Moody's Talks - Inside Economics - Debating Policy, Doug Disagrees

Episode Date: September 9, 2022

Doug Holtz-Eakin, President of the American Action Forum, joins the podcast to provide his take on the U.S. economy, inflation, employment, and GDP. The big topic fiscal policy while everyone provides their odds of a recession.Follow Mark Zandi @MarkZandi, Ryan Sweet @RealTime_Econ and Cris deRitis @MiddleWayEcon for additional insight. 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 Zandi, the chief economist of Moody's Analytics, and I'm joined by my two colleagues and co-host, Chris DeReedies. Hi, Chris. Hey, Mark, how are you? Good, you made your way back from Toronto, I see. I did, you too. We had a couple, Chris and I, oh, and of course, Ryan, Ryan Sweet,

how can I not introduce you right up front, Ryan, Director of Real Time Economics? How are you? Good. So how was Toronto? What do you think, Chris? It was great. It was great. Yeah.

Yeah. A big client dinners in Toronto and Chicago. Yeah, it was great to see them again. This was our first foray back on the road since started the pandemic, right? We haven't done our own conferences or had these types of dinner since then. So it was really great to be back out there and hear the opinions of a lot of different folks around the table. And we got good feedback on the podcast, right? I thought.

We did. Lots of fans. Lots of fans. I got a lot of people listening to this. Did you guys have a hot dog when you're in Chicago? Hot dog. Tell me you can't go to Chicago and not get a hot dog. Really?

Where do you get hot dogs? Oh, gosh. Everywhere? They're everywhere. No. No. Did you see any hot dog? I did, in Toronto, I did have a Tim Horton.

Is it Tim Horton? I think, yeah, donut. Yeah, for the first time ever. And I'll have to say, I paid a price for eating the donut. Apparently you got the wrong one. I got the wrong donut. Yeah, I got all kinds of advice of what kind of donuts I should eat. But anyway, so I got to keep that in mind about hot dogs.

I didn't know Chicago was known for hot dogs. A pizza. You have at least a slice of pizza. No, no, no, no, no. Chicago pizza, come on. It's delicious. It's not right. It's not right.

You could spend a whole podcast debating this. Well, anyway, it was good to, it was really good to be out there with folks. and you know in person for the first time in almost three years so that's pretty amazing yeah good well and we have a guest Doug Doug Holtz Egan Doug that's good to have you thank you thanks having me on I appreciate it yeah I get a free hot dog for doing this it's exciting no bottle of wine you know Moody's there's a there's a cap on how good a bottle of wine we can give you hopefully it's reasonably passable but yeah well I don't you prefer a hot dog

what you were and and I you know we've been crossing paths for many many years now do you know we obviously got to know each other when you ran the McCain campaign the the economic side of the McCain campaign and you asked me to help participate and That was one of the best experiences, just being involved in all that was just fabulous. But how did we, did we know each other before? I can't even, I don't, can't remember. I believe that we met when I was at the Congressional Budget Office.

I think I asked you for some advice on a housing question or something. Okay. Okay. And of course, you were the director of the CBO, the Congressional Budget Office back in the OOs, I believe. 2003 or 2005. Yeah, so those were years. What kind of legislation were you focused on at CBO at that time? Was that I can't remember?

That was during the passage of the Medicare Modernization Act that gave us the prescription program. There's also the Iraq War. I testified more on Iraq troop rotations than almost anything, believe it or not. Oh, that's interesting. Well, that was when Larry Lindsay kind of got in trouble, didn't he? Yeah, you know, that fired. Because he was chair of the Council of Economic Advisors? No, he was director of the National Economic Council.

Oh, okay. He was chair of the C.A. And I worked for Glenn as the chief economist 2001 and 2002, then went to CBO. And then after a year's hiatus, went to the McCain campaign. Right, right. And, oh, I didn't realize you were the chief economist of the C.E.A. under Glenn Hubbard. Oh, okay, cool. So I was, and that was controversial because I was the first CBO director to go directly from the White House to the CBO.

And since that's a nonpartisan position by statute, there were people who believed that I couldn't do the job properly just because I was coming from a, you know, Bush White House. But I assured them that my job at the White House was to organize the staff to deliver our best economic advice to our political superiors who then ignored us. And I asked them, organize the CBO to deliver our best budgetary and economic advice, would they ignore me? And they just laughed. And they said, you got the job. That's great. That all worked out. Well, that's obviously what we're going to talk about here later in the podcast is about

fiscal policy because a lot of stuff to talk about, a lot of pieces of legislation and executive orders and everything else under the Biden administration of Congress. And I'd love to get your take on all of that. And I know you do that today in your work at the American Action Forum, and that's where you are today. This is a, is it fair to say, a think tank? And it's a think tank that you've founded. I founded this in, opened up January 1st, 2010. And it's not your typical thing tank. Your typical DC think tank is full of deep subject matter experts who close their door, think deep thoughts, write books.

periodically the world collides with them and their relevance and then they'll have no office for a couple of years. That sounds like Ryan somehow. It's already started. So as I said, I worked at the CEEA, CBO, McCain campaign, ran the policy shop on the campaign. And what I realized at the end of those experiences was that in those jobs, you did policy, research, education, options, advice. But you did it in a very particular way, which is, number one, you worked on whatever was happening that day.

You didn't have the luxury of saying, you know, I do turtle migration when that comes up, let me know. You work on whatever is happening. You had to deliver whatever you were preparing. research, your product, in English to non-specialists. So there was a real premium on the communication function. And lastly, you had to know the political lay of the land. When you work in a White House, it's all about the president's agenda. Everything else is the enemy. It doesn't matter who's actually running Congress. They're the enemy. At CBO, it was by law nonpartisan,

so I'd be very careful not to have any bias. Obviously, on the campaign, you're trying to make good policy, good politics, which is that challenge. And I realized that I like that work. And it seem to be there was any reason why that was unique to government. Like there must be people out there who are, what, center-right conservatives like I am, and, you know, something happens when oil rig blows up in the Gulf. They want to know from their perspective, how do I think about this? And, you know, they don't sit and read white papers in advance that something happens. They want to know about it. So that's what we do. We try to deliver the waterfront of domestic and economic policy issues on whatever's happening in the Congress and the agency.

that that's the mission of AAA. And I notice you write every day, right? I write our morning email every day. Yeah, that must be tough. No, that's just therapy. I'm really, therapy. Okay. It's like jogging or eating breakfast.

They're probably healthier therapies. This one's mine. You know, I burn it down rate at the begins when I woke up. And, you know, this helps me with it. Yeah. Well, I will say you certainly helped my career, I would say, because when you brought me into the McCain campaign, because I'm center-left, you're, you would be center-right,

center-left. And, of course, you weren't asking me to opine a lot about policy, although you did ask a few things that I really appreciate, but it was mostly about the economics, you know, what was going on, which actually turned out to be quite important, didn't it? Yeah, I mean, you know, we had the first $100 oil prices back then. We had the final prices, you know, onset of the Great Recession.

It was an ideal time to be on a presidential campaign. Things went just right. Yeah, exactly. Right. Well, of course, everyone, we're talking about the financial crisis. This was the start of the financial crisis when this campaign was going on. Hey, in that regard, and I don't know if this is an unfair question, but I'll ask it anyway. Is there, looking back on the campaign and how it responded to events, you know, the unfolding crisis, the financial crisis, would you have done anything different?

Now, in hindsight, you know, you would have. In terms of the sort of the intersection of the policy and the politics, there are two things that really stand out to me. Number one, as an accident of the history, you know, I went on a campaign January 1, 2007. There were 100 people, and he was the presumptive nominee at that point in time. And with the collective geniuses, we had at the headquarters, we took him from first to dead last. bankrupt by July 8th, 2007. Really an outstanding performance.

And at that point, I worked for free from July to March 2008, and it was just a skeleton staff. And McCain put the whole thing on his back and got himself back in. And, you know, it's all him. But during that period, he just said, you know, have some plans be bold. And so, for example, I had a health care

reform that featured eliminating the exclusion from tax of employer sponsored insurance and providing a universal refundable tax credit for families and individuals. That looks a lot like, you know, the premium tax credits in the, in the ACA exchanges. But it was a reform. And when he got the nomination, the political guys who came on board and looked at and said, you got to be kidding. We're going to get killed. And we did.

We got killed. Obama ran an ad. that showed a ball of string unraveling and talked to how McCabe for the first time I'm going to tax your health care. And that's the single most run political ad ever still. Is that right? Yeah, just crushed us. So that was probably a mistake. I didn't know anything about politics.

It was very naive. So I did this and it was just, it was very specific and it was very controversial. And that was great when he wanted attention. And it was really bad as as the candidate. name. Second thing is in responding to crises, we can't train to solve problems. My instinct is, you know, GSEs are going down. You know, let's solve the problem. Let's figure out what we're going to do. The Obama campaign's response to the same events was to fly to Miami and invite all the former Treasury secretaries who were Democrats down to brief Obama. And he walked out and

said, it's really bad. And I'm worried about the American people. I just got a great briefing so that we understand this better. And that's all he did. They didn't try to solve it. Interesting. That was smarter, right? I mean, that's interesting.

Here that you care, appear that you're smart about it, that you'll be capable of dealing with it, but don't suggest anything because it's hard. And in real time, when you had no data, it's the fog of war thing. Like,

you made a lot of mistakes. Yeah, that's fascinating. That's fascinating. I would do it differently if I did it again. I'm never going to do it again. So there, there you go.

Yeah. Yeah. And, of course, I did not get paid just so everyone knows. I was not a paid. So what Mark did is he was one of three people who got on the phone with me every morning. And, you know, whatever data had come out that day told me how to think about it, how to tell McCain to talk about it. And since it was an extraordinarily difficult period, economic, it was a huge service to me. I mean, it was really valuable.

Yeah, and I remember some calls. It was so cool. You know, you had Marty Feldstein. You had Ken Rogoff. I can't remember. Of course, Glenn Hubbard, you mentioned, Larry Lindsay, kind of a really cool group. So I don't know who I'm more grateful to. And I mean this sincerely.

People like you who every day helped out for nothing, that's an extraordinary service. I mean, all you can do is say thank you was fantastic. Or the people who I called out of the blue with no reason for them to expect the call and say, I need 10 pages on what to do with oil price shocks for the candidate tomorrow. And they do. Yeah. Yeah. Pretty amazing.

It's a beauty of the American system, really. You know? Yeah. Yeah. People are committed. Anyway. I will tell you, you know, I was 50 then. It was part of my mid-life crisis to go in the campaign.

And, you know, everyone else on campaigns is like 20-something. And there's a reason for that. It was the most exhausting thing I've ever done. Well, let me just say, I'm sorry, go ahead. Two weeks out from the election thinking, I'm not going to make it. I mean, I don't know how I'm going to die, but I'm definitely not going to make it. Well, let me just say, you still look 50. It must be that therapy you write every morning.

I don't know. It's working for you. But thank you for coming on. We're going to come back to fiscal policy. We do want to talk a little bit about the economy, because I know you're careful observers is that of that as well. But let me bring in back in, Ryan and Chris. And Ryan, let me turn to you. Any of the, this is kind of a light week on the data side, but any of the, and we are going to come back and play the statistics game, so I don't want you to give away any statistics. But

given all the raft of information that came out, you know, there's a lot of meetings of central banks, ECB, so forth and so on. Bank of Canada was when we were in Toronto that day, I think the Bank of Canada to raise their target rate by 75 basis points. Anything that kind of strikes you about the data and what it means for the economy's performance outlook? Anything you want to call to our attention? It was really light. There was very few indicators. I mean, ISM non-manufacturing survey came out and that unexpectedly increased, which is a good sign. So jobless claims remain really low. So the labor market is overall is very, very strong. I think the one thing

All the attention is on the Fed and what they're going to do And it seems like for central banks 75 is the new 25 And you already got the leak In the Wall Street Journal So the Fed's going 75 next

In a couple weeks Yeah we're going to have to change our forecast I think we had 50 Or we were contemplating 75 We were debating We were going to wait till the CPI next week Which should be good Right

You should see a decline in the CPI next week But it's not going to alter their view They're not going to declare victory On just two months of improving inflation. So I think, yeah, we're not to change our forecast. Well, I guess when UI claims are 222,000, that means effectively no layoffs, which means job markets rip-wrorn, which means I got to slow things down pretty fast. Yeah, I mean, it wasn't, there's not a lot, there's not any numbers in it, but the Fed's page book came out. And if you read all the anecdotes,

businesses are going to keep hiring because they know how difficult is to fill open positions and that they have this backlog of work to do and they need to fill, put people in seats. So the idea that the Fed's going to be able to cool labor demand quickly, I think is kind of a challenge for them. Yeah, that's a real test. Hey, Chris, anything you want to bring up? I mean, the one thing that struck me about our dinner

with clients in Toronto was the Canadian job markets even tighter than the U.S. job market. I mean, they were, the stories they were telling about labor, their workers and wage demands and remote work. It was pretty interesting, I thought. It was. It was. And I think many of them were secretly hoping for a little bit of a recession just to restore some normality here.

Sounds pretty unsustainable what's going on there. But yeah, I agree with Ryan in terms of 75 basis point. I mean, every central bank seems to be adopting this as the standard. tool at this point. So I've got to buckle in because the tightening cycle certainly is here to stay for a while. Yeah. Looked at this week was the economic surprise index, which kind of measures how the actual data performs relative to expectations. Is that our index or whose index is that? City Group. City. Oh, City.

Or has one. City has an economic surprise. And they're rising. So, you know, for the most part, the data is coming in a little bit better than what. you know, the consensus was expecting. Yeah. Okay. Hey, Doug, so what's your, what's your sense of things? I mean, one way to, one question I might ask is, do you think we're in recession? I mean, no, right. I mean, I don't know what the first quarter was, but if you looked inside the sort of anomalous net export and the inventory moves, domestic demands very solid in the first quarter. So second quarter weakened more than I expected.

So that that did concern me a bit, but it appears that that's behind us. So we had a slow quarter in the second quarter. Third quarter looks to be something like between one and one and a half. And that's about what I expect for the second half of the year. So no, we're not in a recession. And certainly if you take seriously the definition of a sustained and broad decline in economic activity, you can't make that case at all.

Of course, that's the National Bureau of Economic Research definition. That's a whole standard. So, you know, everyone gets all excited by every monthly labor report. But, you know, I now just look at two things. I look at the growth rate and aggregate payrolls, sort of as a proxy for labor demand, right? And look at the labor force growth. And labor force participation as a proxy for supply.

And if you look at year-over-year growth rates of those things, demand's been way above supply for a long time and remains way above supply and there is no evidence for cooling really at all. So the idea that the Fed is going to look at this top line that was driven largely the gasoline prices and declare victory is insane. And all the easy money addicts in New York who keep saying it's time for them to quit, better get over it. I mean, I thought that's Powell is now twice, just basically said, wake up, freight train coming, stop, I admire him. I mean, he's just like, look.

Couldn't say it more plainly. He's having more and more Volcker moments. Well, he, what's the name of Volker's book? Oh, I don't know. Keeping at it, the search for sound monetary policy. I'll keep saying, we're going to keep at it. Oh, is that? I never connected those dots.

Okay. It's a full scale, you know, put on the Volker suit and go. Hal just needs the cigar. Yeah. That I can't imagine, but no. Yeah. I don't see that. But, but, you know, so I think, I've thought 75 was a lock for a while.

I really have. And, you know, he has basically said it is worse to do too much too quickly. It is worse to pause than to do too much too quickly. So they're, he, he did the whole Jackson old speech without using the phrase. soft landing. It's gone. He never used it anymore. Yeah. So it used to always say, well, we're going to try to engineer a soft land. He stopped saying that. When you say aggregate payrolls, do you mean simply payroll employment, the growth in payroll employment? Oh, payrolls. There's an index in the in the report. There's an index of aggregate payrolls,

which is people, hours. Okay. So that tells you sort of, they can be operating on a lot of dimensions, but it's demand for labor. Getting more bodies, more hours, more pay for them, whatever it might be. Got it. So what does that actually called in the report? This index of weekly payrolls, I think, is. Oh, okay. Okay.

And if you looked at that, like in the early part of this year, that was going up at like 12% annual rates. She's just red hot. Right. I'm into single digits now. And it was 3.4 in the last report. So there's some cooling there. That's good. That's year over year?

3.4. But 3.4 was just the annual rate for that month. Oh, that month. Okay. So we got a little bit of noise. Labor supply ticked up 3 tenths of percent. Labor demand ticked down. It's one month of information.

If it extrapolate it, you declare victory, but don't extrapolate it. Because we've seen this movie before, it just goes right back. You know, it's so simple, but actually very intuitive and appealing. Just look at growth in labor force, growth in hours of work, essentially. You have to interest people in the story without talking about the number of jobs created or the unemployment rate because I don't pay attention to them anymore. Quite interesting. Well, okay, so the Fed's obviously on high alert and going to press. What do you think?

Are they going to be able to pull this off without actually breaking the expansion and pushing us into recession? I was at a conference recently, a housing conference, and this really, really bright Eminent economist said that he, guaranteed there wouldn't be a recession. Do you know that guy? Guaranteed. That was you. No, no, no. I don't guarantee anything. Oh, did I guarantee that at that conference? Oh, boy. Oh. This is what happens when I get in the heat of the moment kind of thing. Oh, I forgot about that. That was a by-person policy. Yeah. Yeah, commission. Yeah. Guaranteed. I probably said, Mark. I don't think we're in a recession. I'm, I'm, I'm optimistic like Marcus, but I'm not going to guarantee anything. I think there's a good chance early next year that we see a downturn.

I do. Yeah. Better than 50. Right. It's just going to there's just, you're thinking is the Fed can't thread this needle. They've got a slow growth to quell inflation, slow job growth to quell wage growth and inflation. And they, to do that, they're just going to have to step so hard on interest rates. in the economy that something's going to break somewhere?

You know, as we know, it operates with long and variable lags, and they're more interested in getting inflation under control. And the way they're doing that now, remember, is they're looking at actual inflation, so that this backward-looking approach where you look at actual inflation, make sure it's come down to an acceptable level for a couple of reports, right? They're not going to just do it on one. That almost guarantees that by the time you get to the full impact of the policy,

so you've overdone it. They're going to overjoy it. That's pretty tough not to, I guess. What was I going to say? Oh, I think this might be a good place. We usually just talk about probabilities of recession at the end. But since we're here in this part of the conversation, just to get a more concrete sense of that, what is, Doug, what is your, what do you think the probability of recession? And hopefully this is a fair question because this is kind of the way people.

people seem to think about it. What is the probability of recession over, let's say, the next 12 months, next 18 months? What do you think? Between now and the end of 23? 75%. Oh, that high. Seven percent. I like him. Yeah, but you're down to 60, I believe, Ryan. Oh, I'm back up. Oh. I go up to 65. But Doug is influencing your thinking, I'm pretty sure. No, no. It was all the Fed. I agree with them. They're going to overdo it. They're going to overdo it. So what were you back up to? 65. 65.

Okay. So are you down to zero? Down to zero. Guaranteed. Oh, I don't know. I got to hear the tape recording of that. I mean, I find it odd. Did I actually use those words, that word, guaranteed?

I can't, that doesn't sound like Mark Zandi. Yeah. Really? Okay. You got all pumped up. I did. Did I really? Okay.

Yeah. I'm surprised you never brought this up before. I'm at 45. I do want to ask one. Oh, and Chris, are you still at 60, right? I might at 65, actually. Oh, you went up? I went up.

After Canada, you listen to those Canadians. You think, oh, my gosh. Not just Canada, but more international, definitely. Well, okay. Well, what changed from China and Europe? Last week to this week, you went from 60 to 65. What's behind that? Yeah, just I'm increasingly concerned about Europe and China.

Oh, okay. So the international impacts. And I, you know, yeah, the U.S. is great, but I don't know that we're immune. What are the rules? Am I allowed to ask question? Yeah, fire away. Yeah. It's the probability that China's in a recession right now.

Oh, excellent question. It is a good question. I don't. How do you define a recession for China? Yeah. Like a growth recession? Well, it can't be negative GDP because that'll never happen. Yeah.

I don't believe any of the number. So like, yeah. Oh, yeah. Yeah. A broad base slowdown of some sort. Yeah. I mean, it really seems like. I'd say they were in a recession back a couple, three months ago when they were on lockdown.

That felt like a recession, right? GDP. Just locked down 65 cities again. I think they still are. Oh, are they. Oh, that's right. They are starting lockdown again. Yeah, we'll see how that goes.

It felt like they had come back a little bit, though, in the last few months, maybe the last quarter. So I think Q2 was kind of the really low point. been reduced to basically gauging the Chinese economy by global oil prices because they're the marginal. Great point. And when it goes down, they're, you know, that's it. Yeah. So I think, I think they're really in bad shape. And that's, that's been the inflation relief we've gotten. Yeah, ironically. That's right, right? You know, heartbeat. I mean, we're at $85 on a barrel of oil this morning, right? Because I think, because of the concerns over China and Chinese demand,

which actually is a plus for us. So a big plus. Yeah. Okay, I mean, let me throw out a quick logic for no recession, see what you think. I've been arguing that the consumer is going to hang tough, that they've, you know, lots of jobs, low unemployment, but more importantly, they've got a lot of extra saving built up during the pandemic. Balance sheets are strong, low leverage. They've locked in the previously low interest rates through refinancing. Asset prices or stock prices and housing values are weakening here, but, you know, still. much wealthier than they were, you know, three, five, ten years ago. Does that resonate at all? Or is that just a reason why if we do have a suffer recession, it just might be less severe than

otherwise would be? Yeah, I think that's that's logic. So I did an exercise. I have to write something every day. So I end up, I end up like asking myself a question. And then I, not knowing the answer. So I went back and I looked at all the previous business cycles post-war. And if you, you know, sort of date it from the peak and start the downturn, and you look at components of spending relative to their value at the peak, it's the business spending that turns down first in every recession except the most recent one. I think we're overly influenced by the pandemic recession, which is completely different than every other recession. It was, you know, income went up, wealth went up, consumption went down because people couldn't go out and drink and go to shows. And, you know, so everyone's staring at the consumer. I'm staring at the business sector.

Like when they go down, that's when it starts. And then the consumer comes after, usually, quarter or two later. So that's worth, worth keeping in mind. I think that is interesting. And in Q2, I guess investment spending fixed investment was negative, wasn't it? Yeah. Yeah. Although it feels a lot stronger than that, the durable goods.

That one alarms me. I mean, that's why that GDP work really did get my attention. Got it, got it. And Ryan, it's stronger in Q3, though, right? Because the durable goods orders have been good, I think. Yeah, they've been decent, but some leading indicators point towards some softening in core capital goods orders. So that's like the key component that feeds into GDP, and that's going to be weaker over the next couple months. Although, if I look at shipments of non-defense capital goods X transportation, that's been pretty solid.

Yes. And that's what drives equipment investment, right? Correct. Okay. Yeah. But interesting. That's an interesting point, though, Doug. I always look at through the prism of the consumer leading the driving the train. Most people looking at it, right? There's been this obsession with the confidence index and what's going on there. And, you know, I, that's all interesting. But, you know, one thing I learned about, this is a campaign lesson. If you look at consumer sentiment, Michigan consumer sentiment, it's driven a lot by partisan considerations. Right. The people whose party has the White House are way more optimistic than everyone. Right.

And this is this unusual period because the Democrats have lost faith in the Biden administration. And so both of them are way down. And that's the only reason confidence is so low. Although Democrats are still a lot more optimistic or less pessimistic than the Republican. I think Republican sentiment, correct me if I'm wrong, but in the eunistries, the lowest ever been. Oh, false. Yeah. Yeah, they're really pessimistic.

Although with the declining gas prices, that might be turning a little bit. But this is a good time to play the game, the statistics game. And just to remind folks, the game is we each come up with a statistic. The rest of us try to figure out what that is through clues and questions, deductive reasoning. The best statistic is one that's not so easy. We get it, you know, hands down, not too hard, something that's apropos to a point you want to make or relative to the data. And Doug, so you just get the hang of it. Let me go to Ryan first because he's the maven at this.

He's really good at this. So, Ryan, what's your statistic of the week? 179,111. Is it a job statistic? It is. Is it the increase in job openings in the Joltz data? It is not. It should be.

It should be. It could be. It could be. It might be. It sounds plausible, actually. You know, we were at 11 million and it went up by $170,000. Man, if you got that, Doug, you would have been, you would have got all kinds of cowbells. That's pretty good. Is it in the employment report that came on Friday?

I'm sticking to the rules. Employment came out at 830 on Friday. Oh, it's this week. Oh, it's this week. Oh, 179,000. 111. Don't forget that. 111.

It can't be related to the unemployment insurance claims. Is it? It's claims. Oh, it is claims. It is. Seasonally, seasonally unadjusted claims. The four-week moving average and non-seasonally adjusted initial claims.

Okay. Doug, what do you think, man? That's got to be sort of Bell? No? No, we'll give you. All right. Okay. All right. All right, baby. So explain. Why did you pick that? To job list claims, it's one of my favorite economic indicators. It comes out every Thursday. It gives you a real-time read on what's going on in the labor market. And they usually don't send false signals, you know, except around hurricanes and things like that. But, you know, when jobless claims are rising, that's, you know, playoffs are increasing. That's a recipe for a recession. I looked at nonseason adjusted this time of year because Labor Day, they have hard times. time seasonally adjusting the data around holidays so they can be volatile, but the non-seasoned adjusted data is trending lower. And since 2000, the lowest four-week moving average was

170,000, and we're at 179. So it's just a testament to the overall strength of the labor market. Say that again? What's the lowest? The four-week moving average. Yeah. Non-seasonally adjusted claims since 2000 is 170,000, and we're at 179. Okay. That's back to you guys. Guys, good news is bad news. Fed's going to look at that and go, oh, my gosh. Right. I can't stand. Yeah.

Oh, okay. Okay, that was a good one. That was a good statistic. Yeah. Chris, you want to go? Sure. $259.3 billion. This is in the trade report.

Yes, it is. Oh, why did you go right there with that, Ryan? Was it the point three that gave it away? I mean, that was a billion when he said billion. Billion, he said, billion.

Oh, you know, they're limited releases this week. So, trade came out. It covers this indicator, right? From a release this week?

No. No, no, no. No. These guys are so literal about these rules, you know? All right, Mr.

Guarantee. Yeah. I want to see the transcript from that. That is definitely going on Twitter. There's a rate. I think there was a live stream. So you go back at the web. Take a look.

Check it out. Yeah. Is it exports of a specific thing? It is exports overall. Overall. Is it nominal exports for the month? Was $2509 billion? Oh, okay.

Yep. Okay. Which is a record high. That is interesting. On a nominal basis. On a nominal basis. Meaning not accounting for inflation. Correct.

Although I think even on a real basis, it might. Oh, is that right? Either. Oh, that's. That's interesting. You have any sense of what's driving that? So two things, right? So we have a smaller goods deficit, right?

So as consumers are switching away from goods into services, and we have a bit more of services surplus in terms of that applies to the, yeah, to the exports of U.S. services. So that's a combination of those. is leading to a narrower trade deficit. Well, hold on. So that $259 billion is that, what is that exactly? That's nominal exports. I just confused it.

Okay. $259.3 billion is the exports component of that. Oh, and now you're... And our overall trade deficit for the month was $70.7 billion. Which was quite a significant narrowing. Correct. Correct. And trade is going to be a plus for growth, is it?

It is. Correct. That's why I chose this one. one. Okay. Third quarter, we should actually see some improvement here. Trade was a drag in the first quarter, as Doug mentioned, but it's going to flip. And you're saying that trade balance is now improving because one export growth is stronger,

it feels like the world must be waking up a little bit, or maybe it's the Chinese reawakening from their slumber earlier. And imports are weakening, and that goes to the shift in consumer demand away from goods to services. That's what you're saying. That's what I'm saying, yes. Okay. We're trying to say, yes.

Yes. No, no, I got it. I got it. I got it. Yeah, it makes sense. It makes sense. You know, this picture could shift, though, all right, with the strong dollar, right? Although, you would have, the dollar's been pretty strong for a while here, right?

So it is, but as it continues to remain strong, assuming it does, right, then that's going to be even more of a drag going forward, right? The rest of the world might have been able to cope so far, but it gets. progressively harder to buy U.S. goods. Yeah, with a strong dollar. Yeah, that's a good one. That's a good one. Doug, you want to go next or do you want me to go next? You go next.

Okay. Here you go. Ready? 11.6%. What's that? 11.6%. And is that a, it's an economic statistic. Yes.

And is it related to the labor market in any way? No. No. No. Yeah, generally I would have thought that. And is it a recent, it comes from, or is it a recent release of data? Most recent release of these data. The most, oh, okay, that's interesting.

The most recent release of this data. Is it come from the GDP accounts, the NIPA accounts? No. No. Well, maybe, because we're struggling a little bit, can you tell us what part of the economy you're focused on or would that be giving it away? It's for the household sector. For the household.

Oh, is it housing related? No. No. Consumer credit. Yes. Oh, okay. So this is the growth in consumer credit? No, not credit.

Sorry, I thought he said consumer prices. Oh, consumer prices. Oh. Now you know that. 11.6%. So is it? CPI reviews. Is it a component of the CPI?

Is it a year-over-year growth rate and one of the components? More than one of the components. More than one of the components. Oh, it's an aggregate. 11.6. What is that, guys? Food's up more than that, isn't it? Food?

I'm trying to think. No, I don't think it's more than that. Food prices, Doug? They're in there. Oh. In there as well. Okay. What do you, Chris, Ryan, what do you think?

Huh? In there. Yeah, it's one component of the CPI. It can't be core. It can't be. And it's not the top. It's not the top line. Food plus energy.

Close. Okay. Oh, I give up. I give up. Yeah. It's the year over your inflation in food, energy, and shelter. That bundle, which is. Oh.

Oh, interesting. That's the political bundle. Oh, now it makes that I'm connecting. Yeah, yeah. That's getting. And then you got to pay your groceries. And that's why inflation is such a political issue. 11.6 still in the July report.

Like, that's brutal. Yeah, it is brutal. So you're saying if I add up food, energy, and cost of shelter rent. Right weights. Right weight. It's 11 points. It's up. 11.6%

a year of year through July. So that's, that's, that's, that's why this is such a big deal. Yeah. Well, let me ask you from a political perspective, the midterm election perspective. I stare at that is like, that's half of the CPI and it's the one that matter. And inside that is shelter. And shelter is a third by itself. Yeah, right.

And shelter is now at 5-7 and it has yet to peak. Correct. Yeah. Once I look at those two things, I, I just think. think you haven't made a dent in the inflation issue from a making the public happy point of view. Well, let me ask you a question on that. So the midterms are coming up in a couple months, but we're going to get at least one more CPI. We get the CPI report next.

We get two more CPI's. And this one, and Ryan, correct me if I'm wrong, but this CPI report coming out next week for the month of August is going to decline. We're going to see a pretty big decline, obviously. Mostly energy. Mostly energy. Shelter rent will continue. to add, but big decline in energy. Probably the one we get next month will show a modest increase or decline, basically flat, probably, given energy prices again and food prices. From the voters'

perspective, do you think it's the rate of inflation or do you think it's the recent change in the rate of inflation? The fact that it's decelerating now pretty quickly that last few months coming into the election, gas prices are down and inflation broadly is kind of rolling over. Still high, no doubt, very painfully high, but coming rolling over. How do you think about that in the context of the outcome for the election? So first, just on the way I think about the data, outside of gasoline, sort of oil-related stuff, we've seen very little change in inflation. I mean, so I don't think of it as rolling over for sure yet.

When we finally got the market-based PCE stuff, the core, it finally came down a little in the last. But not like not much, two-tenths year over year, still quite high. So I think there's a lot of work to be done in general. Voters treat prices asymmetrically. They look at the level of gasoline prices. When they say they want to get rid of gasoline inflation, they want to go back to two bucks, whatever the level was that they think is appropriate. and they look at the rest of them as inflation rate isn't coming down.

Like, you know, is it going from 8% down to 6 down to 4? But they look at the level of gasoline. Still right now, it's 3.75 probably. It's still too high. Still too high. Yeah. Yeah, in their minds. It's down from 5, the peak, which is the all-time high in June, but still, you're saying.

When they go vote, that's what they're going to say. It's too high. Yeah, and this is not a recent final, and this has been in chewing polling for 20 years. Yeah, interesting. But about gasoline prices, they have a number that they think has to get back to. That's what taming gasoline price inflation means to them. Hey, Ryan, if oil stays at 85, and I know that, who the hell knows, I mean, it goes up down all around, but say it stays at 85, where is the cost of the gallon of regular unleaded going to settle? Do you do you have a sense of that?

We're at 375 now. Yeah, I look at wholesale gas prices and they lead retail by one to two weeks and they're pointing towards the next two weeks getting down at 350. 350. A gallon. That sounds about right to me. Yeah, it's a little bit lower. And what were we pre-pandemic?

Do you recall? Was it, which I guess is, I think it was at least probably a buck lower, probably. Yeah. I thought it was 250. $2.53. Okay. To Doug's point. Because we're the good days.

Yeah. Yeah. Okay. All right, very good. Do you want to hear my statistic? Yes. We do. Okay. I'll give you two numbers. They're related from the same data set. Minus 0.3 and positive 15.8. Came out this week? Indeed it did. I stick by the rules. You know how I do that. I'm a very assiduous rule. rural compliance person, you know, follow up. Pardon me? Are these in the ISM report? They were not in the ISM report, nope. Is it economic data or is it financial market related?

Economic data. Okay. Yep, not financial. Yep. And very important in the current state of affairs. Top of mind for lots of people. Are we going to oil inventories? No.

I wouldn't go that esoteric on you. I'm, you know, I'm, you know, fair-minded about this whole thing. It's related to the BPC, the conference that Doug and I participated on. It's a housing market indicator. Indeed, it is. That's a big hint right there. Yeah, come on. So house prices?

House prices, yes. It's, was it month over a month? It was a CoreLogic. CoreLogic came out with their July, H-DI. Year of a year is the 15-year. In month over month? Yeah, month over a month is decline, you know, minus point three. This is a big deal.

You know, July, house prices declined. If you look across metro areas, almost a third of metro areas saw their prices decline in the month. You know, obviously year over year, they're still strongly positive because of all the price growth we got at the end of last year and the early part of this year before mortgage rates surged. but now the higher rates are conflating with the high house prices undermining affordability and demand is getting crushed and prices are coming in. Of all the big cities, which is experienced, where do you think the weakness is most pronounced? Usually Chris knows this data. Yeah, amazing.

I think New York was the strongest, if I'm not mistaken. What was the strongest? New York. New York was strong. Yeah. One point three. Was L.A. L.A.

Very good. There you go. Now you're back in the groove. Yeah, L.A. prices were down. D.C. Doug, you're home in D.C. It's negative, my friend, you know. Oh, D.C. Is the least cyclical of the housing markets because, you know, it's a company town and the company's always in business.

Yeah, that's true. Yeah. Yeah, it's true. And everyone's at remote work, so that one's going in. So, yeah, Philly prices, you know, of course, we live in Philadelphia, up point five. I took some solace in that. But, yeah, so prices are rolling over. This is the beginning of, I think, a pretty substantive.

Chris, can I ask you on that? Because, Doug, Chris is a former Fannie HPI credit risk modeler back in the day. Is it surprising to you how quickly things have turned here on prices or not? I don't think so. The only reason why so many homeowners were able to purchase a home over the last couple of years, given these double-digit rates of growth rates, was interest rates, right? very low mortgage rate. So with the mortgage rate rising, six percent, I mean, that demand is getting zapped immediately, right? There's just no option.

There's no other money. There's no other pocket of funds that they can tap into. So that demand weakens and that's clearly zapping the market. Yeah, I like that word zapped. Now we're expecting peak to trough price declines nationwide of what, five to ten percent? Five to ten. Yeah, five to ten. Verses Q2.

is we call the peak. Yeah, Q2. Right. Interesting. That sounds right. You know, I mentioned this at that conference. I've been curious about just how badly the Fed is going to hammer the housing market. And I think it's going to be terrible because, A, the rates are what they are, and they've got to keep going up. Yeah. They went from pumping $30 billion a month in to take a $35 billion a month out through the MBS. And a $65 billion swing is something like a fifth to a quarter of mortgage. finance last year.

I mean, just, that's a big, big number. You can have to raise rates a lot to attract private capital into the mortgage market from other places. And so on top of the policy rise, you're going to get a big impact. Just to make that clear to the listener, what you're saying is the Fed, when it was buying bonds, it was also buying mortgage security, mortgage-back bonds, $35 billion a month. Now they're 30? Now 35.

Yeah. Okay. Now with QT, quantitative tightening. we're in reverse. And so, you know, that's why mortgage spreads over treasuries have gapped out, or one of the reasons. That's why mortgage rates are so high. Yeah.

Yeah, I know. And the only possible way out maybe is the Fed Titans, those mortgage spreads come back in a little bit because they're very, very wide by historical standards. So you don't see the same rise in mortgage rates now going forward that a lot of all this stuff has already been built in. but it's a good point. Okay, let's move on. I want to talk about fiscal policy.

Oh, sorry. Before we move on, does anyone know why they were buying $30 billion? No, no. It didn't make any sense. Why for so long, right? That one was fairly. Oh, oh, oh, you mean, as a policy,

why were they? Why were they doing that? Why were they doing that? I mean, I guess early on in the pandemic, you could argue, yeah, it made sense. You want to keep mortgage rates. Record low isn't too bad. Let people refi,

it easier for people to work through their mortgages, but they kept on doing it for a long time. Yeah. Too long. Yeah. I think it is a little perplexing because also, you know, I think they would much prefer to be buying treasuries and mortgage securities, right? Because mortgage securities was some, and some have argued that's fiscal policy, right? Because you're trying to affect the housing market directly.

It's not buying treasury bonds, but. You want one more good number that came out of this one? Yeah. Minus 4%. Minus 4? So were you back in the game then? Oh, no. It's a round two.

If you knew off the top of your head. I don't know. Yeah, what is that minus four? Mainheim index, month every month. Oh, yeah, use car, use vehicle prices. That's an encouraging thing. Bad news is good news, you know. Correct.

I mean, the BLS doesn't use that as source data. They used data from JD Power, but it's just another indication that you know, August inflation should be lower. Lower. And when do the new vehicle prices, they haven't rolled over yet, right? They're still. They keep rising. Yeah, when do they roll over?

They got it. I mean, I mean, production is picking up, right? Yeah, we're probably in the fourth quarter. Fourth quarter, yeah, okay. Hey, we got to move on. A lot, that was a great discussion on the economy, but let's talk about fiscal policy. And maybe, Doug, turning to you, the first thing I'd like to ask is, uh, What do you think of just what was done in this Congress, you know, since the Biden administration began not almost two years ago?

It means an amazing amount of legislation that was passed at the end of the day. And what's your kind of broad assessment of the policies that were put into place through this legislation? I'm not a fan of what they've done. I mean, I, so if you go through the list, I mean, the American rest. plan, I think, was just an enormous policy error, both in its timing, its size, and the composition. I mean, it had nothing to do with the pandemic. So I didn't like that. The bipartisan infrastructure bill that came through is a good bill.

It's not dramatic in one way or the other, but I have no problems with that. I didn't like what they did recently at all. They passed this chips thing, which is just, this is letting your fear of China. to turn you into Xi Jr. and act like China. It's a terrible idea. So I'm not a fan of that. They passed this Pact Act, which is the Veterans Benefits, could be up to $600 billion, purely deficit finance. And then this Inflation Reduction Act, which has nothing to do with inflation. And again, I think is structurally not so great. So there's a lot of additional deficits, much of it permanent at a time when the economy is hot, and that's not a good idea.

And it's very different, in my view, from what we did in 2020, which was appropriate. I mean, I think they did the right thing in 2020, but not since. Well, let's take, you didn't mention student loans. That wasn't legislation, obviously. That was executive order. So I assume you're not a fan of that either. I know Chris is not a fan. That's just looking around money for young voters.

It's terrible. I think that's indefensively bad. Right. So you really don't like. The one thing that you did find okay was the infrastructure legislation. Yeah. Something we've been trying to do for quite some time. Yeah. Yeah. Let me, let's go back, take them one at a time on the American Rescue Plan. That, you know, just to remind the listener, that was the piece of legislation passed early in the Biden administration March of 2021. I believe it on a static basis over 10 years, it cost 1.9, maybe close to 2.2. $2 trillion. And that was deficit finance. That was, you know, the thinking was that the economy was still struggling with the pandemic. This was before vaccines got rolled out. There was a lot of uncertainty about, you know, how effective that would be.

And that was that legislation. And you don't like that legislation. Why? Because I have the benefit of actually being on record. I testified in the Senate prior to its passage. And so these are the things I said. There's no evidence we need additional stimulus. We had just done $900 billion in December.

But the economy using the real-time indicators was growing at like 6 to 7 percent, turned out to be six and a half. That is not a situation where you need to be doing stimulus. So the timing is all wrong. The size is just enormous. CBO's estimate of the output gap between actual GDP and potential GDP was something on the order of $400 billion. You don't need $2 trillion in stimulus to solve that output gap. So it's too big. And it inevitably is going to cause some problem as a result.

And the composition made no sense. I mean, it had like, you know, multi-employer pension plan bailout, open-ended bailout. It had a bunch of things that they were just in there to be in there. And so I didn't like it at all. It didn't answer any question. And it was all at the wrong time. Well, let me push back a little bit. Yeah, yeah, yeah, yeah.

Yeah, no, no, no. And that's the, you know, the wrap against it, for sure. But I think we knew two of the big things. The size was too much and it was not needed. We knew in real time. I don't view those as like 2020 hindsight. At that time, it was wrong. Yeah.

Yeah. The thing I got wrong. Larry Somers says it's going to cause inflation. I give him credit. He's smarter than me. Always has been. I thought it would produce a bunch of asset price bubbles. because that's sort of what we'd seen in 2020.

You get the stimulus, the saving rate goes to a third. You see asset prices. And so what I was afraid would happen is we would get big asset price inflation out of it. The Fed would be forced to move prematurely and we'd have a train wreck in 2021. I was wrong on that front. The trainer got shifted out. Yeah, the counter to that is, well, two things. One, on growth, I mean, it got us back to full employment pretty quickly, you know,

much more quickly than I probably would have been the case. I mean, we're only now getting back to employment levels that prevailed, you know, pre-pandemic. The unemployment rate's pretty close to what you would consider to be Nehru. The employment to population ratio was consistent with full employment. So, you know, it helped growth and get the economy back to full employment. And on the inflation, I, you know, I think it added certainly to the inflation back in the spring summer of 21. because, you know, it was lifting demand at the same time the vaccines were getting rolled out and the economy was opening. Hard, though, to connect the inflation today with the ARP, in my view, because that feels

supply-side-driven. That's pandemic, supply chains, labor markets, that's Russian invasion, commodity prices, oil, because that inflation is all over the planet. You know, it's not just in the United States. It's actually higher in other parts of the world where they're more reliant on Russian energy like Europe. So how do you, how would you respond to that? So I think, I think there's a lot of truth of that. Like if you look at the 2021 decomposition, right? So 2021 is important because it's one of only three years in U.S. economic history where the CPI inflation rose by six percentage points

from one. One was 1951, where believe it or not, the economy was growing at 10.5% wrapped we head around that number. And we raised federal spending by 50% to fight the Korean War, demand stimulus in a hot economy, 6% of one jump. Then the other was OPEC, 74, global oil prices, quadruple overnight, big supply shock. 2021's basically those two episodes run together. There are supply components. So if you take quarterly consumer price inflation and you plot the U.S. and the Eurozone,

The Eurozone basically gets a percentage point higher every quarter. I started at zero the end of 20, 21 at 4%. We had the same 1% increase in inflation rate at the first quarter, and then in March, A or P passes, and we go right up to three percentage points in the second quarter and a little more than one and a half and third. So I think that's the demand stimulus hitting, and it drives us much higher than Europe.

And since then, I think what we've seen is continued impact of the supply chains, you know, but you're hard to quantify, but more than any else, you're getting the classic long lag of the Fed staying on the gas pedal all through 2021, completely inexplicably. And I mean,

I will never understand that. I get it that they didn't want to prematurely tighten, but even when they acknowledged it wasn't transitory in the fall of 2021 going into winter, they didn't take the foot off the gas. Yeah. Yeah. Yeah. Yeah. Yeah. There is a place to criticize policies right in that period. What took them so long to kind of revert, start to dial things back? It took them a while. Yeah. Okay. So that's the, Ryan or Chris, anything you wanted to weigh in on the ARP, the American Rescue Plan? I mean, you know, Doug not a fan. I'm, you know, like any piece of legislation. I can find blemishes with it.

There are some things I wouldn't done if I were king for the day. But in general, I thought it was pretty good legislation. You guys have a perspective on this? Or you're going to stay out of this debate? I'm staying out of this one. I'll like Chris jump in. I'm probably a little bit more on Doug's side. Not that I could see the case for some stimulus,

but it wasn't well targeted in my opinion. That would. This is Chris's modus operandi. I mean, it's about the implementation, which I get. It's always about the implementation. I did a calculation at the time. Suppose you thought you really needed to help some people. Let's target people that were unemployed for 20 weeks or more in 2020 and send them checks.

You know what that would cost? No. 10 billion bucks. Oh, is that right? Instead, we sent out $300 billion of checks overnight. I mean, it was incredibly poorly targeted. Yeah. Yeah.

Well, that, I mean, to some degree, I, and I understand what you're saying, and I, I hear you. But, you know, you're trying to get something done fast, you know, get it across the finish line. There's all these political constraints that you got to keep this person happy, which we've seen, this person happy, that person happy. So given the, the messiness of the political economy, you know. No, I hear you. But yeah, I didn't think they needed to do something fast. I didn't. Okay.

urgency was political. It wasn't like the CARES Act where they needed to do things fast. I'll defend like the PPP forever. I think the Monday morning quarterbacking of the paycheck protection program is really unfair. Yeah, I agree with you.

This whole thing about fraud and I get it, but yeah. The SBA got, I'm going to try to remember this, $32 billion out the door in all of 2019. And they got $500 billion out the door and a month.

Totally agree with you. Yeah. That's it. I didn't think that. be done. Yeah. And you know, the mob. Things happen. Things happen. Yeah, right. I agree with that. I agree with that. All right. So,

okay, let's, let's skip over the bipartisan infrastructure because I think just broad agreement on that. And that, by the way, that's only now going to start kicking in, I think. In 20, 23, 4, that's when that money starts to flow and we get

some infrastructure projects. Although, judging by all the construction that's going in, out here in my neighborhood. It feels like that money's already out there. I don't know. But that may go back to the ARP because the state and local government's got a lot of money out of the ARP that's supporting things.

Let's then go to the Chips Act. This is the one one, I was a little surprised to hear you say this. You're not a fan of the Chips Act. And the Chips Act is an effort to provide subsidies, support to mostly the semiconductor industry to bring production here, increase investment in the semiconductor industry. And in the context of, you know, we are the nation, we are very reliant on chips coming out of

Asia, particularly Taiwan, and we know how vex that is, you know, given the relationship between Taiwan, the U.S. and China. So what don't you like about that? So number one, you just start with the Taiwan situation. So Taiwan's, you know, a complicated little place could be invaded. If you're a chip manufacturer, you know that. You don't want to be reliance on that. That's a terrible business model.

So you're going to diversify the sourcing of your chips regardless. You're going to build fabs around Germany and other places. So we didn't need the federal government to hand a money to do that. That was in their interest to do it. And, you know, Apple has $700 billion in cash on their balancing. Why are we handing them $52 billion tax pay money? Build your own damn plan. It doesn't make any sense to me.

There was at the beginning a really kernel of the truth, which was there are some defense-related chips that should be manufactured in the U.S. by domestic manufacturers, and they weren't. And I can see spending money to make sure that happened. But after that, it all just turned into, you know, these and I talked to some of these manufacturers and they were just they were just playing one government off against the other trying to get the biggest subsidies they could it's it was no deeper

than that well it was particularly shameless and so you know I'm not a fan of that yeah a pile of money in there for like um research and that could turn out to be valuable I don't know but again they the implementation is to make it go through these regional um innovation centers and If history is any guide, there's no innovation in regional center, period. We've tried that before. Well, I think the logic or the argument is, yeah, I hear you about market forces working, but they're not going to work fast enough. We've got a problem here.

You know, China is blockaded Taiwan, and they can do that again. If we don't get chips from TSM, we got a problem, a big problem, as we could see in supply chains and vehicle markets. We need production fast. And even with the Chips Act, it's not fast, right? I mean, to put up a fat plant takes time, you know, several years. It doesn't matter who writes the check. It takes the same amount of time to build it.

So that doesn't make any sense at all. They could also build the things. You're saying, but this definitely accelerates the process, don't you think? I mean, no? You think these guys would have done it as fast without the incentive? It was going to build their plant regardless. And they said, but when? They held up the government to pay.

for it. Yeah. Well, kind of sort of the argument against in building, the government, using government money for building stadiums and attracting businesses to your state or, you know, all that kind of stuff. The same, same kind of argument. Same kind of principle. This is really in the end just industrial policy out of fear of China and I don't think

it's smart. I really don't. Right. Okay. China's got a big problem because they're moving more and more towards central planning and they're going to fail. Can I ask, and I don't know the answer to the question, maybe you do, was there Republican support for the Chips Act? Was that?

There was Republican support. Yeah. They got through. Okay. That is a Todd Young from Indiana, though, called Endless Frontiers. That was the sort of initial version of that. And wandered around for about 18 months. Oh, is that right?

Okay. All right. Let's fast forward now to the Inflation Reduction Act, which I totally agree. It's not about inflation reduction, certainly not in the near term. But what don't you like about it? Because it addresses, I don't know your perspectives on climate change, but it definitely addresses climate change. Again, abstracting from implementation issues, I know, Chris, you don't like whatever. I can't abstract from them because, I mean, I think climate's a real issue.

I mean, this goes back. Okay. And this is neither enough money to genuinely deal it in a significant way. And they basically handcuffed the use of the money through these domestic content restrictions and all sorts of things that make it like the EV credit. There's one car out there that the average American can buy with that credit. And so they're going to not make much progress on the climate at great expense. And that just makes me nuts. Okay.

So it's not like you don't like the principle. You just don't like the specific policies that are getting to getting there. So for example, on the tax side, they have this book income minimum tax, which is just a terrible idea. We did this in 86 and we got rid of it in three years because it's a terrible idea. And now we're going to do it again and get rid of it in three years because it's a terrible idea. You're not against, it raises revenue. So it's raising CBO, it's paid for. I mean, do something sensible.

But they couldn't get that done going back to political economy. I know. And you got to pay for it. They're paid for it, right? I'm just saying, I'm not just like the policy of merits, and this is bad tax calls. Yeah. And it's bad for financial reporting. This gives you an incentive to distort your financial reporting for tax reasons.

We work hard enough to get people to display their financial results in that clean fashion. Why are we going to make it harder? Yeah, you know, that's the history of the tax code, Doug, right? You know better than I. I mean, the reason why we have all these loopholes is because they, you know, we had a 90% marginal rate, you know, back in 1950, and they couldn't lower the marginal rate politically. So they gave everyone these loopholes, including the carried interest deduction, right, or exclusion. I hear you.

I have no problem that. We can find it to the tax code. Don't bleed it over in to FASB's territory. They just handed the tax base to FASB. How FASB will figure it out. They, oh, come on. These are accountants. Come on.

That I do. I know. I was going to ask, oh, oh, on the funding of the IRS, to go out and... I have no problem with that. No problem with that. Okay. I think that that's a political firestorm for the sake of having a political firestorm.

Yeah. Substantably, the thing has been, you know, it's had about a 25% reduction in real funding over the past decade. You know, directionally, I don't know, 80 billion is the right number, but directionally, it's the thing to do. Yeah.

I just want to throw one thing out, and this is in my mind's eye, so I might not have it exactly right, But, you know, if you look at the fiscal impact of all this legislation we just discussed, over the next 10 years, obviously, it adds to the government's deficits. If you look over the next 20, if everything remains in place for 20 years, goodness knows that probably won't happen, but just for sake of, you know, discussion, it actually, I think, pays for itself because in the second decade, the tax increases, the book income tax you

refer to, the IRS, that kind of thing, raises a lot of revenue to pay. that ultimately pays for the American Rescue Plan. I don't live 20 years. Okay. I knew you were going to say that. Yeah. In general, if we want to just sort of place bets, you can get the second 10 years every time. Good luck.

Got it. Got it. Hey, and by the way, we've done some research on the climate provisions in the IRA and the impact that is on CO2 emissions and ultimately macroeconomic activity. And again, a boatload of uncertainty. You've got to look out pretty far. but it actually does move the dial a bit, you know, in a reasonable direction, you know, if it works out, reasonably so. Okay, we're running out of time, but I know there's one policy that we, I think we actually really agree on, and so I want to end on this, and that is immigration policy.

I know you think I was going to say GSE policy, Fannie Mae and Freddie Mac. We've always been in lockstep on that. Oh, yeah, we've always been a lot except on it. But no one else cares except you and me and maybe Chris. So let's table that one. We'll bring you back for another day. But on immigration policy, I know you've done some fantastic work in this area. Do you want to just give us a sense of things?

Sure. I'm going to go on mute because these, my guys are losing it over here. This is really not complicated. For a long time, and it's gotten worse recently, the native-born population in the U.S. has had sub-replacement fertility. we don't have enough babies to even stay the same population size. So in the absence of immigration, we're Japan.

We get old, we get small, we become less influential. The flip side of that is that by choosing your immigration policy, you get to dictate the future growth in the size and composition of labor force and the vitality of economic growth. And that's just an enormous opportunity. It's probably the biggest lever we have in terms of economic policy. And I just want the U.S. to do that, to think hard about, economic considerations when permanently awarding visas. Right now we award about 5% of

permanent visas on economic criteria. I just want that to go north. I think it would be a good idea. And without trying very hard, immigrants have, at recruiting, immigrants have provided an enormous non-economic vitality. And so if we actually tried, I can't imagine what could happen. And so, you know, there are a lot of systems out there, like Canada has a system that sort of awards points for different attributes. So I think of that as a resume reading system, right? So you get a resume, speaks English, has a PhD, five years of Liberforce experience, point, point, point, point, come on in. That's part of it. I think we need to do that.

But I also want to have an employer-based temporary visas so that people who, you know, we own to someone who didn't do that great in high school or college. or didn't even finish and is a fantastic employee, I want those people to find a place. If they can come, have an employer employ them, stay employed, and succeed in the way that we judge success in the market, stay in the labor market, then they get points to get a permanent visa. So something like that, I think,

would be an enormous step forward to the U.S. And it's quite frustrating to see us year after year, sort of not take advantage of that opportunity. Do you think we're going to get a political window at some point? I mean, it feels like that window is pretty tightly shut at the moment. But, you know, given the tight labor market and the prospects for that to remain the case forever, given demographics, the aging of the population and the lack of immigration, do you think that's going to change and we are going to get a window where we get some rational reform here? I think you could get some piecemeal pieces of that right now in, like, farm worker immigration. and, you know, on a bipartisan basis, people know that basically the farm workers of America are largely illegal immigrants.

We need to fix that. And that's an opening to sort of think more broadly about getting the system cleaned up. We're also doing some work on literally millions of people who are in the visa backlog. And that's one where you really can't just throw money at the problem. Get more to process visas, get them in. and watch what happens to the economy. It would be a great idea. Yeah.

I mean, I agree. I don't think there's any better way to lift long-term economic growth, both in terms of labor but also in terms of productivity, as you pointed out, because immigrants are risk-takers by definition, you know, you don't pick up and leave one country coming to another without being a risk-taker. Right. And goodness knows, we need that. Then, you know, more and sounder immigration.

I mean, we definitely need that. Hopefully we find our way to do that at some point. But Doug, hey, you're the best. Thanks. I really want to. You know, I learned a lot about hot talks in Chicago. I didn't know that. I didn't know that either.

I didn't. Yeah. And I'm going to get a bad bottle of wine out of it. Yeah. Yeah. And maybe a cowbell. Oh, I meant to ask you, you were telling us a story about the cowbell. You already have a cowbell.

Have a cowbell because my assistant's an alum of Mississippi State. And I didn't know, but they all. all carry cowbells to their games. And this is to honor some historic moment when the cows invaded the football field. And so they have cowbells. And cowbells are really like you shouldn't ring one in the office. They're loud. You do.

Oh, we do regularly. Regularly. We all have, we have, we've got, apparently they've got, if you go to Europe, every mountain or every hill has its own cowbell. Really? Yeah, I didn't know that either. Yeah, there you go. You learn two things in this podcast.

very good well thanks again and hopefully we'll have you soon and best of luck with all your endeavors so thank you Doug thanks for having me pleasure hey and to the listener uh this is our 75th episode guys 75th we have surpassed a million downloads in that time a little over a year and I think people like this I mean I certainly enjoy it and fun to have people like Doug on and give them a hard time I was going to ask you, how many of those downloads are you? Oh. He's trained the dogs. He's trained the dogs.

Yeah. Yeah, that's right. You want that bone. You got to keep pressing. You got to be pressing. Exactly. But to the listener, though, we appreciate your feedback. So if you've got any topics you'd like us to address, let us know.

And questions, you know, different podcasts, we've been taking listener questions, and we want to get back to that. So you've got any specific questions about this. podcast or any others, you know, fire away. And with that, we're going to call a podcast. Talk to you next week. Take care now.