Afford Anything - The Surprising Economic Proposal Both Candidates Agree On

Episode Date: October 4, 2024

#546: The Federal Reserve slashed interest rates by half a percentage point. What does this mean for your mortgage, your savings account, and the economy at large? In this First Friday economic episode, we dive deep into the Fed's decision. But that's just the beginning. As the presidential election looms, we'll also unpack the economic proposals from both candidates, examining how their plans for housing, taxes, and more could shape your financial future. We emphasize critical, non-partisan analysis of economic proposals. We want you to understand complex economic issues and their potential impacts, rather than advocating for specific political positions. Here are more specifics about this episode: The Federal Reserve's decision to cut interest rates by half a percentage point – the first rate reduction since the pandemic – is the biggest economic story of the month. We start by exploring the implications of the Federal Reserve’s rate cut, from falling mortgage and auto loan rates to potential increases in home prices and a tightening housing inventory. We also touch on the flip side: declining yields on high-interest savings accounts and CDs. We unpack the reasoning behind the Fed's decision, including shifting concerns from inflation to unemployment. We delve into economic indicators like the "dot plot" and "R-Star," explaining their significance in predicting future interest rates and economic trends. Then we discuss the latest jobs report, with 254,000 new jobs added in September, surpassing expectations. We break down the unemployment rate's drop to 4.1 percent. As the conversation shifts to the upcoming election, we take a nonpartisan approach to examining economic proposals from both presidential candidates. The episode focuses on policy rather than politics, encouraging critical thinking about each proposal's potential impacts. One area of bipartisan agreement - a proposal for no tax on tips for service workers - is scrutinized. We explain why economists across the political spectrum view this idea skeptically, highlighting the lack of specificity in defining "service workers" and "tips." Housing policy takes center stage, with both candidates proposing regulatory streamlining for home construction and opening federal lands for development. We discuss the limitations of federal intervention in what are often local zoning and regulatory issues. The episode also examines proposals for first-time homebuyer assistance, explaining how subsidizing demand in a supply-constrained market could potentially lead to higher housing prices. Throughout the discussion, we emphasize the importance of evaluating these policies based on their potential economic impacts rather than political affiliations. This episode will help you make more informed decisions about personal finances and policy preferences. Timestamps Note: timestamps will vary on individual devices based on advertising length 0:00 Introduction to the Fed's recent interest rate cut 2:35 Unpacking the impact of rate cuts on mortgages and savings 5:12 Explanation of the dot plot and R-Star concepts 9:47 Analysis of September's job report and unemployment figures 15:23 Discussion on labor force participation trends 21:08 Introduction to election-related economic policies 25:40 Examination of bipartisan "no tax on tips" proposal 31:15 Analysis of housing policies from both candidates 37:22 Critique of down payment assistance for first-time homebuyers 42:56 Exploration of the Tax Reform Act of 1986 and its housing impact 48:03 Discussion on proposed acts to limit corporate housing investments 52:17 Case study of Argentina's recent housing market changes For more information, visit the show notes at https://affordanything.com/episode546 Learn more about your ad choices. Visit podcastchoices.com/adchoices

$40,000. That's how much you would save on a $360,000 mortgage in total interest payments over the span of 30 years. If you lowered your interest rate by one half of one percentage point, well, guess what? Unless you've been living under a rock, you've already heard the news. The Fed a couple weeks ago decided to lower interest rates by half a percentage point. What does this mean for you? It means that although your mortgage and auto loan rates are currently dropping, home prices are likely to start climbing, and home inventory is on the decline, while mortgage and auto loan rates are both dropping. That's not all that's dropping. The interest you earn in your savings account, the APY on your savings, CD rates, things like that, are also going down because high interest rates are great for savers and bad for borrowers, and vice versa. versa. All of this is the impact of the Fed's rate cut, which lowered interest rates by half a percentage point. It also sent a signal that inflation is less of a looming threat. Unemployment

is a bigger concern than we previously realized, and there are likely to be fewer layoffs. What we don't know, however, is where we stand on the dot plot, nor do we know a mythical number called the R-star, both of which I'll unpack in just a moment. Welcome to the first Friday monthly economic update episode of the Afford Anything podcast. This is the show that understands you can afford anything but not everything. Every choice carries a trade-off. And that applies not just to your money, but to any limited resource you need to manage. Your time, your focus, your energy.

So, what trade-offs are you willing to make? That's the core question that this podcast is dedicated to exploring. I'm your host, Paula Pant. I hold a master's in economic reporting from Columbia. University and I devote the first Friday of each month to helping you make sense of the economic news. Today we're going to unpack what the Fed interest rate cuts mean for you and then we're going to do something that I'm honestly kind of dreading, but which is, if necessary, we are going to examine some of the economic policy proposals put forth by our two presidential candidates.

Now, anytime you begin discussing politics, people often have immediate knee-jerk responses in which they hear what they want to hear confirmation bias goes through the roof. And no matter what you say, those who are predisposed to liking you will assume that you share their same political party and viewpoints, while those who are predisposed to disliking you will assume that you are on the other, quote-unquote, other side. I often avoid political discussions because these become so tribalistic in nature and tend to appeal to our lowest base tendencies in group outgroup belonging. What I will be doing in today's episode is broaching these topics with the greatest degree of dedication towards a neutral and first principles thinking based analysis of the economic proposals. And notice that I said first principles-based, and I did not use the word balanced. When we get to that portion of today's show, I will explain why, because this, I think,

is foundational for the meta-discussion, for talking about how we talk, about policy. But all of that will unfold in the second half of today's show. Before we get there, we'll begin with the single biggest economic, story of the past month, which is the Fed's half-point interest rate drop made huge headlines in mid-September. It was a massive economic milestone. The first time that the Fed has cut interest rates since the pandemic, and the first clear signal that the battle with inflation has turned around, inflation hit a peak of 9.1% in June 2022. It stood at only 2.5%. in August 2024.

Really flipping close to the Fed's 2% target. Now, if you're asking yourself, wait a minute, if we haven't quite hit that Fed goal yet, we're close to the goal, but we haven't hit the goal, why did the Fed lower interest rates? And why did they lower it by that much? Why half a percentage point? Well, as we talked about in the last first Friday episode,

unemployment is actually a bigger concern than we realized. Previously, we believed, based on Bureau of Labor Statistics data, that from March 2023 to March 24, the U.S. had created 2.9 million new jobs. However, the BLS revised their numbers, which is common. They do this frequently. And we discovered that in that time span, we actually only created 2.1 million new jobs. Not 2.9 million. So we were 818,000 jobs short of what we expected.

So given that inflation is now close to where we want it to be and unemployment is worse than we previously thought it was, that combination of factors led to the Fed's rate cut. The other thing that happened is the European Central Bank cut rates, and it's unusual that we're lagging Europe. Usually we're the leaders. We cut rates. and the ECB, the European Central Bank, follows.

This time around, they went first. And that likely gave the Fed governors some reassurance that inflation, not just in the U.S., but also across the sea, is under control because inflation, remember, is a global phenomenon. And post-pandemic, Europe and Asia both saw significant inflation in many countries substantially worse than what we've. saw here in the U.S. But here's a pattern we're seeing around the world. Interest rates globally are

either declining or being held steady. In Indonesia, as of September, interest rates dropped by a quarter point from 6.25 down to 6. Saudi Arabia cut rates by half a point. Jamaica quarter point cut, Dominican Republic, quarter point cut. Mexico, Canada, South Africa, all had a quarter point cut. Meanwhile, India, the UK, China, South Korea, Japan, these countries all held their rates steady. This data is compiled by trading economics. What we know then is that with a few exceptions, most countries are either holding steady or dropping interest rates, meaning that inflation around the world in most areas is under control. There are some exceptions. Brazil raised its rates by a quarter point.

Russia raised its rates by a full point, and there are certain spots, Egypt, Argentina, Turkey, that are in pretty dire situations. So I don't want to paint the picture that all countries are doing well, because Argentina, for example, has had 287% inflation on a yearly basis. Now, that is according to the Central Bank of Argentina. And their benchmark interest rate currently is at 40%. percent down from its high of 50 percent back in May. And they're not even doing the worst in South America. That dubious distinction belongs to Venezuela. So there are still pockets around the

globe where the war against inflation has not been won. But overall, in the aggregate, if we're looking for directionally how are most countries doing, what we see is that global inflation is under control for the most part, and the Fed's interest rate drop here in the U.S. is a reflection of a much broader global trend. Now, I say this in part because I've heard some people say, oh, isn't it politically convenient that the Fed dropped interest rates right before an election?

There are some people who regard the timing as suspicious. And to them I say, okay, if we accept that hypothesis, then how do you explain the Bank of England, which cut its main interest rate down to 5% from 5.25%. They did a quarter point cut. How do you explain the European Central Bank, which not only already cut rates, they're down in the mid-3s? On top of that, the ECB is widely expected to cut rates again in October by another quarter point. The pace of interest rate reductions in Europe is far faster than the pace of rate reductions here. So I'm curious as to how that hypothesis would square such information.

Now, there is a more interesting debate, and that was the dissent coming from one of the Fed governors. Now, this is highly unusual. In September, when the Fed voted to drop interest rates by half a percentage point, it was an 11-to-one vote. That almost never happens. This was the first time since 2005, the first time in 19, nearly 20 years,

that a Fed governor opposed a rate decision. Normally, the Fed board likes to show unanimity. And so the vote is almost always, for the last 19 years, the votes have always been 12 to 0. So the fact, I mean, I can't even imagine how many discussions went on in that room. Behind closed doors, all the arguments that must have gone on before one Fed governor, Michelle Bowman, made the very public decision to cast the low. loan dissenting vote. And her vote highlighted, her concerned, that half a point was too big of a cut, that we weren't ready for something so big yet that it should have been a quarter point.

Which, to be fair, heading into September's decision, analysts and investors were split 50-50. The market had priced in a roughly 50-50 probability of a quarter point cut versus a half-point cut. But even with ballpark 50-50 odds, I think the group consensus, the dominant mood seemed to be one of slight surprise that they took that 50% option. I know that I myself heading into that decision had allotted a 51% probability towards a quarter point cut and a 49% probability towards a half point. So even I and many other investors and analysts who were expecting that it would be a coin toss, were all still surprised. It's unusual to go from no cuts for two years to such a big haircut in one go.

What is more significant than the betting and the speculation and the loan dissenting ballot is the total lack of agreement on this chart that's called the dot plot. The dot plot is this chart. And to understand how it works and why it's actually super cool, let me zoom out and paint big picture how the Fed works. There's this committee. It's called the Federal Open Market Committee. They are the people who set the interest rate.

And so casually, colloquially, in conversation, when we say the Fed is meeting, what we mean is these 12 people are meeting. Now, the 12 people who sit on this committee include seven people who belong to the Fed's board of governors, one person who is the president of the Fed Bank of New York. So that's eight out of 12 spots. And then the remaining four spots are a rotation. of the presidents of other regional Federal Reserve banks, of which there are 11. So among those 11 people, four out of those 11 will fill those four spots,

and they serve these rotating one-year terms. And that is how we cobble together the 12 people who sit on the committee that makes decisions about monetary policy and sets the benchmark overnight interest rate. Okay, zoomed out for context. that's what we mean when we say the Fed. Now, zooming back in, the dot plot. So the Fed started doing something really cool back in 2012. Remember, 2012 was, on the heels of the Great Recession.

It was a sucky and scary time. We had just survived the worst economic calamity since the Great Depression. And in the aftermath of all of that, the Fed decided we should make a chart. because they wanted to better communicate to the public where they thought that interest rates would go, the federal funds rate specifically, which is what they control. They wanted to take some of the guesswork out of it and clue people in on what they were thinking. Now, when the Fed sets interest rates, what they set is a range. So, for example, right now, the range is between 4.75% to 5%.

And that's the target range at which banks loan money to other banks overnight. And it sets the floor, the baseline for the interest rates that businesses pay when they borrow money, the interest rates that you and I pay when we take out mortgages, things like that. So the Fed decided that they would make a big chart and they would put a dot right at the midpoint of where they thought that range was going to go. This is called the dot plot. It is an insight into where do members of the Fed think that interest rates are going to go in the future? What's the midpoint of the range that they think is going to happen? What are they projecting?

What are they speculating on? And what's cool is that not only do the 12 members of the Fed Open Market Committee place a dot on this chart, But in addition to that, remember how I said that four of those seats are like this rotating carousel of the other 11, this group of 11 people? Well, the other seven, the ones who are in rotation but currently not on the committee at this moment, the bench warmer crowd, so to speak. They're in play, but they're not on the field. They get to put a dot on the chart too. So you have a total of 19 people, the 12 members of the committee, plus the other seven, all 19 of them plot where they think interest rates are going to go.

All of that context leads us to what's really interesting about what happened in September, which is that the dot plot went wild. Of the 19 people, the 19 Fed officials who made guesses, among them, they made 11 different guesses. So you pull 19 Fed officials, and you get 11 different guesses among that crowd of 19. And there was no consensus. The one guess that had the most support behind it had three people supporting it, three Fed officials supporting it. Everything else had one or two Fed officials supporting it.

So it's clear that among Fed officials, there is this massive range of opinions and there's no broad consensus. There's not even a hint of a consensus around any one idea inside of that range. The dot plot that they published on September 18th is the most dispersed dot plot ever in Fed history since they started publishing the dot. plot back in 2012. And the range went from a low of 2.375% to a high of 3.75%. So that's the range where they think long-term interest rates will end up. But it's a huge one. That's a wide gulf between those numbers. So moral of the story, the people on the Fed have no idea where long-term interest rates are Now, part of the reason behind that relates to a different concept called R-Star. Now, R-star is a more fun way of saying the neutral real rate of interest.

And the neutral real rate is simply the rate at which the economy is growing at its exact potential. Like, the Fed has this dual mandate of don't let inflation, go out of control, but also don't let unemployment go out of control, right? The Fed has to monitor that tug of war between inflation and unemployment. If they cool off the economy too much, then too many people lose their jobs. So interest rates can't go too high because that will create mass unemployment. And vice versa, if they fuel the economy too much, lots of people will have jobs, but inflation will go nuts. They can't set interest rates too low, so they have to keep

these two in balance. And this kind of hypothetical, mythological number, I mean, you know, there's never a perfect number. And the concept of R-Star, the concept of this neutral real rate, is sort of the elusive perfect. It's what would that rate be if, if everything was perfect if inflation and employment lived in absolute perfect harmony. That's the concept of R-star. Now, the members of the Fed don't publish, oh, this is what I think R-Star is. Like, they don't publish that number. But if you simply subtract their inflation projection from their long-term rate projection,

which is another way of saying, subtract that inflation projection from that point on the dot plot, And you get a sense of what they think R-Star is. And in the past, a lot of Fed projections kind of put R-star around half of a percentage point, 0.5%. Now there's a much wider range of what it might be. And what that reflects is a fundamental disagreement on what this new economy, this post-pandemic world is going to look like. Will it be the case that AI is going to make us all much more productive?

And so we don't need big population growth in order to increase productivity because AI is going to boost productivity. So we're going to have great growth in a higher R-star. Maybe that's it. Some people think so. And by contrast, maybe not. maybe things are slowing down, maybe we're going to be hampered by some headwinds. And so the Fed's disagreement on where long-term interest rates are going to be reflects, at its

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Friday of every month, the Labor Department releases the latest jobs report numbers. This morning, we got the numbers for the month of September and discovered that U.S. hiring accelerated in the month of September. Employers added 254,000 new jobs, and the unemployment rate ticked down to 4.1%. Previously, it was at 4.2%. Now, the job growth in September exceeded expectations. In fact, it was the strongest monthly gain that we have seen since March. Given that the Fed did not lower interest rates until their meeting on September 18th, it is unlikely that much of the data that we are seeing is a response to the lowering of interest rates, meaning that much of September's job growth would have happened independent

of the Fed's stimulatory activity. This information very much reduces any concerns, lingering concerns, about a pending recession. And what is particularly noteworthy about the latest jobs report is how widespread the sectors are in which jobs were created. If, and I'm just going to kind of put an asterisk here and zoom out, whenever you're looking at jobs report data, you want to be really cautious about the number of government jobs versus private sector jobs that you're looking at. because in a situation in which most of the job growth is going towards government jobs, that's a concern. A high number of government jobs can be a temporary stimulatory measure, but cannot in the long term sustain the growth of an economy.

And one of the major concerns around job growth over the past couple of years has been the proportion of government jobs relative to private sector jobs. Now, what we have seen, so that's zooming out, zooming back into the September report, what we saw in this morning's report, which covers the month of September, are widespread public sector job growth gains. So in food services, we gained 69,000 new jobs, healthcare, 45,000 jobs, construction, 25,000 jobs. And in terms of government jobs, that also increased only by 31,000. So it was overall, those were 31,000 jobs out of a total of 254,000 new jobs. And so the bulk of that job growth came from the private sector, which is exactly what we like to see. Wages are also going up. Average hourly earnings have risen 4% over the last 12 months. And a report from the Commerce Department confirmed that the economy has grown 3% over the last year after adjusting. for inflation. Meanwhile, the Census Bureau reported that the typical household has an inflation-adjusted

income that increased in the past year. Across the board, economists agree that the September Jobs report is clearly and unambiguously strong. But if we are going to put on our pessimism glasses and look for signs of weaknesses. You know, what cracks in the fissure can we spot when we turn our attention there? One major concern is that the average duration of unemployment is now its highest point since 2022, highest point in two years. It's at 22.6 weeks. So unemployment is low, but if you are unemployed, you are likely to be. unemployed for longer. In other words, your chances of being unemployed is low, but if you are, it's going to last longer. Part of the reason why is more competition, more people looking for jobs,

because even though we get really focused on this headline unemployment rate, one thing that we often don't talk about in these jobs reports is the labor participation rate. Right now, the employment to population ratio is at some of the highest levels we've seen. seen in the last 20 years. The key thing to understand is that unemployment is measured by the number of people who want to work but cannot find jobs, which means that the variable of how many people actually want to work is also factored in. It's not just the number of people who have jobs. It's the number of people who have jobs relative to the number of people who want jobs. That's what we mean by labor force participation.

And right now, the number of people who want jobs, the number of people who are working is higher than it's been in two decades. And what's really interesting to me about this, and I don't have any answers yet, I can only speculate. But what's fascinating to me about this is, do you remember during the pandemic when we were all talking about the Great Resignation? Remember that? everyone was quiet quitting and there was a great resignation happening. That all took place during the pandemic. How is it? This is a lingering question, like shower thoughts question that's been on my mind lately.

How is it that we so rapidly went from quiet quitting and the great resignation to record labor force participation? How did we do that so rapidly? from no one wanting to work to everyone wanting to work. I don't think there's any consensus answer to that question. If I had to speculate, I would say that concerns related to inflation probably prompted more people to enter the labor market. You know, during the pandemic, people had stimulus checks coming in. A lot of people were collecting unemployment. There was a pause on student loans.

There were moratoriums on evictions, so you knew you couldn't get evicted in some parts of the country. country. So when you wrap all of that together during the pandemic, there were fewer bills and more money in the system. Now it's the opposite. Now student loan repayments are unpaused. They are back to normal. The eviction moratorium is gone. There are obviously no more stimulus checks. And on top of all of that, there's higher inflation, all of which paints a picture of consumers generally being more concerned about the economy, more concerned about keeping up with rising prices, which then leads more people to go back to work, which is, I mean, if I were to speculate on a reason why we so rapidly went from the great resignation

to such big labor force participation numbers and such low unemployment simultaneously, I think that would be the reason. Now, what's cool about this is that that higher labor force participation has driven up productivity, which very well might be one of the factors that has spared us from a recession. Do you remember the Sam rule? We talked about this on a first Friday episode from a couple of months ago. The Sam rule, S-A-H-M rule, is the idea that even small increases in the unemployment, rate can be a signal that a recession is beginning.

This is based on historical patterns. And what we saw was the unemployment ticked up to 4.2% and then back down to 4.1. And that might mean that what we are seeing now is the exception to the SAM rule. Now, I think it's too early to declare victory. we know that the yield curve inverted and then uninverted, and oftentimes recessions happen after the yield curve uninverts. So I think it's premature to declare mission accomplished. I think we need to wait for a while and watch the next few months of data.

Because, you know, if the Fed is lowering interest rates, it means that they're anticipating slower growth. That's why they would make a stimulatory move. But at the end of the day, it's clear that the later, Labor force has grown and with it, employment has grown even more. And on top of that, we see that earnings is now outpacing inflation. Earnings is up 4% in the past year, while inflation has only gone up 2.5% in the past year. So in the last year, earnings have outpaced inflation by one and a half percentage points.

In summary, based on this morning's Labor Department report, jobs are strong, wages are strong, participation is strong, which means productivity is strong, these are enormously robust indicators. That said, if you're looking for a job, there's more competition out there and you're likely looking for longer. And so that is the latest jobs update. We turn our attention now to addressing questions that I've been here. hearing a lot in my DMs. Many of you have messaged me to say, Paula, what do you think about? And then that question will inevitably end with insert policy proposal here. This is an election year and so a wide range of policies are in the zeitgeist and at the forefront of many people's

minds. Generally on this podcast, I avoid discussing politics and I define politics. And I define politics as anything that relates to policy or policymaking. It is, I find far more impactful to stay inside of your personal circle of influence, stay within your locus of control, and focus your attention and energy on things that are directly within your locus of control. Because that is how you improve your own personal situation, which increases the amount of power and flexibility and ability. that you have in the world.

And once you do that, you can express that power, that flexibility, that autonomy in whichever manner best reflects your own values. By virtue of staying inside of your personal locus of control, that locus of control grows. And when we talk about big, wide-sweeping proposals, we are, by definition, discussing things that are outside of that locus of control

and in a life with limited cognitive bandwidth, that to me seems like a suboptimal use of time. Of course, I think it's important for every citizen to vote, but I don't see any value in belaboring the conversation around it, particularly in a cultural environment that is so highly polarized in which people often internalize their beliefs as part of their core identity and therefore beliefs are held dogmatically, unyielding and unchanging. And so initially I didn't want to address this in any of the first Friday economic reports at all,

but given the number of questions that I've received and given the fact that this close to a presidential election, it's almost awkward not to, to avoid this conversation would be to overlook this enormous elephant in the room. So as part of this month and next month, the October and then November, monthly economic update, I will address certain topics as appropriate. And I will, to the best of my ability, attempt to do so from a first principles position. As I mentioned at the beginning of this episode, I intentionally used the phrase first principles rather than the phrase balanced. This is what I mean. Often when we discuss policy positions, we talk about the x-axis of the spectrum.

The x-axis, of course, on a graph is the horizontal axis, which goes from left to right. And so a person who is balanced along the x-axis is concerned with either staying in the middle of that x-axis, the centrist position, or is concerned with devoting an equal amount of time to both the left and right edges of that horizontal axis. But the X-axis represents what a person thinks. It represents their stances, their positions.

What I am concerned with is not the conclusion that one has arrived at, but rather the critical thinking methodology that precedes, preceded that decision making. And that can be identified by the Y axis. Now remember the X and y axis are completely independent of one another, meaning a person's position along the Y axis has no relationship to their position on the X axis. You could be left, right, center, wherever, and you could be either low or high Y axis. Now in this graph, the Y axis represents higher or order thinking versus lower order thinking. Are you primarily driven by your amygdala or by your prefrontal cortex? A person who is at the low end of the y-axis is operating from a base, tribal,

and often reductive style of thinking, one that is prone to oversimplifications and ad hominem attacks. remember the y axis is independent of the x-axis i cannot emphasize that enough because it is so tempting for people along the x-axis who are identified with their spot on the x-axis to think that their tribe on their side of the x-axis is high y while the other tribe on the other side of the x-axis is low y so I cannot emphasize enough how independent these two variables are. Now, while the lower end of the y-axis is base and reductive, the high end of the y-axis thinks critically from first principles. If the x-axis represents what you think, the y-axis represents how you think,

the core decision-making processes that you use to arrive at your conclusions. My primary concern, and in fact the overarching goal of this entire podcast, is to elevate thought along the dimension of the Y-axis. I do not care where you land on the X-axis, so long as you used high Y-axis-level thinking to get there. That is what I mean when I talk about operating from first principles. Balance exists along the X axis,

but first principles thinking exists along the Y axis. By the way, this entire framework that I have just described, I want to give attribution to the writer Tim Urban, whose book, which is titled What's Our Problem, introduced the framework of the X and Y axis dimension. when it comes to the structure, not just of what we think, but of how we think, of thinking about how we think, that metacognition. He is also the co-creator of an enormously popular website called Wait But Why,

which covers everything from AI to the Fermi paradox. Now, in service of first principles-based thinking around the upcoming election, I will not be discussing the horse race. It is common in discussions to hear about the latest poll numbers. Oh, the latest poll numbers show that X percent of Americans think X, Y, Z. This obsession with the horse race, with scoring, with the political equivalent of March Madness brackets, is a distraction from reasoning and analysis of the, underlying policy.

Politics has become conflated with allegiance to a team rather than with a concern for policymaking. In addition, because team allegiance is valued so highly, many people are quick to agree with the positions put out by their team and have a knee-jerk disagreement with the positions put out by the opposing team. And here's where we see enormous levels of confirmation bias come out. So I invite you in this upcoming discussion to think of each policy proposal that we are about to discuss as a hypothesis about governance. And each hypothesis should be evaluated on its own merit,

irrespective of the identity of the scientist who proposed it. in order to achieve sound first principles thinking the hypothesis must never be conflated with the scientist, which is another way of saying, you may not like the scientist who said it, but that doesn't render the hypothesis more or less true. So let's just take a look at these hypotheses for what they are, irrespective of who proposed it. Now, with all that said, let's begin by taking a look at. at where the two candidates agree. Shockingly, one of the issues that both candidates agree on

is a proposal for no tax on tips. Now, I use the word shockingly because, despite the fact that both candidates are in agreement on this, nearly every economist from both left-leaning and right-leaning think tanks universally agree that this is a bad idea. and it reads more like a bid for votes from both parties than like actual sound policy. The fundamental problem with no tax on tips is a lack of specificity on what sources of income can be classified as tips. The proposal from both parties is that service workers should not have to pay taxes on their tips.

The shortcoming from both parties is an utter lack of specificity as to what defines a service worker and what constitutes a tip. For example, if you are an attorney, you provide legal services. Could you be a service worker? If you're a graphic designer, you provide design services. Does that make you a service worker? To what extent can we reclassify current sources of individuals? income as tips. Now, neither party has provided a clear answer to this. They've floated the idea of some type of income limitation, but even that can be gamed. For example, let's say you're an attorney,

you operate a small boutique firm with a total of three employees. You reinvest most of the proceeds from your firm, and so because of that reinvestment, your net taxable income, is low in a given tax year. If that net taxable income is appropriately low, you might meet the qualification threshold to be able to enjoy the non-taxation of any income that has been reclassified as tips. So could you then charge your clients some token amount

for your legal services and receive the bulk of that compensation, or at least a sizable chunk of it as a tip from your client. And if you can do that as an attorney, can you do that as a dentist, as a developer, as a fractional COO? Because we don't have specifics from either party as to what guardrails they would put in place, we don't yet have a good understanding of precisely how the system will be gamed. But it is clear that depending on the way those guardrails are structured,

the real winners are going to be the consultants who advise professional services on how they can reclassify current sources of income as tips for the mutual benefit of both employers and employees. Now, I wanted to start with that proposal because it is the one proposal on which both candidates agree. Turning our attention to housing, there are some elements of the proposal. floated by both candidates in which they are also in agreement. So both candidates propose regulatory streamlining to make home construction easier. And both candidates want some federal lands to be made available for new construction projects. Specifically, Vice President Harris wants to make certain federal lands eligible to be repurposed for affordable, while home. While,

former President Trump has proposed opening limited portions of federal lands up for new home construction. So in those two areas of housing policy, the use of federal lands and regulatory streamlining, the two candidates are in agreement with one another. Now, with regard to those two points on which they both agree, the streamlining of the permitting process would primarily have to happen at the local level. There are very few federal regulations that unduly hamper home construction from a regulatory perspective.

The real regulatory red tape happens at the city and county level. It happens at the municipal level. And there is little that the federal government can do. So while both candidates are in agreement about reducing that regulatory burden, they're also at the federal level largely unable to do much about it unless they can exert some type of influence or pressure at the local level. For example, many municipalities have restrictions related to density, requiring, for example, either large spots of space between single family homes or requiring that no more than X number of unrelated people are allowed to,

live in a given single-family home, or outright barring multifamily housing, or placing height limitations on housing so that density cannot be added through vertical building, these are all local level restrictions. Absolutely none of these are federal policy. And all of these local level restrictions curtail housing supply by virtue of enforcing certain density requirements or certain zoning requirements. Now, on top of that, to the fact that both of them have proposed opening up certain federal lands, we don't have specificity from either party on which lands they would open and, critically, where those lands would be located.

So the obvious question then becomes, are you talking about opening up lands that are located in places where people are living? Are we discussing lands in Montana and Idaho? And I certainly understand many more people have moved into Montana and Idaho than have lived there in the past, but that is going to do nothing to resolve supply shortages in Dallas, for example. So again, we have on both the issue of federal lands and on the issue of relaxing the regulatory burden, we have agreement. We have agreement from both candidates on those two pieces of the puzzle, but we also have a situation in which the federal government, by its very nature, is unable to enact the type of local level change needed to actually make a dent in solving our housing supply constraints.

Now, up to this point I've talked about the elements of housing policy that the two candidates are in agreement on. But where the candidates diverge, Vice President Harris has proposed providing, on average, $25,000 in down payment support for first-time home buyers in order to enable four million first-time home buyers to receive assistance over the span of four years. However, what we have seen is that subsidizing demand in a supply-constrained environment often leads to higher prices. Now, there are and historically have been many demand-side subsidies in the world of housing. So the mortgage interest deduction is an example of a demand-side subsidy, the first-time home-buyer tax credit.

Or even USDA loans and VA loans, which are federally insured low-down payment mortgages, heck even really, truly, FHA loans, which is also federally insured. Right? These are mortgages insured by the federal government. With low-down payments, these are also examples of demand-side subsidies. Subsidizing housing demand is actually quite common, but it historically has not had any type of positive effect on home prices and in some cases can have a negative effect,

because while demand is relatively elastic, housing supply is not nearly as elastic, and cannot quickly ramp up to meet increased demand. And because we already have such a hodgepodge of existing demand-side subsidies, we have ended up with a boutique of various subsidies that target various niches of the housing market, the USDA loans being perhaps the prime example. Those are loans that go to low-income rural residents. And to be clear, the loans are issued.

by financial institutions such as banks or credit unions, but they are insured by the government. Now, historically, what we've seen is that subsidies for different niches of the housing market are not as effective as better tax treatment of housing investment more broadly. Perhaps the most significant example of this is the Tax Reform Act of 1986, which lengthened the depreciation schedules for both commercial and residential. construction. It lengthened it to 27.5 years for residential and 31.5 years for commercial. Now, that 1986 law also eliminated something that was called declining balance depreciation, meaning that builders could not take big depreciation in the first year, which made building

multifamily housing, such as apartments, more difficult, more onerous, because those depreciation schedules had to be longer, less could be deducted right off the bat. And on top of that, there were also some limits to the passive loss deduction and higher capital gains taxes on real estate sales. And so net with all of that, the Tax Reform Act of 1986 had the effect of prioritizing the construction of single-family homes over multifamily residential. And so what we saw after 1986 was a huge decline in the construction of multifamily homes. So in 1985, there were 515,000 new construction multifamily homes. By 1991, there was only 140,000 new homes built in that year. So the Tax Reduction Act of 1986 was this massive turning point where through

tax policy, which was applied not just to specific target. good boutique niches, but rather overarching policy as a whole to the entire housing market, multifamily construction collapsed to a quarter of where it was before. That collapse happened in the span of six years. And the multifamily market has really never recovered. And so what we know is that demand-side subsidies are not going to improve housing supply. the improvement of supply comes from across the board tax policy that spurs new construction. We need something that is essentially the opposite of the Tax Reform Act of 1986, something that improves cost recovery for multifamily structures.

On top of that, at the local level, we need fewer restrictions on zoning and on land use. Regardless of the outcome of this election, it does not look like we are, getting anything near either of those soon. Before we move off of the topic of housing, there are a few other things that we should discuss. Specifically, there are two acts that are in front of Congress. One is called the Stop Predatory Investing Act, which would restrict large corporate investors

for talking Wall Street investors from receiving tax benefits for acquiring large numbers of single-family homes. There's also another act. the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act. And this would prohibit corporate landlords from colluding to raise rents through the use of price-fixing algorithms. Vice President Harris has indicated that she supports both of these.

Both would have to pass Congress, which is unlikely. But it should be noted that any reduction in investment incentive could translate to a further reduction in supply. I invite you to take a look at Argentina, in which the supply of rental properties has risen by, according to local Argentinian media, 211.9%, while real prices, inflation-adjusted, and remember Argentina has some of the highest inflation in the world, but real inflation-adjusted prices have fallen by 26.6%. Now, for those of you who are wondering, the, the obvious follow-up question is, wait a second, housing supply could not possibly be that elastic.

We just talked about that. How could supply rise so quickly? Well, in Buenos Aires, specifically, the reason that it could is because one in seven housing units was sitting vacant. And so, in Buenos Aires, the supply elasticity came not from new construction, but rather from putting those vacant units into play, which makes sense because new construction obviously has a very long lead time while listing a vacant unit can be done in a day.

Now, the reason that so many were sitting empty is because a lot of landlords did not want to rent out those units agreeing on a price that would be fixed in Argentinian pesos in which the deposits were capped and there were major restrictions on ending tenancies early.

However, under a new set of rules, landlords and tenants now have substantially more freedom to agree upon lease terms. The duration defaults to two years if it is not specified, but landlords and tenants are free to specify a lease term that is different than two years if they choose to do so. So the example that we see in Buenos Aires does highlight some of the problems with interventionist policy, in which supply can be limited and can actually worsen affordability and actually make worse the very problem that it is trying to solve. However, it does remain to be seen whether this new surge in supply will last. Will this translate into new investment that leads to more new construction? or is this simply a temporary blip, you know, a temporary surge that came from putting those vacant units back into play, but then once the surge stabilizes, they'll be back to the old problems again.

That part remains to be seen. And therefore, its applicability to the U.S. is also in question because we here in the U.S. don't have a problem with vacant units that are sitting out of the game. Housing occupancy in most parts of the nation are, quite high. So our problem is not excessive vacancy. Our problem is lack of new construction. And no one, unfortunately, has a viable or powerful proposal that would lead to the surge in new construction that we so badly need here. There's one final component of real estate policy we should discuss, and it is Vice President Harris's proposal to limit 1031 exchanges to 500,000.

$1031 exchange allows you to indefinitely defer the capital gains taxes that you would need to pay on the sale of an asset if you are exchanging it for a like kind asset. So if you are a buy-and-hold rental property investor, let's say you bought a rental property in the year 2000, you've held it for the last 25 years and in the year 2025, you decide to sell it. Well, If when you sell it, you use the proceeds to buy a similar rental property, this is referred to as a like-kind exchange, you can defer the capital gains taxes because you're just trading one type of asset for another similar type of asset. So under this new proposal, the taxes that you could defer through that would be capped at $500,000 as measured by the gains, not measured by the value. of the asset. At the macro level, this is unlikely to have a big impact on society. The Tax Foundation, which is a non-profit think tank, estimates that the overall impact on GDP will be five basis points, which is relatively negligible. But this could impact you if you are a long-term buy-and-hold real estate investor because given enough time or given a high enough valuation, on any one of your properties, your gains could exceed that $500,000 threshold.

A few other proposals that may impact you. Vice President Harris proposes taxing carried interest as ordinary income, making the pass-through loss limitation permanent, tightening some of the rules related to estate taxes, including taxing unrealized capital gains at death if those capital gains are over $5 million. In addition, realized capital gains that our over $1 million would be taxed at a 28% rate. But what is perhaps the most significant proposal that might affect some of you who are listening is raising the top tax rate on individual income to 39.6% if you are single and you are taxed on earnings of $400,000,

or if you are married filing jointly and taxed on earnings of $450,000 or more. And as we talked about in our episode a couple of weeks ago with Katie Gotti Tassan, many people, individuals and couples who report taxable income of $400,000 are not literally W-2 wage earners collecting huge paychecks. I mean, some people are, but a lot of people, are small business owners with either an LLC or S-Corp structure, which means it's passed through income. And if you make the decision not to reinvest that money back into your business in this given calendar year, so perhaps you want to build bigger cash reserves before you start hiring,

or perhaps you spent a bunch of money on major capital expenses that have to be depreciated and can't be deducted, you might report income that is greater than 400,000 or 450,000. But that's not your personal Lamborghini money. That is passed through business entity income that you simply haven't spent in a given calendar year or that you spent on items that must be depreciated over time. Now, I took a look at the Wharton School at the University of Pennsylvania, put together an analysis of the budgetary economic and distribution. effects of Vice President Harris' policy proposals, and specifically one of the challenges that

they faced in arriving at an accurate assessment of what the outcome would be comes from the ambiguity in some of the language as far as we understand it today. So, for example, Vice President Harris's campaign has talked about extending the 2017 Tax Cuts and Jobs Act for households with annual incomes below 400,000. Now, what we do not know is that if the Tax Cuts and Jobs Act is extended, would that take place under a strict cliff interpretation in which that option is fully eliminated for a household that makes $400,0001? Or would it be based on a phase-out model?

And so part of the difficulty in budgetary projections is not knowing questions such as cliff or phase out when running the models. And frankly, it is unknowable because these types of acts are not executive actions. These are passed through Congress with a lot of compromise and dealmaking. But here are some of the things that we do know with a greater degree of specificity. under current law, eligible families currently receive a tax credit of up to $2,000 per child, and effective 2026, the total credit amount is currently scheduled to decrease to $1,000. Under the proposal from Vice President Harris's campaign, the credit amount, rather than decreasing in 20206, the credit amount would permanently increase to $3,600 per child age of,

five years and younger, and $3,000 per child between the ages of five to 17. There would also be an additional $2,400 during the first year of the child's life, meaning that there's a total maximum credit of $6,000 for newborn children. There would also be an expansion of the earned income tax credit, as well as extensions to certain enhanced premium tax credits. And the corporate income tax rate, which is currently at 21%, would rise to 28%. It should be noted that in 2017, the Tax Cuts and Jobs Act lowered that rate from 35% down to 21%. So this would bring it from 35 to 21 back up to 28.

Now the Wharton School estimates that all of this would result in additional deficits of $1.2 trillion. under Vice President Harris's proposals. Specifically how that breaks down is an additional $2.3 trillion in spending over the next 10 years offset by tax revenue increases of $1.1 trillion. So in total, Vice President Harris's proposals would increase the deficit by $1.2 trillion. Now, the Wharton School also estimated that the proposals put forth by former President Trump's campaign would increased deficits by $5.8 trillion over the next 10 years. Now, the bulk of that comes from permanently extending the expiring provisions of the 2017 Tax Cuts and Jobs Act. Extending those cuts would cost $4 trillion over the span of a decade. Now, much of that comes from a

redistribution of resources from future generations to those who are currently alive. For example, Former President Trump's major proposals is eliminating taxes on Social Security benefits. Currently, people who draw Social Security benefits are required to pay taxes on between 50% to 85% of those benefits. Former President Trump is proposing excluding all Social Security benefits from taxable income for all individuals. Now, the 2024 report by the Social Security and Medicare Trump, trustees, which was released in May, says that Social Security's trust fund will not be solvent as of 2035. Now, I want to put a big asterisk here. When I say not solvent, that doesn't mean it's going to be empty. It just means it's not going to be fully funded to meet all of its obligations, meaning that by

2035, it can still pay out. It just can't pay out 100% of its obligations. Right now, it is projected it to pay out around 70% of its obligations. So I don't want you to panic when you hear that it's going to be insolvent by 2035. It'll still have some money. It just won't have enough. If these trust funds start to run dry, and again, Social Security is supposed to go insolvent in 2035. Medicare's Hospital Insurance Trust Fund will be depleted by 2036, assuming no changes between now and then. If they run dry, then these programs are going to rely on.

annual payroll taxes, which is a concern in a society with a rapidly aging population. There are going to be a lot of baby boomers collecting Social Security, particularly in 10 years. In addition to eliminating taxes on Social Security benefits, former President Trump's campaign, as I mentioned earlier, wants to extend both the individual income tax provisions of the Tax Cuts and Jobs Act, as well as the business tax provisions. And what that means is that businesses would be able to deduct what's known as bonus depreciation. So businesses can write off tangible investment costs

and businesses can also write off research and experimentation expenses. So all of that is aimed at increasing innovation. Now, on the individual side, under former President Trump's proposal, the child tax credit would remain at 2000, and the top ordinary income tax rate would be kept at 37% as opposed to 39.6%. One departure is that the corporate income tax rate, remember how I mentioned earlier,

that under the 2017 law, the corporate tax rate went from 35% down to 21%, and Vice President Harris' campaign wants to raise it back up to 28%. former President Trump's proposal is actually to move it in the opposite direction from its current 21% down to an even lower rate of 15%. So taken together, these are all some very big tax cuts, which would increase the deficit by $5.8 trillion, according to Wharton School analysis. I should add, by the way, that the Wharton School did not factor the non-taxation of tips into their analysis of I. their candidate's proposals, given the ambiguity on how that law is going to be written and how much money will be reclassified into quote-unquote tips income. So the analysts felt that there was

insufficient data to be able to include that as part of any type of analysis. Now, the most interesting part about former President Trump's financial proposals are the tariffs that he is advocating for, including a 10% across the board tariff that would apply to all foreign imports. There would be a 60% or greater tariff on imports from China and a tariff of between 100% to 200% on vehicles that are made in Mexico. And it should be noted that Ford, GM, and Tesla have all built plants in Mexico. Now, a tariff fundamentally is a tax that is levied on an importer. And historically, what we have seen is that when importers are taxed, the price of goods tends to increase because importers have to raise the prices of what they're selling in order to accommodate that tax.

And so there is a risk that if these tariffs are enacted, that could fuel inflation. Now, former President Trump has stated that he believes that foreign producers will lower their prices in order to offset the impact. In other words, they will fundamentally pay the tariffs, pay the taxes, out of their profits. he believes they will be willing to do so because they are eager to not lose market share in the American economy. What we know from a Federal Reserve study that was conducted in October 2019 is that any positive economic impact from import tariffs have been offset by retaliatory tariffs on U.S. goods, meaning if it costs foreign companies more money, to export their goods to America, they will, in turn, make sure that it is more expensive for America to export goods overseas. In the past, high tariffs have put downward pressure on growth and have had an inflationary impact on U.S.-based consumers who have had to pay higher prices for goods

coming in from China and Mexico. Now, former President Trump has stated. stated that the reduction in income taxes that he is proposing will be covered by revenue collected by these import tariffs. It should be noted that in 2023, the total value of imported goods into the United States was $3.1 trillion, while the value of income taxes that were assessed in 2023 was 20 trillion. And so when comparing 3 trillion to 20 trillion, it is not possible for tariff revenue alone to bridge that gap, although it is possible that it might make up for a piece of it, assuming the other countries don't engage in retaliatory tariffs. And that is the unknowable piece because that's where game theory comes in. We don't know looking forward. We don't know

how other countries will react. All we can do is make predictions based on what has happened in the past. And so if these tariffs are enacted, it is likely that we will face some additional inflation. Another really interesting proposal that former President Trump has put forth, it is a proposal to cap credit card interest rates at around 10%. Three years ago, the state of Illinois enacted a modified version of this. So in 2021, Illinois capped credit card interest rates

at 36%. Now that is, of course, still way, way above the 10% credit card interest rate cap that former President Donald Trump is putting forth. But what we've seen from the law

that was passed in Illinois, the law that went into effect in Illinois in 2021, is that rule has decreased the number of loans for subprime borrowers in the state of Illinois by 38%. And this really means two things. Number one, it adds more stability to the financial system because subprime loans are the riskiest loans. So when you reduce the number of subprime loans that are out there, which the Illinois law did, you have less risk in the financial system. The flip side of that is that subprime borrowers lost access to credit.

So if this 10% rate cap went into effect, likely many people would end up losing their credit cards or not having their credit cards renew. You know, many people with lower credit scores would no longer qualify for credit cards. Now, is that a quote-unquote good thing or a quote-unquote bad thing? I mean, the terms good and bad are subjective. It would increase the stability of the financial system. It would also mean that lots of people don't have credit cards. And it would also distort the market. And this is what's interesting to me is both candidates are talking about market distortions

that are based on price caps. But we're hearing about it from both candidates on different issues. Former President Trump wants to create a market distortion by putting a price cap on credit card interest rates. By the way, we're going to put an asterisk here on what impact that would have on credit card rewards, like airline miles, cashback, things like that. Likely it would have an adverse effect. That type of a price cap would be a market distortion in the financial system. Meanwhile, Vice President Harris also is suggesting price controls or price caps, which creates a market distortion. But her team is suggesting,

based on price gouging of groceries, which all empirical data shows is not an issue. It is true that since the year 2020, food prices have gone up by 26%. And a lot of people look at that and have a knee-jerk reaction that prices must be going up because of gouging. But this alleged grocery store, quote-unquote, price gouging simply isn't happening. Grocery stores, as an aggregate, have profit margins of 1.1%. In fact, if you look at data, and there's a fantastic graph that was put together by researchers at NYU Stern School of Business, If you look at data of grocery store profit margins from 2016 through today,

you will see that their profit margins have never exceeded 3%. Back in 2016, grocery store profits were just a hair under 2%. And today, those margins are at specifically 1.18%. So if you want to round that up, you can round it up to 1.2. 1.2% are the margins that grocery stores have to 10%. And many of the people who mistakenly believe that grocery stores are quote-unquote price gouging often cite a report from the FTC that states, quote, grocery retailer profits rose and remain elevated. Food and beverage retailer revenues increased to more than 6% over total costs in 2021, higher than their most recent peak in 2015 of 5.6%. And then the report goes on to say that in the first three quarters of 2023,

retailer profits rose even further with revenue reaching 7% over total costs. So people often point to this FTC report and say, look, look, that's evidence that grocery stores are gouging prices. The issue is that FTC report was talking about gross margins, not net margins. So gross margins are revenues minus cost of goods sold, while net margins include all of the other costs of, doing business. That includes labor costs, utility costs, costs associated with distribution, including energy prices. It includes the cost of rent, like leases and facilities and warehousing.

So grocery stores are dealing with these much higher labor costs, higher energy costs, and they have enormously slim margins in which even minor variations, you know, minor cost volatility, can force prices up because margins are so tight. And let me put it this way. If you genuinely believe that grocery stores are making record-breaking profits, why would you not invest in them? Why would you not be gobbling up grocery store stock at a minimum? If you want to take the moral position and say, well,

because I don't want to profit off of that, okay, buy the stock and donate it to charity. Buy the stock and donate it to a food bank. Why, if you genuinely believed that grocery stores are making gangbuster profits, why not buy the stock and donate all of that to your local food bank? And heck, even if you yourself didn't want to do it, where are all of the other investors? Why aren't any of them buying these stocks? How come you don't see on TV people like Jim Kramer yelling, buy, buy, buy? If it were true that the reason food prices are rising is because of price gouging

and because there are these grocery stores that are making record-breaking profits, where are all of the investors? Why aren't they buying those stocks? And I'll say the same thing, because there are some people who will come back and say, oh, it's not the grocers, it's the producers. It's Tyson, it's Conagra, it's all of the food suppliers. But we can see in the data that food processors are posting 6% profit margins, and farming and agricultural is posting 7.1% profit margins.

Now, Vice President Harris's campaign echoes a bill that was originally introduced by Senator Elizabeth Warren. It's called the Price Gouging Prevention Act of 2024, and it calls for a ban on price gouging for companies that earn above $100 million annually in gross revenue, unless that company can prove that the additional costs are outside of its control. Now, if that were to go into effect, it could mean that grocers would have to demonstrate to prove that higher labor costs are outside of their control, which, I mean, I guess technically it's within their control what they want to pay their employees. So I don't exactly know where that line gets drawn when they argue that they should be paying

the grocery store cashier less. they would have to demonstrate that the leases on their facilities and warehousing are outside of their control. Technically, they could be negotiating a little bit tougher with their landlords. So again, that burden of demonstrating proof would be yet another onerous expense, a bunch of onerous legal expenses for an industry that already has slim profit margins. and what we know from looking at other nations is that when there are price controls, there often can be shortages. So it is interesting to see that both candidates from both parties are talking about imposing new price caps and price controls, although they are targeting different industries. Vice President Harris is targeting grocers.

and in doing so trying to address the issue of rapidly rising food prices through the mechanism of price caps, which historically have been linked to supply shortages. Meanwhile, former President Trump is also introducing price caps, although he is applying it to credit card companies, which actually on the topic of supply shortages, would mean that fewer people have credit cards. So I guess in that manner, it would also be its own very different type of supply shortage. Really what it would mean is that there's simply a segment of the population that no longer has access to as much credit as they currently do. By the way, one last note on the topic of food prices, I do want to acknowledge that it's tough for families to deal with this huge run-up in grocery store prices. groceries are, as I mentioned earlier, 26% more expensive than they were four years ago.

A lot of the inflation that we have felt since 2020, we feel that at the grocery store. And so I'm not dismissing that this is a problem that needs to be solved, but the solution comes from asking what underlying factors are driving up prices, such as to, that we can directly address those. Look at the fluctuation in two particular food items. One is beef and the other is eggs. There have been many reasons why those two particular items have been so volatile in the past year. And addressing everything from supply chain disruptions to energy prices can all go into making groceries more affordable. So that is, a first principles-based approach to discussing some of the economic proposals that have been put forth by the two candidates. And we really just skimmed the surface. There's only so much we can do in a one-hour episode.

We didn't even talk about prescription drug costs. We didn't talk about energy. There's a lot that we simply did not have time to get to today. but I hope that that was a useful and productive conversation about important topics about which we often only see the headlines or only hear the arguments that come from, quote, unquote, our team. By the way, if you have not listened to our replay interview with Dr. Jamil Zaki, who is the director of Stanford's Social Neuroscience Laboratory, go back and take a listen to that one. We originally recorded that interview in August of 2023, but we replayed it about two weeks ago. The title of the episode is The Science of Empathy, and he talks about how, particularly when we are discussing politically charged topics, topics that ignite us, but that can be at times incendiary, we need to resist the temptation to engage in reductive thinking, not just,

about the topics themselves, but also about people who put forth different ideas, particularly ideas that differ from our own or from our teams, because it is that type of reductive thinking that leads to increased polarization. And so I'd like to close by asking you the question, how many close friends do you have who have a different political viewpoint from you? How many people in your life do you respect or admire who have a different political viewpoint from you? How closely do you align with your own party point by point by point by point to such an extent that your views entirely mirror one side of the X-axis? I'd invite you to reflect on those questions so that we can start to engage in a manner that is, high on the Y axis, irrespective of where we align on the X.

I'll say it again, the X axis and the Y axis are independent variables. No matter where you are left to right on that X axis, what matters is that you are engaged in critical thinking, first principles thinking, the thinking that comes from your prefrontal cortex and not your amygdala, What matters is your position on the Y axis. So I'll close with that. Thank you so much for listening.

I hope that you enjoyed today's episode. Shana Tova, to everyone in this community who is celebrating Rosh Hashanah, I hope you have a wonderful new year ahead. And to anyone in this community who has been affected by Hurricane Helene, our thoughts are with you, we support you, and please reach out if there is any way that this community can help. Thank you so much for tuning in. This is the Afford Anything podcast.

My name is Paula Pant. If you enjoyed today's episode, please subscribe to the newsletter at absolutely no cost. Affordanything.com slash newsletter. Affordanithing.com slash newsletter. Completely free. Thank you again for being part of this community, and I will meet you in the next episode.