Moody's Talks - Inside Economics - Do we have a Deal?

Episode Date: May 26, 2023

Ben Harris, former Assistant Secretary for Economic Policy at the US Treasury, summarizes the latest proposal for raising the debt ceiling. An acceptable deal seems to be within reach but remains politically uncertain even as the x-date draws near.  What are the alternatives if no deal is reached?  And what could be the consequences for bondholders, Social Security recipients, and other stakeholders?  Ben joins Mark and Cris in a round of the Inside Economics Statistics Game and provides his views on the future of retirement financing.For more on Ben Harris, click hereFor the full transcript, click hereFollow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn 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 Sandy, the chief economist of Moody's Analytics, and I'm joined by one of my two trusty co-host, Chris Dreadies. Hello, Chris. Hi, Mark. Where's Awa Marissa? Where is she? I think she's taking a well-deserved vacation. Oh, is that right? Okay, good for her. She certainly deserved it. She certainly deserved it. I've had, I need a vacation, Chris. I need a vacation. I've had a very stressful week. It has nothing to do with the debt limit. It's like computer meltdowns everywhere. Oh, yeah. Yeah. It's like, I mean, I had a whole day without my computer. I haven't had that happened to me for 35 years. It was really hard. It was really painful.

Well, this podcast is like a vacation. It's kind of like a vacation. You know what happened to me this morning. My charger doesn't work. My chart for some reason, it broke. And so I'm sitting here. I came down to Florida for a few days and I have no backup. So I'm running. I see my power running down. I go, I have this podcast. I have this podcast. My thing's running down. So I send my wife out to Target. And I said, you got to drop whatever you're doing. Go get me a charger. So she gets me a charge. She comes back. It's one of these, you know,

universal chargers, you know, and I couldn't. So I'm ripping it open because I'm literally running out of power. And you know how they have those little charger knobs, you know, for each different computer? Oh, yeah, yeah. So when I was ripping it open, it flies across.

It flipped out and I didn't see it. And I'm going, oh, honey, where's, I can't use this thing. So I was about ready to send her back out. And, well, anyway, I'm good. I've got, I'm set. But anyway, and we got a guest, Ben, Ben Harris. Good to see you, Ben.

Thanks. Thrill to be here. Yeah, well, have you had a better week than I have? Well, I mean, I've got my chargers. You've got your chargers. I guess so. It's great to have Ben. Ben is kind of sort of on vacation, right?

I mean, you left your position in Treasury a few weeks ago. you were the Assistant Secretary of Economic Policy, and you left. And now you look really, you look, actually look pretty good. Oh, thanks. I'm not sure my wife would agree with you. You know, I intended to be on vacation, but then all of the, you know, the debt limit impasse happened. And it's kept me just as busy as I was before. I mean, I testified up on the Hill a few days ago on Wednesday. I gave a keynote address at an NBR meeting yesterday, and I've just been doing a lot of discussions around the debt limit. So I haven't had the break that I anticipated, and I know we're going to get this later on. My hope is that Congress reaches a deal with the White House, and I can take a few more

hours off each week. Yeah, and we are definitely coming back to that. And today, just the level set for everyone is Friday, May 26th. So we're coming up on the X state here, because I know people will listen to this at different points in time. And prior to your treasury stint, and can I kind of ask, what were you just kind of your broad remit as assistant secretary for economic policy at treasury? So I had a very different role, I think, than prior assistant secretaries. And there's a long history of really talented, honestly, just brilliant assistant secretaries before me. I felt like I was just trying to play catch up and live up to their legacy. We have people like like Rich Claretta served in that role. We had Jan Eberley, Karen Dinen, Alan Pruger. Actually,

I had three former bosses work in that role. So people of both parties, Phil Swagel, who's now CBO director, just terrific economist. And so my remit was broader than usual, in part because of how I came in. I mean, I came in, A, as one of the few sort of close Biden advisors at Treasury. So I had been Biden's chief economist when he was vice president and stayed in that role all the way through the election. I was an economic advisor for the campaign, I think similar to the role you played with Senator McCain's campaign, Mark. And so I kind of understood, you know, where the president wanted to go with economic policy. We also had a barebone staff. You know, the prior administration had really sort of gutted the career staff and the Treasury Department, particularly on the economic

policy side. I'm not trying to, I'm not trying to come in with sort of this negative point, but like usually within economic policy, there are three deputies that's happened. They didn't hire any deputies for my role. So I came into this very, you know, we didn't have a lot of political appointees. We came in the middle of COVID. We were working remotely. So when I came in, I was play the role of speech writer. The, the title, Assistant Secretary for Economic Policy also is the chief economist, the Treasury Department. So you're trying to think through all the macroeconomic stress we had at that time. I played a big role in the policy side of things. So much of 2021 for me was spent trying to get build back better through Congress. Of course,

you know, in October, we got it through the House and then we came up one vote short in the Senate. And the other thing, it was really interesting about my time at Treasury, which is atypical, which was that I played a big role in capping the price of Russian oil. And so usually people in my role, it's a purely domestic role. But in part because Jay Shambah hadn't been confirmed yet as Undersecretary for International Affairs, and in part because my team was doing a lot of the analysis around what was happening with the Russian oil trade. I spent, you know, a lot of 2022 after Russian invaded Ukraine, thinking through this new, really, novel sanctions regime. I made more trips to Europe than I could count. I went with Secretary Yellen

to Indonesia to the G20 meeting. So I got kind of this very cool different remit than I think is standard for people in that role. That is cool. I didn't know that you were one of the architects, if not the architect, behind the price cap, oil price caps. Congratulations. They seem to be working, right? Yeah, it was such a ride. I mean, I, It was definitely a team effort. Liz Rosenberg at Treasury played a big role. I mean, obviously the secretary and the deputy secretary. But it was, you know, it was kind of, I play the role of sort of point person on this.

And it was really interesting because it started actually before Russia even invaded Ukraine. And, you know, we had rumblings. We knew this could happen. And NSC had asked us to do some analysis, some economic analysis as far as what it could look like for markets. And we initially were worried that what happened to European gas markets would happen to world oil markets, was that Russia would effectively weaponize not just natural gas, but also oil, crude oil and refined product. But then we realized Russia doesn't really have the leverage to do this. Russia needs this revenue. This is not a well-diversified economy. They're fighting a war. They have a war chest, but they might blow through it. And we kind of realized, even before the invasion, that we actually have some leverage here. And then what happened in June of the 2022 was that Europe went ahead and put in place what it was the six sanctions package.

And part of the six sanctions package effectively said that Western companies, you know, Europe moved first. The U.S. would have likely joined them was that Western companies couldn't participate in the oil trade. And the reason that we were concerned was because there's so many Greek tankers that carry Russian ships. There were so many insurance companies from the UK that insured ships that carried Russian oil. And so our worry was, look, I mean, this is a really well-intentioned sanction designed to reduce revenue. But what might happen is that you could have oil at $150 a barrel. We could kick off a global recession because you're getting so much oil shut in into Russia. And so we wanted to tweak to the six sanctions package.

And the tweak was, look, you can still carry Russian oil if you're a Greek tanker. You can still insure it if you're an insurance company based in the UK. You can still finance it if you're an American bank. But you can only do so if it's below a certain price. And I cannot tell you how many people told me that I was an idiot personally on Twitter, called out the Treasury Department, called out the Biden administration. You don't know how commodity markets work. You know, we went the first time went to Europe.

I don't think that they're terribly enthusiastic about it in certain countries. But it worked. And you have people like Dan Yurgan, who's just a force in these markets, has come out and say, no, it is working. And it is working. It is driving down Russian revenues from the oil trade. Global markets are stable. I mean, this is great. We have a landmark war in Europe involving a supplier of,

of oil that supplies roughly 10% of the global oil. And the markets are incredibly stable right now. And Russian revenue is falling through the floor. I mean, it's not, you know, it's not like it's completely dried up, but that wasn't an option. We needed them to still trade the oil. We just need to do it really cheaply. And so we have kind of pulled this off. We've done it in an incredibly coordinated way.

The G7 joined us. The Europeans became our colleagues on this. And actually, you know, got to the point where we spent so much time. working with our G7 colleagues largely over Zoom that when we saw them in person, we actually would hug each other. Yeah. You know, and so it was also, I think, a move that reinforces solidarity amongst the G7 against this sort of aggressive action that Russia took.

So I think it was a really powerful move. And it's honestly, if I look back in my career, it's probably the thing I'm most proud of. Yeah, it's so cool. I mean, I was just looking at a chart, believe it or not, I had to give a presentation to a big global bank this morning and we were talking about oil. and threw up a chart of Russian exports of oil. And it's the same today as it was the day before Russia invaded. Obviously, whose buying oil has shifted, the European Union is buying.

We're not buying anything. And it's all gone to India and China and some others unknowns. But yet the revenues that Russia is getting is much, much lower because of the price cap. It's really incredible. And I didn't, I didn't say, I wasn't the guy saying nasty tweets, Ben. I wasn't doing that. But I was, I was definitely skeptical of the whole thing. I go, really?

How's that going to work? But it's working. It's been pretty amazing. Yeah. Yeah, I mean, we may have kicked off a whole new way to do sanctions now. We'll see. I mean, it is novel of nothing else. So let me ask before we move on, and we're going to talk about the debt limit.

And I do want to talk about a couple of other things you worked on. one is on what you call modern supply site theory. And then also you wrote a book with Martin Bailey. Is Martin, he was formerly at Brookings? Is he still Brookings? Yeah, he's still affiliated with Brookings. Yeah, still affiliated with Brookings. And on retirement and how to address all the issues regard to the increasing number of people in retirement. But before we do that, how did you be become chief economist for President Biden? How'd that happen? So I had been at the Council of Economic Advisors, first under Austin Gouldsby and then Alan Kruger. And I got along really well with both of them. I mean, I have tremendous respect for both of them.

I mean, Alan, of course, tragically passed away several years ago. But actually, I didn't know how I got the job. And I was called, I was actually out with former Treasury Secretary Bob Rubin out in Stanford. We're doing an event on water rights of all things. And I got a call from Steve Roshetti, who had been the chief of staff at the time. He said, you want to come in an interview for this job? And I mean, the answer was, of course, yes. And so I came in and really hit it off with President Biden. And they offered me the job not quite on the spot, but after a couple days.

And so I spent the last two years of the Biden administration with him and formed, I thought, you know, really nice working relationship. I really enjoyed being his chief economist. But I never really knew, this is sort of a sad story. So I never really knew how I had been nominated for that job. And it had been sometime in 2017 or 2018, there was an event at the state theater, which is in Falls Church, where former Obama administration folks got together. and I don't know who paid for it. I think maybe Jeff Zions had sort of rented it out or someone. And we all came together and Alan Kruger was there.

And I was talking to Alan. I was so happy to see him. And he said, well, you know how you got the job with Vice President Biden? I said, no. He said, well, I called him and told me he had to hire you. And I was so thankful. So I had like, you know, my to-do list. I had send Alan a bottle of bourbon to say thank you.

And then he passed away and I never had a chance to do that. but for me, you know, the fact they got a servant role that he served in, and I really just tried to honestly tried to honor him. That was my way, you know, honor his legacy. So that's why I got nominated. Alan was such a nice man. Yeah, he was. A couple of our conferences.

And I remember going to Washington. He'd show me around him. He was so proud of his office when he was chair of the CEO. Look at the you I have, Mark. It's like, it was very, he was so nice and so brilliant, such a brilliant man. Man. That's a brilliant man. Yeah.

Great. Well, that's a good background. Let's dive into the topic that's top of mind, and that's the debt limit. So it feels like we got some good news sort of over the last 24 hours. There was a press report at New York Times. I saw something in the post saying that there might be a deal coming together here. You want to describe. I know you've followed this very carefully. Maybe you can describe what the deal, well, the reported

deal is and what you think of it and how do you handicap this actually getting across the finish line before the so-called X date. Yeah. So let's start by talking about what actually made it through the house a couple weeks ago. So it made it through the house was they raised the debt ceiling, but likely only through March of next year. So not through the election. That was part one. Part two was really steep cuts in discretionary spending. Now, they weren't specified. These were just caps on discretionary spending for the next 10 years. On the whole, the bill cut deficits by 4.8 trillion, which is a really big number. But most of it were through these caps on discretionary spending. So of that 4.8 trillion, 3.2 trillion came from the caps. They would completely decimated

discretionary spending. Another trillion or so came from two different items. One was a rollback in the student loan forgiveness program. And the second was a rollback in the clean energy tax credits that were passed through the Inflation Reduction Act. So those two things made up another trillion or so. So that gets you to 4.2 trillion. And then the remainder was essentially savings on interest. And then you also had this trade of about $120 billion where the Republican bill saved $120 billion through extending work requirements on Medicaid, food stamps, and TANF, but then lost another $120 billion by rolling back the higher funding for the IRS. And so, okay, so that's what they passed through the House. And then what's the deal that the New York Times reporter Jim Tankersley reported? I should say this isn't public.

So this is, you know, it's not like they, I mean, it's public in the sense. It's reported by Tankersley, but they didn't come out. I haven't seen a statement. And it has a few different elements. One is extending the debt limit past the election, which was, I think, a necessary condition for the administration. You couldn't have it expire prior to the election. The second thing was just two years of caps rather than 10. And you have defense spending and spending on veterans grow at the level that,

President Biden had proposed. And then you basically, after you talk about certain sort of accounting issues, you basically have like flat spending in 2024 for non-defense, non-veterans discretionary spending. And then it grows by, then both grow by about 1%. So a cut in real terms and inflation adjusted terms in 2025. Then you also have, of the 80 billion in extra IRA, IRS funding, which was put through by the Dinflation Reduction Act, you pair back 10 billion of that, so about 12%. And then I think I've heard other people speculate that work requirements need be worked out. I mean, I was texting with Tankersley last night about this and asking him, it seems like this is a report of the New York Times, that it seems like work requirements

and permitting may or may not be on the table, and those details are still being hammered out. So, you know, relative to this big $4.8 trillion deficit reduction bill that the House passed, this is pretty small. And so you asked me to handicap it. I mean, there's no way that I think you're getting a big part of the more extreme version of the House voting for this. I mean, it's just this, this doesn't feel like a win for them. For any sort of moderate, I think it feels like a big win. And for those that have businesses in their district that are really concerned about what the cuts might mean, perhaps that's also a win. I think the pressure from businesses has come not in the public as it has in the past, but more behind the scenes. I think you'll get some

Democratic votes. If there are work requirements included, I think you're losing a decent share of the Democratic caucus. They just, they can't vote for work requirements for Medicaid. But in general, I think you're going to see basically, you know, 100 votes from each party come together and pass this to the House. I think the Senate, I think he'll sail through the Senate. The Senate understands the consequences of a debt limit impasse in ways the House does not. But I'm not sure that this is done.

You know, I'm not sure that McCarthy can get this through his caucus. And so, you know, we're not out of the woods yet. Yeah, I'm with you. It feels, it doesn't feel like it gives the conservative Republicans the Freedom Caucus enough to really, they're not going to, Well, maybe I guess McCarthy's figuring that he's not going to get their vote anyway for almost anything. And so if he can't, he's got to get something through the House eventually, right? So if that's the calculation, then maybe just try to get enough votes in the middle on both sides and you get this done.

Maybe that's the calculation. Yeah, I mean, this is kind of where I thought we would end up, but I didn't think we'd end up, I didn't think would happen this way. I thought we would see a market freak out like we did in 2011. I thought we might see decline in equities of about 10%. I thought we might see credit markets exhibit more stress than they have. I mean, we are seeing points of stress, as you know, but it's nothing like 2011. And so this is kind of the deal I think you get on June 6th maybe. Right.

Right. Right. Okay. So your feels like you're saying, okay, great. This sounds good. I'll take it. But let's just see how this plays out. I'm not so sure.

This may be a head fake. It may be a head fake. I mean, I don't love what it does to non-defense discretionary. It's not a catastrophe, but it's not great. And if we get work requirements included, I mean, you know, it's a pretty small, you know, work requirements raised about $120 billion in the original bill, but I don't see how you're going to get the Democratic votes you need if you include work requirements for Medicaid. So you're talking about TANF and SNAP.

Yeah. You know, for the people who are affected, which I think are older, it would likely just be an extension and the work requirements are already in place. So we're talking about older workers being subject. It's not like there are no work requirements in these programs. It's just a slight extension of the work requirements that are in there. You know, for those people, there's real cost of this. So I don't love this, but if this, and I also, honestly, fundamentally,

I don't love negotiating over debt limits just as a principle. Like, I worry about a lot what this means in two years. This means that who's ever in the White House has to give up all these legislative gains. I mean, this is what we do now. And, you know, I think when we had in 2011, just to remember what happened, in 2011, you had a similar situation. But in 2013, we got to another debt limit impasse. And it was not politically advantageous for the House at that point. President Obama was in the White House. Republicans had the House. It was not politically advantageous of them to engage in another set of negotiations. And I think because they're,

was debt limit fatigue. I mean, they tried, but they didn't end up getting a deal, and they ultimately ended up raising the debt limit. So my hope is the country, I mean, maybe we do this once every 10 years. Maybe that's the lesson. But I worry a lot about policy uncertainty if we have this hostage taking every two years. Yeah, I'm actually debating someone from Cato this afternoon. I don't know if you've ever done Intelligence Squared, the debates.

it's really a lot of fun. Yeah. If you like debates. And I'm 3 and 0, so I really, you know, but I'm debating. The debate is should the debt limit be abolished? And I think the argument, and I don't know what she's going to say, but my guess is the argument is that, well, this is the only way we get real fiscal reform is through this process where we go through the drama and come right down the Bible. the wire and there's a deal. How would you respond to that? I mean, because the argument against, the argument for abolishing in my mind is pretty clear, and you expressed it nicely. I mean,

this is the drama creates all kinds of uncertainty, ways on the economy. You know, if we ever breached, we can go talk about that, but that would, the economic cost would be very serious. And at the end of the day, we, in my view, is we don't really accomplish a whole lot. You know, it's on the margin. We're not solving any long-term fiscal problems, and you can't, given you have a few days, a few weeks in the caldron of a debt limit drama. But her argument might be, and as you can see, I'm prepping for this debate, the argument might be, well, this is the only way we get things done. You know, we get Budget Control Act of 2011, what was the enforcement act of 1990. How would you respond to that? Well, I think the proof is in the outcome here.

And our long-term fiscal problems, and we do have long-term fiscal problems, it's not non-defense discretionary spending and work requirements. So if your argument is this is how we solve problems, and yet we've just gone through all of this and really get no solution at all, I don't see how that argument holds water. I mean, what we would really need, we need to come together and we need to address health spending in particular. We need to have higher revenues. revenues were not part of this. And in fact, by cutting the IRS spending, it was only a little bit, we actually will probably end up with less revenues than we would have had before.

So if you sort of accept that any big fiscal resolution needs to include something on entitlements and needs to include something on revenues, we got neither in this package. So I don't really see how you can argue that this is how you get to the necessary outcome. Okay. Going back to the current debt on the battle, one thing that I've been perplexed by, and you mentioned it, is the lack of kind of any reactions. I mean, you know, I would have thought at this point in the drama, the fact that the X-States coming up here in a week or two, we'd see more of a reaction from investors or some reaction. I mean, one of the, I mean, one of the month treasury yields are higher than they typically are because of some concern about investors about getting paid on the other side of the X-state. CDS spreads are up. But broadly speaking, stock market's fine.

It's shown no sign of any ill effect from the drama. I don't get the sense that business people, trade groups or anyone else is pounding on lawmakers' doors and saying, hey, do something. Why do you, do I, am I characterizing things correctly? And so, you know, what do you think is going on here? So on the reaction from the business community, I felt like in 2021, and I spent a lot of time working with Treasury and White House colleagues on this, when we got that resolution, I felt like the turning point was when President Biden and Secretary Yellen went on TV with Jamie Diamond, Jane Frazier, the CEO of Raytheon, and the CEO of ARP. Joanne Jenkins. These are people who don't usually dip their toe in political waters. And they went on television in a very public way with the president and the Treasury Secretary and said, look, you know, you then it was in the Senate. It was Leader McConnell. You're really causing problems

in the business community right now. You guys should knock this off. And that was a bad look for Senate Republicans having such a public display from business leaders. And And we got resolution pretty quickly afterwards. Business leaders have been quieter this time. But I don't think that means they've been silent. I think they've been using back channel routes as far as what I've been told. They're calling the members. They're just not making public statements.

But the business community can play a real role in making sure this doesn't happen again. A, public statements are really important. And B, I mean, the irony is that you kind of need a market reaction. and we started talked about this earlier to show how bad it would be going over the X state. And so I'm never rooting for stress in markets, but it would have, you know, I do think that some stress would help reach a resolution. I mean, the way that we characterize stress to date is it's been really minor. As you mentioned, there have been some treasury auctions. We saw the highest rate for issuance on a 28-day bond, but it wasn't that high.

I mean, it was, I think, you know, 5.8% or something. And that's, that's an annualized rate. And that, you know, over a course of a month, it's really kind of mostly inconsequential. You didn't see a ton in the secondary market. People seem to be really confident that coupon payments would still be made. I think one of the reasons, there are two reasons why I think markets didn't really freak out. The first is that I think there's a faith that there would be some resolution reached. And they would be right if you look at the historical record.

I mean, we always reach a resolution for the ex-state. The second was a notion that, and I think this was a little bit mistaken, and I've been honest with the financial sector, I've had a lot of conversations with them about this. There's this notion largely based on this 2013 transcript that was a meeting at the Fed when Bernanke was chair, and they were talking, it was kind of a retrospective as far as what happened in 2011,

and the Fed was looking forward and saying, what are our options? And there was this memo written by these Fed staffers, I think there's Bill English and Simon Potter as far as 10 different actions the Fed could take if we went over the X state. And as part of that conversation, they reference some thinking that Treasury had been doing around 2011 as far as how they would handle payments. And I think the financial sector looked at that transcript and said, oh, Treasury will just prioritize. They'll firewall P&I look, Fed discussed it, and we'll make due on payments. And my,

My point has been that was a 2013 Fed talking about their interpretation of what Treasury would do two administrations ago. And this is really, there's only one person who knows how they would handle prioritization. And that's Joe Biden. I mean, that's a potus level call about whether or not you're going to choose to make P&I payments or Social Security payments. And, you know, that was, so Biden hasn't. But Ben, let me put Bush back a little bit. Yeah. Because I find it very unlikely that if we actually breached, that the Treasury would not pay bondholders first.

I mean, they had the technical ability to do it, right? There's the Fedwire payment system separate from the payment system used for paying other bills. So it's not like there's inability to do they can, Treasury can't do it. Because if Treasury doesn't do it, that would be immediate, in my mind, chaos, right? Because you'd get credit rating downgrades. And that's what the credit rating agencies are saying they're going to do. They'll do that. And then you get downgrades across all the other entities that are backstop by the

federal government, implicit or explicit. Think JP Morgan Chase, federal home loan banks, Bandy Mae, Freddie Mac, municipalities. You know, we descend into chaos like immediately. it seems to me, I have a hard time thinking that Treasury would do that. Am I just wrong about it? Well, my point is it is not Treasury's call. No, of course, of course. But okay, the Secretary Yon calls up the president or the person calls up the secretary say, hey, what should we do here? Do you think he's going to say, don't pay the bond holders? Let it go. One thing that was sort of fortunate about this particular impasse was that the way that Social Security,

and coupon payments were scheduled, it doesn't seem like they're really in the crosshairs. The big Social Security payment for old age beneficiaries goes out on the second Wednesday every month, which is June 14th. But you can imagine a situation where you have a big coupon payment and a big Social Security payment falling on the same day, you know, just because that's how it's going up. And what does the president do?

I mean, just as implausible is not paying bondholders is not paying Social Security beneficiaries. Oh, okay, okay, I guess. I mean, that's interesting. You're right. That is an interesting scenario if that were to happen. But I mean, I'll, well, let me ask you this. And, Chris, I'm going to stop and let you ask Pepper Ben with the questions here too, but am I right or do you think my characterization of what would happen if we didn't pay bondholders, you know, complete chaos, is that, is that, do you think that I have that correct? Or do I, am I wrong about that? Well, I think it's certainly in the realm, I think it's likely, but not certain. I mean, it's, it's been a little, I mean, there's, there's a world in which bondholders start to bifurcate bonds by those that are in the crosshairs and those that aren't.

And so if you think with certainty this will get resolved in a month, if there's a bond with a coupon payment in April or May, I mean, you're good. And so what I was worried about was we started having these toxic bonds based on when the coupon payments were scheduled. And so, and, you know, would the Fed come in and provide liquidity and swap out those bond payments that have coupon payments in the summer with those that don't? I mean, would that happen? The other thing that I think people discount too much is the potential for a failed auction. So the Fed has all these regularly skilled, not the Fed, the Treasury has all these regularly scheduled auctions. They go off in incredibly smooth ways.

These are pros who do this. You have these big primary dealers, these big banks that are bidding on them, but then you also have non-banks that bid on them. Banks are supposed to bid their share. So you've got roughly 24 primary dealers, and each is supposed to bid. around 4% of the amount that Treasury wants to auction. So, you know, if Treasury wants to auction $100 billion, they basically say from the primary dealers,

look, we expect that you're going to put in bids for $4 billion or so of this amount. And then you get bids from others. And so usually you get, I don't know, roughly 200 or so percent of the bids for the amount you want to auction. If you're auctioning off $100 billion, you get bids totally around, I don't know, $200 billion or so with some variance. But we've had circumstances, even going back to the great financial crisis, when primary dealers did not bid their pro rate of share. Some of them didn't. And it looked like we flew a little close to the sun on some of this where we didn't get, we only got a little, we only cleared the amount that we needed in bids by just some.

I don't know exactly how much, but maybe if Treasury is auctioning $100 billion, maybe we only got 110 billion in bids. Now, if you don't get that full $100 billion, the auction doesn't happen. It's not like you get 90 in bids, you just, you know, you sell 90 billion. You sell zero. And if we get a failed auction, even one, it's like game over because we can't, then there's no money coming in to make any payments. And then you might not even be able to make coupon payments.

Yeah. And so this is all, it's very precarious. Yeah. And I think the bond markets has had a little too much confidence and it's all working out. You know, bond market is usually right. So I'm probably the one who's wrong here. But I've been a little perplexed by how much confidence it's been. That's interesting.

Well, you know, I'm like I'm Moody's the bond market. And I've been always under the maybe the false impression. At least initially you pay the bondholders. I guess the other issue is, okay, the Treasury pays the bondholders. That means everyone else is going to sue, right? because why are they getting the money before me? Forget about the politics of it, just the legal aspects of it.

And that by itself is going to create all kinds of. It's not like there's any easy solution here. Priorization doesn't solve any problems. I'm not arguing that. But boy, not paying the bondholders up front would be, that would be chaos. The economy would evaporate very quickly. I do want to get to the game.

But Chris, any other questions on the debt limit that you wanted to pose? I'm sorry, I've been monopolized. I would just say so it sounds like we're in the dark side here. So what about the alternative approach is 14th Amendment, platinum coin? Do you have any views on how those play out or enter into the calculus here? If indeed we really go down to the wire? So I think in general you have two different categories of alternative measures. We need a word for them.

We've got this great term extraordinary measures, but that refers to something different. And so I think you've had two categories. The first are measures that effectively abandon the debt limit. And so citing the 14th Amendment, using a trillion dollar coin or depositing of the Fed, those are pretty unlikely. I think of all of those, the 14th Amendment is probably the most likely. But I think it's, if they're problematic, in part because it doesn't really solve your problem. I mean, it allows you in the short term to continue making payments, I guess.

But every auction that was performed after you have cited the 14th Amendment would be done under this cloud of legal uncertainty. And I don't know what the interest rates look like on a bond that was purchased. You know, you know there's going to be a legal issue coming down the road. I think the chances of failed auction are very high in that circumstance. And it doesn't really solve the problem. then you have this other class of measures that are things like selling gold bars in order to raise some cash to get a little bit further.

Now, this doesn't basically absolve us of the debt limit, but what it does is it helps us get to a date where we can kind of deal with it. We have some more time. And so in the current impasse, it's interesting because it's not like there's an ex-state and then everything is awful for forever. if you get to June 14th, then we start getting these estimated tax payments coming in because June 15th is the date for the quarterly estimated tax payments. And that revenue should get you definitely to the end of June. And then we have another big extraordinary measure where we can use a government pension accounting games are typically played to create about $145 billion in headroom.

So between this extra revenue and this extra destroyer and measure at the end of June, this gets us well into, July. And if the theory of the cases, look, debt limit fatigue provides Democrats with a bit more leverage, I think it is interesting to think through Treasury may be taking some extra extraordinary measures to get our country past this June 14th, June 15th date. And I'm not sure that's totally off the table at this point. I mean, I think that you've got folks who are just trying to present options to decision makers in the White House. And so when we're people are like, well, are you going to invoke the 14th Amendment? It's like, that's a question for President Biden. And to my knowledge, he hasn't made that decision yet. In part, it depends on, like,

what House Republicans are demanding. So, like, are we going to cite the 14th Amendment, you know, if we get, I mean, again, I can't climb into Joe Biden's brain. I don't know. But what would the president do? You can, then. I mean, it really depends on what his alternative is. And we don't know. Is it the bill that passed the house or is it the compromise that the New York Times reported? We just don't know at this point. Well, that's great. It's from, you know, a mountaintop perspective on the whole thing, it's so fascinating, isn't it? I mean, the whole thing is just on every level.

It's just, I mean, it's scary and it's very uncomfortable. But, I mean, just the economics of this, the politics of it, all the movements. parts, the legal aspects. It's an incredible thing, actually. Yeah, it's great drama. Great drama. That's what it is. The consequences weren't so high. But I guess maybe high consequences makes for great drama. So yeah, yeah, you go figure. Hey, let's play the game, the statistics game. And the game is we each pick a statistic. And we're trying to break this up, you know, break this up a little bit because it's been pretty heavy. We're going to get back to some more heavy topics in a minute, but break it up a little bit. We each pick a statistic. The rest of the

group tries to figure that out through questions and clues, deductive reasoning. The best stat is one that's not so easy. We get it immediately. You got to watch out for Chris. He's very fast on the draw. So, you know, he's not so hard that we never get it, but that happens, to be honest. And if it's apropos to the topic at hand, all the better. So, and we've got a lot of topics at hand, some of which we haven't gotten to. So that gives us a broad remit. So I'll go with you, Chris. I mean, Marissa is usually tradition has it, but, you know, she's AWOL. So we'll go with you first, Chris. Yeah, yeah, I'm the substitute. So I have a triplet for you. Uh-oh.

So positive 1.3%. Okay. Minus 2.3%. And then negative 0.5%. Oh my gosh. This should be really easy. I'm afraid it's too easy for you. Is it related to the, it feels like the economic data that came out this week. The GDI. Yep, GDI is one of them.

You got it. This is GDI, GDP, and then the combination of the two. The average, exactly. You got it. Oh, Ben, gosh, darn it, he beat me to it. Oh, my God. That is unbelievable. Okay, explain.

So GDP 1.3% perhaps weak, but positive. positive, right? So one way to calculate. Got revised up a little bit, didn't it, I think? It was 1-1-1-3. Yeah, that's right. That's right. GDI, which is our alternative approach to measuring alpha.

We've discussed this in previous. Close domestic income, right? So kind of all the income that's reported. Well, that was down 2.3%. Yeah. Right. So negative. And then the average, which we view as perhaps a more stable, more accurate,

depiction of what reality is also down 0.5%. And that is the second consecutive quarter of negative output growth. In terms of GDI? Well, GDI was down 3.3. I mean, the average you're saying is down. The average was down as well. Oh, I didn't know that for two quarters in a row. Yeah. So are we in a recession? Yeah. What are you saying? That's the question. Last year, right, we were pointed at the GDI because it was telling us different signals. Oh, no recession. Now, though, we have these two consecutive courts of GDI. Should we be concerned here? Is that GDP number going to get revised down?

Well, what's your answer? Concern. I think they're slowing clearly. But are we in recession right now? No, I don't. There's like no stone. You're still creating 250,000 jobs a month. Correct.

Consumption's on fire. Yeah. Labor market is red hot. Yeah. And, but we're contracting. It's a very peculiar situation. Yeah. I agree.

Well, a big part of the weight was just reduction of inventory, right? Or less, well, actually, inventory is actually declined, I believe. Clined. Yeah. So on GDP, that's subtracted over two percentage points. So, you know, sets us up for a little bit of growth in Q, in the current quarter, in Q2. But that was a good one, Chris. A very good one. Ben, do you want to go next? I do, but I will say I didn't pick one that was necessarily pertinent to today's conversation,

but I'll give it to you. Okay, yeah, fair enough. Far away. You'll probably get this right away. Maybe it may be too easy, but 4.7%. 4.7. Oh, is that, well, that's the core consumer expenditure deflator inflation year over year. It's 4.7%. That's, that's not the one I was thinking of. But it is. I'm telling you, it's 4.7%. I'm pretty sure. I'm pretty sure. Core, didn't it? Isn't that? Am I right, Chris? 4PC was 4.4.4.4. Which, by the way, makes me nervous, but we can come back to that. But that's not a great print today. Okay, that's not what you had in mind. Is it, is it an economic statistic?

It's an economic statistic. Okay. Did it come out this week or recently? It is the most recent, it describes your current situation. So it's the most recent release, but didn't come out this week. Okay. Okay. Oh, interesting. Is it a government statistic?

Yes. Okay. And is it inflation related? No. Is it labor market related? Yes. Okay. Do you see, no.

Yeah. Is it average average hourly earnings growth? Is 4.7%. That's probably, it's close to a lot of 4.7%. You took a lot of 4.7s, but this is, again, not the one I'm thinking of. Okay, but you said close.

You said close. The average hourly earnings. Is that? Oh, no, it's not related to earnings. It's not related to earnings. Okay, it's in the labor market, though. Interesting. Well, it's, I'm thinking job.

Is it a job? Is it, I don't, is a job growth related somehow? It's not related to job to, to, to, to growth in payrolls. It's from the households, right? Oh, is it the growth in household employment year over year? Percent chain? No. No.

Can't be labor force. What, what do you, what do you? Can me give you a hint? Oh, is it like, is it like unemployment rate for some demographic, like black, Is it black? Yes. Right? Oh, okay. Oh, okay.

Okay, very good. That's a good one. Yeah. Well, see, that was not as graceful as I would have liked, but we got there. But you got there. And I will say, I mean, the reason why I picked that one was during the campaign, we were giving them candidate Biden, you know, regular economic updates every week or so, twice a week.

It was a rotating cast, but usually Jerry. and Bernstein and Heather Boucher were on, and there were a few other folks that were joined. And I remember, I remember this very well because my family had rented an RV, my wife and I and our three daughters, because we just had to get out of the house,

and we're driving across the country. So I'm like sitting in the back at the table, advising President Biden with their dog barking and our kids on iPad. And in May of 2020, the black unemployment rate was 16.8%. Wow. And now that's not a high,

but like it's it's kind of a high for me as an adult. I mean, and and we were so worried that the president, well, we were, you know, hopeful that Biden became president, but we're worried that he would come into the presidency in the middle of something that looks like the Great Depression, you know, not even the Great Recession. We're talking about, you know, the late 1920s. And when you have a fifth of people in a certain demographic that are unemployed, I mean, that's what we're worried about. It was, I mean, 16.8% is bad, 25% is much worse. And here we are today with 3.5% unemployment overall, 4.7%, a low for black unemployment historically, far below the historical average.

It just feels very fortuitous and it could have been very different. Yeah, that's an amazing statistic. It really, really shows the strength of the labor market. I mean, just incredible strength and resilience. And that goes back to my fundamental reason for optimism. I mean, hard to imagine you go in recession. I mean, layoffs are so low and business is so reluctant to reduce their payrolls. It's just without that, it's hard to see a recession.

But anyway, but 4.7%, Chris would point out, 4.7% core PCE inflation, that's a problem too. Okay. Okay, I got a statistic. And this is related. I'm going to give you a big hint. right up front. This is related to the topic that we're going to go to in a few minutes on retirement security. And I'm giving you a hint because this could be a little difficult. The statistic is 23.6%. 23.6%. It's labor market related. It goes to the discussion around

retirement issues. Is it related to retirement accounts? No. It's the labor market related. Is it a participation rate? It is a participation rate. 65 months. Oh my God. See what I tell you, Ben? Unbelievable. That is I'm telling you. Isn't that unbelievable? Yes. I give him too much of a hint. So the the the participation rate for people 65 years and over is 23.6%. That's as of April. free pandemic, it was 26%. So that kind of gives you a sense of the decline in participation by older Americans. And, you know, of course, the overall participation rate is down, but, you know, right now it's only down by, I don't know, six, seven tenths of a percent. You know, not this.

So one of the reasons why participation hasn't come back is older Americans have left the workforce and they're not coming back. participation rate has not come back. And that's a real, that's going to be a real problem going forward. That's a good one. If you go back a bit further, though, go back to like 2015, it's actually where it's 23. It's right around where it is today. So is the anomaly actually today that it's so lower, or was 2019 just a- No, I think, though that just reflects boomers. You know, because 65 in number is a big cohort, right? And the participation rates fall very rapidly when you're over 65. And then because you have all these boomers coming in, their participation rate, because you're at 65, 66, 67, you know, it's going to push up your participation rate. So that,

in fact, the fact that it's down even more now is understating how big a deal this is, because it should be steadily rising, the trend should be steadily rising, because all those boomers coming into that age cohort. You see what I'm saying? It's just some arithmetic. Yeah, but In addition to higher participation within an age category. So, I mean, I agree with your assessment as well. And we just expect people, you know, 70 to 75 if you have higher participation rates conditional on how many of those people are in the economy. I mean, we just, you know, in particular with Zoom and other ways,

that may be easier to get into the labor market. I mean, I think the BLS projections show higher age-specific participation rates over time as well. Yeah. Hey, this is a good time then. Let's just dive into your book. Tell me about your book. And what I'm a little curious about the backstory, how you teamed up with Martin Bailey and why you wrote the book. And, you know, just anything, any context you can provide would be great. So Martin, I mean, you know, I sort of came up in economics in the 1990s. And anyone, particularly if you're sort of more affiliated with the Democratic Party. And Martin Bailey was chair of CEA. I mean, he's just like tight.

in economic policy. And we had received a bunch of grants to do work around retirement policy when I was at the Kellogg School Management out Northwestern, Hughes of Brookings. And we put together all these different proposals, and we commissioned different proposals from various economists around retirement security. We did a bunch around working longer, which is pertinent to our discussion we had. We had a bunch around annuities, reverse mortgages, long-term care. And then we decided, look, we've got a lot of good material here. Let's just put it into a book. But the crystallizing idea behind the book was this, was that we've got retirement system this country, which needs to be fixed. We never described it as catastrophic. There's a lot of good things about a retirement system. Some people come in and say, oh, it's entirely broken. We need to redo the whole thing. Our point was, look, it works really well for some people. It works kind of poorly for other.

but the fundamental system is a, you know, not, it's actually working pretty well, and B, it's not politically feasible to just redo the whole thing. I mean, you're not going to have individual accounts and Social Security that's just not happening. You're not going to have a system where we demand that every employer provides pensions to workers. That's the thing of the past. So the idea was, let's just take a very realistic look as far as what's possible, propose a series of tweaks, which collectively actually, you know, really changed the retirement system, but this is designed to be overall politically realistic. Ben, can you, I'd like to go through some of those tweaks.

I mean, in my mind's eye, when I think about retirement security and what it means also for the federal budget. And because, of course, the government has to play a big role in providing that security. The real problem here is some where we're social security, but that feels like a problem that can be solved relatively quickly. And I'd be curious to hear your thoughts on that. But really, it's Medicare and Medicaid, that that's really where the crux of the matter is. Is that fair?

Is that a fair characterization? Well, I think that it's a bit problematic. that Social Security is now, maybe more than a bit. Social Security is projected to go bankrupt in 2033. And by bankrupt, I mean exhaust the trust fund. After 2033, Social Security, if there are no other changes made by Congress, can still pay out 77% of its promised benefits. Medicare, the trust fund for Medicare is expected to go,

become exhausted in 2031. And actually, I use the term bankrupt and I probably shouldn't have, Bankrupt sort of suggests that it can no longer operate. That's what we associate with different bankrupt. And they can operate. It's still paying out roughly 80% of benefits for Medicare. The data is two years earlier, 2013-up, which point it's projected to still pay out 89% of benefits.

The Disability Insurance Trust Fund, which is more volatile. But that is on solid ground for the next 75 years as of today. CBO in 2015 put out a report where they proposed 36 different. reforms, tweaks, however you want to characterize them to Social Security, many of these bought you five or ten years just by themselves. I think almost none of them would be described as radical. And so with Social Security, I think you can get a series of sort of common sense, moderate forms, which will buy you at least 10 or 15 years, which is progress. On Medicare, I mean, in the Biden budget, Biden added 25 years to solvency of the Medicare trust

fund by addressing prescription drug price growth and by having a one percentage point increase in the payroll tax rate for upper income Americans. I mean, done. It's, you know, those two reforms buys you an extra generation of solvency. So I think it's a matter more of congressional will than just to come up with some sort of brilliant fix here. But the real problem with this is the heart of the book. So if I wanted to characterize the American retirement system, it has two big characteristics.

The first is that, as you mentioned, Mark, there are, there's enormous government resources devoted towards old age well-being. That's a combination of Social Security, Medicare, and about a third of Medicaid. The second is that we offer about $250 billion in tax incentives every year for retirement saving, and about half of families take advantage of that throughout the course of their lives and accumulate enormous sums of money in retirement accounts. We have $31 trillion today in savings in retirement accounts. And then people, of course, have vast sums of wealth in their homes.

It's very typical for older Americans not to have mortgages and have a fair amount of housing equity. So we have a system where you've got the government support. You've got a ton of resources, particularly across the top 60% of the income distribution. But we have no real way of translating all of those, all of those, that wealth into security. And the biggest problem with retirement is that we have no idea how long we're going to live. And so you've got like a 60 year old woman has about a one in 10 chance and dying in the next 10 years and has about a one in 10 chance of living past 95 and then an 80% chance. How do you deal with that uncertainty? Yeah, right. It's impossible. And what people do is not,

it's pretty rational is they just, they hold on their assets really tight. Yeah. Just in case, because no wants to be 95 and poor. And that's a, one, that's a problem because people can't enjoy their retirements because they're holding on their assets. Two, it's a problem because people have to save so much during their working years and, you know, sacrifice. There's really no way to sort of deal with this uncertainty. And there's other uncertainty. There's inflation. There's, market return. You know, if you own a home, there's lots of uncertainty in the price of the house. but it's just no real way of translating all that wealth into security. Yeah.

So, so just to reiterate, just so I have it right, on social security, if we put Social Security over here and Medicare, Medicaid, or say Medicare over here, that's for older Americans. Social Security, that seems like that can be largely solved by just taxing earnings above a certain level. So, you know, right now the cap is, I think, $130, $140,000 a year. That rises every year. But if you start taxing folks that make over their earnings on over 400K, that that really doesn't solve the problem forever, but it solved it for an extended period of time. Is that fair?

Yeah. So you could, for example, I mean, what the Biden administration, what the Biden campaign proposal was, was we went ahead and said, We're going to raise a bunch of extra revenue by taxing wages over 400,000. Right now, as you noted, the cap is 147,000. So for Social Security, you pay you and your employer, each pay 6.2% on any wages up to 147,000. And you pay zero on anything above that into the Social Security Trust Fund. Now, economists generally think the full 12.4% is ultimately paid by workers, or most of it. But now the share of wages that are taxed have been declining over time because wage growth has been going up more than whatever the cap is indexed inflation by.

So initially we thought, look, about 90% of wages we covered now. I think it's in the low 80s. So one thing you could do is say, look, we just want 90% of wages to be covered. And whether that means rising the cap from 147,000 up to, I don't know, 165 or something, now that would violate a Biden campaign. campaign pledge where he said he wouldn't. So you could, what we did in the campaign was say, have his donut hole where you say, we're not going to touch 140, any wages between 147 and 400, but then we're going to go ahead and assess the payroll tax on weight is above 400. But you can also do things on the, on the benefit side. You can make tweaks on the benefit

side as well. But the point is, it's not like you need to jack up the tax rate necessarily to get yourself out of this. Well, and I think when Social Security was put on the planet in the 30s, it was like 90% of earnings were being taxed. And as you say, because of the skewing of the income and wealth distribution, in part, we're down to in the low 80s. So if we only, if you, if you have that earnings above 400K being, having to pay the payroll tax, you get that back up to something closer to that 90% where we started off in the beginning of time. So, okay. And on Medicare, just so I have that right, you're saying if we continue to reform prescription and drug pricing allow the government to negotiate with the prescription drug companies

over prices. And we have an additional 1%, as you said, 1% tax, did you say? I think, yeah, it was 1.2% increase. So Medicare is a little different. You pay a tax on all your wages in Medicare. There's no cap. Yeah. And so the Biden budget, I believe, took it from 3.8% up to 5% as far as the tax rate on Medicare. And then also allow the government to negotiate with more prescription, over more prescription drugs, which raised about $200 billion. And then there is also in the IRA, a provision that said, if the, if companies, if drug companies raise the cost of certain drugs too fast, they pay a rebate back to the government. And there was a modest, moderate expansion in that, I think to more drugs that were subject to the rebate or maybe the rebate got paid earlier.

But the combination of these three different reforms, negotiation over prescription drugs, more clawback of the rebate and boosting the tax rate on Medicare at 5% by the next to 25 years of solvency. 35 years. Okay. All right. Okay, very good. Hey, Chris, any thing you want to bring up here before we move on to the last topic at hand? because this is already getting a little long in the tooth. Yeah, let's move on. Let's move on. Okay. Modern supply side theory. Now, did you come up with that name, Ben?

So Secretary Yellen have got to say, I don't know if you know her. She's the most wonderful, brilliant person. I mean, I just loved working for her. And she was giving a speech at Davos. And early on, there was a period in which I would do a lot of speech writing along with David Lipton, he would probably know as well. And she was giving a speech to Davos, and we had to pitch these different ideas. And, you know, the folks that were working on the speech, Deven Assonzi, who is also the chief of staff,

we would usually come up with three different ideas, three or four different ideas. You'd have a half a page on each for a speech. And so we had put together, I had put together, you know, along with David and Dietam and other people, different ideas. and one of them was progressive supply-side economics. Okay. And she really liked the idea, but the name, her husband, George Ackreloff, said, you know what, you should make this modern supply-side economics, which was 1,000% right.

Yeah. And so we renamed it modern supply-side economics, and she gave this terrific speech. It ended up, I mean, because it- Can I say on the name? I particularly love it. The way I thought about it was you were marrying the... this very conservative supply side theory with a very progressive modern monetary theory. You're saying this is a synthesis of the two. That's the way I took it. Is that is that wrong?

Maybe that's what George intended. I mean, the way I think about it was just, it was just a contrast with traditional supply side economics. I see. And say that both have the same, the same objective, which is expanding productive capacity. Yeah. Basically making the, the economy's ability to reduce greater, but through very different routes. I mean, traditional supply set economics says you want ultra low tax rates on capital, which will generate more investment and also widespread deregulation. Modern supply site economics says we want to expand the labor force and we want to boost productivity through largely through public sector investments. And we also want to incorporate underused

underutilized resources, largely people and communities that don't participate to their fullest. But they both have the same objective. It's just a very different way of getting there. Yeah. And so my interpretation of modern supply site theory, and I thought the speech you gave at Davos was very well articulated. It's just I'm focused on it. I'm not, I'm focused on the supply side of the economy, which made a lot of sense in the context of the shocks, the supply side we are experiencing the pandemic and the Russian war and, you know, the years of lack of investment in infrastructure and the labor force. But this is instead of focusing on incenting through tax, lower taxes, the increase in capital, investment in capital, we're going to focus on

labor and trying to improve the productivity of labor and, of course, on public infrastructure. That's kind of sort of the idea. That's exactly right. And it's very much fitting with the Joe Biden envision of the economy. Yeah. I mean, I think, you know, I told he really liked her speech. I know that a lot of the cabinet had read it. And you see it incorporated it even in speeches today. So, I mean, what I was surprised by was that it really kind of trolled people who defended traditional supply side economics for so long. I mean, there was this Phil Graham op-ed in the op-ed in the Walsh internal. It wasn't intended to do so. I will say, I mean, it was not meant to be get sort of thorned the side of people who believe in traditional supply side economics.

But I think it really frustrated a lot of folks, but that wasn't intentional. Right. Can I ask on the Trump tax cuts, have you seen any research that's come out to say, hey, this really worked in terms of lifting investment longer term? I mean, the things that I haven't seen a whole lot, but what I've seen from IMF and from Brookingswood shed a lot of doubt on that. Has there been any academic research in that area? Yeah, I mean, I don't think there has been academic research. So some people observed that there was an increase in investment. I mean, one of the unfortunate things about, there are a million unfortunate things about the pandemic. One of the less severe ones was that it didn't really allow us to study the full economic impact of the TCJA. We really did, you know, it was past in 2017. We just had those two years and you have to discount anything that happens in investment on a macro scale. But if you look at those first two years, Bill Gale has a really nice summary of the research. I think if you're getting anything beyond just observing that certain types of investment increased, which of course would

never meet an academic standard, you'd have to improve some sort of causal relationship. Once you get into causal space, I really haven't seen anything. Yeah, I'm seeing anything either. Okay, I want to thank you. You spent a boatload of time with us, and I know you got a lot of other things to do. Let's end the conversation this way. because I desperately like to know, do you think we're going to be able to avoid a recession or not? Your assistant secretary of economic policy, you must have a view on that. So what do you think? Are we going to be able to navigate through? All right. So before we get to that, I've wanted to inject this compliment to you and your team,

and I should have done at the beginning. So yesterday I gave this talk, the lunchtime talk, this NBR group. Yeah. And I, there was a bunch of academics and basically the thrust of the argument was at the end was how they can be more impactful. And the lesson was like, be more like Mark Zandi. Oh. And my point to them was, was you've got to be comfortable being forward looking. Like you cannot just live in the past and academics do that. And I said, you've got to have the courage to look forward. And I know it's uncomfortable. But this is what, if you want to impact the world, you have to do it. And, and I said, it can't just be Moody's leading the charge on the economic

Yes, it can be. Come on, man. And the other thing I'll say is that you can't, I testify to the House Budget Committee on Wednesday and you came up. And when policymakers start talking about you in your absence, I think that's a real sign that's not making an impact. So congrats to you. I know you're not doing it alone. You've got a great team.

And just one. Oh, you're very kind to say. So I see how he avoided that? Yeah. So it's so nice. A little political. Let me suck up to him. I don't want to have to answer the question. So I think that you have to think in probabilistic terms.

I mean, I spent several years working for Bob Rubin. You've got to think. I mean, he thinks like in probabilities. I learned from him. And so, you know, I guess Goldman's at like 35% chance of recession or they were. And then Larry Summers is at a 70. I think that's a reasonable range. I think you can reasonably be in there. If you're below 35 or if you're above 70, I think you're just misreading the data. closer to Goldman, in part because you have, U.S. consumption has just been remarkably strong. You're not seeing real cracks in the household balance sheets. You've got a labor market, which is red hot, and shows no signs of stopping. And the hotness of the labor market allows people to continue to spend with a fair amount of confidence. You've got a housing market, which looks much healthier than it had in the past. You've got energy markets, which are not contributing to the volatility we've seen in the past. And we, you know, there was a world in which we thought the price of rent,

we said this earlier, it was $150 a barrel. Now, I mean, I used to check this five times a day. The last time I checked was in the 70s. And so you've got kind of, you kind of have the groundwork laid, and you also have a Fed that has ammunition to deal with fighting back in any, I mean, it can initiate rate cuts when it needs to. We're not at zero anymore. And so it's got five basis points of cutting that it can use to ensure a soft landing. So, you know, I'm more in the golden camp around 35% chance of recession. I think it's certainly below 50, but, you know, there's always a chance. Well, all I have to say is thank you for the kind words. You're right. I have a fantastic team, but sometimes they can be wrong. They can be wrong. Right, Chris?

Chris is more at the 70%. Not quite seven. I'm with you. I'm with you. I'm certainly up there. Yeah. Yeah, yeah, yeah. Come on anytime you want. Sorry, Chris, go ahead.

No, yeah, absolutely. I think that probably these are higher. There are a lot of good things going on, but things can turn on a dime here. You're Ben, this is why I get so nervous because I, you know, Chris and I've been working together for, I don't know how long. And we have these dollar bets every once in a while.

I'll have to say, I have not won a single bet. Not one bet. It's scary. So what's the one thing? If we're going to take two minutes, what's the one thing you guys are looking at that you think will pretend

that most crystallizes your views around the likelihood of a recession? For me, the single most important statistic is the conference board measure of consumer confidence. Back to your point about the consumer, because at the end of the day,

recession is a loss of faith by consumers. They lose faith that they're going to hold onto their job and they run for the bunker. And the conference board is much better, much more prescient historically than the University of Michigan for lots of different reasons we can't go into. But that's rock solid. It's exactly equal to its long run average. But I, you know, I focus on that. If that starts falling sharply, month two or three, consumers are packing it in, they're running into the bunker, the firewall's coming down and we're going in. But right now, rock solid, rock solid. What about you, Chris? Yeah, Michigan came out this morning. It happened to fall. What happened? What did it do? Fifty nine point two, about four over four points.

It keeps falling. It's incredible. Yeah. Is that your, that doesn't fit your narrative. So let's no, wow, go on. That's fair. Anyway, Ben, it was, it was really a pleasure to have you. Thank you so much. incredible to have your insight in a very thoughtful discussion and best of luck at whatever your next endeavor is but i can't wait to see it i'm sure it's going to be great so thank you it's pleasure being on it take care now