WEBVTT - Why a US Recession Might Happen in Time for 2024 Election 0:00:00.200 --> 0:00:02.639 He kind of that grows the economy from the middle 0:00:02.640 --> 0:00:05.480 out the bottom up instead of just the top down. 0:00:05.480 --> 0:00:08.920 When that happens, everybody does well. This vision is a 0:00:08.960 --> 0:00:12.760 fundamental break from the economic theory that has failed America's 0:00:12.760 --> 0:00:14.800 middle class for decades now. 0:00:18.960 --> 0:00:21.720 President Joe Biden this week launched an ambitious bid to 0:00:21.840 --> 0:00:26.079 persuade Americans he's boosted the US economy, with a speech 0:00:26.160 --> 0:00:29.080 describing how his legislation in the past two and a 0:00:29.120 --> 0:00:32.520 half years would grow the economy long term and boost 0:00:32.560 --> 0:00:34.400 the position of ordinary Americans. 0:00:34.960 --> 0:00:37.080 And I'm not here to declare victory on the economy. 0:00:37.080 --> 0:00:39.120 I'm here to say we have a plan that's turning 0:00:39.159 --> 0:00:42.560 things around incredibly quickly. Well, you have more work to do. 0:00:42.800 --> 0:00:45.159 It showed that Biden will put the economy at the 0:00:45.159 --> 0:00:48.560 center of his re election campaign. It's a strategy, though 0:00:49.000 --> 0:00:53.440 not without risks. You'd think, given inflation and now mortgage 0:00:53.520 --> 0:00:56.360 rates are both sword in the Biden years, and most 0:00:56.480 --> 0:00:59.560 voters appear to race him poorly on his handling of 0:00:59.560 --> 0:01:02.200 the econom In fact, you'd think it would be the 0:01:02.240 --> 0:01:05.800 Republican candidates for president who'd be wanting to focus on 0:01:05.840 --> 0:01:08.280 the state of the US economy. But we're not hearing 0:01:08.360 --> 0:01:11.160 much of that at all. So what's going on and 0:01:11.200 --> 0:01:13.679 how important is it for President Biden and his team 0:01:14.040 --> 0:01:16.800 that we don't have a US recession in the next 0:01:16.880 --> 0:01:20.280 twelve months. Well, let me chat first to senior Bloomberg 0:01:20.360 --> 0:01:24.479 reporter Nancy Cook in DC, who's already spending a chunk 0:01:24.480 --> 0:01:26.720 of her time out on the campaign with some of 0:01:26.720 --> 0:01:30.800 these wanna be presidents. Nancy, thanks as ever for joining 0:01:30.880 --> 0:01:34.039 us on Stephanomics. I guess we should just ask the 0:01:34.040 --> 0:01:37.880 basic question, is the economy a positive or a negative 0:01:37.920 --> 0:01:39.680 of President Biden's hopes of re election? 0:01:39.840 --> 0:01:42.959 Do you think I think that President Biden's problem is 0:01:43.000 --> 0:01:45.800 he just has not been able to get credit for 0:01:46.080 --> 0:01:48.760 the good parts of the economy. The US has one 0:01:48.800 --> 0:01:52.120 of the strongest labor markets we have ever seen. Unemployment 0:01:52.200 --> 0:01:56.000 is very low. Unemployment is also low among women, it's 0:01:56.120 --> 0:02:00.920 low among African Americans. You know, there has been a 0:02:00.960 --> 0:02:05.240 big boom in infrastructure spending. The US is trying to 0:02:05.480 --> 0:02:10.040 wrestle manufacturing away from China and build more semiconductor factories here. 0:02:10.320 --> 0:02:13.519 So there's a lot of interesting things happening in the economy. 0:02:13.639 --> 0:02:18.040 Despite the historically high inflation and a lot of bright 0:02:18.120 --> 0:02:21.040 spots for the White House. But it has just been 0:02:21.160 --> 0:02:23.280 very hard for the Biden White House to sell the 0:02:23.280 --> 0:02:26.360 American public on the idea that the economy is good 0:02:26.400 --> 0:02:29.640 and for people to feel okay about it. You know, 0:02:29.680 --> 0:02:33.920 a majority of Americans cannot name a single accomplishment that 0:02:34.000 --> 0:02:36.600 the Biden White House has done, and that has really 0:02:36.639 --> 0:02:39.639 dogged them. So I would argue that their problem moving 0:02:39.680 --> 0:02:42.440 forward as they try to make economics a centerpiece of 0:02:42.480 --> 0:02:45.680 the campaign, is more of a sales pitch problem than 0:02:45.720 --> 0:02:48.040 an actual policy problem. 0:02:48.480 --> 0:02:50.720 Well, you know, as you mentioned, he has passed these 0:02:50.720 --> 0:02:54.160 massive bills, the Infrastructure Bill, the Inflation Reduction Act, which 0:02:54.160 --> 0:02:58.120 is obviously more about the green transition and investing in 0:02:58.520 --> 0:03:03.800 being carbon neutral. You've also and you saw we've also 0:03:03.840 --> 0:03:06.400 seen the Chips Act. All of those things seem to 0:03:06.440 --> 0:03:11.840 be triggering construction booms in some key election battlegrounds like 0:03:11.919 --> 0:03:15.799 Ohio and Pennsylvania. Hasn't any of that helped him? 0:03:16.160 --> 0:03:17.959 Well, I think that part of the problem with all 0:03:18.080 --> 0:03:20.880 of the legislation and the money that has been allocated 0:03:20.880 --> 0:03:25.120 to these projects is that they are long term, you know, investments. 0:03:25.480 --> 0:03:27.919 And so for instance, last year I was in Ohio 0:03:28.000 --> 0:03:30.200 with President Biden. We were standing in the middle of 0:03:30.240 --> 0:03:35.280 a field of chips at a chips factory where you know, 0:03:35.400 --> 0:03:40.080 eventually the White House and local officials hope people without 0:03:40.160 --> 0:03:42.680 college degrees can make you know, one hundred and twenty 0:03:42.720 --> 0:03:46.240 thousand dollars a year producing these chips. And that is 0:03:46.280 --> 0:03:49.960 really a huge part of the White House's message to voters. 0:03:50.200 --> 0:03:53.320 You know, we are creating really good, high end manufacturing 0:03:53.360 --> 0:03:55.560 jobs in the US. But part of the problem is 0:03:55.560 --> 0:03:59.240 that there's no guarantee that that factory, or that the 0:03:59.280 --> 0:04:03.080 infrastructure projects or the bridges and roads that are being 0:04:03.120 --> 0:04:05.880 funded by these investments, that the White House and Congress 0:04:05.880 --> 0:04:08.200 has passed that those things will be done by twenty 0:04:08.240 --> 0:04:10.640 twenty four. And so part of the White House's challenge 0:04:10.680 --> 0:04:13.760 is to convince people to sort of make them aware 0:04:13.840 --> 0:04:17.880 of projects that are in process right now. 0:04:17.880 --> 0:04:20.400 Obviously, when you look at the Republican side, it's, to 0:04:20.480 --> 0:04:25.039 put it politely, it's not exactly a traditional campaign that 0:04:25.080 --> 0:04:29.200 we're seeing, but what in general a Republican candidates saying 0:04:29.200 --> 0:04:31.560 about the economy. I mean, this is a time when 0:04:31.600 --> 0:04:34.080 you would think, you know, if he's not popular on 0:04:34.120 --> 0:04:36.040 a handling of the economy, that would be an opportunity 0:04:36.080 --> 0:04:36.719 for the opposition. 0:04:37.400 --> 0:04:39.880 You would think that you would think that Republicans day 0:04:39.920 --> 0:04:42.039 in and day out, would be hitting the White House 0:04:42.120 --> 0:04:45.200 on the last two and a half years of historically 0:04:45.279 --> 0:04:48.360 high inflation, or hitting them on the amount of money 0:04:48.440 --> 0:04:51.120 that Congress and the White House has allocated to all 0:04:51.120 --> 0:04:54.520 of these bills, which are not you know, typically you know, 0:04:54.600 --> 0:04:58.719 Republican priorities. Instead, what we have seen from the Republican 0:04:58.760 --> 0:05:02.320 candidates so interesting is really a doubling down on culture 0:05:02.360 --> 0:05:05.839 wars and sort of fear based messages. They're talking about 0:05:05.880 --> 0:05:08.640 threats from China, but not really in terms of the economy. 0:05:08.680 --> 0:05:14.360 They're talking about, you know, fears about transgender athletes participating 0:05:14.360 --> 0:05:18.200 in women's sports. They're talking about well they're not talking 0:05:18.240 --> 0:05:20.800 as much about abortion, but they're talking about sort of 0:05:21.400 --> 0:05:24.080 people getting their guns taken away. So it's a lot 0:05:24.120 --> 0:05:26.400 of these culture war messages, and I think that it 0:05:26.520 --> 0:05:29.039 just goes to show you how in the US the 0:05:29.120 --> 0:05:32.440 Republican Party has just really changed so much over the 0:05:32.520 --> 0:05:35.600 last decade. This used to be a party which was 0:05:35.640 --> 0:05:38.159 seen as much more affiliated with like country clubs and 0:05:38.240 --> 0:05:41.320 business groups. Now we have one of the leading Republican 0:05:41.360 --> 0:05:45.719 candidates Florida Governor Ron De Santis waging a huge battle 0:05:45.760 --> 0:05:49.960 with Walt Disney Corporation over their tax status and some 0:05:50.040 --> 0:05:54.200 building permits, and you know, some legislation that he has 0:05:54.240 --> 0:05:57.200 in Florida that dealt with how people talked about gender 0:05:57.240 --> 0:06:00.640 and schools. So it's just, you know, there are Publican party, 0:06:00.640 --> 0:06:04.440 I would say, has just really transformed itself into something 0:06:04.560 --> 0:06:06.919 that people wouldn't recognize from a decade ago, when they 0:06:06.960 --> 0:06:11.400 were much more concerned with tax cuts, the economy, you know, 0:06:11.480 --> 0:06:15.920 putting forward fiscal proposals. Interestingly, we have not seen any 0:06:16.040 --> 0:06:20.760 economic plans from the top two Republican candidates Florida Governor 0:06:20.839 --> 0:06:24.520 Rohnda Santis or former President Donald Trump outlining what they 0:06:24.560 --> 0:06:26.800 would do with the economy in a second term. And 0:06:26.880 --> 0:06:29.680 I think that's really telling about how the economy is 0:06:29.720 --> 0:06:32.159 being handled by Republicans at this point. 0:06:33.160 --> 0:06:36.640 And it's interesting you mentioned briefly abortion, but that was 0:06:36.680 --> 0:06:39.440 one of the cultural issues they weren't necessarily talking a 0:06:39.480 --> 0:06:42.320 lot about. I mean, famously, in that the midterms last year, 0:06:42.760 --> 0:06:46.080 there was this expectation that the state of the economy 0:06:46.760 --> 0:06:50.120 would play badly for Democrats and would be a big 0:06:50.160 --> 0:06:53.040 help for getting the Republicans into office. Ironically, it was 0:06:53.480 --> 0:06:57.320 the cultural issues and particularly abortion, that seemingly made a 0:06:57.360 --> 0:07:02.400 big difference to the Democratic showing in those midterms. I 0:07:02.400 --> 0:07:03.919 guess it is a bit of a gamble for the 0:07:03.920 --> 0:07:07.000 Republicans to stick with the with the culture issues. 0:07:07.440 --> 0:07:09.960 It is, and what we saw with you know, the 0:07:09.960 --> 0:07:12.640 Democrats too, though. I mean, Biden is going to be 0:07:12.720 --> 0:07:14.680 talking about the economy this week, but I don't want 0:07:14.720 --> 0:07:17.760 to discount the role that some of the culture issues 0:07:17.800 --> 0:07:20.560 will play for Democrats. To this, White House is very 0:07:20.600 --> 0:07:24.640 heavily playing up Republicans' efforts to restrict abortion access in 0:07:24.680 --> 0:07:28.120 the US as a very key campaign message. They're calling 0:07:28.160 --> 0:07:32.000 out Republicans past messages on cutting Social Security and Medicare, 0:07:32.360 --> 0:07:35.280 which is not something that former President Trump wants to do, 0:07:35.360 --> 0:07:37.600 but what some of the other candidates have talked about. 0:07:37.800 --> 0:07:40.840 They're making that a key message. And so they're really 0:07:40.960 --> 0:07:45.760 the Democrats overall messages trying to paint Republicans as extreme 0:07:46.720 --> 0:07:51.760 on the policy positions, from abortion to entitlements to you know, 0:07:51.840 --> 0:07:55.280 these culture war issues. And the Republicans, meanwhile, are just 0:07:55.400 --> 0:07:58.760 really trying to you know, make Americans quite fearful of 0:07:58.800 --> 0:08:02.600 a second term of President Biden both you know, what 0:08:02.720 --> 0:08:06.600 they view as his inept handling of the country, but 0:08:06.720 --> 0:08:09.040 also calling out things like his age and whether or 0:08:09.120 --> 0:08:13.000 not he is up to really have a second term. 0:08:13.560 --> 0:08:16.120 How wide does the White House will have a recession 0:08:16.160 --> 0:08:18.880 in the US in the next six to eight months. 0:08:19.560 --> 0:08:22.000 The White House has always done a lot of happy 0:08:22.040 --> 0:08:26.120 talk with the economy and has never really acknowledged, you know, 0:08:26.160 --> 0:08:29.160 the likelihood of a recession. I think that what I'm 0:08:29.200 --> 0:08:31.840 hearing from people is that if there is a recession, 0:08:32.480 --> 0:08:35.400 and this is from economists, from business leaders in DC, 0:08:35.960 --> 0:08:39.560 you know, it would be a more mild one, you know. 0:08:39.679 --> 0:08:42.840 CEOs I don't think are totally freaked out about a 0:08:42.880 --> 0:08:46.080 big recession. And so I think the question for the 0:08:46.080 --> 0:08:48.560 White House and the Biden campaign is when does that 0:08:48.600 --> 0:08:52.079 recession come. You know, if companies are cutting jobs and 0:08:52.160 --> 0:08:54.760 laying people off, which we're already seen in some sectors 0:08:54.800 --> 0:08:58.319 like the tech sector, it's much better for the Democrats 0:08:58.320 --> 0:09:00.920 if that comes earlier in the year then later in 0:09:00.960 --> 0:09:04.600 the year. Typically, you know, the summer before an election 0:09:04.800 --> 0:09:07.480 is when American voters really start to clue into what's 0:09:07.520 --> 0:09:10.800 going on. And so, you know, the best bet for 0:09:10.840 --> 0:09:13.000 the Democrats is if the recession comes in the first 0:09:13.040 --> 0:09:16.520 two quarters, not in the summer or in the fourth quarter, 0:09:16.600 --> 0:09:18.120 when people will have to go to the polls. 0:09:20.480 --> 0:09:22.520 And of course, if we have a recession, it'll be 0:09:22.520 --> 0:09:27.040 because the US Central Bank has in effect had to 0:09:27.080 --> 0:09:32.120 cause one to get inflation out of the economy in 0:09:32.200 --> 0:09:34.640 other parts of the world, and I guess in some 0:09:35.040 --> 0:09:37.880 quarters in the US we're starting to see criticism of 0:09:38.320 --> 0:09:41.880 the Feed that there's it's inflicting harm on the American 0:09:41.920 --> 0:09:46.560 people for no great gain. Do you think if things 0:09:46.600 --> 0:09:50.040 do turn sour economically and we start to see a 0:09:50.080 --> 0:09:53.400 lot of job losses, do you think that Democrats will 0:09:53.640 --> 0:09:56.000 start to be a bit more critical of the Federal Reserve. 0:09:56.800 --> 0:10:00.240 We have seen Democrats on Capitol Hill, like Senator with 0:10:00.320 --> 0:10:03.720 Warren and other progressives be critical of the FED and say, 0:10:03.760 --> 0:10:05.840 you know, now is not the time to raise interest rates, 0:10:05.920 --> 0:10:09.000 or we should not raise them any further. The Biden 0:10:09.080 --> 0:10:12.040 White House has been trying to stay totally mum on 0:10:12.120 --> 0:10:16.840 criticizing the FED because they do not want to seem 0:10:16.920 --> 0:10:19.880 like they are former President Donald Trump in any way. 0:10:20.280 --> 0:10:22.640 You know, as you remember, he really was quite critical 0:10:22.679 --> 0:10:25.520 of the FED. He was quite critical of j Powell. 0:10:26.000 --> 0:10:29.600 Despite having carefully selected I know, not given Janet yet 0:10:29.679 --> 0:10:30.679 in a second term. 0:10:30.920 --> 0:10:33.840 He was You're right, but he you know, really started 0:10:33.840 --> 0:10:37.200 attacking the FED during his presidency, and the Biden White 0:10:37.200 --> 0:10:39.240 House tries to act like Biden is the grown up 0:10:39.280 --> 0:10:42.120 in the room. Trump is not, and so part of 0:10:42.120 --> 0:10:44.239 the way that they do that is by not attacking 0:10:44.480 --> 0:10:47.079 you know, independent institutions like the Federal Reserve or the 0:10:47.120 --> 0:10:49.640 Department of Justice or these other agencies. 0:10:50.760 --> 0:10:52.800 Well see how they managed to stick to that down 0:10:52.840 --> 0:10:55.000 the road. But meantime, Nancy Cook, thank you. 0:10:55.000 --> 0:10:56.680 So much, thanks for having me. 0:11:02.000 --> 0:11:04.000 So I want to go a little deeper into the 0:11:04.080 --> 0:11:08.160 economics and the politics of all this with two excellent guests, 0:11:08.320 --> 0:11:12.000 Michael Strain, director of economic policy Studies at the American 0:11:12.160 --> 0:11:17.079 Enterprise Institute, and our own Anna Woll, Bloomberg's chief US economist. 0:11:17.360 --> 0:11:21.160 Thank you very much for joining me, both of you. Anna, 0:11:21.280 --> 0:11:24.679 maybe just start with you just to sketch out roughly 0:11:25.400 --> 0:11:29.240 where the US economy is now, but also in broad strokes, 0:11:29.840 --> 0:11:32.959 how you'd expect it to evolve over the next eighteen 0:11:33.000 --> 0:11:35.320 months or so leading up to the twenty twenty four 0:11:35.679 --> 0:11:36.400 general election. 0:11:36.960 --> 0:11:40.640 Yeah, so, I think the one word that well described 0:11:40.760 --> 0:11:45.760 the US economy right now is belold trend growth. So 0:11:46.080 --> 0:11:47.520 it's the US. 0:11:47.320 --> 0:11:49.160 Economy, isn't that three words? 0:11:50.360 --> 0:11:57.800 There's dashes in betweets, So the economy is expanding. It 0:11:58.040 --> 0:12:02.079 has defied forecasts. Are recessions last year? We called that 0:12:02.280 --> 0:12:05.360 last year. Around June of last year, half of the 0:12:05.440 --> 0:12:08.600 country in a poll says that they think the country 0:12:08.640 --> 0:12:11.320 is already in a recession. But it seems like as 0:12:11.400 --> 0:12:15.520 of now the data says nope, the economy expanded. But 0:12:15.840 --> 0:12:20.480 looking forward, our call has been and remained to be 0:12:20.760 --> 0:12:23.760 that there will be a recession towards the end of 0:12:23.800 --> 0:12:26.880 this year. And the reason for this timing is that 0:12:27.360 --> 0:12:30.840 a lot of headwinds is supposed to hit the economy 0:12:30.880 --> 0:12:34.839 around the fourth quarter this year. So first, you have 0:12:35.160 --> 0:12:39.640 household excess savings running out. We're already seeing the lower 0:12:40.160 --> 0:12:42.960 end of the income sector running out of savings and 0:12:43.120 --> 0:12:47.080 they have been resorting to credit cards and running down 0:12:47.120 --> 0:12:50.640 their existing savings in order to finance spending habits. That 0:12:50.800 --> 0:12:53.200 is one key factor for why we think that the 0:12:53.200 --> 0:12:56.760 economy is finally running out of steam. The other headwinds 0:12:56.760 --> 0:13:01.600 include the student loan forbearons could be expiring later this year, 0:13:01.800 --> 0:13:06.360 which takes away another kitchen for household Alan Greenspan has 0:13:06.440 --> 0:13:13.000 two favorite economic activity indicators. One is corrugated box shipments 0:13:13.040 --> 0:13:16.960 and second is railcar loadings, and both of them have 0:13:17.080 --> 0:13:20.679 been tanking in recent months, which seems to suggest that 0:13:20.760 --> 0:13:24.560 consumer demand are finally softening. So if a recession does 0:13:24.600 --> 0:13:29.400 happen around Q four this year, usually unemployment rate spikes 0:13:29.440 --> 0:13:33.600 only two quarters, two or three quarters after what the 0:13:33.679 --> 0:13:37.559 economy is formally in a recession. So yeah, GDP growth 0:13:37.600 --> 0:13:40.400 may decline in fourth quarter, first quarter next year, but 0:13:40.520 --> 0:13:44.000 an unemployment rate really only peaks around if that's the case, 0:13:44.200 --> 0:13:46.880 third quarter a fourth quarter next year, which is right 0:13:46.960 --> 0:13:52.400 around the presidential election. Our baseline is for unemployment rate 0:13:52.480 --> 0:13:56.520 to rise to around four point nine percent in the 0:13:56.559 --> 0:13:59.480 third quarter of twenty twenty four, So that's a couple million, 0:13:59.520 --> 0:14:02.920 one or two million decrease in jobs. So that would 0:14:02.960 --> 0:14:05.120 be a serious headwind for Biden. 0:14:05.520 --> 0:14:07.760 And just briefly, and a lot of people had been 0:14:08.120 --> 0:14:11.400 wrong footed by the resilience of the US economy so 0:14:11.559 --> 0:14:14.240 far and sort of dodging a recession so far, not 0:14:14.559 --> 0:14:17.920 least the Federal Reserve. What probability are you putting on 0:14:17.960 --> 0:14:21.200 that recession forecast, how much chance is there do you 0:14:21.240 --> 0:14:23.280 think that we could actually dodge it? And I guess 0:14:23.480 --> 0:14:25.600 the follow up to that is, just is it going 0:14:25.640 --> 0:14:27.320 to be a deep recession or is it possibly one 0:14:27.360 --> 0:14:31.280 of those ones that ends up not being felt as deeply. 0:14:31.640 --> 0:14:36.000 In the past year, the economy demonstrated resilience, but in 0:14:36.040 --> 0:14:38.720 the second half of this year we see a loss 0:14:38.720 --> 0:14:42.560 of resilience because of this combination of shocks. So how 0:14:42.640 --> 0:14:47.080 deep the recession would be depends on what combination of 0:14:47.240 --> 0:14:52.120 negative shocks do we get. So if you have a 0:14:52.160 --> 0:14:57.000 combination of severe El Nino or weather forecasters are currently 0:14:57.000 --> 0:14:59.840 saying there's a chance of at least fifty six percent 0:15:00.400 --> 0:15:06.120 of strong El Nino. If you have also a China slowdown, 0:15:06.160 --> 0:15:09.640 which tends to be very bad for investment, and on 0:15:09.680 --> 0:15:12.440 the other hand, also you have the FED continuing to 0:15:12.600 --> 0:15:18.160 raise rates because inflation is high and credit standards start 0:15:18.200 --> 0:15:21.000 tightening in the wake of the banking crisis in the US. 0:15:21.720 --> 0:15:25.720 I just don't see how the economy could survive all 0:15:25.720 --> 0:15:29.680 these shocks. But again, it depends on what combination of 0:15:29.720 --> 0:15:30.560 shocked you see. 0:15:30.960 --> 0:15:33.200 Michael Strain, You've listened very patiently to all this. Are 0:15:33.240 --> 0:15:37.400 you broadly in line with Anna's assessment of the economy 0:15:37.600 --> 0:15:38.280 looking ahead? 0:15:38.480 --> 0:15:41.240 Yeah, I think we are broadly in line. I expect 0:15:41.360 --> 0:15:44.680 a recession will hit the precise time we give that 0:15:44.760 --> 0:15:48.600 as difficult, but I think the slowdown will start, likely 0:15:48.640 --> 0:15:51.160 at the fourth quarter of this year, maybe a little 0:15:51.160 --> 0:15:55.000 bit earlier than that. I think that consumers have been 0:15:55.400 --> 0:16:00.400 buoyed by the cushions that Anna mentioned in Those are 0:16:00.400 --> 0:16:05.880 deflating student dead forbearance, excess savings that resulted from really 0:16:05.920 --> 0:16:10.760 generous pandemic era fiscal policy transfers to households. I am 0:16:10.800 --> 0:16:15.720 probably more concerned than Anna seems to be about consumers 0:16:15.840 --> 0:16:19.960 running out of steam and not heavily business investment dropping off. 0:16:20.160 --> 0:16:22.920 I kind of expect to see both, but yes, I 0:16:22.920 --> 0:16:24.040 think we're broadly aligned. 0:16:24.440 --> 0:16:28.640 We do already have consumer confidence and the consuman sentiment 0:16:28.800 --> 0:16:32.840 very low. Because inflation is felt so deeply by households, 0:16:32.880 --> 0:16:35.880 even with or without a recession, or even without a 0:16:35.920 --> 0:16:40.520 big significant rise in unemployment, we know inflation is hitting everybody, 0:16:40.600 --> 0:16:42.760 not just people who might be at risk of losing 0:16:42.800 --> 0:16:45.600 their jobs. This is already not a pretty picture for 0:16:45.800 --> 0:16:50.520 a president to be campaigning for re election. And you 0:16:50.560 --> 0:16:53.320 also potentially have a recession coming up in the months 0:16:53.320 --> 0:16:55.640 before the election. So I guess the striking thing to 0:16:55.760 --> 0:16:59.920 us has been why Republican candidates on the stump haven't 0:17:00.080 --> 0:17:02.560 in talking more about the state of the economy on 0:17:02.600 --> 0:17:03.520 the campaign trail. 0:17:03.920 --> 0:17:07.440 Yeah, it's confusing. I think there are two explanations for that. 0:17:08.240 --> 0:17:12.760 One explanation is that the fundamental problem with the economy 0:17:12.880 --> 0:17:17.359 is that economic demand substantially outpaced the productive capacity of 0:17:17.400 --> 0:17:20.359 the economy to meet that demand, and that's manifesting itself 0:17:20.400 --> 0:17:22.720 in inflation, and people just like inflation, and that's showing 0:17:22.800 --> 0:17:25.840 up in the poll numbers. President Biden's handling of the 0:17:25.880 --> 0:17:31.399 economy is not favorably by many Americans. But the flip 0:17:31.440 --> 0:17:35.080 side of that is that labor demand is extremely strong. 0:17:35.200 --> 0:17:39.760 We have a really strong job market, very low unemployment. 0:17:39.920 --> 0:17:43.520 We are adding lots and lots of jobs every single 0:17:43.560 --> 0:17:47.679 month after month, and nominal wages are growing at a 0:17:47.720 --> 0:17:50.760 really rapid rate. Now, the purchasing power of those wages 0:17:50.840 --> 0:17:53.439 is being eaten away by inflation, but what's actually in 0:17:53.480 --> 0:17:56.400 your paycheck is the number on your paycheck is growing 0:17:56.440 --> 0:17:58.720 at a pretty rapid rate. And so it may be 0:17:58.800 --> 0:18:03.040 that candidates don't quite know how to navigate that. Criticizing 0:18:03.080 --> 0:18:08.720 the president on economic performance kind of invites a question, Okay, well, 0:18:08.720 --> 0:18:12.000 what would you do? And you don't want to put 0:18:12.000 --> 0:18:15.119 yourself in a position of rooting for a weaker labor market, 0:18:15.440 --> 0:18:16.919 but you don't want to put yourself in a position 0:18:16.960 --> 0:18:20.800 of rooting of rooting for a recession, And you don't 0:18:20.800 --> 0:18:22.680 want to put yourself in a position of even really 0:18:22.760 --> 0:18:26.439 rooting for what's being described as a soft landing. And 0:18:26.480 --> 0:18:28.359 so that could be part of it. But I also 0:18:28.400 --> 0:18:32.440 think that the candidates, through a combination of the role 0:18:32.680 --> 0:18:37.880 that President Trump is playing in this primary cycle and 0:18:38.119 --> 0:18:41.520 just how early it is in the calendar, the candidates 0:18:41.520 --> 0:18:46.120 don't have fleshed out economic policy agendas and policy plans, 0:18:46.240 --> 0:18:49.440 and so that makes it hard, I think, to try 0:18:49.440 --> 0:18:51.160 to turn the focus to the economy. 0:18:51.720 --> 0:18:54.240 That's interesting, you've captured something in that answer that I 0:18:54.359 --> 0:18:57.800 was that we've seen also in terms of governments around 0:18:57.800 --> 0:19:01.480 the world actually dealing with the popular response to interest 0:19:01.560 --> 0:19:05.760 rate rises. It's hard to be setting yourself against an 0:19:05.800 --> 0:19:10.520 overheating economy and somehow arguing in order to get inflation down, 0:19:10.760 --> 0:19:14.400 arguing for less money in people's pockets. It's a very 0:19:14.400 --> 0:19:17.440 awkward place for any politician to be in where many candidates, 0:19:17.440 --> 0:19:21.200 I mean famously Governor DeSantis in Florida has been taking 0:19:21.320 --> 0:19:24.440 an economic tack, or at least been talking about some 0:19:24.520 --> 0:19:26.919 economic issues, is in sort of picking fights with the 0:19:26.960 --> 0:19:32.360 business community on the sort of anti woke agenda. It's 0:19:32.400 --> 0:19:35.680 an odd place for a Republican to be. How does 0:19:35.720 --> 0:19:36.600 it play with voters? 0:19:36.640 --> 0:19:40.399 Do you think I'm not sure that it will play 0:19:40.440 --> 0:19:43.280 that well. I think we have to wait and see. 0:19:43.920 --> 0:19:46.760 But Disney is a very popular. 0:19:46.600 --> 0:19:51.119 Company, and not just with people's children and not just with. 0:19:52.240 --> 0:19:55.520 And I think if you are a person who spends 0:19:55.520 --> 0:19:57.680 a lot of time on social media, or spends a 0:19:57.760 --> 0:20:01.040 lot of time really kind of following the day to 0:20:01.160 --> 0:20:04.879 day happenings in American politics, and you're a conservative, that 0:20:05.040 --> 0:20:07.439 this might be appealing to you. But in order to 0:20:07.440 --> 0:20:10.560 be successful, certainly in the general election, you have to 0:20:11.040 --> 0:20:15.920 appeal to independent votership, to appeal to voters who don't 0:20:15.960 --> 0:20:19.120 pay attention to the kind of hour by hour, day 0:20:19.119 --> 0:20:22.639 by day swings in the news cycle. And you know this, 0:20:24.040 --> 0:20:27.320 I'm skeptical that this will be all that appealing to 0:20:27.400 --> 0:20:28.560 many of those voters. 0:20:28.800 --> 0:20:31.800 And one thing we have seen under President Trump and 0:20:31.840 --> 0:20:34.320 President Biden, but very strikingly in the last few years 0:20:34.400 --> 0:20:38.320 under President Biden, is this activist turn in US economic policy. 0:20:38.560 --> 0:20:40.560 With President Trump, it largely took the form of tax 0:20:40.600 --> 0:20:43.399 cuts and the trade wars with China. But under President 0:20:43.400 --> 0:20:48.280 Biden we've had these big spending on green energy, infrastructure, 0:20:48.400 --> 0:20:53.520 the Chips Act, and this explicit industrial policy goal of 0:20:53.680 --> 0:20:59.640 reindustrializing the US economy. Initially, on the economics, I mean, 0:21:00.240 --> 0:21:04.000 is there a coherent strategy there for raising growth in 0:21:04.040 --> 0:21:07.639 the lasting way, increasing the potential growth rate of the 0:21:07.720 --> 0:21:10.800 US economy, or is this just another form of pumping 0:21:11.000 --> 0:21:12.119 money into the economy. 0:21:12.480 --> 0:21:15.920 My understanding is that these you know, the Chips Act, 0:21:16.000 --> 0:21:19.960 the work underpinning the Chips Act was already in the 0:21:20.000 --> 0:21:24.560 works under President Trump, and so Biden's administration is just 0:21:24.680 --> 0:21:28.560 formalized those work that was already started when we were 0:21:28.840 --> 0:21:31.960 having a trade war with China, when the Trump administration 0:21:32.200 --> 0:21:36.560 just realized that we're just having too much reliance on 0:21:36.680 --> 0:21:39.159 imports from China. But in any case, in terms of 0:21:39.200 --> 0:21:42.560 the impact on the economy from Chips Act and the 0:21:42.600 --> 0:21:47.240 Infrastructure Act, it's major. We're starting to see the impact, 0:21:47.359 --> 0:21:52.600 and the impact is number one. It prolonged the labor 0:21:52.640 --> 0:21:56.960 shortages in certain sectors, for example, in construction sectors. During 0:21:57.000 --> 0:22:02.400 the pandemic, the construction sector was already experiencing severe shortage 0:22:02.440 --> 0:22:07.440 of workers, so the ratio of job opening in the 0:22:07.520 --> 0:22:11.440 construction to unemployed was around one point seven one point eight. 0:22:12.000 --> 0:22:15.399 And now as the rest of the economy is coming 0:22:15.440 --> 0:22:21.080 back into balance, there's less shortages elsewhere. The construction sector 0:22:21.320 --> 0:22:25.240 remains very tight because of demand to build these factories 0:22:25.280 --> 0:22:29.600 and these roads. There was a massive spike in manufacturing 0:22:29.640 --> 0:22:33.200 construction starting around the last couple of months ago and 0:22:33.560 --> 0:22:37.800 it seems to be continuing unabated. And our very preliminary 0:22:38.400 --> 0:22:42.120 estimate of the total job impact of the Infrastructure Act 0:22:42.720 --> 0:22:45.960 is that a minimum number is that it could boost 0:22:46.480 --> 0:22:49.680 jobs by over half a million over a span of 0:22:50.119 --> 0:22:52.760 a couple of years. I think in the longer, in 0:22:52.840 --> 0:22:56.080 the media medium term, we will start to see the 0:22:56.119 --> 0:23:01.200 growth enhancing impact. Over time. It will boost supply as well, 0:23:01.600 --> 0:23:05.440 but that is a longer term trajectory. In the short term, 0:23:05.520 --> 0:23:08.639 what you what these acts do is boosts a demand 0:23:08.680 --> 0:23:11.800 without immediate impact on the supply. So in a way, 0:23:11.920 --> 0:23:16.520 it could actually worsen the inflationary impact. So if Powell's 0:23:17.359 --> 0:23:21.119 aim is to bring down nominal wages and then you 0:23:21.160 --> 0:23:26.080 will have the persisting the jobs. Labor shortage in construction 0:23:26.240 --> 0:23:28.920