Moody's Talks - Inside Economics - Neon and Not Equal

Episode Date: February 25, 2022

Mark, Cris, and Ryan discuss Russia's invasion of Ukraine and the economic outlook surrounding the conflict. They also welcome Diane Lim, Policy Director for the U.S. House Select Committee on Economic Disparity and Fairness in Growth to focus on the big topic, income and wealth distribution in the U.S. 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 it's kind of a sober day here with the Russian invasion of Ukraine, a lot to talk about. We also have a great guest, Diane Lim, Diane is the policy director for a select committee that's focused on income and wealth inequality, and we'll talk about that in a bit. But, you know, I think it's important that we dive in a bit on the Russia-Ukraine events and what it means for the economic outlook. And to help me with that, I have my two co-hosts, Chris DeReedy. Chris is the Deputy Chief Economist and Ryan Sweet.

Ryan is the Director of Real-Time Economics. So thank you both for joining. So where should we begin, guys? What do you think? Chris, why don't I turn to you? How would you characterize the state of affairs and what does it mean for the economic outlook. Have we changed anything in, have you changed anything in terms of your perspective on where the economy is headed? Yes. So in terms of where we are, the, as anyone knows, Russia has

invaded Ukraine. Our baseline view had been that Russia would only take the Dumbas region and stop there. But obviously that is not the case. The full-scale invasion is on. The fall of Kiev is imminent as well. So certainly things have gotten much more pessimistic relative to our baseline. Oil prices have risen, although they've come back a little bit now in the last day, at least looking at the prices this morning. I think we're around 92, 93, but still elevated, certainly, to just a few weeks ago, and there's still a lot of uncertainty. Prices could certainly rise back up in an instant. And from my own perspective, I've certainly have grown much more pessimistic overall in terms of the political situation.

I think everyone still assumes that the invasion will stop at the Ukrainian border, certain with the NATO nations. But there are certainly downside scenarios, right? Is molded to the next? There are certainly other possibilities here. So politically, there's the risk. certainly wait to the downside. Economically, I would say so far the impact has been more or less what we have assumed U.S. consumers, U.S. economies relatively insulated from the effects, at least the direct effects

of the invasion. But oil prices remain a risk. Financial markets also certainly a risk. We've seen a lot of volatility, certainly the stock market as investors are trying to understand what exactly is going to happen next. So, yeah, I think there's still a lot of script to be written at this point, though. My interpretation is that the oil prices are likely to remain high for an extended period of time, and that will weigh on growth throughout this year.

Yeah, it makes sense. So kind of the way I think about this is consistent with yours, but just to reiterate, I think the most likely scenario, and obviously there's a million different ways this thing can go, each one feels darker than the other, but the most likely is that the Russians stop at the Ukrainian border and don't go beyond that. If that's the case, the sanctions that President Biden and other Western leaders announced are significant proportionate, but they're not, they haven't gone all the way. They haven't thrown the Russian banking system out of the SWIFT system as an example. Right.

Russian oil is going to flow. Russian natural gas is going to flow. The metals they produce are going to be shipped, you know, wheat's going to continue to be shipped from the ports of Ukraine, that kind of thing. So, uh, uh, this really all in probably adds, what, $15, $20 a barrel risk premium into oil. So instead of, you mentioned $92 a barrel, that's on West Texas intermediate without Russia and their behavior, we might be sitting at, let's just say, $72 a barrel. So $20 a barrel. And let's just say we stay there for. for the first half of this year, because at some point we're gonna see

a lot more supply coming from North American frackers and from perhaps even the Saudis, because you make a lot of money at these prices. But let's say that's the case. My kind of rule of thumb is for every $10 per barrel increase in oil is sustained, that'll subtract a tenth, at most two tenths of a percent off of US GDP. Now obviously, I'm focused on the US.

This is gonna do a lot more damage to Europe obviously really hurt Russia. But for the U.S., it's a tenth or two. Obviously, it adds to inflation because, you know, you're paying higher for gasoline prices. So the $20 a barrel translates into maybe 50 cents on a gallon of regular unleaded. So we go from, you know, $3.40 on a price of regular unleaded to, say, $3.90, something like that at the peak. And, you know, it dings the economy, but it doesn't certainly derail the economy. will be okay here. And I think that's what markets are saying at the moment. Obviously, they can say

something very different five minutes from now. But at the moment, they've come all the way back from the lows they hit yesterday when Russia invaded. And now they're up again quite significantly. Things seem to be settling. And people are kind of, you know, thinking, okay, this is awful. Certainly for the Ukrainian people, this is just catastrophic. But, you know, from a macroeconomic perspective, particularly for the prism of the United States of America, is relatively small. I'll stop. Ryan, does that, those kind of rules of thumb work in your mind?

Is that roughly right? Is that consistent with what you're thinking? Yeah, and it's consistent with, you know, when we run these scenarios through our global macro model, that's kind of, you know, the head to GDP growth that we see is that, you know, every $10 is, you know, it dings the economy,

but doesn't derail it. But I think to your point, markets are really sensitive to oil. So yesterday, the stock market was deeply in the red, And then as soon as oil prices started to fall, the stock market just rallied. And it's rallying today on Friday and oil prices are down. All right.

So, Chris, would you push back on, I mean, I pretty much paraphrase what you said, but just in case I mischaracterized or I didn't say quite what you said, would you put you push back on it? Yeah, I think there perhaps our contention is around the speed of the frackers or the market response, right? So that, yeah. There's a lot of uncertainty there. so I certainly wouldn't.

For sure, you know. Yeah, rig counts in the U.S. are up. So we should see them continue to climb over the next few weeks with oil training as high. Yeah, correct me if I'm wrong, Ryan, but I thought the number of rigs in operation in North America have doubled over the past year. They're still low.

They're below pre-pendemic. But they're definitely moving in the right direction here. Yeah, they still have plenty of room to increase further. Right. Okay. And I guess there's other kind of ways this can really be disruptive, in terms of metals and, you know, I mentioned wheat. Ukraine is, you know, very important in terms of the global wheat production and exports.

But that also feels like more on the margin in terms of broader macroeconomic growth, particularly, again, through the prism of our prism, the United States of America. Does that sound right? Yeah. Yeah, and the banking exposure is really low. So anytime we have geopolitical events, first thing I go to is look at, you know, for contagion risk, you know, what are U.S. banks exposure to Ukraine or Russia and it's really low.

Yeah. But of course, you know, this is, we're all, you know, assuming that Putin stops at the border. Right. You know, and this guy is hard to, he feels a little bit crazy. I mean, if he feel, if he's hard to gauge, if he decides to take a step over the Polish border or into the Baltics, then we're in a different universe altogether. I would think, right? President Biden pretty much said that means military action and we're in a whole different

level of hurt here. So we're, we're saying that he's not going to do that. Putin's not going to do that. Yeah. It's extremely volatile though, right? You have weaponry people all right. One accident, you know, here or there, one misplaced missile, right? Things can happen.

So certainly, I would say the downside risks are elevated here. Yeah. And I think, and to your point, you're right. On the margin, we should be, obviously, but supply chains were already quite stretched here, right? So any little additional issue when it comes to wheat exports or any other commodity, I think, again, the risks are high that things could take on a life of their own. Right, right. Of course, we have run this scenario I just described through our models.

Brian described that, but we've also run these downside scenarios where, you know, Putin takes another step goes further past Ukraine and have produced these forecasts and put them in databases for clients that will become available, I think later today or maybe even on Monday, so people could take a look at, you know, what the darker scenarios might look like. Okay, anything else on this, you know, obviously, I guess the one could, let's talk about monetary policy for a second. The one worry I have is, because pretty much everything I just said is pretty, I would characterize a sanguine. It's not great, but it's not catastrophic. So is around what the higher gasoline prices, and it feels like that's the key link between Russia and here in the U.S., what that means for inflation expectations, because gas prices are like front and center in people's thinking, particularly lower middle income households, and that'll be, you know,

you know, kind of a segue into, you know, the broader discussion around income inequality is they get low-income households, they, this much larger share of their budget goes to gas and, of course, food. Food prices also go up with gas prices because a big chunk of food prices is just the transportation cost involved. And that's, you know, that may be 20% of the typical American budgets, but for folks in the bottom half of the distribution or the bottom third of the distribution, that's probably closer to a third, you know, of their budget. So this is a big deal. And it really affects people's inflation expectations. And of course, if it does and people start to believe inflation is going to be higher,

then we're in a different kind of ballgame with regard to monetary policy too, right? Would you concur with that, Ryan? Is that a reasonable? Yeah. I mean, there was never a good time for this, but this is an absolute horrible timing from a U.S. inflation perspective. So inflation expectations, I mean, market-based ones, you know, five-year, five-year-forward forwards, they track oil prices very, very closely.

So they're going to move higher. UMISH University of Michigan consumer survey. They're one year in longer term inflation expectations dipped in February, but that was before what happened recently. So yeah, I think, you know, the Fed, they're in a tough spot. You know, I think they're still going to raise rates in March. I don't think it's going to be 50 basis points anymore. I think it's going to be 25.

But in the past, when you have oil supply disruptions or a supply shock, the Fed eases into it because they were worried about the destruction of demand. This time they're going to be tightening. Right. So, you know, we have had, in our baseline outlook, the most likely scenario, you know, before Russia invaded, that we'd have four quarter percentage point rate increases this year, one at the March meeting, then one in June, one in September, one in December, which was a little less aggressive than market expectations.

They, you know, if you look at what global investors think, they were looking for six, seven rate increases. So given what's happened here, do we think four rate increases this year still makes the most sense, quarter point each, or something different than that? Right? I'm still with four. I mean, the timing might be a little bit, they might just go every couple of meetings. We might go consecutive meetings, then pause. And we still will get four this year.

I think that's the most likely scenario. Chris? Yeah, I'd agree with that. You would. At this point, I'm, you know, given the growth outlook, I don't think they'll need to go as fast. Okay. And also, no matter what the Fed does with interest rates this year, it's not going to affect inflation this year. That's right.

Yeah, it's going to be, you know, they're tightening to manage expectations, make sure they don't become dislodged. Right. Okay. Okay, very good. Anything else on the Russia invasion that you think I missed that we need to focus on? Any other issues there? Chris Ryan, no. I think we'll cover it next.

The distributional effects are really important. We're talking at the macro level, modest impacts, but certainly some parts of the economy, some households are going to be a much more. Great point. I mean, I'm painting with a broad brush here, just for the discussion,

but obviously there's a lot going on underneath all that. A lot of people are suffering here, so this is not a good thing. I mean, it's just a bad thing. Okay, I think this is a good time to bring in Diane. Diane, hi. Good welcome. How are you? Thanks. I'm great. I'm just a little jet-lacked. I heard that from San Francisco. I heard congratulations are in order. Yes, thank you. My daughter just

got married in San Francisco, but also I was there for a work trip with the committee. Oh, is that right? So I stayed for a few more days and just flew back last night. So which came first, the committee or the your daughter? The wedding came first. And then the committee. Okay, very good. Yeah. Okay, hey, daughter, could we maybe schedule the wedding around this meeting? I have. Yeah, I could see that.

Well, I'm so happy for you and really thank you because I know you're a bit tired, but you don't look it. You look fantastic, but thank you for Ryan, on the other hand, you know, what's going on with him. Here you go, yeah. Yeah, yeah. But with you, you look fantastic. So my day starts off. I get an email from Mark comparing Chris and I to the odd couple. and now it just can't. Hey, that wasn't me. That was one of our clients. I just forwarded it along.

Yeah, you agreed. Hey, listener, can you guess who's Felix and who's on that? Oscar? Let us know, please. What do you think? Yeah. I thought that was pretty cool. So just Diana, a bit of an inside joke. One of our clients just wrote an email saying he loves the odd couple, Brian and Chris. And I'm not going to tell who's who, but one's Oscar. or one's Felix. Do you remember, you remember the odd couple? Oh, of course. Yeah. Yeah. Ryan doesn't, but you know, Chris, do you remember the odd couple? Did you? I had to look it up. No. Oh, my gosh. I was watching clips of it this morning. And it's pretty good. No, it's really good, but the descriptions fit perfectly. Yeah. Yeah, they thought they were. Yeah, they're pretty good. Reluctantly, I have to agree. But you'd have to agree. Well, maybe we should ask Diane. Diane. Who's, oh, you don't know these guys. yet you've got to pay you know i ask you at the end at the end okay very good hey so diane you have like

you have maybe the coolest career of anyone on the planet you've kind of you mean because i've had so many different jobs you've done so many things i i i've had my points of contact with you over yeah i've had a lot of points of contact with you over the years and every time that point of contact occurs you're doing something else i mean i think it's i'm always doing the same thing i'm I never change. You'll know exactly what I'm doing. Well, I would say I can't hold down a job. So, yeah.

Oh, yeah. Well, no, I sure, it's just a wonderful career. So maybe can you just give us, you know, a sense of your, yeah, I'm really curious. A quick tour. Quick tour. So when I first finished my PhD in economics, which is from UVA, I started out in academia. So I was an assistant professor in a real economics department at Penn State University. I, then...

Great university, by the way. Penn State's great. We hire a lot of Penn State folks. They're very empirical, you know, very practical, you know. Right. Yeah, very grounded. So when I first came to D.C. post-PhD., it was to spend a year working at CBO at the Congressional Budget Office as a visiting scholar. And so I just took leave from Penn State.

And then I ended up staying on at CBO. My then husband actually got tenure from Penn State on our second year of leave. And we didn't go back because by then he was happy at the Federal Reserve Board. I was very happy at CBO and CBO had given me a permanent position within the tax analysis division, which was my area of expertise. So that's when I started my D.C. career. I haven't, I've been in D.C. continuously since 1994, continuously. So working full time in D.C. So I went from CBO to the council.

Even you can't remember. I can't even remember. I know. I went from CBO to the Council of Economic Advisors at the end of the Clinton administration. So for his final year, so I wrote, you know, I was one of the senior economists who put together his legacy report, basically, his final economic report of the president. And then I went from there to the Hill. So I went from, I went to join economic committee. I went to, then from JEC, I went to House Ways and Means Committee, where I was chief economist for the Democratic staff for

Charlie Wangle. And then I went to the, I went to Brookings for a year to work with Bell Saw Hill and Alice Rivlin on a fiscal responsibility project. And then I went back to the Hill to work for the House Budget Committee as John Spratt's chief economist when the Democrats had taken over the house. And now I can't remember after that. Let's see, I went to, I went to, yeah, I went to Pew Charitable Trust for a lot. Oh, that's right. That's when I think I worked very closely with you, Mark, because you talked about data worked a lot with Moody's. And spent a few years also at the conference board, the Committee for Economic Development of the conference board, which is the policy arm of the conference board.

I joined them right when CED merged with the conference board in like 2015. And, you know, then I've been doing, I even worked for Penn Morton Budget Model for a year or a little less than a year helping them with outreach stuff. And then I took a buyout offer from Penn Wharton Budget Model thinking that I wanted a job in D.C. again. and I took that buyout in the summer of 2020. And it turned out it wasn't so easy to get a job in the summer of 2020. So then I was unemployed for over a year. So that was the first string of unemployment that I had.

And it was, you know, I was not collecting unemployment benefits, obviously, because I voluntarily quit and had a severance package that was only a couple months long. But that might be, was that a, did you enjoy? that period? I mean, just to get away from things or not so much? That is when I started doing my own research into the pandemic economy and I did all this stuff hunting down data for on Asian women because it was not produced regularly by the BLS in their monthly employment report because they don't have a large enough sample of Asians to split Asians into women versus men. So that really opened my eyes to this, you know, a lot of the work that I'm doing right now on the committee.

So it sort of led me to this job that I have now, which is I'm policy director for the select committee on economic disparity and fairness and growth. It's a select committee that's very short-lived because it's only for this Congress. So I'll only be in this job for another year. And then the committee just is supposed to go poof. I see. go away. It was created by Speaker Pelosi. And a lot of us are expecting that the Republicans might take over the House the next election and or that at least Speaker Pelosi won't be Speaker anymore. So this is her legacy. This is her legacy committee. Similar to when I was

working for President Clinton and I felt like I was writing his legacy economic report. I feel like I'm going to be writing Pelosi's legacy committee. Very cool. Did I tell you, I, I'm sure I didn't tell you. I got a call from her one day when she was thinking about putting the committee together. Really? Yeah. She just wanted to chat about what I thought, I think, what I thought, what I thought of the idea, you know, whether it was a good idea and what she should be focused on.

It's funny because she'll call. And her phone number obviously doesn't say Nancy Pelosi. She says 202 something. And every time of now, like I've learned that if I see a two or two number, I just pick it up because it could be her. Wow. Really? Yeah. So if it's good to know.

I'll pick it up. And yeah, she wanted to chat about it. And, of course, I thought it was a fantastic idea. I think, you know, very important, you know, after 30 years of the income and wealth distribution becoming more and more skewed, I mean, we really. And, you know, there was a lot more work being done on connecting the dots back to what it meant for, you know, obviously the folks that are. being left behind, but also for the broader economy, I thought this was a really great idea. So thank goodness they got you. You're perfect for that job.

So you want to give us a sense of how the committee works and what you've been doing so far? Yeah. So I just started with the committee. The committee was basically not constituted, even though Nancy Pelosi conceived of the idea and put up the committee back in, I want to say it was December of, of 2020 2020 or January of 2021. The committee wasn't like formed in terms of membership until the summer of 2021.

And they had their first hearing in July of 2021 with only Democratic members and only two staff, which did not include me yet. I started in September, on September 1st of 2021. So I've only been on the job for a few months now. And yet we managed to hire the rest of the Democratic staff, which has about 10 of us. And then the Republican members did not join us until I think it was our second hearing in the fall, which was because our Republican members were held up with the other Republican members of the other select.

committee known as the January 6th select committee, which is way better known than our select committee. So McCarthy, when he pulled off the January 6th appointed members, he also pulled off, even though it had nothing to do with our committee, he pulled off all his previously named Republican members to our committee. So for a while, we were a Democratic only select committee. And then a little later in the fall, we got our Republican members and the Republican staff to come on board. So we are a bipartisan, you know, we're trying to work in a bipartisan way. We are tasked by the speaker to study the root causes, the drivers of economic disparity and inequality, and to develop solutions that, to reduce disparity and promote inclusive growth, that would ideally

not just get the buy-in, the support of Democrats across our, own ideological spectrum, but also get some Republican support. So because, you know, it's very clear that you can't pass major legislation that would move the needle on this huge problem without bipartisan support for policies. So we are holding a bunch of hearings this year, hearings and roundtables. We're traveling the country. We've had two field hearings. already or two field visits. We had a field hearing in Lorraine, Ohio in the fall. We just came back from San Francisco where we were focused on the effects of technology and artificial intelligence on economic disparity. And we're going to be going to Milwaukee, Wisconsin, we're going to be

going to Seattle. We're probably going to be going to New York City to AOC is one of our members. So we're probably going to be going to New York for a field hearing. Very cool. Yeah. So we go across the country. We talk to real people. We're trying to be a little non-traditional in how we do our policy research. I am the only PhD economist on staff, as was often true of me when I worked on other committees on the Hill.

But I kind of very consciously chose to hire my policy team who are. aren't PhD level economists, but are more applied policy people. Makes sense. Makes sense. Well, it sounds like a great committee. And I want to dive into the kind of the substance of your work. But I have a question. So I want to accomplish two things in the remainder of the podcast.

First is I want to talk about, you know, the substance of your work. Second is I want to play the statistics game that we play that people really love. And I'd love for you to participate. I'm going to let Ryan choose. What should we do first, Ryan? Should we do the statistics game and then go back to... When you gave me the choice last time, I picked the wrong one. That's true, you did.

Yeah, so Chris, what do you say? I say we do this, the stack game. Okay, you say, what are you think, Chris? Probably. I second that, yep. Okay, second. It keeps with tradition. Yeah, it kind of mixes things up a little bit as well.

So it's okay. So, Diane, we're going to come back to the substance of the work that you're doing. But before we do that, we do that, we do play the same. statistics game. And this is just to give you a sense of it, just to remind the listener, the best statistic, and this doesn't apply to you. This applies to the three of us. You can pick any statistic you want, but the three of us, the best statistic is one that, you know, is related to what's going on in the economy, what came out this week. It has to be not so hard that it's impossible to get, not too easy that it's a slam dunk. Is that that, that

get the rules right, Ryan, roughly speaking? Okay, very good. Okay, so we're going to start with you, Ryan. So what's your statistic? All right, so I got a two-for. What does that mean, a two-for? You get two numbers. Two numbers, okay. Related. Yes, the related. Presumably related. Okay. Okay. Same survey. Okay. Same survey. 42 and 32. Now that's the, is this goes back to the conference board survey? You're on fire. Yeah. That is the differential between jobs hard and easy to get.

All right. What's the 3.6? Diane, hold it. Wait, Diane, are you impressed? I am impressed. Okay, okay. Listener, are you impressed? Now I'm going to get like emails.

Oh, he was given that, blah, blah, blah. No, no. No, there's no sharing. Okay, where's my cowbell? Where's my cowbell? Okay, there you go. This is very, very competitive. So I'll be more impressed if you get the 3.6.

Yeah, but it's in the same report? Same, sir. Same report. That's the percent of people that think it's a good time to buy a home. No. Buy an appliance. Buy a car. You can just keep rattling off number. No.

Okay. This is a fascinating. Okay. Well, hey, I bet you that is the right answer, though. I mean, I bet you if you go. That's not the three points that come thinking of it. Well, that's, okay, I'm just saying that. But I'm going to check right now.

Yeah. If it's not the right number, it's pretty darn close. I venture to guess. Plans to buy a new home is 3.2. Oh, wow. That's pretty good. Mark, that's pretty good. That's good.

Half a cowbell. What's his 3.6? What's his 3.6? So my 3.6 is the difference between the share of consumers that expect their incomes to go up in six months, minus the share that I expect it to go down. So we have this enormous divergence, and I'll send you, and Chris, a chart. labor market differential versus income expectations. So people are very upbeat on the labor market, but are very pessimistic about their incomes

going forward. Okay, so square that circle. What's going on there? I think inflation is too high where people just, you know, they're thinking, you know, they're no longer thinking of themselves, their incomes in nominal terms. They're thinking about it. Oh, interesting. I mean, that's my hypothesis.

But, I mean, when you look historically, he's to kind of track each other. which makes sense. Like when you're more up people about the labor market, you're expecting higher wages. Now, you know, wages are just eroding how wages. So I think we have very optimistic about the labor market, so, Ryan,

you think people are making that calculation. You're saying they think their wages are going to go up, but not enough. Not enough to keep up inflation. You can see that in some surveys. They ask if you think your incomes are going to outpace inflation. And people are, you know,

not optimistic that that's going to occur. Yeah. Hey, that does remind me in these surveys of sentiment, they do it by income group, right? Have you looked at that recently, Ryan? I have. Traditionally, you know, as you would expect, folks that are of lower income have less confidence and it's rank ordered, you know, by income. But have you seen any, has that grown wider?

You haven't taken a look. I haven't taken a look. That's a great question. Right. Is that just, is that over the next three months, did you say? Six months. Six months. Okay.

Well, you know, the good thing about wages is typically if they go up, they keep going up, whereas prices, if they go up, they don't keep going up. So, you know. So we should see that gap close as inflation. So you're saying the wage gains, they're no going, they're not going to take the, employers can't take those back. Yeah, wages don't go back down. But prices can fall.

Right. Yeah. Or inflation can slow at least. Yeah, that's a good point. You know, like vehicle prices are going to come back down to earth, you know, that kind of thing. Yeah. So, yeah, right. That's an interesting point.

All right, Chris, you're up. What's your number? All right. 5.7 percent. Is this house prices? No, not house prices. No, no. House price.

Actually, the FHSA came out with its price series. I think we're of like 17 percent or something. 17. I think quarter to quarter. Oh, is five, is it housing related, though? It is housing related. Okay, is it the percent of people buying homes? Second home?

No. Something to do with the investor share or no. Is this new home sales? Is it in the new home sales report? No. No. Is it in the house price report? You're getting very close, though.

It's right. Is homes or house prices? It is home sales. Existing? else? Nope. Not existing homes. Oh, 5.7.

I know what it is. The share of the down payment that's coming from crypto. That would be a good answer. Look it up. I better try. Let's look it up. Is it the increase in the number of homes that are not started? Nope.

It came out this morning. Oh, this morning. This morning. Is this one of your surveys? Oh, no, I know it is. The NIHB buyer intention came out or the home builder. That didn't come out today. Didn't come out today?

Okay. Pending home sales. Pending home sales. Pending home sales. Month of month decline and pending home sales. Diane, let me tell you, that's a bad statistic. Why? No, I'll tell you why it's a good one.

Okay. So the level is 109.5. that's index level, that is now below what it was in February of 2020. Oh, okay. So you're saying it has the market's starting to cool off really significantly here. Oh, I see. Yeah. So pending leads existing home sales by one to two months.

So we're going to see existing home sales drop off pretty quickly. Oh, that's interesting. All right. So affordability is a real issue here now with fixed mortgage rate. What are fixed mortgage rates now? Chris, do you know? They were four. I think they might be back down with the latest rate movements.

but right around 4%. I missed that. Yeah, I think it was 4.05. Oh, really? I didn't realize they had gotten that high. Okay. So, yeah, they're hovering around there. So even if they're retreating, it's not that much.

Even if the sales moderate, residential investment is going to be, there's a lot of homes in the pipeline. 160,000 homes were sold but not started in January. Yeah. Yeah. Yeah, yeah. Yeah, it's not collapsing.

No, no. but some slowing that's because the builders can't get product they can get their homes across the finish line because of the supply chain issues right or they just yeah they don't want to start and you know be left holding the bag when they can't get a refrigerator or you know garage wires and stuff yeah exactly that's okay that was good that was good because it is very informative it gives a real sense of you know interest rates are starting to bite here uh where you'd expect it in the housing market which is the most great sensitive part of the economy okay very good diane do you want to go or you up for

Or? Yeah. Okay. So I'm going to throw a totally different kind of statistic. It's not like right out of this morning's news releases. So that's the first. That's a good thing. I'm going to give you two numbers.

Okay. Okay. The first is 122.5%. And the second is 96.1%. Those are good statistics. But Diane, you know, it proof, you know, What was it, truth in podcasting? Yes, truth in podcasting.

We kind of came up with that number before the podcast. I know, I know. Okay, good. I just don't know how much you wanted to. I could have taken advantage in the situation and show everyone how brilliant I was. So, yeah. So, yes, you guys helped me look it up. Okay, so.

But there's a good statistic. Do you want to explain it? Yes, 122.5% is the amount of growth. federal government debt as a share of GDP, as of the latest reading we have on Fred, or from the quarter, from third quarter of 2021. Yep. 122.5%. So, you know, that, and the second number, 96.1%, the smaller share of GDP, is because that's debt held by the public, which is what economists care about.

Gross debt matters because that's what the federal debt limit is tied to. is gross levels of debt. And the net number matters more from an economic standpoint, of course, because it's what we actually owe the rest of the world's economy is the net. Is the net debt? So, Diane, is that high, too high, low? Yeah. So my answer is the reason why I had to have you guys help me look it up is because I

haven't been keeping track of it because, like, who cares right now? And my point in bringing up that statistic and who cares is because, you know, I used to work for places like, oh, I totally forgot to mention I was at Concord Coalition for years. Oh, that's right. Yeah. Mark, when I was reviewing my history, it's like, yeah, I've blanked out the whole Concord Coalition years. And when I was at the Brookings Institution, I was traveling around with, you know, the fiscal wake-up tour, as it was called. That was Bixby. Bigsby and Bob Bixby and the former Comptroller General of the U.S. David Walker.

Oh, that's right. Yeah, exactly. And then we always have one person from Brookings and one person from Heritage go on this tour. And the idea was like we could all agree that the federal debt was a big problem and that we needed to do something about it before it became economically unsubstable. sustainable for us to carry those levels of debt, but we might disagree the Democrats versus the Republicans on solutions, right? It's a little bit like our committee, my select committee, trying to come up with bipartisan solutions when we can only agree on the problem and not really agree on the solution. So it's a similar kind of motivation. Yet back then, at the end of the

Clinton administration, when I was working on fiscal responsibility issues, you know, rates were really high. We really thought that there was a negative relationship between high debt and deficits and economic performance. And now interest rates are still very low. And we haven't seen as close a relationship between debt and interest rates over the years and over the past 20 years or so. and I have become much more concerned about how the government spends its money, you know, and whether it's spending it wisely, rather than how the government is financing its spending. Yeah. So it's sort of, yeah.

Yeah, I wonder, I mean, because I was in your, I would be kind of full-throated in that perspective, you know, before the pandemic, because inflation was too low. and the Fed's been struggling to get it up, interest rates were incredibly low and been very, you know, very low for a long time. I don't know that now I feel a little less comfortable with that. Inflation is definitely too high. You know, an underlying inflation is not going back to where it was pre-pendemic because of rank growth

and everything else. And interest rates are still low, but they are definitely moving higher. So I wonder if, you know, this view, this perspective, around deficit debt might not switch again. Switch again. No, I agree.

I agree. It'll switch again. But in the meantime, I think that our biggest concern should be, how are we, you know, what are we spending, what is the federal government spending money on? And to not forget that there's a lot of stuff we're spending money on that we don't seem to, we didn't seem to have a problem with the deficit financing of those types of spending in the past. And yet there's reluctance now to keep spending and keep investing because of the level of debt. And I just think that we shouldn't give a pass to all the policy that's already in place.

We should be looking at policies that cost a lot of money but don't provide much economic benefit. And I mean macroeconomic benefit, not just benefits to the people who need the benefit. So point well taken. Yeah, I think that makes a lot of sense. Hey, should I just give you my statistic real quick and then we'll move into income income income. Of course. Yeah. And I might violate one of the rules here.

So it was released last week. No, not well. Last year. Well, you got to think broadly about statistics more. Think about events, you know, where we are. That's a big hint, you know. All right. You know, this is Russia, Ukraine, so that's a big hint.

Oh. Okay. 70%. Is this natural gas related? It's not, but you're in the right kind of genre of thinking because natural gas, Russia produces 17% of the globe's natural gas, just to give you some. I was wondering if it's higher for Europe. Well, Europe gets about a third of its natural gas from Russia, about a third.

Germany gets about 50% of natural gas from Europe. 70%. So you're thinking in the right, the ballpark. Oil? Oil, they produce 12% of the world's oil, 12%. By the way, the U.S. I think is now, I think Saudi is the biggest producer. US is two in Russia's number three in terms of oil production. So 12% of the world's oil.

uh one of the one of the minerals that goes into auto production or oh yeah you're kind of moving in the right direction we're going into minerals are we are we talking is it well you you said natural gas you said oh well i'll give you another one titanium the russians produced 13 percent of the world's titanium which by the way for those cobalt that's a good one okay titanium is not palladium i know poladium i know pladium Hold on. Paladium is 30% of the world's... All right, so we're getting there.

Wow. 30% of the world's palladium. I'll give you another statistic. They produce 30% of the world's helium, world's helium, which, you know, that's key to rocket propulsion and lots of things. Okay, what is it? 70%.

This is really important to supply chains. Oh, you guys don't know this. Containers. No. You know, you won't get it. Neon. Neon. Neon.

Neon. Neon. You know, you know why neon is important? Neon is critical to chips. Really? Yeah. Interesting. You take the silicon wafer and then you have to essentially etch in the wafer, the circuit,

and they use neon gas to do the etching. Oh, my gosh. I had no idea. Yeah, right? You violated two of the rules. Oh, really? That one's impossible. All right.

Let's turn to inclement wealth inequality. and a lot of different ways we can go here. But Diane, can you give us a sense of, well, the way I would frame it is the nation's income and wealth has become more skewed, significantly more skewed, really over the past two generations. I mean, if you go back into the late 70s, early 80s, that's a time when the income and wealth distribution was probably at its most evenly distributed. And since then, it's been steadily.

becoming more skewed. The wealthy are doing really, really well, high-income households doing really well, low-income households, not so much. And in fact, if you look, you know, it's a real problem. I mean, a very large proportion of the population, a third of the population, has no savings, really. So if something this goes a little off in their life, like they have a flat tire or they, you know, have a leak in the roof, they don't have the savings to be able to cover that. That's a problem, I think. So that's kind of the frame. Does that a good characterization of things?

And can you just give a sense of what you think is behind what's been driving this skewing of the income and wealth distribution? Yeah. Well, you know, the problem with inequality or disparity is it compounds over time. You know, it just gets worse over time if you let it kind of go on autopilot. If you keep continuing kind of business and the economy as usual, that inequality just compounds over time because people who are doing well already will keep doing better. And people who are doing poorly, they're sometimes not even seen. They're not even like, you know, there was a lot of talk during the rescue packages of overheating the economy with the rescue packages, right? and, you know, I was arguing, how can we overheat the parts of the economy that haven't even made it to the stove top?

You know, they're not even on the back burner. They're just not on the stove top at all. So it's sort of like if you think about, you know, how we're used to thinking about promoting economic growth. We start by looking at what are the fastest growing parts of the economy. Let's give more money to those parts of the economy, right? Who are the successful people? let's make sure they have no constraints on them continuing to be successful. And a lot of the parts of the economy, the people in the economy that aren't doing well, they don't even register in our data sets because they're not in the economy right now, right?

So when we look at things like the employment report and we look at, you know, things like income tax data, we don't see a lot of parts of the economy. see the majority of the people in the economy. We see something that's weighted by income, right? So the most that we see in terms of looking at economic data, when we look at the macroeconomic statistics, we're seeing an overrepresentation of, frankly, a lot of white men. I think I've said this before, Mark, on a podcast we were on together for Nave. But I think that I think of the macro data as telling us, how white men are doing more than it tells us how anyone else is doing because white men

have the most contribute the most to market measure GDP right um so you know i think of it as are any of you guys runners i am mark's a bit runner i love running if i have run like half half marathons oh no no no i don't do that no i don't do that runner are you a runner you you look like it a runner i used to be a runner I haven't run in a long time. But back when I used to run a half marathon occasionally, maybe they do this at shorter races too. I can't remember the 5Ks, the 10Ks. They would start you in corrals based on how fast you've run before.

And if you're one of those elite runners, you get to start right at the start, right? And if you don't have a record, it's honor system. You say, I think I can run in this range of pace. and then you go into a corral further back, right? And I think of economic disparity as being a lot like that kind of running race where the runners that are established as being fast. They get to go at the start and they get to run kind of freely.

There's no bottlenecks in their way. They get the nice lead car, showing them the way. They get the fresh water tables where, you know, there's no cups to run over and stuff. They have everyone cheering them at the start line. And I view that as a lot like how the economy works for people who have already succeeded and already established as, oh, these are the most important. These are the successful people. Put them at the front of the line and give them the royal treatment. People toward the back who haven't yet proved themselves are, you know, stuck in the bottlenecks.

They get to the table and there's no more. and they're stepping over all the cups. And they face more obstacles along the way. It's challenging to get from the back to the front, even if you're inherently a faster runner, a fast enough runner. That's interesting. I mean, so I asked the question, you know, what's behind the skewing of the income and wealth distribution?

And you go to, it's just not fair. The system is unfair. It's not fair, right. But that's just so that that's not what an economist generally would say. The economists would say, okay. globalization, technological change, decline in unionization. I mean, those things that we can't prove. I mean, there's studies, and I've actually done the studies, and I can show that that's

the case. But this question of fairness, I mean, where you, you know, maybe, it sounds right. The metaphor you use is compelling, but how do you show that? How do you prove that? Well, I think you prove that by looking at the effects of these economic forces. like globalization, like automation, right, like technological progress. And consider how it affects people's lives at different levels of the income distribution. And you see that, you know, it's really hard for, you know,

working class kind of manufacturing worker to bounce back from globalization, offshoring production to another country and deskshire. the industrial base of their hometown, right? It's harder for that worker to move to another industry, to move to another line of work right away. You look at automation, right, and how automation has been technological progress more generally has been really good for most of us who can more easily do our work, especially during the pandemic. But it's been hard for people, that do not have, are not in a line of work that can be automated or are not in a line of work that, um, that can be automated in a complementary way to their human capital or that cannot

work remotely during the pandemic, you know, people that have, it's a benefit to some people, the people that are generally most successful already. And it's a cost or a burden or a further obstacle to people who can't work, can't work with that technology. So, you know, during the pandemic, I think we've experienced a lot of these, the unlevelness of the playing field, the economic playing field. And we've also seen the effective policy that was designed to be an emergency measure to lift up people that were hurt the most during the pandemic. And yet I think that some of that is not just an emergency, a crisis management situation, but it tells us something about how we can keep the playing field more level going forward.

So women in the pandemic, right, the fact that we saw so many women drop out of the labor force or lose their jobs and having trouble coming back into work, you know, women are still, there's still a deficit, a whole of employment, an H-O-L-E of employment that women haven't come out of as quickly as men have. But can I point out, though, in the financial crisis, that recession, that hit men a lot harder, right? It did. That was manufacturing.

That was construction. That was male-dominated industries. Whereas the pandemic, because that had health care, that had education, had reached, that hit women harder. So, you know, it's just the nature of the shock, right? That's right. It doesn't, it has nothing with fairness or anything other than that. Right.

Right. Right. But it's like, think about the parts of the economy that were the most damaged during the Great Recession, that were the most damaged during this pandemic recession. And think about why it's difficult for those types of workers to get back into the economy. And then you start to think about what policy has to do with it. The fact that, you know, and what the market economy, what the market has to do with it, the fact that care work is not valued in the U.S. economy.

And so it tends to be unpaid or underpaid. The fact that, you know, manufacturing workers have a hard time getting into other lines of work because there isn't enough, there isn't a lot of support. for labor in those industries, right? You know, I think that if you think about all of our federal level policy, certainly, we designed our federal kind of fiscal policy system in order to encourage and promote economic growth that comes primarily through capital income. and we've been less inclined to subsidize or support labor income.

You know, we tax labor income at a higher effective rate than capital income. We, you know, we provide benefits to, that are conditional on your household structure and your employment relationship rather than more universal benefits. And those have an effect of continuing to reward people who, who are doing well, right? So people who have jobs, who are working in traditional employment roles, who have investment in capital income, right? And we hand out a lot of benefits

through our income tax system, which doesn't end up reaching people that have lower incomes because they don't interact with the federal income tax system. So I think there's just a lot that, you know, our economy was founded, and our government was. But can I ask Diane on this issue?

Yeah. It's an interesting point you make in terms of your thinking about what's driving this income and wealth inequality. And I keep going back to the fact that, you know, between World War II and 1980, that 30-year, 40-year period, income and wealth inequality was not an issue. I mean, everything was, you know, felt like it was. more, it certainly was distributed evenly enough that it wasn't really top of mind in terms of way people were thinking about things. This has become a problem since then. And these questions

of fairness and, you know, your metaphor about having opportunity at the front of the line, that's always been there. In fact, it probably was even greater back in the years after World War II. So it doesn't feel like to me you can go to that as an explanation for what has happened over the last two generations. That doesn't feel like something has changed inherently in the way the system works or the fairness of the system or the way policy works or all the things. To me, what changed was globalization. That changed. China entered into the WTO and that made a big difference. Technology changed and, you know, labor-saving technology that reduced demand for low-wage work, manufacturing, construction.

which was exacerbated by the declining unionization. You know, every study that looks at this says, and the work I've done says, you know, the decline in unionization has played a very significant role in all this. So to me, those are the things that are, you know, what the issues are. I mean, and this is important because, you know, depending on how you diagnose the problem, is critical to how you address the problem. So if it's a matter of fairness, that's one thing, which, by the way, is going to be pretty difficult to address, you know.

And I get it, you know, better measurement. We want to have broader measurement, you know, those kinds of things all makes absolute perfect sense. But that's a much more thorny kind of like very, very difficult thing, you know, then is saying, okay, if globalization is the issue, if technology is the issue, if unionization is the issue, let's focus on, you know, how do we address those things or at least make it easier for people to come back into the economy after they get nailed by those things, you know. Right. No, I agree with that. I think there's been a shift in the balance of economic power over the past several decades. And like, you know, more power going to employers and less going to workers, more power, more economic power concentrated in a few large, very successful and profitable companies and less in the hands of smaller businesses. And I think all of that, unfortunately, has, has kind of filtered down to the household level such that when you shift power from workers to employers and when you shift power from small companies to big companies, you're also shifting economic well-being from lower-income, lower-wage workers to high-income.

Okay, that's fair. That's fair. You're saying. But to put what you said into Zandi terms, you're saying, look, these other things I just mentioned, globalization, technology, whatever. it started the train rolling and then it just takes on its life of its own because people are in a position of power, you know, they can, and therefore they can start changing the rules of the game meaning tax code, meaning government spending, meaning regulation, you know, all those kinds of

things. And it just becomes self-reinforcing. And that even even a business is own hiring practices, right? Like why are there, why are we still having trouble getting more women of color into leadership positions at corporations. It's because a lot of people instinctively like to hire people that remind them of younger versions of themselves. By the way, I can attest because I am on a board and very, very different perspectives on that in boardrooms, you know, today, just the opposite of what you just said. Really? Absolutely opposite. Yeah. Now, any, you board opening that opens, it's we need to find women. We need to find women of color. And in fact, it's difficult to find, you know, folks. So I would say actually, because of this

whole ESG movement, which again, by the way, don't get me wrong. I think this is a great thing. But I do not think that that's the case anymore. Or at least not, I mean, I paint with a broad brush and I'm looking at it from my own perspective. I don't have, you know, a broad set of data here, but I don't feel that in boardrooms today. I feel a very different attitude towards this. Well, it's moving in the right direction, but it's coming from way back in the race. Oh, that's true. No doubt about that. Yeah. Yeah. Yeah. For many, for a long time, we have not had good female representation at the top of major corporations. No, I agree with that. That's very sure. It's still the case. It's under, you know, it's not, not well represented.

So a lot of work to be done here, no doubt about it. But I just feel like, I don't know. there's definitely a change in corporate America with regard to this particular issue. Climate change, big change in people's perspectives in the last 10 years. And I'd say also in terms of a diversified group of individuals that are, you know, helping these organizations operate very different attitude than it was the case, you know, 10 years ago. As you can tell, I've gotten a little older. I have a little bit of historical perspective now to bring to bear.

And I think that has changed. All for the good, but believe me, I think this is a really good thing. But I think, I'd love to see more data on that, you know, and I'm sure there is. We should take a look. Hey, I want to move the conversation along a little bit because we are running out of time. And I do want to talk about the kinds of things you think we should be doing, you know, to address this. You know, what kind of is at the top of your list of things that if you're a king, queen for the day,

I don't know if that's what I should say there, leader of the day. day. Yeah. What would you do? You know, I think I would, you know, I think our committee is studying a lot of policies that help to level the playing field, to help to bring people that are in the back of the line closer to the middle of the pack, at least. And that means, you know, more support for families. Like a lot of the fiscal policy that was designed to rescue people from the COVID pandemic is really a good pilot program for things that could go on in the future. So, for example, the expanded child tax credit, you know, you can think of it as, you know, sort of a smaller version of a more universal family benefit, getting more support for workers

who aren't in traditional employment relationships, you know, helping people get the education and training they need to find the jobs that are more resilient to changes in the economy like automation, supporting care work more because whether it's unpaid care that family members provide or currently unpaid care or the caregiving industry, you know, there are a lot of people getting old right now. The baby boomers are, you know, are getting old and almost fully into retirement. And we're going to, there's a terrible shortage of care for elder people. And so, so assisted living, you know, more support for the assisted living communities.

I think we're also recognizing that a lot of what has already been passed in this Congress and in this administration has been good for the economy for the longer term, not just, as a, you know, as a, as a recessionary counter. So infrastructure spending, we had a hearing on infrastructure and how important that is for economic opportunity, right, to create connection for people to the economy. So, you know, how important it is for people to have, you know, safe and reliable public transportation, how important it is for broadband, especially given how much is done remotely these days, you know, safe, clean water.

We're having a housing hearing next week, which deals with safe and affordable housing. You know, I think that a lot of our policy recommendations are going to be things that are not necessarily federal policy, but maybe state and local policy that can be supported, funded by the federal government. government, you know, investments in communities, providing, you know, more access to capital to communities that need it, to access to resources. So we're going to be studying and talking about place-based policies like local economic development policy and how that could be encouraged to be more productive for communities, more inclusive to entire communities rather than just subsidizing the investors that put money into the

community, actually having communities play a bigger role in shaping how those funds are invested in their own communities. Makes sense. You know, I was going to say, we've done some work looking at racial integration across the country and relating that to growth and found that. in our work that, you know, more racially integrated communities have stronger economies. They grow more quickly. You know, we could, we can't quite prove or connect the dots as to exactly why that is.

It's, you know, very difficult because of all kinds of data and issues and the debates in economic economics communities about causation versus correlation and all those kinds of things. Right. But the one thing I did have come to the conclusion based on that work, and I still can't quite quite prove it econometrically, but, you know, it's my sense of it. The credit really matters, credit availability. Yes. You know, in those racially integrated communities, you just find credit availability is greater, and that helps to support small business formation, entrepreneurship, allows homeowners, households become homeowners, and, you know, drives, they can get student

loan debt so they can, you know, they can go get, you know, a higher level of education. And that drives a lot of economic growth. And in my mind, that seems to be an area where, you know, it feels like we should be able to do something there, right? Policymakers, because a lot of that credit comes from institutions that are regulated by the federal and state local, you know, federal and state local governments. We should be able to do something about that. Yeah, I think there needs to be a lot more work on outreach and administration of these programs that are designed to help local communities, even if they're federal programs. Like I'm thinking about the paycheck protection program loans and how when at the start of the

pandemic, we saw that despite those loans that a lot of immigrant, small businesses were most likely to be closed down. And, you know, I know from Asian communities and Asian culture that a lot of Asian family businesses, they're very reluctant to apply for a government loan. Because it sounded like a loan and not a grant as well. That's true. They don't like to borrow money. And then some of them, they just had language barriers and they didn't have regular

relationships with a bank, you know, like a Chinese restaurant did not have a regular relationship with a bank. And so they had trouble even being aware of the fact that that program was a good program to participate in would have saved the business because they just didn't want to owe money to the government. They didn't have anyone to help them through it. That's a great point. I mean, I do think the program got a little bit better as it went because you got CDFIs involved, CEDs.

Like I'm on the board of a CDFI and we got involved in helping those kinds of businesses that don't have banking access. Yeah, relationships. To navigate through the SBA to get those loans. But you're absolutely right. That is a big deal. You know, we should be able to think about that more carefully. Hey, you know, this is obviously a very pernicious problem. And, you know, if we don't address it from a policy perspective, in my view, that, you know, you're right, I think this only will get worse.

So we really need to think about this. And thank goodness that we have people like you who are on the case because you are really good and, you know, obviously very committed and devoted to this as an issue. and, you know, I think we owe you for your debt of gratitude for your service to the country. So thank you for, you know, all the work that you're doing here on this issue. Well, I would urge your listeners to follow our committee's work if you just Google. Well, Google Fair Growth Committee because that's sort of our shorthand term. And you should be able to find our website. And we've got a bunch of hearings coming up that are just really going to be

fascinating. We always feature real people and not just experts. Not the eggheads, not like the eggs. Yeah, no, we have some eggheads, but we're limited. I'm given a quota on how many eggheads I can invite to testify, which is, which is why Mark, you haven't testified yet because I've been told too many eggheads. I'm definitely an egghead. I'm definitely, okay, but, you know, again, thank you so much for coming on. I, you know, and I really appreciate it. And we will, I think we'll call it a podcast. Do you have a Twitter handle, Diane? Do you tweet? I'm at Economist Mom.

Yes. Oh, that's right. That's a great one. That's a great one. Yeah. At Economist Mom. Actually, my blog still exists online, Economistmom.com. Excellent.

I haven't written on it since I started this job. But yeah, there's some perspective there. I've written a lot about Asian women during the pandemic, especially. Yeah, so everyone should take a look at that and follow you. And Mr. Sweet, what's your handle? at real time or yeah at real time underscore econ that's a bad sign Ryan it's a bad side mr. mr. Derides won't even Dr. DeRides won't even tell us where his because he's a LinkedIn kind of fella so oh I see yeah he's a he's a maven on I don't I'm not on LinkedIn so I don't know but

I heard that you know he kind of dominates LinkedIn and I'm not on Twitter so there you go yeah wow two ships that passed in night and for everyone at Mark Zandi okay There it is. There is. Hey, I want to thank everyone for participating in listener. Any suggestions? And actually, I, you know, I do get a fair amount of suggestions from listeners. And I really take them to heart and we try to adapt and adjust to, you know, the things that you're asking for. So please fire away. Very interested in what you have to say. And with that, we will call this a podcast. Thank you, everyone.