five percent per year, with half of 545 00:32:24,440 --> 00:32:26,080 Speaker 4: which due to interest payments. 546 00:32:26,320 --> 00:32:28,800 Speaker 2: Michael, we did have this big debate around the debt 547 00:32:28,840 --> 00:32:32,880 Speaker 2: ceiling in recent weeks, and Republicans were very vociferous about 548 00:32:33,320 --> 00:32:37,280 Speaker 2: complaining about the excess spending, but that didn't tend to 549 00:32:37,320 --> 00:32:41,760 Speaker 2: translate into any desire to raise taxes. In fact, if anything, 550 00:32:41,800 --> 00:32:44,920 Speaker 2: they wanted to cut taxes more. So, it just are 551 00:32:45,000 --> 00:32:48,239 Speaker 2: are there still fiscal hawks in the Republican Party or 552 00:32:48,640 --> 00:32:50,840 Speaker 2: are they hiding? Are they going to come out after 553 00:32:50,840 --> 00:32:51,320 Speaker 2: the election. 554 00:32:52,160 --> 00:32:55,080 Speaker 5: Well, I think they're reasserting themselves. I mean, so what's 555 00:32:55,080 --> 00:32:58,120 Speaker 5: happening right now? Well, first of all, what we saw 556 00:32:58,160 --> 00:33:01,080 Speaker 5: at the dead Ceiling bill was a desire to cut 557 00:33:01,120 --> 00:33:03,400 Speaker 5: discretionary spending, which. 558 00:33:03,200 --> 00:33:06,520 Speaker 2: Is a pretty small proportion of tital spending. 559 00:33:07,160 --> 00:33:09,840 Speaker 5: Yes, absolutely it is, but it's notable. That's not what 560 00:33:09,920 --> 00:33:12,600 Speaker 5: happened when Donald Trump was president. When Donald Trump was president, 561 00:33:12,960 --> 00:33:17,800 Speaker 5: discretionary spending went up and the Congress, Republicans and Democrats 562 00:33:17,840 --> 00:33:22,880 Speaker 5: in Congress reached the deal about what discretionary spending would 563 00:33:22,880 --> 00:33:25,520 Speaker 5: look like going forward, and Republicans in the House right 564 00:33:25,600 --> 00:33:28,360 Speaker 5: now are trying to renig on that deal, and it 565 00:33:28,480 --> 00:33:31,720 Speaker 5: cut spending even more than was agreed to in the 566 00:33:31,720 --> 00:33:34,320 Speaker 5: deal that was reached just a few days ago. I 567 00:33:34,360 --> 00:33:40,720 Speaker 5: think that both political parties are interested in reducing the deficit. 568 00:33:41,120 --> 00:33:45,400 Speaker 5: They're each just interested in doing other things. More Republicans 569 00:33:45,520 --> 00:33:48,320 Speaker 5: are interested in lower taxes more than they're interested in 570 00:33:48,400 --> 00:33:52,920 Speaker 5: deficit reduction. In Democrats are are interested in more generous 571 00:33:52,920 --> 00:33:56,000 Speaker 5: government spending more than they're interested in deficit reduction. The 572 00:33:56,040 --> 00:34:00,040 Speaker 5: striking thing to me is the bipartisan consensus on a 573 00:34:00,040 --> 00:34:03,520 Speaker 5: avoiding deficit reduction. You know, it's not just Republicans that 574 00:34:03,560 --> 00:34:06,480 Speaker 5: don't want to raise taxes. Democrats don't want to raise 575 00:34:06,480 --> 00:34:10,000 Speaker 5: taxes on the bottom ninety eight percent of households, and 576 00:34:10,120 --> 00:34:12,759 Speaker 5: President Biden repeats that over and over again. If you 577 00:34:12,760 --> 00:34:14,759 Speaker 5: make less than four hundred thousand dollars a year, he's 578 00:34:14,760 --> 00:34:16,840 Speaker 5: not going to raise your taxes. That's ninety eight percent 579 00:34:16,840 --> 00:34:19,760 Speaker 5: of households. So the debate is whether to raise taxes 580 00:34:19,800 --> 00:34:22,920 Speaker 5: on the top two percent which is not which is 581 00:34:22,920 --> 00:34:25,840 Speaker 5: not going to affect the thirty year outlook for the 582 00:34:25,840 --> 00:34:32,160 Speaker 5: debt to GDP ratio. Similarly, both parties are in agreement 583 00:34:32,400 --> 00:34:35,799 Speaker 5: that the US Social Security and Medicare programs should not 584 00:34:36,320 --> 00:34:39,919 Speaker 5: see spending productions, even though those are the two programs 585 00:34:39,960 --> 00:34:43,319 Speaker 5: that are primarily responsible for pushing up the DET to 586 00:34:43,360 --> 00:34:47,759 Speaker 5: GDP ratio over the next several decades. This is an 587 00:34:47,800 --> 00:34:52,400 Speaker 5: area where I think both parties are very much to blame, 588 00:34:52,640 --> 00:34:55,960 Speaker 5: and neither party is willing to do what's needed to 589 00:34:55,960 --> 00:35:01,120 Speaker 5: be done. And you know, despite all the conflict between 590 00:35:01,160 --> 00:35:04,280 Speaker 5: Republicans and Democrats, if you actually look at their stated 591 00:35:04,920 --> 00:35:09,560 Speaker 5: policy goals, there's a remarkable amount of agreement. That's the 592 00:35:09,640 --> 00:35:10,239 Speaker 5: drivers of the. 593 00:35:10,200 --> 00:35:14,040 Speaker 2: Debt and as Anna pointed out, given the fact it's 594 00:35:14,320 --> 00:35:18,520 Speaker 2: one of the big factors driving increasing spending and borrowing 595 00:35:18,520 --> 00:35:22,200 Speaker 2: into the future is the higher debt interest costs. And 596 00:35:22,320 --> 00:35:25,919 Speaker 2: if that continues to be an important factor, you don't 597 00:35:25,920 --> 00:35:29,239 Speaker 2: feel like any winner of the next election is really 598 00:35:29,280 --> 00:35:31,840 Speaker 2: going to have prepared the way to do some serious 599 00:35:31,920 --> 00:35:35,080 Speaker 2: kind of damage reduction or deficit reduction. Michael, we talked 600 00:35:35,080 --> 00:35:36,840 Speaker 2: for a long time. I guess the last question I 601 00:35:36,880 --> 00:35:39,880 Speaker 2: would have was maybe going to undermine the fact that 602 00:35:39,880 --> 00:35:42,560 Speaker 2: we've had this whole conversation, But we're going on the 603 00:35:42,560 --> 00:35:47,440 Speaker 2: premise that historically the economy has been important to the 604 00:35:47,520 --> 00:35:51,200 Speaker 2: result of elections. And I can certainly remember million years 605 00:35:51,200 --> 00:35:55,480 Speaker 2: ago now, but when George Bush Senior lost to Bill Clinton, 606 00:35:55,560 --> 00:35:57,880 Speaker 2: it was a sort of famous occasion where he partly 607 00:35:57,920 --> 00:36:02,320 Speaker 2: lost because his campaign was fought on unrevised GDP numbers 608 00:36:02,360 --> 00:36:05,040 Speaker 2: which showed a continued recession, when actually it turned out 609 00:36:05,040 --> 00:36:07,920 Speaker 2: that things were already looking up when the campaign was 610 00:36:07,920 --> 00:36:10,640 Speaker 2: being fought, but we only knew that afterwards. And do 611 00:36:10,680 --> 00:36:14,759 Speaker 2: you think that it's going to come down to the 612 00:36:14,800 --> 00:36:17,719 Speaker 2: economy to that extent if we do see a recession, 613 00:36:17,760 --> 00:36:20,480 Speaker 2: if we do see unemployment picking up as and a 614 00:36:20,520 --> 00:36:22,839 Speaker 2: forecast at the beginning of the show, do you think 615 00:36:23,080 --> 00:36:25,440 Speaker 2: it will be a big factor in next year's elections 616 00:36:25,520 --> 00:36:27,320 Speaker 2: or will we find, as we did in the midterms, 617 00:36:27,320 --> 00:36:31,200 Speaker 2: actually that cultural wars, the cultural issues are both more 618 00:36:31,239 --> 00:36:32,800 Speaker 2: decisive for both sides. 619 00:36:33,680 --> 00:36:37,880 Speaker 5: My reading of the evidence suggests that historically, in a 620 00:36:38,239 --> 00:36:42,919 Speaker 5: statistical sense, the trajectory of the economy really does matter 621 00:36:43,000 --> 00:36:43,480 Speaker 5: quite a bit. 622 00:36:43,800 --> 00:36:47,440 Speaker 2: And oh, thank goodness, we haven't wasted our time, then, 623 00:36:47,480 --> 00:36:49,360 Speaker 2: that's good, yes. 624 00:36:49,040 --> 00:36:52,400 Speaker 5: And my view is that what really matters is, you know, 625 00:36:52,400 --> 00:36:54,360 Speaker 5: maybe one way to think of it as in the 626 00:36:54,440 --> 00:36:57,000 Speaker 5: summer before the election. So in the summer of twenty 627 00:36:57,040 --> 00:37:00,200 Speaker 5: twenty four, is the unemployment rate going up or is 628 00:37:00,200 --> 00:37:03,680 Speaker 5: the unemployment rate going down? And if the unemployment rate 629 00:37:03,760 --> 00:37:06,239 Speaker 5: is going down, that will help President Biden. If the 630 00:37:06,280 --> 00:37:10,040 Speaker 5: unemployment rate is going up, that will hurt President Biden. Now, 631 00:37:10,440 --> 00:37:14,400 Speaker 5: you know, we have had forty six presidents of the 632 00:37:14,520 --> 00:37:18,759 Speaker 5: United States, so that is a very small sample, and 633 00:37:19,239 --> 00:37:23,719 Speaker 5: I think it's important not to be overly confident. I mean, 634 00:37:23,719 --> 00:37:26,640 Speaker 5: there's a sense in which the science of presidential election 635 00:37:26,719 --> 00:37:29,520 Speaker 5: forecasting is a science of single instances, which is to 636 00:37:29,520 --> 00:37:33,239 Speaker 5: say that it's not a science at all, as we've seen. 637 00:37:33,320 --> 00:37:37,880 Speaker 5: I think, certainly over the past decade or so, anything 638 00:37:37,880 --> 00:37:42,960 Speaker 5: can happen in American politics, and something unexpected certainly might 639 00:37:42,960 --> 00:37:46,000 Speaker 5: happen in the twenty twenty four election. But if I had, 640 00:37:46,080 --> 00:37:48,520 Speaker 5: if I had to bet, I would I would be 641 00:37:48,640 --> 00:37:52,840 Speaker 5: very comfortable betting that whether the economy is improving or 642 00:37:52,880 --> 00:37:56,359 Speaker 5: whether the economy is deteriorating in the months leading up 643 00:37:56,360 --> 00:37:58,479 Speaker 5: to the twenty twenty four election will be a big 644 00:37:58,480 --> 00:37:59,560 Speaker 5: factor in who wins? 645 00:38:00,520 --> 00:38:03,759 Speaker 2: Those are wise words. Indeed, Michael Strain, thank you very 646 00:38:03,840 --> 00:38:06,040 Speaker 2: much for cutting through all our discussion with such a 647 00:38:06,120 --> 00:38:08,440 Speaker 2: useful takeaway for those who bother to listen to the 648 00:38:08,480 --> 00:38:11,080 Speaker 2: whole thing. And Anna Wong, thank you very much for 649 00:38:11,160 --> 00:38:11,920 Speaker 2: joining us. 650 00:38:12,600 --> 00:38:13,640 Speaker 5: Thanks so much for having me. 651 00:38:19,840 --> 00:38:22,400 Speaker 2: That's it for this episode of Stephanomics. Next week we 652 00:38:22,520 --> 00:38:24,759 Speaker 2: will have more. In the meantime, you can get a 653 00:38:24,800 --> 00:38:28,000 Speaker 2: lot more economic insight and news from the Bloomberg Terminal 654 00:38:28,160 --> 00:38:32,840 Speaker 2: website or app. This episode was produced by Mangnus Hendrickson, 655 00:38:32,920 --> 00:38:36,160 Speaker 2: Yang Yang and Summer Sadi, with help from Moses and 656 00:38:37,200 --> 00:38:40,920 Speaker 2: special thanks to Nancy Cook, Anna Wong and Michael Strain. 657 00:38:41,520 --> 00:38:44,640 Speaker 2: The executive producer of Stephanomics is Molly Smith and the 658 00:38:44,680 --> 00:38:47,080 Speaker 2: head of Bloomberg Podcast is Sage Bohmer.