Moody's Talks - Inside Economics - Confidence and Competitive Markets

Episode Date: October 15, 2021

Joe Kennedy, senior principal economist at MITRE, joins Mark, Ryan, and Cris to discuss the different schools of thought on anti-trust and market competition. They also discuss Big Tech and Big Pharma. View episode transcript here.Recommended ReadsEnding Poverty: Changing Behavior, Guaranteeing Income, and Transforming Government, by Joseph Kennedy, https://www.amazon.com/Ending-Poverty-Guaranteeing-Transforming-Government/dp/074255872X. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics. This is actually take two of this introduction. I introduced myself as chief economist ofeconomy.com. Well, you know, I have economy.com on my mind. You know why? Because we're coming up to the anniversary of our, of the sale of economy.com, the company I started with my brother and a good friend. It'll be 16 years ago now since we sold a company to Moody's. And I've now been part of Moody's longer than I was part of Economy.com, 16 years. So I guess I'm allowed that mistake, but we had to restart. But I'm joined by my colleagues at Moody's Analytics, my good friends and co-hosts here, Ryan Sweet, Director of Real-Time Economics, and Chris DeReedy's, the Deputy Chief Economist,

Hey, guys, you know, I see Chris is in the office. How does that feel, Chris? It feels good. It was a little weird, I have to say, coming back. It was, you know, it was like coming back to the spaceship that had been abandoned, right? So you had calendar still on March, had to fix the espresso machine, but it's good. It's good to be back. I thought that's good.

Is anyone else back? Are you there? There are a few of us trickling in here. here. So, yeah, Damien's back. Damien's back. Oh, Damien Moore. That's good. Ryan, are you going back anytime soon or you're happy at home? I'm happy at home. You are. Yeah. And my office is right next to Damien's. So my productivity would tank if I go back in the office. He's such a chatterbox at Damien. He is. A listener, he's just the opposite of a chatter box. He's an Australian.

You think these Aussies would be more gregarious, you know, out there, you know, but Damien's very quiet, thoughtful fellow. But anyway, it's a very nice day here in suburban Philly, and we're going to keep this podcast short because, you know, this might be the last nice day for a long time. But we're very happy to have a guest today, Joe, Joe Kennedy. Hi, Joe. Hi, how are you doing? I am well and Joe you're in D.C. correct? I am. I am. I'm just delighted to be here to help you relaunch your career. Thank you so. Thank you so much. Yeah, that was pretty funny. I hope this Moody's thing works for you. Yeah, me too. Especially after screwing up the name. Yes, exactly.

Exactly. What was I going to ask? I can't remember. There's a question I was going to, oh, Are you back in the office? Have you gone back? I've been going back. I try and go back once a week to give us free food. So that helps. It helps. I can take out four candy bags.

Yeah. And Joe, you are at, you and I have known each other for a long time. Yeah. All the way back, I think the first time I met you, you were chief economists of the Commerce Department under George Bush, I believe. Yeah. Yeah. Yeah.

last two years during the great recession, the great almost depression. Yeah, that's right. I remember that. And I remember, I think I gave a bit of a talk or we had a bit of a conversation at the Commerce Department.

Yeah, that was... Yeah, I reached out to one of the nice things about that job was people returning calls, even Mark Sand. Exactly. So I reached out, because I was trying to get different views of what was happening and what was going to happen. And you were kind enough to come.

in and talk to the staff about just what you thought was going on. Right. I think it was kind of early in the process when the economy was just people didn't realize how bad it was. Yeah, was I sufficiently bleak? Do you remember? I forget. Yeah, I was pretty bleak, but I'm sure I wasn't sufficiently bleak given what happened.

And then you went on to work at a think tank. Yeah, future double trusts. Oh, you were a pew. Yeah. We went first. Oh, okay. Yeah, and then I did that. We were in touch over the financial reform task force that we put together.

And that was a pretty cool exercise, as I recall. You actually drafted legislation, kind of the... Well, we were going to. So we got like 15 bipartisan really real. well-respected financial people, including like Alice Rivlin, that was Bob Steele, Bob Leighton, Peter Wallace, and Alan Blinder. And they agreed on this plan to reform the financial system. And then we had two law firms, including we had the head of Sullivan and Cremwell, and they were going to turn this into legislation. but we just never got that quite that fire but we did introduce basically the only bipartisan plan

that was you know that anybody developed during that day yeah it was kind of a lot of the elements of that plan as I recall found ultimately found their way into the dot frank frank legislation that actually got passed yeah right yeah I remember that very very well and then you went on to another think tank, the Information Technology and Innovation Foundation, is that right? Do I have that? Yeah, yeah. So I spend about half my time on building, trying to get my own clients, and then half of the time I was a senior fellow and wrote on a wide variety of topics. And I think that you, that's where you really got interested in questions about competition, market structure, anti-trust, market concentration, those kinds of issues.

which is what we're going to talk about today with you in just a bit. As you know, Joe, we have a bit of a game here with the statistics before we actually get to the big topic. And I think you told me you're going to play the game. That's what I'm playing. I got two statistics. Oh, okay. Went for now and one for the main topic.

Excellent. Good. Perfect. He's armed with statistics. That's very good. And now you're at MITR. Now I'm a senior principal economist at MIT. at MITR Corporation.

Yeah, can you just tell us a little bit about MITER? Yeah, it's this huge nonprofit that works almost exclusively with the federal government. It works very closely with a wide variety of agencies. And most of its work is highly technical. So it works on, it'll help agencies by their, choose what computer equipment to buy and help them go through the process of buying it. It helps with managing the data that they can, that they gather. The IRS is a big client, helping them learn how to protect that data.

They help some of the agencies with satellites. They've helped the FAA sort of think about remodernizing the air traffic control system. Yeah. It's amazing what they do. Yeah, really. And just really nice, dedicated people. And I'm working on a project there that's studying the great power, the rise of great power competition. Yeah, I want to come back to that in a little bit, talk a little bit more about your great power competition.

It looks fascinating. One question about that, though, did you, because you're tackling a number of different issues that are related to the power dynamics between. U.S., China and other major powers. Are supply chains in there as well? Yeah. So the one group is studying supply chains and they're focusing on looking forward on the MNRA supply chains

and trying to make sure that a lot of that work and development is done in the U.S. But also that we're not dependent on unreliable countries for that technology in the future. they have another looking at the digital silk road and the big investments in Africa and Asia for the Chinese are helping the fund for developing modern information networks. So yeah, it's amazing. Yeah, well, we'll definitely come back to that.

But thanks for the introduction. It's, again, really very good to have you. So let's play the game. We're going to talk about the statistics, the economic statistics, mostly focused on the past week. And just to remind everyone, the best statistic for this game is one that is not so easy that it is a slam dunk that we're all going to get, but not too hard that without a bit of questioning and quizzing,

we can't get it. And it's related to something, you know, about the broader, what's going on in the broader economy, it gives us some sense of what's going on. And one thing I'd like to ask also is how are you feeling about things? I'll have to say I feel a lot better about the economy today. I mean, meaningfully better about the economy today and its prospects than I did just literally a week ago when we were talking about the jobs data or certainly two weeks ago. I'm just curious if you're feeling the same way as I am.

And, you know, my statistic, if you guys don't take my statistic out, because I'm going to go last. If you don't take my statistic, that'll highlight it. Okay, but I'm pretty sure Ryan's going to take my statistic. He always, you know, always figures out how to do that. Yeah, but we'll find, we'll see. Well, we always go, you know, we generally go with Ryan first, but let's, let's mix it up. Let's go with Chris first.

Let's hear your statistic, Chris. All right. This was a rich week for statistics. I had a hard time. I've got a number here that I could choose from. I'm going to go with 0.7% though. because this one kind of stuck out. Well, I mean, immediately comes to mind, Ryan.

I know Ryan's like saying this is retail sales. It came out today, yeah. Yeah, retail sales. Yeah. It did. Yep. Okay. You violated the first rule.

I think I violated all your rules. Yeah, too easy. But okay, fair know. I'll go to another one if you prefer. No, no, no, no. Retail sales, that's a good, something very good to highlight, though. Go ahead. And I think it, but I think it goes to your last point about feeling.

not better because this one was a surprise, right? The movie's analytics forecast was for negative. 0.30%. Is that Ryan? Is that Ryan's forecast? Yeah, that was me? Oh, okay. You had a negative? Yeah, I usually get this one pretty close. My system is actually related to this. Vehicles is just really puzzling to me. So unit sales fell by a million, but nominal spending at motor vehicle and parts went up 0.5%. Okay, just that's where I was going. Just to frame it though for a second. Retail sales are sales of things, stuff.

One thing stuff is vehicles. So vehicles are in these numbers. We knew that in the month, vehicle sales were very weak not because there isn't a demand, but because there's just no supply. New carmakers can't produce vehicles. And we thought,

And Ryan thought that that would mean that would be a big drag on this number because vehicle purchases is a big part of the number. But no, we got a pretty sizable increase of 0.7. So what's going on? What drove that? Yeah. So in terms of the vehicles inside, it's parts and use vehicles, right? So people can't buy new cars. They are fixing up their old cars.

And that seems to have been enough to offset the loss in terms of or the weakness in new vehicles. sales. But then outside of that, the retail sales were strong pretty much across the board, right? You had strong growth in sporting goods and hobby stores and general merchandise, some weakness in electronics. I chalked that up to some of the supply chain issues and appliances. But overall, right, this is, this report indicates that consumer is still very healthy and willing to spend, wanting to spend. So to your question, do you feel more optimistic? Certainly, after seeing this, I'm feeling more optimistic. That with the Delta variant falling,

confidence should start to pick up again. We should be off and running once again. See, I thought the Delta variant was going to weigh on retail sales. And then when the number came out, like, all right, maybe people went online shopping again, but non-store retail sales weren't anything to write home about. So it was a, they were positive. Yeah, it was positive, but it wasn't, you know,

the growth you usually see for non-store. Was there anything in the report that you found cautionary or worrisome? It was all positive. Well, gas station sales are up are positive. And, you know, you have to always read, you have to read a little bit into that. Is that because the gas prices or people are traveling more? So what's prices, right? That's prices, right?

Right. So that's the, you know, that could be a risk factor. But if you exclude. Take retail sales. Take out the autos because of the, who knows. Take out the gas because that's price. You were still left with a pretty solid increase, I think. Well, I think. What is the point seven. Was it point seven? Okay. Yeah. Yeah. Excluding autos was point eight. Yeah. Here's the thing I found fascinating, you know, taking a little bit of a step back. Retail sales, you know, surge during the pandemic. Not in the immediate, when we got immediately hit, then everything stopped. But pretty soon. We were all sheltering in place and we couldn't go to restaurants. We couldn't go to ball games. We couldn't travel.

So we started buying stuff. So in retail sales are purchases of stuff. So stuff soared. And if you take a look at a chart of retail sales, the level of retail sales is really high, even higher than you could have been possibly imagined pre-pandemic, assuming there was no pandemic, right? And it doesn't feel like it's coming back in. It feels like it might be leveling off, you know, at a high level.

It's not coming back in. Yeah. And sporting goods is the one that makes me scratch my head. I could understand during the pandemic. You know, you're not going to the gym. You're going to buy your Peloton. But now it's continuing. So what's going on there?

People still choosing not to go back to gyms. And they're still buying another piece of equipment. Although on the service side of the economy, that's picking up too, right? So consumer spending broadly, stuff and services. you know, experiences, everything, the whole shoot and match, pretty high, pretty high level of consumer spending, which is encouraging, you know, very encouraging. Anything about, Ryan, what Chris said you would add color to or take umbrage with? No, I think we get it all.

I mean, the cautionary tale is that the next few months retail sales could really be volatile because, you know, retailers are warning people shop early. so that's going to throw off the timing of all the seasonal adjustment factor. So the date is going to get, we could get a really strong October and November and then December could be an absolute disaster. I guess the supply chain issues are behind a lot of that. Yeah. Correct.

Okay. Okay. So at least so far, you know, the supply chain issues, the higher inflation, which is sapping, you know, real after tax, you know, incomes, none of that seems to be, even the Delta, a variant doesn't seem to be dunting it. So that's good. All very encouraging. Good.

Ryan, I do want to point out on your forecasting, I think the Quartera data, the business to business spending data, you know, Quatera tracks B2B spending, and we can see what retailers are buying before they sell it to consumers. That's not, actually, Moody's bought Quartera

not long ago. That, I think, was pretty strong in September. That might have given you you don't use that data in your estimate, do you? No, I'm starting to. Yeah, you should. Yeah. I mean, so I'm kind of running parallel, you know, forecast, like, you know, my go-to model

versus one that incorporates Quatera. I'll see how over the next few months, you know, which one wins. Yeah. Okay. Very good. Okay. Ryan, you're up. And Joe, I'm coming to you next.

So get ready, man. Okay. All right. All right. Well, I didn't get the memo. I didn't get the memo that we had to have an upbeat number. but I have an explanation of why it was weak. 67.62.2.

67. Is that percent? 67.2. It's an index. Okay. I know UMish came out and that was pretty soft. Oh, you're going down the right track. Okay.

U.Mish is University of Michigan Consumer Confidence Index. And that got nailed by the Delta a couple months ago in September. or excuse me, August, I think, came back a little bit in September and it came back, we got that data point today, came back down again, and it's very low. Is that the expectational component of the University of Michigan? Very impressed, yes. Ding, ding, ding, ding. See, Joe, I do that when I get the answer right.

Yeah. There you go. There comes personal emojis. Kristen's emojis. Yeah, very good. Okay, so, yeah, but what's going, I really want to know what's going on. here. Why are people so nervous, at least as measured by the University of Michigan survey? Over the last few months, you had the Delta variance, it's been a weight. You've had an

acceleration and inflation. Gasoline prices recently have started to tick up. But I think, you know, our forecast was well below the consensus. It was 71.4 for the total consumer confidence index. It's because of the debt ceiling. So if you look at Google trends, searches for debt ceiling, and you go back to past instances as well, where we had this nasty debt ceiling flights, it always hits consumer confidence, you know, right away. So that's why, you know, we are well below the consensus on this forecast. So, you know, I think reason for optimism is I think confidence is going to pick back up

over the next few months because, you know, we don't have the debt ceiling. We have to worry about that until December. But stronger job growth, you know, I think that's going to really start to lift Michigan going forward. Well, and hopefully inflation subsides here. Yeah. Hopefully. Well, it's not going to over the next couple of months because of the energy prices. Of the energy prices.

But excluding energy, it feels like it already has rolled over, though. I mean, the consumer price index, core CPI, excluding food and energy, kind of what economists look at, because that's the best gauge of future inflation. That's, it's high 4% year or year, but that's, that has definitively rolled over. It was like 4.5%. Yeah. Okay. But what was interesting in the CPI data is that all the gain in September was in the non-reaching. reopening components. So the non-reopening are, you know, or the reopening components are

rental car prices, lodging away from home, which is hotels, motels, airfares. Typically, that was adding, you know, a little bit to the CPI over the last few months. Now that's essentially neutral. And vehicles, new and used vehicle prices are, are beginning to moderate a little bit. Okay. Okay. Okay. Well, that, I thought, you know, the one other index or the sentiment survey, there are now a number of consumer sentiment surveys. Morning Consult has a pretty good one. Actually, a very good one. It comes out daily. As the same questions as the University of Michigan, but on a daily basis, and it's online, so they have a lot more respondents. Is the conference

board survey, that's another monthly survey. That also weakened because of Delta, but that's held up a lot better, hasn't it, than the University of Michigan survey? Yeah, it has. And, well, the conference board is much more labor market sensitive. So, you know, even though job growth has slowed, it's still pretty decent. Unemployment's coming down. UI benefits have dropped recently. So I think that's helping cushion the blow into the conference board measure. Yeah.

Chris, were you even close to getting that number? Or did I, I blew you out of the water? Expectations. Yeah. Did you, were even in? I was in the right ballpark. In your mind, you were in the right ballpark. Yeah, yeah.

All right. Very good. You jumped. You got to be quick in this. Yeah, yeah. Yeah. You got to be quick in this game, Joe. I know. Yeah. Right. In my mind, I'm always in the wrong biofires. I have to work on that. Well, you're up, Joe. Thank you. Okay. So mine's 4.2%.

4.2%. Is this an economic statistic? Yes. I give you a hint. Annualized. Come out this week. Did it come out this week? I don't know. No. It's a recent number, though. It's for September.

So it was taken this week for this month. Okay. 4.2, the unemployment rate is 48, so that's not it. What else is 42? 4.2%. Could be some kind of, it's not the hiring rate or no. No. Can you give us another?

I was thinking separations or quits or reasons. It's a New York Fed statistic. Oh. You know what? I don't really follow the New York Fed very carefully. Is this because they have a bunch of surveys? Is it their nowcast estimate of GDP? Nope.

I know they came out with, they have a bunch of like a consumer expectation. Consumer. Is it getting warmer? Yeah. I don't, you know, Joe, I don't look at them very. Should I guess I should be looking. it. Is it inflation expectation?

It's inflation. It's a three-year looking forward expectation, which in the one year is 5%. So that means that they're actually predicting that inflation in years two and three is going be well below 4.2. How much survey was 4.8% for one year? So it's pretty close. That tracks gasoline prices very closely. Yeah.

Well, I would imagine so does the Fed survey. Yeah, that's what I imagine. Joe, how much weight do you put on? Inflation expectations obviously are very important for understanding the outlook for inflation, because if people believe that inflation is going to be high in the future, then it's more likely, in fact, it will be high because they'll demand higher wages. Those wages get embedded in the undermine margins. Businesses will raise prices.

But how much weight do you put on expectations? consumer expectations of inflation as a barometer of future inflation? In the short term, not much because I figure that the markets will take care of it. You have these shortages and, you know, the businesses are trying their best to get around shortages and eliminate them and we'll, you know, in the future we'll have, they'll figure out a way. So natural shortages, I don't think, you know, I think that's just, in the short. short term, inflation isn't proven so much by expectations. And the expectations can change a lot. But in a longer term, I think it's very significant for the reasons you just said, is it creates

this internal dynamic. Right. Right. Yeah, you know, there's a market-based expectations. So what investors are thinking, and that's embedded in interest rates primarily. You can kind of tease out what they think. There's surveys of businesses, there's surveys of economists and then on their inflation expectations. And then there's these different consumer surveys and where they're asked questions about inflation. So of all of those different measures, where would consumer inflation expectations stack up in terms of their information about future inflation? Yeah, well, I would guess that I would tend to put more weight on the business expectations because I mean, I think where the consumer markets expectations come in is really in this internal dynamic. Businesses, I think, are better at looking at just the fundamentals.

And so, you know, for the fundamentals, you know, I'd look to business expectations. Okay. But if you do see consumers jumping up, especially in an end, it remains sustained, then I think you have to worry about, okay, is, you know, have we gotten back in the situation where we had stagflation where people just, everybody expects and demands that, you know, their wages, their prices are going to go up by 5, 6%, you know. Yeah, I don't know about you, but I'm getting a lot, I'm hearing the word stagflation a lot more these days.

Yeah, and I'm not worried about it because I think this, you know, this statistic shows that at least consumers don't think it's, you know, maybe they're out years. They're thinking 3.5. And also, you know, we, inflation's been below. to for so long and people got comfortable with it. And then when it rises and people are getting wages are going up and then everybody screams, you know, inflation. I think, you know, I think we can live for a couple of years with three percent inflation and would be just fine. And I think consumer expectations generally are on the high side anyway, right? Because people just think they're higher

than they actually are. Or maybe it's not that there. They're actually, the consumer price indices that we economists look at are quality adjusted, right? So, or they're adjusted in lots of different ways that consumers don't, you know, that's not the way they think about it. They're in a store and they see, you know, what they're paying for the things that they're buying. And so that doesn't quality adjust. But if you quality adjust, which is in the CPI, you get lower rates of inflation. So they tend to be a little bit higher. But, okay, good. That's it. That was good. I need to pay more attention to what comes out coming out of the New York Fed. Do you, grind, do you look at their releases? They have a fair number. You look at them carefully? Yeah, I do. I pay attention to them.

Okay. That survey is a good one to look at it. I also look at it. It's not from the New York Fed, but comparing it to the poll survey. New York Fed has a nowcast estimate, so it's good to compare what ours is saying versus some of the other metrics out there. Nowcast meaning estimates of current quarter GDP. Yeah, and the poll survey meaning What's the Pulse Survey? Our Pulse survey. That's our measure of inflation expectations. Correct.

Right. Which is a compilation of all those different measures that I articulated. Yeah. Good. Okay. You ready for mine? I might violate my rule too, but here goes. 4.3 million.

Oh, quits. Yeah, that was too easy. I got a second one, though, just to make it raise the bar here a little bit. What does Chris have over there? He's got like a cheat sheet. He keeps looking down and references. I was actually on my, I told you, I had a little. That was my backup.

You're writing things down now? No, no, I got nothing. But I had that. That was my backup statistic. Oh, I went with retail sales. I see. I see.

Yeah. 4.3 million quits. That, that's a record high. And that's, that's the number of people who quit their job, said, hey, I'm leaving. in the month of September. Was it September? No.

August. Month of August because it's one month lagged, month of August. That's amazing, right? I think it was almost 3% of the labor force quit. Can you just annualize that for a second? That's just an incredible number. And quits are up pretty much across all industries.

I mean, obviously higher and least. are in hospitality industry, accommodation, and restaurants, higher in retail, you know, in the lower paying industries we've seen higher quotes. But manufacturing, transportation, distribution, construction, although that was higher back in the housing boom before the financial crisis, financial services, everything, you know, very, very high. So that just goes to the large number of open positions out there. They're not quite at the record high that they were a month or two ago, but people, I obviously feel like they can quit their job and find another one pretty fast. And, you know, I think the pandemic also has kind of had an impact on the collective

thinking about work and leisure and what do I want to do? And do I really want to go back to that job I have before, particularly if it was generally low paying, bad hours and I had a tough boss, you know, if you're, if you work in the restaurant business or in the hotel business, you know, The work arrangements are particularly in the favor of workers. So I think people are reevaluating things. So that's a pretty amazing statistic. I mean, I think that's talking to business people and our clients and others. That's becoming or if it's not already,

it's becoming the number one problem for business people. They're trying to figure out how to fill those open positions. I wonder if you compared that to new unemployment claims, if you could get some rough estimate of how many of those quits already had a job lined up and went from one job to a presumably better job. Yeah, Ryan, you make a point about that in terms of keeping unemployment a little bit elevated, right? Because you've got people in transition. So that tends to lift the unemployment rate a little bit while you have a lot of quits going on.

And also may explain why we're seeing such large revisions to, job growth, you know, month in month out, it's because, you know, when we looked back and, you know, when we had elevated quits, I mean, not at the levels that we have now, but when quits are growing this quickly, you know, you get people in between jobs, it, you know, it makes it much more difficult to accurately count the number of people or our non-farm payroll. So that may be one reason why we're seeing these massive upper visions month in a month out. Yeah. Yeah. Okay. All right. Any other, oh, I did want to mention one thing, you know, Joe, we, each picked a statistic to follow on a regular basis and kind of call it out when it was doing

something. We thought these statistics were important to judging what was going on in the broader economy, and we promised to call them out if they started moving one direction or another. And I'm going to call out copper prices. Have you guys noticed? They're right. They're up. They are up a lot. Up to $4.75 per pound. That's about as high as it's been. You know, you have to go, there was, I think we got to a little bit higher, penny or two higher than that back in May, but, you know, that's rip roaring, right? That's saying this economy's, global economies kind of kicking back into gear as Delta winds down here. Another reason for a bit of optimism, I think, you know, with regard.

It may also be related to all the global supply chain issues that's kind of come to the fore again, kind of in the collective kind of conversation and psychics. in like all markets, commodity markets and the copper market has been somewhat disrupted. So that might be also partly explaining what's going on. But $4.75. I mean, anything over $4 is rip-or and $3 is typical. That's where you would expect it to be in a typical economy. So that's a strong economy.

And Chris, I think your statistic also, right? Yeah, made a headline. UI claims, unemployment insurance. New unemployment insurance claims are down. 293,000 last week. Right? So below the 300,000 psychological barrier, but there's an asterisk. And Ryan will call me out if I know.

Huge. Right. Seasonal factors are certainly a big consideration here. But I think there's still something there. And the retreat of the Delta variant is real. It's having a real effect on those UI claims. But yeah, I'd say moving in the right direction, but let's not get overly excited. next week they could pop up above 300k once again.

And again, what's the stake in the ground? What would you consider to be a level of UI initial claims from employee insurance that are consistent with a well-functioning economy? Yeah, I'd be looking for 250 or lower. 250. So we're, that's, you know, even with seasonal adjustment, we're getting pretty close. We're getting pretty close. And the trend is what matters, right?

As long as they're moving down, that's what we want to see. Okay, so take all this, what we just discussed, I'm feeling a lot better about the economy. Q4 is going to be a lot stronger than Q3, and it feels like we're going to enter into 2022 on a high note as the Delta winds down. Things seem to be revving up. Anyone, are you on board with that? Everyone, yeah. Yeah, Joe, you feel the same way? Yeah, I think unless we get another variant.

of the virus, which, you know, we could get a worse variant. And if it starts out in Africa or Asia, where, you know, people haven't gotten vaccinated and it spreads. Don't bring us down, Joe. Don't do it. Well, I think the odds are low, but that's the only real risk I see. Other than energy prices, I really don't understand why they've peaked so much unless it's, unless it's the producers looking forward and seeing a lot higher demand. Yeah, I think you're right about the energy prices.

I think it's idiosyncratic market to market, right? Best to when it goes to natural gas, which is a localized market. It varies quite a bit. But I think it's the same, roughly the same dynamic in lots of markets, you know, big increase in demand. You know, we've seen a big pickup in demand. And the supply side of these markets just take time to, you know, kick into gear. And businesses like the higher prices.

They make a boatload of money. So they want to hold on to those higher prices as long as they can. They're kind of looking at each other's competitors. By the way, this is a pretty good segue into the big topic. They're looking at each other's competitors and saying, hey, guys, maybe we can hold on to these higher prices for a little bit longer. But ultimately, these are competitive markets, right? And competition, you know, juices flow. People start producing more.

and those supply site responds, meets demand and prices start to come in again. So it feels like the energy markets, again, there's a lot of other things going on like decarbonization and China and, you know, pipeline issues from Russia to Europe and, you know, all kinds of things going on. But, you know, most fundamentally, that feels like the dynamic that's a play in these energy markets. But even with the higher energy prices, you know, I don't think, I'm not. too concerned about consumer spending because if you look at gasoline as a share of total consumption, it's still well below what we saw 2011, 2012, 2013. Heating oil makes up a very small share

of consumer spending. Households are really good cheap. So I think the consumer can digest the recent run-up in gasoline prices. Yeah. Does that help, Joe? We buy into that? Yeah. Okay. Yeah, I'm going to buy long. Is that short? I keep getting. What a long? Okay. My broker handles it.

Yeah. And all the high frequency data, you know, the Google mobility, the number of people passing through TSA checkpoints, even box office receipts, all in the last couple weeks have made noticeable improvements. So that kind of, you know, made me feel a lot more comfortable where we're headed. Yeah, good. Okay.

All right. Well, that all feels pretty good. So let's move on to the, a big topic, which is competition, competitive markets, antitrust. And Joe and I have been having conversations around these issues for quite some time. I actually really bugged him when I was asked to moderate a discussion with Amy Klobuchar. She's the Congress, excuse me, the senator from Minnesota, who obviously ran for president, a great senator.

And she's very focused on antitrust issues, I think just today or yesterday. She introduced some legislation in the Senate that's going to line up with legislation that was already passed in the House. And we'll come back to that later in the conversation with Joe. But Joe was very helpful. She wrote a book called Antitrust. It was just a very nice history of, from her perspective, of antitrust law and some of the limitations of that and gave a number of suggestions on how to approach antitrust in the world we live in today with big tech and big pharma. and Joe was very helpful and educated me, getting me up to speed for that moderation. So it's good to have you on the podcast to talk about this, Joe.

And I guess I want to start with the basic question. Do you think markets are becoming more concentrated? Are they becoming more dominated by a few companies? That is definitely the narrative that most people have been. bought into. Is it true, you know, from your perspective? Is that what happening here? Yeah. So I don't think the evidence bears that out, really. I think it's, you know, a lot of these economic statistics are complicated. If you really dive into it, you get a different picture than this, you know, what you see on the surface. And I think a,

A lot of the studies that have concluded that concentration has increased have looked at broad markets like transportation. Like two-digit, the government divides markets into, like there's a two-digit Nakes code and there's five-digit Nakes code. And the five-digit Nakes code is very specific. And Nakes is a North American industrial climate. classification system. Are you impressed you how I got that? Yeah, very good, very good. So that's industry classification. Yeah, when you look at the two-digit numbers, then concentration has

increased, but a lot of companies within that broad definition don't compete against each other, really. So when you look at the five-digit, the more specific definitions of markets, the concentration ratios are usually much less. And they haven't grown. all that much over the last 30 years. And where they are high, they're usually still well below the guideline that the federal government has for challenging concentration. So the federal government does not define them as the number is not high enough for the federal government to define them as concentrated. So one of the statistics people look at is the market share of the top four. So when that to 40%, you know, people, that is considered relatively high. But that means that those four,

you know, average just 10% of the market, which is not, you know, is not a really a dominant position. And meanwhile, there's 60% of the market that's, you know, service by smaller companies. And also, there have been some studies that really show that when you look at really, specific markets, not just defining the market specifically, but also just looking at the area, geographic area where the competition occurs. So for instance, restaurants, you don't go to the next state for a restaurant. You just go within your own neighborhood. And there they found that concentration has actually decreased and competition has increased. And competition has increased. largely because you get big national chains that come in and, you know, establish themselves

in each neighborhood. Meanwhile, you still have the local restaurants, locally owned restaurants or barbershops or whatever. And so on the whole, there are very few markets where, you know, the top four really control, say, 80% of the market. Well, there are a few that, notable ones though where let me just make see you agree big tech yeah so

it and again the big thing that remember about antitrust is it really depends upon the specific market not just the company in general

it depends upon the market and the group of companies that actually compete with each other and that consumers you know check before they make a decision. And, you know, there are some areas where a tech company has a dominant position. But there are a lot of areas where they compete fiercely, like cloud storage now.

You know, artificial intelligence. You know, one or two are trying to get their own retail shop set up so they can compete with Amazon. So the Economist magazine's had a couple of stories about the fact that competition among the big four or five has increased in specific markets. In other specific markets, there could be a problem. But that, again, you have to look at that specific market. In my opinion, you have to look, is that harming consumers or not? And it certainly isn't a justification for breaking the company up, which is a drastic decision or resolution. Okay, so you're saying it's complicated.

Yeah. Those things. This is particularly complicated because it goes to defining markets. You know, what is a market? And if you get the definition wrong, you're going to come to a very, you could potentially come to a very wrong conclusion that the market, the actual market is narrow enough that there is actually competition in it, but if you broaden enough, you can't see it. You get lost in the data. So Amazon's a good case in that. So everybody points to the fact that Amazon has this huge share

of online sales, retail sales. But there is competition for online sales and Walmart is trying to set up its own store. But Amazon has only a small share of total retail sales. And most people, you know, they consider the local Walmart or the local Safeway or the local LLB in the store. So Amazon has to compete against all those other stores. And so when you look at the whole of the retail market, it often has, you know, a reasonably good share, but not dominant.

What about Big Pharma? The big pharma is different. Big pharma, I think there's a stronger case that there's some antitrust problems. But big pharma also, you know, the model requires a certain degree of size. It costs like over $2 billion to develop a drug on average. A lot of 90% or more of the drugs you develop are failures and you don't collect anything. You have to have the ability. You have to have a huge infrastructure to comply with all the government regulation.

You have to have a huge infrastructure to do all the retail sales. And so this industry's gone to a model where a lot of the experimentation occurs in small companies and investors can bet on specific approaches. And then when this drug starts to prove itself, a big company comes in and buys it up. and provides the expertise needed to get through the regulatory approvals and to get it into circulation. So are there any markets or industries where you are more worried about potential market concentration in the impacts of that competition or that concentration?

Yeah, not really. I think there are certain practices that maybe could be looked at. There's been an allegation that when Google has an auction for advertising on a certain site, it gets to see the last bid and decide whether it will match that or beat it. You could change that so it doesn't get that last look, and that might spur competition a little more. So there are little areas like that that I think maybe bear some investigation, but there's a whole, no. And actually, you know, my statistic, that is second statistic.

Oh, yeah. Everybody else had one. No, I had to. Oh, yeah, go ahead. Okay, it's 127.5 billion. 127. 5 billion. Is this something where you think we can?

we can get? Probably. Designed it that way. So I'll just tell you, that's the amount of money that the top five tech firms spend on R&D in 2020. That's twice the amount

spent by the top five pharma teams. It's more than the amount spent by the top 10 pharma teams. So these companies are not just sitting on this cash giving it back to shareholders or making their executives rich,

they're investing in a lot of high-tech research that's important to this country. And that doesn't always make total sense with their job mode. You have Bezos spending a lot of money on space exploration. That's great for the country. you know, if you're an Amazon shareholder, you might wonder what, you know, what's going on. But, you know, they're spending in area after area after area, artificial intelligence to MNRA, what do you call those computers, not nuclear computers, but. I don't know.

Yeah. Yeah. I hear you, though. Yeah. So, you know, and if we break them up, like some people want to do, what happens to that spending? Who picks it up and does that research? So Ryan, Chris, do you want to push back on what Joe is saying here at all? I guess I have a question first. It sounds like, are you arguing that this two-tiered system is optimal? So what you described for pharma is you have a few firms that are able to take advantage of economies but I see that in the finance, I see that in tech, right?

You have a few players in banking, right? You have a few banks and then you have a lot of fintechs exploring and innovating. Yeah. Yeah. Yeah, I think it is fairly healthy. You know, there's some exceptions to the cases where a company may pay another company not to launch a generic, you know, maybe that should be changed. But that's, you know, that's a relatively minor thing.

I think this division of responsibility into small companies that focus on a promising technique or development and that are totally focused on it, get a lot of help from venture capitalists. And then when they have to, you know, get big because they have to deal with all the regulations, they have to run the trials. Then they go to somebody who's experienced and can do that. So I used to play poker not very well with the guy who invented honesty. And he got to a certain size and then he sold to Coca-Cola.

In the minute he did that, he had a nationwide distribution system in an advertising budget to reach everybody in the country. He couldn't have done that if it's. stayed small. Well, that's a economy.com story, right? My company's story, right? We were 15 years old. We got to a point where the way we had to grow was to go global, which we started

to try to do. We opened up an office in Sydney and London, but I quickly figured out that the cost of doing this were crazy high, and it's going to take us forever to do it. And then Moody's knocked on the door and said, hey, I've got this global. infrastructure. And of course, Moody's is in every, you know, capital on the planet. So, and had a sales force all around the world that seemed to make a lot of sense. But that's certainly our story. Chris, you had something else you wanted to say or push back on? Not really. That's okay. So that, to my mind, that's, that is an optimal state. Now, if I look at

Oh, you agree with that. I think it's a natural state as well that you would have the the consolidation. And you see that across industries, whether it's tech or finance or pharma. Yeah. Go across the board. That seems to be the natural state of affairs. I also say that there are legitimate concerns over privacy, over data security, over political, the political power of large companies.

But those are not antitrust problems. They require separate treatment. and in some cases legislation. You know, I think if somebody is going to hold your credit card data, you know, and there's a breach, they ought to, you know, they ought to be punished. And they ought to have a strong incentive to keep your data safe. And if somebody takes your data and uses it, say, like the Cambridge Analytica case, that, you know, there ought to be a big, huge penalty associated with that,

that deters anybody from trying that again. But again, that's not an antitrust problem. It's not a competition problem. Although there's debate around that, right? I mean, there's this, and it would be good if you could explain, but there's this general shift in thinking that it's more about consumer surplus. It's more about protecting the consumer. it's also about things like dominance of the political system or the dominance of the information

flows, the ability to control data and information, you know, kind of the things that, why big tech is so making people so nervous, it's that they have such dominant control over all these other aspects of our lives, and that that should be part of antitrust, right? Is that? Yeah. I don't think it should. Yeah. Yeah.

I don't think it should be part of antitrust. I mean, I basically think there are four groups of people who study this. And one group is just against bigness, period. Yeah. They think there shouldn't be, not only don't they think there should be an Amazon. They don't think there should be a Walmart. They don't even think there should be a safe for it. They think it ought to be all local stores.

Who would leave away on that? Who would be? Open Markets Institute, I think is pretty consistent on that. On financial services. Yeah. Yeah. And so, you know, I disagree, but I do think we need to ask. You said four.

You said four, there's one. So the other thing, let me get my teaching. So one, the second most stringent group basically thinks you ought to do away with the consumer welfare standard. Right now, the key test is what you're studying, does that hurt the consumer? And if it doesn't hurt the consumer, doesn't erode quality or raise prices, then the government ought to usually stay out of it. And that's the Borkian. So that goes all the way back to Bork. Yeah. Bork. Yeah. And Posner and others. And yeah. Very famous legal mind wrote a book called the, I think the anti-trust paradox, right?

In 1978, that kind of dominant, has been dominant kind of intellectual foundation for antitrust policy. Yeah. Beginning with Reagan and almost up until now, really. Yeah. And it stemmed really from a history where courts had, in the government, had gotten really strict. And in one famous case, broke up a merger that would have given a safe shopping, store 7% to the local market. They thought that was too high.

And most people now think that in other cases went too far. So the second group basically says we ought to do away with the consumer welfare standard. We ought to consider the interests of workers. We ought to consider the interests of the small businesses that big companies compete. it against and so on. And then the third group. Can I say, can I just to, just because people might hear these terms. Those are the so-called Neo-Brandesian.

Brandeisians. Yeah, okay. After Brandeis. Yes. Yeah, okay. So you have these Borkians saying, you know, antitrust, that's a word, Borkians, they say antitrust should really be about, preserving consumer welfare, meaning basically if you have a combination that leads to higher prices,

that's a bad thing. You want to ensure that there's competition prices are low. And then you have Brandeisian view saying, no, no, no, consumer welfare matters, but it's much broader than that. It's about, you know, monopsity, power, you know, the company controlling wages and the labor market. It's about the dominance of the media or political influence. It's just a broader set of criteria for deciding whether antitrust should be used. Yeah. Yeah. Okay. So, and then the third group basically agrees with the history of the last 40 years, but thinks that on the margin,

anti-trust policy should have been a little tougher the last 10 years and going forward. And so you need, you don't need to redo the laws, but you do need to have a little stricter enforcement within the current understanding. And then the last group basically thinks we're doing fine. And yours is the last group. Yeah, pretty much. So, you know, I do see antitrust problems or possible problems there, but I think you need to look very carefully at the specific markets. and measure if consumers are being hurt or if innovation is being slowed. And yeah. Yeah, one observation that I think is supportive of your perspective, like, you know,

we're doing pretty well here. You know, what's the big deal is inflation. I mean, you know, abstracting from the recent surge in inflation, which is pandemic-related, has nothing to do with anything other than that, inflation has been very low here in the United States and globally very, very low. So if we were having a trouble with markets being uncompetitive, wouldn't we see higher prices? Right? That's kind of what you're arguing.

And there's been a couple influential studies that basically argue that where there has been an increase in concentration in the market, it's because some companies have gotten very good at using information and computers and modern technology to get much more efficient and reduce costs and increase their profits and increase their market share. So the market's competitive. It's just that some companies are just beating the competition badly. And the answer there is, I think, to figure out why the bottom half of the companies aren't aren't quick at adopting new technology. A lot of it's, you know, there's a pretty strong link between IT spending or spending

on other intangible assets and profitability. And so, you know, a few firms in a couple of industries have really revolutionized their industry. And we have to try and encourage the other firms to. sort of copy that and become more competitive. Now, on the price on the inflation are the point that inflation is low therefore what are worried about. There's two retorts I've heard.

Curious to hear what your reaction is to them. The first is well, yeah, that true inflation is low, but it's a, you know, it's a lot lower, let's say in Europe, you know, the other big developed economy. And, uh, that's because. they have more competition. They are much stricter with antitrust laws. You can see that clearly with the way they've been handling a big technology. And therefore, you know, yes, inflation is low here for a lot of other reasons,

but it should be even lower because it's not because we're uncompetitive. But I think Europe's making a big mistake that it's gotten very aggressive on these firms. are really bending, I think, the laws themselves. I think some of the decisions have been overturned. I think others will. But you look at how is Europe doing on new tech? Not very well. With one or two exceptions, all the new tech is happening here or in China.

Uber got started here. Facebook is here. You just go down the line. haven't been very good at attracting and growing new tech companies. And in pharma, a couple decades ago, they got really tight tightened up pricing laws and reduced prices, which is great for consumers. But all the research started going to the U.S. And so the U.S. is where people do farmer research, much less so in Europe.

And so the policy they pursued made them uncompetitive in farmer research. So I don't think that's a good model to follow. Okay, fair enough. I guess you could also argue, do we really want Europe's inflation rate? Yeah. And we want to be dynamic. I mean, I don't think people think of Europe as being dynamic anymore. Yeah.

Okay. All right. So the second kind of retort is it's not about pricing anymore. It's about several other things. I'm going to list each one of them and see what you think. And you've already talked to it to some degree, but just to get it on the table and get your views very clearly. There is an argument that it squelches innovation, right? that the big guys, the big tech, the big pharma, the big fintech, you know, come in.

When they see competition coming, they buy that competition, you know, Economy.com, Moody's buys, economy.com. And that that reduces the amount of innovation that goes on, that we would have seen even more innovation if those companies continued on and, you know, did the things that they were doing. Yeah. And I think there's this widely cited study that finds that in pharma that's happened in some cases. But I think there's some good reasons for that. But in tech, not so much.

Everybody, you know, there have been a huge number of mergers in acquisitions over the last several years. But all the focus, all the criticism is on two or three, Instagram being one of them. Facebook's purchase. And people say, well, Instagram would have been this semi-dominant company that could have really competed with Facebook. Maybe, but maybe not. You know, maybe Facebook just would have copied, you know, within the legal standard, copied all of what Instagram was doing and just beaten it.

You just don't know. But what you do know is that these big companies buy up a lot of small companies. And that's the exit point for a venture capitalists who fund these small companies. And venture capital, IT investment by venture capitalists has been very strong. So people, it's true that nobody really wants to start up a small company that's going to take it on Facebook head on. But there are a lot of sort of other technologies, other markets that can be very valuable, that companies go after. And then when they become, you know, when they prove themselves, then a big company will,

acquire them and use that technology and, you know, like they do in drugs, expand the market and give it to everybody. And that's, you know, if you shut that off, then what happens to the venture capital? What happens to these small firms? It's probably they don't do so well. Well, the other thing I've noticed is that some people are just entrepreneurial, right? Yeah. They don't want to be, they don't want to grow.

They don't want to stick with a company when it becomes big and more bureaucratic. And you've got all kinds of check the box kinds of things going on. which is, you know, you need that in large multinational organizations. But that's not the world for them. So they go start a company. They get out and they go start another company. And then they get out, they sell again, and they go start another company. So it's almost like you're freeing them to be able to do what they're best at.

And that's other companies. Yeah. A great example is to diapers.com. where Amazon was selling diapers to a third-party company on its platform, and Amazon decided to get in the business. And they basically bought this company up and sort of shoved it out. But Amazon then found out it was dealing with, it was trying to get its, it was competing with big stores like Walmart. And the suppliers of diapers like Pampers were, were huge companies. and tough at negotiating.

So a couple years later, they shut down the business, declared a big loss on the merger. And meanwhile, these guys who'd started diapers.com went in and started another company that was a market platform that they sold to Walmart.

And that became the basis of Walmart's retail platform. And people still refer to that as, you know, how Amazon, you know, out-competed or squelched a small firm over the diaper mark. They don't point out that it was a huge financial mistake for Amazon and that these guys took the half billion or whatever it was

and started another company that is now a serious competitor to Amazon. Right. Well, another way anti-competitive behavior can lead to deleterious impacts. So we talked about prices and inflation. We talked about innovation. The other that you hear about put forward is monopsinistic power that these large companies basically gain control over the labor market. and they can set wages. So they're not raising prices, but they're keeping wages very depressed.

And this is one reason why we've seen the skewing of the income and wealth distribution that, you know, since we, the Borkian view of the world on antitrust took over, antitrust kind of was put to the side. It was only about prices in consumer welfare. We've seen this period of relatively weak wage growth, certainly among low-income households, and the skewing of the income and wealth distribution. What do you think of that argument? Yeah, so I wrote a lot of papers on these topics for information technology and innovation

foundation. And one of them dealt with that. And first it looked at the decline in labor share overall. And when you would compensate for the significant rise in housing prices, that decline basically goes away. So, you know, when people talk about labor workers not getting their fair share, a lot of that's the artificial constraints on building affordable housing. As far as the monopsy in the argument, there have been a couple of papers that basically haven't seen that. there was the one case where the big tech firms basically agreed not to call

call each other's competitors. And that was a clear antitrust violation. They paid a big fine. It wouldn't have bothered me if you doubled that fine. How about tripled it? Ryan, Ryan saying triple it. Yeah. But the agencies, the enforcement agent,

had the power they needed to deal with that case. You know, they didn't need an expansion of the law. They had all the powers they need. They exercised them. You can quibble about how strict they were. But, you know, if that happens again, they can go after, you know, they've got the power they need to go after whoever it is. Okay.

And one more, and I'm sure there's others, but one more because we are getting a little long here. and I do want to talk about the great power competition a little bit before we call quits, is the increased market concentration is leading to greater control of information and personal data, you know, that they have this control, and this is a problem, you know, on lots of different levels that is very intuitive to people. Yeah. So one, a lot of these services are free, so the consumers benefit. Two, a lot of the information they're giving,

isn't valuable. It's like one of my papers, I cite the market prices for the identity of a newly pregnant woman. So, you know, if you know who it is, you can send her all sorts of flyers. It's like, I don't know, even, it's under a dime. It might be under a penny to, you know, each distinct name. So most of the, you know, most of the data isn't that valuable. other people can get it to other means.

There is some data that's highly sensitive, highly valuable. We do need to have a conversation about how to protect that data. Maybe we need to tighten up the laws that deal with cases like Cambridge Analytica. Although the regulators had the power they needed, they got a big fine. But it wouldn't hurt. You know, it might not hurt to tighten that up. But that's not, again, an antitrust issue. That's a data privacy issue.

Okay. Okay. So to conclude the conversation on antitrust, and we could go on for another three hours, but we don't want to do that. It's a nice day outside. So there's really four strains of thought here. One is, I don't like big. Anything big, I don't care what the impact is.

I don't want big. Two is, okay, I don't like big if it's messing up with resulting in higher prices for consumers or hurting consumer welfare. That's the working. Or do away. The second way is basically do away with consumer welfare standard. Don't have that be the only the guidepost. Yeah, that can't be the only guy post.

It's the Neo-Brandizian. I always say that's a lot of say it, Brandeesian kind of theory. Third, the kind of the third perspective on this is, okay, you know, yes, basically everything's okay. We just need to enforce the laws we have, the Sherman Antitrust Act, the Clayton Act. If we do that, then we're golden. We're good, so no big deal. And then the fourth is really we're hand-wringing about very little here. Yeah, we got our problems.

Yeah, you know, income and wealth distributions are a problem. yeah, low productivity growth is a problem, but don't blame it on market concentration and big companies dominating their markets. That's not the issue here. You're in that last camp. Okay, Ryan, where are you in that kind of view? I'm probably in the fourth group. Joe's group?

One notch below Joe. The one that we're mostly good. Number three. Number three. Number four. No, no. Number four is Joe, Joe saying. Oh, yeah, no.

So I'm number three. Number three. So you're saying we just need to enforce our anti-trust laws a little bit more carefully. I agree. Yeah. That's where I would be. You would be there. Okay.

And Chris? Well, in classic Chris fashion, I'm at 3.5. That was my next statistic. It's so frustrating. Do not do that. Give us, you got one, two, three or four? Three. I'm more three than four.

You're more three than four. You're meaning you got to tighten up a little bit. Okay. Tighten up a little bit, but okay. You know, Joe, I love you and I respect you. And you have really made me think carefully, more carefully about this. And I need to do more research. But I think I'm more two than three.

I really, it makes me uncomfortable. I'm surprised. Really? Yeah, I would put you in three. Shocking. I think it's more than just consumer, you know, doing away with the consumer welfare criteria. I mean, I think I should say it's more than just consumer welfare as measured by price. I think you really, let me put it this way.

I don't know what the answer is, but what I think the question should be is, are these large companies impacting our economy and our daily lives in a broad. sense than simply prices in consumer welfare. It goes well beyond that. It goes to innovation. It goes to productivity gains. It goes to, you know, monopsonistic power. It goes to controlling suppliers, you know, enforcing things on suppliers of these big companies.

It goes to control of data. So I would say, I think our way of thinking about antitrust should be broader than simply you know, prices in kind of the straight line consumer welfare definition that is a working view. Whether that ultimately ends up in antitrust action, a different story. And but I do think it, that's, we need to think about this more broadly in terms of what it means for, for the economy. Does that make sense? Joe disagree. Yeah, it's, he's being nice. He's being nice. He's being nice. It's fine.

Doesn't want to strain your friendship too much. Yeah. Yeah. That's funny. That's funny. I'm surprised you guys, were you, did Joe influence your thinking or were you always in that camp? No, it's probably in that camp.

You're probably in that camp. Particularly more with finance than tech. Yeah. Okay. All right. Well, very good. That was a very good discussion. Very, I think, kind of frame.

I think this is very confusing for people and kind of put a nice frame around. thinking about it. So thank you for that. So before we leave, Joe, I want to double back and talk a little bit more about the great power competition, which is a initiative that MITR is leading the charge on. Can you just describe that a little bit? I think they'll find that very interesting. So in addition to doing projects for the federal government, MITRs spends a ton of tens, hundreds of millions of dollars a year on internal research that they think is going to matter in the next couple of years, that they think is going to help the government agencies in the future. And one of those is the increased importance of international competition. I think, I think

people are coming around to the belief that China and Russia are not. not going to go the way of Taiwan and South Korea where they gradually become more liberal societies. They're going to stay, you know, Al-Giopolistic. In fact, they're going to, they're ready to take us on because they think we're declining. And that we cannot afford to have key technologies like AI and quantum computing. That's what I was trying to think of earlier. We can't afford to have those controlled by hostile to authoritarian governments. And so we need to be much more concerned about our own competitiveness. And we need to have tighter ties with our allies.

And so they're spending a lot of effort studying that. And one, they have different groups. One is looking at the supply chain for MNRA. another is looking at the digital road silk road and the importance of that another is looking at the China's buildings and roads that's one belt one road one belt one road effort and one is looking and that's the one I've been working on at looking at the importance of the dollar the benefits that the U.S. gets because of the dollar's dominance. Reserve currency.

Yeah. What lies behind that? And what are possible threats to it and how should the government respond? Can we have you back on for that one? Sure. Sure. I'd love to have you back on that. Because you must be thinking about crypto and the effect of crypto as well.

Crypto, central bank currency, digital currencies. Okay. We're going to get you right back. in general. Yeah. Trade markets. Yeah. In fact, they're coming out with a paper relatively soon looking at, you know,

summarizing what they've done over the last two years and providing some recommendations to the government agencies about what they need to track it, what they need to think about as far as possible policies. Bottom line, in our lifetime, Joe, will the U.S. lose the reserve status? Well, if we do, if we perform moderately well as a society, I think no. Moderally well, meaning we have done since World War II? Yeah. And the biggest thing, we don't let inflation get out of control.

Okay. It's hard to have a dominant currency when everybody thinks its price is going to fall. Yeah. And then, you know, but as long as we have a strong currency, no, I don't think, in fact, I think you look around the world and more people want dollars because of the uncertainty. That'll decline as the economy gets back, the world economy gets back to shape. But I think that the advantages are just too strong. And the Chinese, you know, the government's refusal to open up the capital markets.

It's continued intervention in financial markets. its restriction on moving money overseas. Nobody wants to hold a lot of their assets in Yem because in one, because the government can take it away tomorrow. Joe, you should know that Chris is a, you know, big crypto guy and he thinks Ethereum is going to displace the dollar, you know, at some point here in the new future. Yeah. Now the new thing is the Arabian Falcons, right?

Oh, the Arabian Falcon Coin, according to your Twitter feed, Mark. Yeah. Oh, by the way, I'm on Twitter, guys. I mean, I've always been on Twitter. I've always been on Twitter for a long time, but I've never, I was kind of dormant. But now I'm in gear. Have you noticed in the last week or so? I'm really on Twitter at Mark Zandi.

So I'm advertising at Mark Zandi. So Joe, have you, have you, what do you? Have you befriended me? Have you, are you following me? No, I, I will be, well, I'll follow you. And we'll think about befriending you. Yes, okay. Thank you.

Thank you. See how this goes. Okay. I appreciate that. And I do want to thank you, Joe, for joining us and really appreciate all your insight. And we definitely want you back. I want to talk about reserve. Okay.

I'm so glad this smoothie thing is working. out for you. Oh, yes. Yeah, I know. 16 years later, yeah. It's still trial, you know, still a trial basis, you know, kind of thing going on. I also want to let everyone know that, please, we want your reviews. We have 99 reviews.

Someone put us over the top here. We need at least 100 reviews. My mom will put you over the top. Oh, Joe, you can do that too. No, only kidding. My mom will put you. mom will, your mom will,

your mom will. And I, oh, there was one other thing I want to mention. We are now doing, we obviously do this podcast every week. We're also now putting up special editions of,

of podcasts. These are, like we did a webinar, Moody's, in the election, and we put it up as a podcast. The audio was pretty bad. So we're going to fix that and make that good.

But you'll see kind of evergreen podcast that we're going to do and put them up there for folks. So, watch out for those as well. And please, far away with any suggestions that you may have. Any parting words, guys, Joe? Next time I'd like to plug my widely unread book. Do it now.

I just happened to have it. Oh, yeah. Oh, wait a second. Ending property. Oh, yes. I remember a very excellent book. Yeah, I think I gave you a copy. You did indeed. Did you read it? I did indeed. Now, you looked at that came out when, though? That was a while. 2008, 2008, I think. Yeah, 208.

So it was a while ago. Yeah, I got four, six bookshelts of them. So anybody wants to join the club, Joe. Join the club. Yeah. Mark's office has boxes. I got boxes. I got boxes.

My great claim to flame, though, is one of my books got put into Mandarin. So I hit the big dime. Oh. Yeah, there you go. Anyway, we should call this a quit. Okay. Thank you, Joe. Thank you, guys.

Guys. It's been a pleasure. Listener next week, we'll talk to you then. Take care now.