Moody's Talks - Inside Economics - Not To Get Political…

Episode Date: December 30, 2024

In the last Inside Economics podcast of the year, the team is joined by our colleague Justin Begley to discuss the incoming Trump administration’s seeming view that smaller government means stronger economic growth. Will the new government agency DOGE, a more relaxed anti-trust policy, and lighter regulation successfully lift the economy’s prospects?  A potentially politically charged question the team works to tackle analytically. How did we do?  And Happy New Year! Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-hosts, Merceda Dina Talley and Chris Duretis. Hi, guys. Hey, Mark. Hey, Mark. You guys are working hard trying to. It's not a lot of people working this week. It's kind of the lonely.

It's easy to get things done. Let's put it that way. I like working these two weeks because no one's working. Yeah, I mean, I haven't gotten an email in like two days except for the one you said. sent me this morning. Oh, I can rectify that very quickly. That's okay. I wasn't complaining. Oh, okay. All right. Yeah. How was your holiday? How was your Christmas week? Really nice. Really nice. Lots of family. Well, I made my way back down to Florida, you know, an hour car ride, all in one shot. I was telling Marissa, first before you joined, six pit stops.

You know, I've got two dogs. So my wife and I, six pit stops. And I'm, I nearly got it down to five, but just quite couldn't get there. How many hours is that? 18 hours. Wow. And I'll have to say, South Carolina, let's get going. 95 in South Carolina is a mess, a mess. I would have been, Justin, you know what I'm talking about?

I actually went up through Tennessee and Ohio, so I went to a different route. Oh, I should introduce Justin, our colleague, Justin Begley. Justin, how are you? I am well. How are you? Yeah, well, I was headed south. You were headed north. That's right.

Yeah, you were headed in New York. So you went through Tennessee. Yeah, because being in Tallahassee and then going to see some family in Buffalo, it's like a straight shot upwards through Ohio. Right, right, got it, got it. But anyway, South Carolina, 95 is two lanes, and it just gets bogged down. It costs me in a whole hour. It's all about me, you know.

Did you stop at south of the border? You know, it's looking kind of vacant south of. I'm not sure. I may have this wrong, but I'm not sure it's open or maybe it didn't look like. Wow. Yeah, I'm not so sure.

I think since the pandemic hit it hard, I believe. Yeah, so I'm not sure. Is this the place where you buy fireworks? You can buy it in the day. You can buy everything. Oh,

you know, there is this thing called Buckees? Is it called Buckees? Do you know what I'm talking about? Buckees, yeah. Buckees. I've never been doing,

I went to a Buckees on my way when we stopped at Buckees. Man, that place, what a happen in place, you know? It was cars and people, dogs everywhere, right? The best place to stop.

Why? What is it? Like a Wawa type of? No, it's Wawa times 20. Oh. Oh, yeah. It's massive. Yeah.

You know, they're all over the southeast or is this a southeast thing? I think it's a southeast thing. But it's the only gas station that you actually might want to eat food at. You know, it's a. No, no, take that back. Take that back. Wawa. Well, we'll get caught on this package room.

I have not been to Wawa before, but we are getting, there's one opening about five minutes from my house, like in the next couple weeks, I think. Well, I'm happy to report. I think Wawa is now all the way from Philly down to Florida. I mean, there's Wawa's now in the Carolinas. I think this is the first year that I've seen Wawa's in the Carolina. So in the last month, I've seen four new constructions for Wawa's. Wow. From Tallahassee to Fairhope, Alabama.

So across that straight line, yeah. Well, I'm telling you, you got to try that out. But it's no Buckees. Buckees is like, oh, my gosh, it's like you can get barbecue, you can get your fingernails done. I don't know, you can buy fireworks. You can shop for holiday decor. Yeah, shop for holiday decor.

And just looking at the people, I was sitting there, you know, with my dogs, they were doing their thing. And I'm like, oh, wow, this is like America right here. You know, it was amazing. That's why it took 18 hours. Right. Got the manicure. All right. Well, there's a lot to talk about, but I want to begin with what's top. And we will play the game at some point, the statistics game. But I want to talk about this H-1B visa blow up. You guys been following it. You know, it's been a quiet week. And that seems to be dominating Twitter sphere. Have you, Mercery, have you been following that? Yeah, I mean, I'm not on Twitter, but I've been reading about it in the news, yeah.

Yeah. What do you think? Who side are you on the MAGA right or the tech right? And I, that's not a political statement, right? I mean, that's the way people in the debate are framing it. The MAGA writer, like, I don't like H-1B. I don't like any, I don't want immigration into the country, basically. That's kind of obviously I'm distilling it down.

And then you have the tech right, which is Elon Musk leading the charge saying, And we need skilled, certainly skilled immigrants. H-1B is very skilled immigrants that come into the country. So we need more H-1B. What do you think about that debate? I mean, as an economist, I look at supply and demand in the labor market, right? And I think you can certainly make the case that many tech companies have been struggling to find skilled labor that they need.

and oftentimes they're able to get it from outside this country. If that is helping us grow the economy here because we're importing skilled labor on a temporary basis, then I think that that's what we have to do. I mean, I'm very generally pro-immigration when we need to have it here, and it can't be fulfilled within our borders. So I am on the side here of Trump and Musk. Ooh, that's a big statement. Is it Trump and Musk or is it Musk and Trump?

Oh. I got Justin the last. Oh, all right. Okay. Justin, what do you think about this whole H-1B thing? I actually agree with Marissa. I think that, you know, the argument from the Magarite is, as I understand it, is that we actually do have. sufficient American workers to fill these higher skilled jobs and bringing in more foreign-born

workers puts downward pressure on wages and kind of, you know, has negative effects on income across the labor market for Americans. I don't think there's evidence to really support that. I'm not sure that we do have sufficient labor supply in skilled industries. Now, there's been a number of suggestions to, you know, reform H-1B, like in so far as loopholes are being taken. I'm not really aware of exactly what those are, but you kind of hear that argument sometimes. But generally, yeah, I think that we're a country that seems to be maybe not starving quite now, but kind of edging that way for labor, especially, you know, given the demographic trajectory

of the United States and even from a public policy perspective, which is most of what I think in, all the things that need to backstop Medicare or Medicaid and Social Security. you know, we just need more workers. And so I, I, I tend to fall on the very much pro H1B visa train and then also even expanding that, that I think it's like 65,000 cap expanding that a little bit. It's 65,000, you know, workers. And what, it was something. I think it's 85, I think it's, I think it's 65, at least, or maybe, maybe it's typically 65,

and they added 20K on top of that. in this recent year. I think that's right. I think that's specifically for people with master's degrees. Yeah. Right. I don't know. Chris,

are you, would you take the other side of this or not? Absolutely not. If anything, I thought the whole debate during the election, everything was around, you know, documented versus undocumented.

But that the question of the demographic trajectory of the country was clear. Birth rates are down, right? We're not going to change that anytime soon. There is a labor shortage in certain industries where it's going to be an increasing labor shortage. So why are we having this debate? It should be, there should be no question about, you know, increased legal immigration.

That doesn't. Particularly of highly skilled workers, right? Yeah. I didn't. Let's go down the route in the tech industry. So many of these companies are started by immigrants, right? Yeah. We have a long track record here.

Right. So it seems like counterproductive if we're going to go down this road. Well, I tell this story that. But back before we were Moody's when it was our company, we wanted to open up, we wanted to hire this fella who was a Prague national, really good economist and couldn't straighten out his visa. So we said, okay, we're going to start an office in Prague back in the day. And of course, we still have the Prague office and we've hired many, many European Middle Eastern economies. in that office. And then, of course, this guy took off, ultimately, said that Zandi's an idiot.

I'm smarter than he is. And so he took off and started, you know, doing other things. And it has gone on to great success and hired many other folks, all of whom are outside of the United States of America. So if we had brought that guy over here, you know, he would have done invariably the same thing. And the jobs would have been created here, not over there. So, I mean, I think like most economists, I'm low to use anecdotes, but that feels like a pretty good anecdote to me.

I mean, this makes a very clear point. The one thing I did learn, and I, maybe I knew it and forgot it, but a large percentage of the H-1B are folks from India, which makes sense. I mean, there are tech engineers and, you know, skilled workers, but I found that, you know, relatively interesting. So we're all on the same page here. You know, H-1B, bring it on. I mean, yeah. And I guess it's high-lis-H-2B. Yeah, you need unskilled workers, too.

Yeah, yeah. I think we framed it right, Chris. It's between undocumented and legal. Yeah, that's the key question here. Okay. Okay. All right. So we're on the same side as President Trump and what do we call Musk?

What do we just? Elon. Elon? I don't know. That feels a little too familiar. I don't know. I'm not going to weigh in here. Okay.

Not saying anything. Not saying anything. Okay. The other big news, markets. Have you been watching markets? I mean, I know it's thin trading. I mean, these are holiday weeks, not a lot of folks kind of maintaining the trading posts, so to speak. But it seems like we're seeing a pretty meaningful sell-off in the bond market, the 10-year treasury yield.

got as high as 6.6% last week. 4.6. Excuse me, 4.6. We got up to 4.6. That's a full percentage point up over the past three months. And, of course, the stock market's now selling off. Chris, any takeaways there, or is this just, you know, typical. Santa's crying.

Santa's crying. The Santa Claus rally is not to be had this year, looks like. Yeah. Yeah. So that, nothing fundamental going on, you think? I think, I don't know, fundamental. I think a lot of it is just year-end positioning, repositioning. We had a big run-up this year. So you have, you know, certain profit-taking and portfolios being remanaged. I don't know that there's anything fundamental, what fundamentally changed this week that would cause the sell-off. Maybe it's this H-1B issue. Yeah, I mean, I think the, and it might be stretching here, right? And I do think there's this, a lot goes to the thin trading that's going on. You don't have a lot of volume, so you get these big moves. So I don't want to restate the case.

But I do think it goes back to the Fed, you know, the Fed's decision to, for they cut rates, but they signaled strongly that, you know, they're probably going to be on pause here for a bit. And that, I think, surprise markets. And in a kind of a typical market, that would be no big, you know, it would be a deal, but no big deal. But this market, these markets, the equity market, lots of other asset markets are very highly valued, bordering on frothy, maybe even tingees of speculation creeping in, you know, crypto would be a good example. And so when you throw in something that doesn't fit exactly to script, you get these bigger moves. And that, so that may be something more fundamental. And I do think it's worth paying real attention to this because we haven't had a good meaningful correction in markets, certainly stock market for quite some time.

I mean, when I say meaningful, down and staying down for more than a day or two, we haven't had that for a while. And I'd also point out that, you know, it does feel like to me the real economy is very, going to be very sensitive to moves in asset prices, particularly stock values, because the wealth effects from the stock market. to high income, high net worth households to consumer spending to the economy are quite potent. You can see in our saving rate data, you know, saving rates for high income households, folks in the top 10, 20 percent of the income distribution have come down. And that's where bulk of the saving occurs. So if they're saving less, they're spending a lot more, whereas folks in the bottom and middle parts of the distribution, their saving rates have gone from being negative to back to zero.

So they've become more cautious. So it's really those high-end consumers that are driving the train, driving economic growth. And I suspect a lot of that's the wealth effect. They just feel wealthier because of the run-up in stock values, housing values, that kind of thing. And if you take that away, that could have some bigger implications for the broader economy. Any reaction to that, Chris? Yeah, certainly. You know, so we're paying attention to, but as we record this, we're down, what, six, seven hundred points. Yeah, it's a lot of large move in the Dow. But, you know, in the grand scheme of things, in terms of what the appreciation has been over this past year.

It's still a great year in terms of return. So something to watch. If we continue down this negative path, certainly I could see that wealth effect kicking in. But right now, I don't know. I don't want to look at it. He sounds way too calm. He's like, there's something in his eggnog. Have you noticed?

Very reflective over last week, putting things in perspective, you know. Yeah. Do you smoke weed, Chris? I do not. Wow. Wow. You don't need to answer. I'm just asking.

I don't. Okay. Not on a regular basis. Never, never tried it. Ah. You and I are alike. I've never tried. I've never tried weed.

Should I? What do you think, Justin? Should I? I'm not an authority on this. I've never tried it either. Are you just saying that, Justin? No, I'm being honest. I've always been afraid.

I've always been afraid of it. Yeah, me too. I've been slightly afraid. Yeah. I think we're very much alike, Justin and I. It looks a lot better than me, but I'm not going to ask you, Marissa, because I know the answer. You know, that medieval boating you do. What else do you do on that medieval boat other than...

Oh, no. I'm only kidding. Moving right along. What are you, any, are you saying when is Dr. Derrides over here on what's going on in the markets? Me? Are you talking to me? Yeah, I'm talking to you. Yeah, I mean, I haven't seen, I don't know that any particular segment of the market is selling off. Like if it's coming from any particular industry to kind of attribute it back to what is going on with the H-1Bs or anything like that.

But I wouldn't, I wouldn't put too much into what's going on in the market the week of Christmas and New Year. You know, I have to see what happens after that. Yeah. I have a vested interest because I've been tweeting about the overvalued stock market and asset markets for a while now. So you'd like it to stay. It's a weird, you know, that's a weird place to be. I really don't.

I mean, that's not really in my best interest. Sure. But weirdly speaking, which gets to another point before we kind of move to the meat of the matter here. And then I do want to take the conversation to a discussion around, on some of the economic policies that may unfold here under the next administration. And I'm not talking about tariffs. I'm not talking about immigration per se.

I'm talking about regulation and antitrust, a little bit around Doge. You know, kind of the theory of the case is that less government, meaning less regulation, less antitrust, smaller government through Doge. That's the Department of Government Efficiency. I think government efficiency that Musk is going to be leading, that if you have less government, that that is good for the economy and growth. And I want to talk about that.

But before I do, I do want to bring up a broader question about, how do we talk about these things without sounding political? And the reason I bring this up is because we get a lot of comments back from listeners saying, hey, you guys are just being political when you talk about these things. you take a position and you know you're taking a political position and I was actually on CNBC I think it was a Monday I think it was month what's today no today's Monday maybe it was last last week one no last week Tuesday is that possible yeah maybe it was Thursday it was Thursday it's all it's all blur but it was like it was recent recent right and we were

talking about this issue about the economic policy under President Trump and whether it's good or bad. And, you know, I was making the case that, you know, tariffs are broad-based tariffs aren't a good idea. Broad-based deportations aren't a good idea, that kind of thing. And the, and the, I won't call out the reporter, the journalist who's quite good, but she called, said, are you just saying that because you're a Democrat? Now, just like that, just like that, before I had really a chance to say anything. And I was taken aback, and I stopped and I smiled, and I said, no, I'm just an economist. But I don't know if that's a good. answer or bad answer. I did have an opportunity later to say, hey, look, I've worked on

Republican campaigns. I worked for John McCain, you know, back in the day on his campaign, and I've helped many others. So I've got, you know, credentials on both sides of the aisle, hoping that, you know, that kind of balanced out her, you know, her question. But anyway, I'm just opening it to the group. How do we talk about these things without sounding political? Justin, you have a view on that? Yeah. I mean, I think it's helpful to explain, you know, we are economists, we're trying our best to be as data driven as possible. Now, the interpretation of data can certainly be affected by biases. I actually saw this pretty interesting paper from NBR the other day where it was like trying to. Economic research. That's the, that's the, that's the, I guess that's the, I guess that's the, I guess that's the, leading group of economists, academic economists, the National Bureau of Economic Research. Exactly.

Excellent economists over there. And they basically, these researchers surveyed, I guess, dozens or maybe a handful of estimates on the net cost of immigration. And they were specifically looking at how political bias influenced their estimates. And so specifically, they were looking at specification bias. And they were matching up to like, what was their referee score like when they submitted the paper to a journal and actually dissecting their specification to see how that may have influenced their cost of immigration estimate where very anti-immigration researchers were suggesting that the cost of immigration on the federal government was super high and very pro-immigration researchers were suggesting that it was super low and even net negative. and there's kind of a clustering around a more neutral effect. And the point being is that we need to be hyper attentive to how we're modeling, what kind of assumptions we're putting into our models,

and then, you know, being transparent about those. And I think doing that entails surveying basically all the literature we can get our hands on from, you know, conservative think tanks and researchers to libertarians to, liberal Democrats, you know, whatever we're looking at. I think it's good to take, you know, kind of look across the spectrum of the political spectrum of research and kind of see, you know, what methodology they're using and, you know, scrutinize that a little bit to try to figure out where their biases might be playing into this and then allow that to kind of flow into our modeling as we pick through that ourselves. Yeah, that makes sense. I mean, I think we're

transparent. I mean, we're painfully transparent, aren't we? I think so. And we, the other thing we do is scenarios like we run different scenarios and try to attach probabilities to those scenarios but you know consider alternative scenarios merso anything to add there before we move on i mean i mean it's it's hard and tricky one right yeah i get all the emails about the podcast um and leading up to the election we got quite a few that were disappointed that we in their interpretations seem to be political in our analysis of policy. But, you know, as you said, I think, actually, I think the fact that you're up front and say, I'm a Democrat, and yet, you know, still have worked on Republican campaigns and have worked on policy questions for Republican

candidates, senators. I got one this morning. Literally, from the Pope's side. At least, you know, you were clear about where you stand politically, but I think that, you know, it is hard to talk about it, particularly when there are policies that you really don't like as an economist, right? I mean, when you evaluate policies of a candidate, even just from the economic perspective, and you think that they are actually really harmful to the economy, it can come off as sounding like a political opinion and not an economic one. I think we all do this. I think we all read a wide swath of analysis and papers and opinions from all over the political spectrum to make sure that we aren't having tunnel vision about a particular policy, that we're

thinking about all the different arguments for and against a policy. I mean, there's a lot of things I've read that are not necessarily pro-tariff, right, but point out that there can sometimes be positive things coming out of tariff policy and try to consider these things when we think through an issue. So it is difficult to, I think, sometimes sound like we're not being that, you know, we're not injecting a political opinion, but rather an economic one. I think we do the best we can. I mean, at the end of the day, we're all people and we have our opinion,

and it's just a matter of trying to make sure that we are being upfront and transparent about the way we're thinking about things. And, you know, sometimes it's just you have an opinion that someone else, doesn't like, right? It's just not their opinion and it differs from their opinion and therefore they might think it's a political opinion. But I think that we do the best we can in trying to be a political in our analysis. Okay. Well, so Chris, anything to add there? Yeah, I'd just say that I think it required, well, first of all, I'd say that those political biases are kind of in the eye have the holder, especially if you think back at all the flip-flops in policies endorsed by the different

parties, right? So we have industrial policy that is deemed to be bad at one point by one of the parties, and then they flip and they say, oh, no, this is, or they give it another name, right? And suddenly they adopt it. I think the best we can do is to be specific in the, I think that sometimes when we get to generalities, that's where the political kind of biases seem to result. So if we say, even our earlier discussion, making the statement that all immigration is good, suddenly that's going to trigger someone or they're going to interpret something.

By way, if we're very specific in terms of, you know, we're talking about, you know, legal immigration into the country is supportive to economic growth, right? I don't see that that has a large political bias too. I think most people would agree with that statement. But I think we need to be as specific as possible when we're discussing these policies to kind of try to avoid some of that political bias creeping in or perceptions of bias. Yeah, well said. Okay. So in that context, with that as context, let's talk a little bit about, take the remainder of the podcast to talk about some of these policies President Trump has been espousing.

And again, in my thinking, the way I frame it is very simply that these less government, whether that means less regulation, and that's the thing that most business people go to right away, or less antitrust, because under the Biden administration, the antitrust activities have been more muscular trying to promote competition through keeping companies from becoming too large, but the Trump administration may, there's some debate, but take a different perspective.

And then Doge, I'd throw into the mix as well, the Department of Government Efficiency, the thinking that, you know, we can reduce government spending through greater efficiencies, maybe even cutting back programs, and by so doing these things,

oh, and maybe I'll just throw into the mix. There's no way we're going to get to it, maybe at some point in the future, is the, is Fannie Mae and Freddie, Mac, right? Fannie Mae and Freddie Mac are part of the government. They're under conservatorship. There's a thinking that under the Trump administration, there'll be an effort to privatize Fannie and Freddie, get them out of conservatorship, out of the government's control into the private

marketplace. But that's a whole different discussion in can of worms. But broadly speaking, it's about reducing the size, you know, the size of government. So let's turn to, because Justin, we have you. And I should have said, Justin, you've been on the podcast before we introduced you then, but you spent a lot of your time thinking about federal fiscal policy. And I know you've done a lot of work on Doge and thinking about Doge. Can you just explain as best you can, you know, given what we know, what is Doge and what's the intent? And how do you think about that? Sure. I'm actually going to, I wrote this down because I think it's very helpful to kind of frame the conversation around Doge. Elon Musk and Vivek Vibra Gromiswamy published a Wall Street Journal

Abed a couple weeks ago, kind of explaining exactly what they intend to do with Doge. So they say that Doge will not just write reports or cut ribbons, but also cut costs through three major kinds of reforms, regulatory recensions, administrative reductions, and cost savings with a focus on driving change through executive actions based on existing legislation rather than bypassing new laws. So the three points there would be, of course, rescinding existing regulations,

restructure executive agencies, and cut costs in some capacity. So it seems to be, I mean, we saw kind of, with this latest government funding battle, Congress's first dance with Doge, and it kind of felt like a botched tango where, you know, of course in a tango, the male is leading the female dancer in a very elegant way, but it felt like Doge, the leader was kind of just like dragging Congress along in a really way. And I think what we'd want to see is something more like a, if you know, dance, something like a Pasadoblo, where you have the female lead kind of. We're learning about Justin. Yes, yes, we are.

He doesn't smoke weed, but he definitely dances. Okay. I don't dance, but my wife has made me an avid dancing with the stars fan. So I feel like I know things about dance. So in Abbasidouble, you have this female lead kind of leading this, the male, the bull, kind of like a Matador. And that's what we'd want. We want Congress kind of leading the bull that is Doge and as it kind of cuts costs and restructure certain regulations and administration. So that's kind of ideally how this would work.

But, but yes, I think in 2025, when they kind of start kicking this thing, off. They'll probably, at least as far as I can tell, we'll go for the low-hanging fruit of regulations first and then kind of start moving over into spending. I'm having a hard time to get my mind around what they're focused on. I mean, I understand government efficiency. I just want to make government and everything work more efficiently. Have that at it. I mean, what's wrong with that? I mean, that makes sense to me. We do that in business world all day long. And I suspect in the government, government, they do as well, but, you know, if you want to take a closer look at what is being

done there, great, no problem. The other aspect of it, I think, correct me if I'm wrong, is just government spending more broadly, you know, kind of the non-defense, because I think, or maybe defense is part of the mandate, I don't know, but it feels like it's more non-defense discretionary spending. That part of what the government does that's not the may, that are not mandates, not Social security, not Medicare, I don't know, Medicaid, maybe, maybe not. But is that also included in Doge? Is that part of the savings they're thinking about it's not only making government work more efficiently, it's about cutting spending on non-defense discretionary items?

That's what it seems like. However, they do putting to the side for a second, their, you know, must involvement in the latest kind of battle of the continuing resolution. it seems like based on kind of their own statements about Doge is that they want to work from the executive branch. So how would you do that from savings? Well, they've, they've said they've identified about $500 billion and congressionally allocated funds to the executive branch that either has been improperly used or just yet to be allocated that they plan on pulling back. They're not really specific as to what that is.

I think more likely what could happen is they could create some type of auditing system where the federal government pays out anywhere from $2 to $400 billion per year in improper payments, most of which is just overpayments. So there could be some, you know, look into that and trying to rein that in. But it's hard to say how they're actually going to meaningfully cut non-defense discretionary spending without actually going through Congress to do that. Yeah. And the other thing I'd point out is the amount of.

spent on non-defense discretionary is closing it on 2% of GDP the lowest it's ever been in you know you're going since the data that we have going back to World War II so it's not like this is a big this is an increasingly smaller part of the budget because of all the that's where whenever there's cutting that's where the cuts occur uh so it just doesn't feel like there's a lot of of meat of fat there to cut it feels like that's increasingly more bone, no? Yes. Okay.

There seems to be, I mean, there's not to say that the net, nothing can be cut from. Yeah. Yeah, right. Defense discretionary spending. Certainly, you know, it could, you could find, you know, I think Graham Paul's Festiv's report is kind of a funny way to look at this. You have like all these kind of weird programs that get funded, like funding, stunning Russian cats, walking on treadmills and things like that, that are small pieces of the budget,

but that like Congress could reasonably look at pulling back. And even there, I'm not so sure. I mean, it sounds that way, you know, when you just say it. But when you actually, every one of these things has a story. And if you go and look at the story, you go, oh, okay, maybe there's a reason why we're doing this. So I wouldn't immediately jump to, oh, that's something we shouldn't be doing. And it takes time to figure that out. Is it something that we should be doing or not doing?

Anyway, I stop you. Go ahead. Sure. No, I completely agree. And, you know, every there's always, you know, the, every lawmaker has their constituents. they're trying to help in some way or they have their their vision for programs that they just like and it's going to be very hard to convince them to back away from that. But it does seem that Elon and Vivek are not interested in touching the entitlement programs.

How is on first names with these guys? I've had to hesitate. Oh, yeah, I talked with them last week. No, I'm kidding. Okay. I guess it's easier, easier said than Musk and Bhramashwami. Ramoswami. I'm sorry.

Yes. Right. Yeah. Maybe I'm being too loose. No, no, no. Go ahead. Feel free. It seems like similar to Trump, they're just not interested in touching the

entitlement programs, which really kind of need to be dealt with less the trust funds run out. Here's the other thing. The other stat is if you look at the number of federal government employees, it's $3 million, you know, give or take. And it's been $3 million. I'm making this up, but I think it's right. Last 50 years. And, you know, that is a share of total employment.

that means it's steadily declining, and now federal government employment's only 2% of overall employment. You know, I do understand there's been outsourcing, you know, to private-held firms, but, you know, on the face of it, that doesn't take you to the conclusion that there's a lot of fat here. There's a lot of jobs I can cut that's going to make a big difference in terms of, you know, actual outlays.

No? Would you push back on that? One of the interesting things that, so they're focused on that. Right. Remote work. You're not going to remote work, therefore we're going to get rid of all these employees. Exactly. And I think their idea, if you read through this Wall Street Journal out bed, you get this sense that they are going to be implementing, let's say, full return to office, which they expect, you know, some people who are not willing to move back to Washington will just kind of volunteer to leave their post, hence.

reducing the number of employees at the federal level. And then also their ideas that as the federal government and primarily the executive deregulates, that that will actually create a reduced need for workers and thereby they can, they can, you know, trim down some of these executive agencies. So, but yes, I mean, I think you took my, you took my staff for the statistics game. Oh, sorry. I was going to say right. I got a new one on the spot.

So yeah, it's about 1.9% of total payrolls are in the federal government. And that's very low. That's pretty much near a historical. I think the historical low is like 1.75, 1.8, something like that. Now, if you look kind of since the turn of the century, total federal jobs have grown about 10%, you know, kind of from 2000 to now. But compensation of federal employees has grown about 40%. So that's kind of where some of the cost,

us are mounting. According to the Office of Management and Budget, something like $400 billion is spent per year on compensation of federal employees. So, you know, theoretically, if you cut the government in half, you could have some decent savings. Yeah, although that might go to the outsourcing, right? You'd outsource the least lower value-added jobs with lower compensation. I mean, that's exactly what you'd want to see, I would think. But anyway. That's right. Emerson, any comments on this particular aspect of less government and what it means for the economy? Yeah, I mean, my interpretation of it all is that they just seem to want smaller government, right? So it's talking about reducing payrolls, but it's also talking about perhaps eliminating some agencies entirely or rolling some up into others, right?

Like getting rid of parts of banking oversight and supervision and getting rid of the FDIC we've heard and getting rid of the CFPB. That's been coming up for a decade or so now. you know, some of it is just, and that could go to an efficiency. I mean, I think it's very likely. Can I interject, though, really quickly? They can't do that, right? I mean, that's Congress. It's Congress. You need Congress to do that, right. Yeah. No, I mean, there's actually, from what I've been reading, not much they can do on this realm just single-handedly. A lot of, a lot of both cutting of agencies and jobs and also getting rid of race. regulation, they're very limited in what they can do. If anything, they can probably prevent growth in these things going forward, but getting rid of things that have already been codified

into law is going to be difficult and will require Congress to go along with them. And I don't think that that's going to happen on a wholesale spectrum here, just given the very small margins they have. Hey, and Justin, the number two trillion keeps coming up. I think Musk might have put that forward, that they're going to save $2 trillion. Do you know what that number means? Just for context, I think the federal government all-in expenditures is what? $5.28 trillion. Oh, is that high?

$6.7 trillion? Okay, so $2 trillion. That's per ann. That's about, yeah, I mean, that's about the size of the federal budget deficit. Yeah. Oh, I see. Yeah. That's where they got the number.

I think. Probably. I got it. Okay. But that would mean that's not, you don't get that through government efficiency. You get that from, I got to cut like entitlements, mandate, mandate spending. It's bigger than the entire discretionary budget. Yeah, by orders of magnitude, right?

Yeah, okay. All right, Chris, any comments on this? I mean, I'm coming to the conclusion. Correct me if I'm wrong, but have added, this is great. And actually, every president that's ever took the oath of office has gone down the same path to some degree. You know, I'm going to make this more efficient. That's something that is a standard fair. But we need to do that, no problem.

But this isn't something that's going to advance to the ball, at least in terms of economic growth, in any meaningful way, at least any time in the near future. That's where I'm landing. Chris is landing in a different place? No, that's where I was going to go. I kind of trying to understand is this more about deficit reduction and this fiscal hawks out there trying to reduce the deficit get more of a balanced budget? Or there's also this idea that regulation is an inhibitor to growth. And therefore, by removing regulations, we're going to see this boom in economic growth that will ultimately pay for itself, right?

Those are the kind of the two schools of thought. And then they're related. But I don't know. Do you think there's more of an emphasis on deregulation in order to spur economic activity? or is it more about that fiscal conservance conservative? Well, I want to come back to that because the way I framed it was there's three broad efforts here to reduce the size of government. I began with Doge and government spending. And then I do want to talk about regulation.

And that's where I think most people's minds go when they think about it. And obviously the thinking is if I reduce regulation, I reduce cost. and that is captured to some degree in that $2 trillion saving that they're talking about, presumably. But I want to talk about that next. But on this idea that I can make the government more efficient, because again, you can't cut things that are been legislated. I mean, those are things that Congress legislated. You've got to pass a piece of legislation.

You can't do that through executive order. So if you're just thinking about things that they can actually do through executive order, what the president and the executive branch can do, I'm hard. press to, first of all, get to $2 trillion. I just, I don't know what that number. What is that exactly? Is that $2 trillion over the next hundred years? Okay, maybe discounted back, you know, using the treasury yield. Maybe, I don't know. But I just don't see it, you know, resulting in something that's going to, you know, push the ball forward in a significant way. Isn't the notion, though, that because of the control of Congress as well, that these recommendations

would stand a pretty good chance of being adopted by Congress, right? So it's not just through executive order that they'd make actions, but they would make proposals to eliminate certain agencies or whatnot. Yeah, I guess that goes back to this non-defense discretionary spending. How big, you know, what are you going to do exactly? And are you going to use a legislative process to curtail Social Security, Medicare, and Medicaid? Maybe. Maybe.

But the other thing I'd point out is even the Republicans have control, they have a very, very thin margin. What is it? Three votes in the Senate, five votes in the House. And that, you know, these got, they couldn't even, you saw what just recently happened about passing the budget. Yeah, yeah. You know, good luck with that. Good luck with that. Yeah.

So I'm scared. I'm very, as you can see, I'm very skeptical. Not political, not political, but skeptical. as I think everyone should be, right? I mean, this is not, this is ecumenical politically. I would say the same thing about anybody coming in trying to, the other thing I'd say is, and this goes to my skepticism, and again, have at it, is I do know, because we work in a large organization.

You know, we have a large company, a large bureaucracy. And whenever you want to change something, and you're always thinking about what do I change to make this thing work better and more efficiently. That's what we do for a living. Many of us do for a living. And, you know, everything that you think can change something in a meaningful way, it's more complicated than you think. You have to have humility here because there's a long legacy, lots of different reasons why the system is the way it is. And you start messing with that, you could actually do a lot more damage, you know, very quickly and actually raise costs. So it's, it's, you got to be humble.

It's not like I can go in. And I guess Twitter, I mean, I guess you could use that as an example. I cut Twitter, but look what's happening to Twitter. You know, I'm not sure that's a good case study for, I'm just going to go in and cut things and see, make sure that this, and this is all going to work out well. Well, anyway, let's, let's move on to, should we move on to, let's do anti-touch. trust, that's a little bit more nuanced, and we won't spend as much time. And then we'll do the game, the stats game, and then we'll come back and do, we'll talk about regulation and then call it a podcast. On antitrust, here, I'm actually, I'm not sure, you know, I mean, what I'm sure of is

whatever you do on antitrust, and when I say antitrust, that's companies, large companies, small companies, mid-sized companies, deciding to merge and acquire, if it's found, if the, if the acquisition or merger results in a business that's large enough to meet certain thresholds and it's thought to be anti-competitive, then historically the Justice Department, the Federal Trade Commission, some other agencies will get involved and say, hey, you can't, you can't do that, or you can merger, acquire if you do these certain things to make sure that, you're not impeding competition. And there was a general thinking under the Biden administration that there were,

companies have gotten a lot larger that the evidence would show that, you know, concentration of activity has increased in many industries across the economy. And their profit margins are very wide. They, about as wide as they've ever been in the data we have back to World War II. and there is evidence that, you know, competitive pressures have been depressed because of the increasing size of these companies. And it's not only effect on profits and prices, it's also affects innovation because there's a thought that, you know, bigger companies will acquire smaller companies to make sure that

the smaller companies and their innovation don't eat their, eat their large company's business. There's questions about what's going on in the labor market, you know, these companies can exert large companies can exert significant pressure on labor because they're much larger or much more profitable and able to do those to do that. So there's a lot of different ways that antitrust and large companies can affect competition in the economy. But having said that, I'm not so sure because there are some businesses and industries where we need large companies.

You know, these technology companies, they, need scale to be able to compete globally. And that increasingly globalized economy, and particularly when you're competing against large economies like China, you need companies that have heft that they, you know, if I'm doing artificial intelligence, I need data. I need data. I need scale. If I'm a social media platform, by definition, I need scale.

If I don't have scale, the social media platform doesn't work, but, you know, it relies on the scale. And there's also evidence that in lots of other industries, you're getting increasing productive, so-called productivity dispersion where within an industry, some companies are just much more productive than other companies, and that would lead to naturally, you know, higher levels of concentration, but you don't want to squelch that the productivity gains that they're making. So this is a long-winded way of saying, I'm just not sure, I don't know, but the one thing I am sure or reasonably sure of is, no matter what you do on antitrust, it's not going to

move the dial on the macro economy, at least not anytime quickly. Okay, I just settle lot to provide a frame. Chris, maybe I'll throw it into your court. How do you react to all that? That's a lot to react to. I certainly would agree in terms of the time frame, in terms of what it met, what difference it makes to the economy in the short term, right? You allow, even if you allow two large firms to combine, right? Yes, there could be price gouging. There could be some better behavior later on. But in the immediate term, it takes time. for these to integrate. So I don't see that this, you know, a change in policy going forward here is going to radically change the path for 2025. It could change things later on in terms

of the growth rate of the economy. I don't know. I'm also trying to understand what exactly, I think certainly a new administration will allow more mergers and acquisitions, perhaps than the previous one. But, no, there are limits there too. There are some pushback in terms of You mentioned technology companies. I think that's a great example. They do have economies of scale, but there's also a lot of concern about the size and heft that they have in terms when it comes to privacy and security. So there couldn't. I don't know if we'll get kind of free and open return acquisitions.

There could still be quite a bit of pushback in certain areas. Yeah. What about financial services? We spent a lot of time there on banking. I mean, one of the obvious ones is, well, there's a, I'm on the, name names, but there are some large pending acquisitions. What do you think about that consolidation of the banking industry per se? And that's been consolidating for a long time, but it feels like that might move into hyperdrive here. Yeah, I think you're right. I think it very well

could with the new administration. There's been a couple deals kind of on the on the back burner that are likely to go through. So yeah, I think we'll see some of that. movement there. But again, I don't know that we're going to see. I think there will be more resistance if that were to continue. If we started to see a lot more financial institutions, banks trying to acquire each other. I think there would be some pushback there. So I think we'll get some loosening up here, but I don't think it's going to be this fire hose of MNA activity. Yeah. Merissa, anything on this topic? I think when I think of mergers and acquisitions, my first thought goes to financial services and banks.

I mean, we have so many of them in this country. We have over 4,000, I think, very different from other countries that have very concentrated banking sector. I think that kind of middle market bank size is sort of rife for mergers and acquisitions there. So I would expect that's where you'll see that activity the most. And I also, it's a little hard to separate in my mind this conversation from just sort of the general deregulatory conversation across some of these industries, just allowing a lot of these companies just to kind of, you know, do their thing, whether that's merge or acquire other companies or, you know, just not prohibiting certain activities in those segments.

So, yeah, I don't, I don't see any major macro consequence from either. one of those things actually over the next few years. Yeah. You know, on the banking, that's the one area I know best. That's the one industry we know best. I think having 4,000 banks or a lot of banks, maybe it's not 4,000 is the right number, but a lot of banks is a good thing. And it is a distinguishing feature of the U.S. economy banking system compared to the rest of the world, most of the rest of the world. Most of the rest of the world, you have a few big banks in these country that dominate and not very many small banks. And that goes to the fact that my reasoning behind that is that, you know, those small banks

cater to small business. And in those small businesses, that's why we have so many small businesses. One of the reasons why we have so many small businesses, so many new startups, because they do have access to credit early on in their life cycle and allows them to grow and flourish, whereas in other parts of the world with those big banks, those companies never get that capital, never get that credit, and never can get going. So I think it, you know, I do think it's a, certainly a feature, not a buck. So if you allow too much M&A and too much consolidation, I think we're going to lose, I view that as part of our secret sauce as a nation in terms of

generating productivity gains that are high compared to the rest of the world. Just in any of you, Any perspective on this? I don't think I have much to add. I think you guys get it pretty comprehensive summary. Okay, so bottom line, it's nuanced. I don't think there's, you can't think about this in a broad sense. I think in some cases, scale is a positive for the economy. In some cases, not so much.

It will hurt competition and impede economic growth and innovation. But I think it's really case by, it's almost case by case. You really need to be thinking about this, you know, very, very carefully case by case. But, you know, I'll state it and see if anyone disagrees. It's not, it's not something that's going to move the dial on the macro economy, at least not any time in the near future. This is something that could play out over a long period of time, a decade or two, but not over the next year or two.

Does anyone disagree with that? I think that's right. Now, if I could just add one note on that, there's some empirical evidence that suggests that, you know, reduced, um, MNA activity or, you know, greater antitrust enforcement ends up shifting, um, the share of the share of income towards labor and away from capital,

which theoretically would, um, kind of dent longer run economic growth, which tends to be driven by capital. But I think you're right. In the near term, it doesn't seem like it's going to have any meaningful effect. Okay. All right.

Let's play the stats game. And then we'll come back to, in the conversation around regulation. Uh, the stat game is we each performance. forward a stat. The rest of the group tries to figure that out through clues, deductive reasoning questions. The best stat is one that's not so hard. We never get it. One that's not so easy. We get it right away. And if it's apropos to the topic at ham, that's even better. And we

always begin with Marissa. Marissa, what's your stat? My stat is minus 15.5%. Statistic related to this conversation? Yes. We haven't quite talked about this yet, but yeah. So it's about regulation. Minus 15 and a half. Is it about regulation? Yeah. Okay.

Indirectly, but yeah. Indirectly. Indirectly. Okay. Is it related to the federal government's budget in any way? No. It's an economic statistic. It's a financial statistic.

Ah. Financial. Statistic. In the financial markets? Yeah. Is it stock price? No. Getting more than.

Not minus 15%. Crypto down 15%. Yeah. Bitcoin is down 15% from its peak. That's right. Bitcoin is down 15.5%. Justin, do you see how that's done? I'm very impressed.

Yeah. Learn. from the master. I'm just saying. I'm observing. No Cal Bell. No Cal Bell. No Cal. Yeah, really. It was a little too long. But anyway, go ahead. Yeah. The price of Bitcoin is down 15.5% since December 17th, which was its kind of post-election peak, right? So that's as of this morning, right, before we got on the podcast, which is large by any other metric. If we were talking about any other commodity or we were talking about the stock market, a swing of 15.5% in a matter of a couple of weeks would be seriously eye-popping, right? But Bitcoin is so wild. It's all over the place. I picked it because

this is one of the areas that is being talked about in terms of deregulating different industries or segments and cryptocurrency is one of those. And this just, you know, just a snapshot of how volatile it is. And perhaps regulation could actually inject some stability into this, which is one of the arguments for regulating crypto. Of course, the Trump administration is going the opposite direction. We'll go in the opposite direction, I think, in terms of regulating crypto. I mean, have you heard about this crypto, actually, a reserve? Bitcoin Reserve, right? Yeah. Yeah, that's right. Meaning, the government is going to go out and buy Bitcoin. I think the number of I heard is 70 billion.

I don't know why 70 billion, but 70 billion in Bitcoin. Not maybe, maybe it's broader than that. I don't know. Maybe it's other currency, you know, Ethereum or stablecoin. I'm not sure. But I'm like totally perplexed. A reserve to do what exactly why? I mean, it's not like we need, we have an oil reserve.

I get that, you know, if the Saudis or somebody cut off our oil supply, we need the oil, but, you know, crypto, really? I don't know, like a backup currency in case, yeah, I don't, I don't quite under, it's always, it's always compared to the SPR when this is talked about, but clearly that's completely different, not comparable. Or she's a petroleum reserve, SPR. Yeah. And what I've heard, part of this reserve also would be crypto that's seized from a legal

activity that the federal government has and just instead of auctioning it off, keeping it and putting it in this reserve, right? But I don't know what the reserve does. I mean, part of the argument I've seen is that over time, if crypto becomes more of a legitimate form of currency trade, that it could help to actually stabilize the price of crypto if the federal government is a large holder of it and keeps it in reserve. But why? Who cares? Why do we care about the stability of Bitcoin. I mean, yeah,

well, I mean, except in Argentina. I don't know. Come on. Why do we stockpile gold? Uh-huh. Why do we stockpile gold?

Do we stockpile gold? It's a reserve. Yeah. Oh, you're saying, why do we do that? Yeah. Oh,

so why not Bitcoin? Okay. Why not turnips? Let me give me a counter argument. Turnups. Okay. Turnups. I don't know.

But reserves as a share of I mean, I'd say two things. One, it's kind of age old. You know, gold was the original currency, I guess, sort of. I'm making this up. But, you know, roughly speaking. So there's a legacy there. Bitcoin, I mean, I don't know.

Yeah, I'm not sure I get it. But anyway, okay, Justin, you're up. All right. I'm like I said, you took my staff, really. So I'm coming up with one on the fly. I think this is attainable, but we'll see. Attainable? Oh, gosh.

Oh, no. My statistic is $1.3 million. And it has to do the topic of hand. I'll hold it out there. It has to do what? With the topic at hand. Is it government spending related? No.

Regulation related? Regulation related. Is it jobs? No. $1.3 million? No. The units matter here. Is it a number of regulations on the books or something?

That's like, yes. Words in the federal register. That's right. Specifically, the number of restricted words in the federal register. Yeah. Yes, yes. That's a good one, actually. That's an excellent way to go, Chris.

Yeah. I got help for Mercer. Okay. Okay, explain. Explain, Justin. Sure. So there's this great data set from actually the Mercado Center at George Mason University called reg data.

They kind of use this large language model machine learning techniques to try to find all the number of restricted words like shall and must and will that are put into the federal code of regulation. And it kind of totals those up. So it's sitting roughly at 1.3 million right now on the books. That's up from around 2 or 300,000 in 1970. So the regulatory state, of course, has significantly grown. the, you know, the desire from, like, Trump and people at Doge to start winding some of that down. It was pretty steadily increasing up until about 19 or 2017 or so when Trump entered office. And though his platform largely, you know, consisted of deregulation through his two for one,

that kind of two regulations out for every one regulation in rule that he had signed through executive order early on in his administration, what ended up happening is regulations. kind of held constant. It's kind of, you know, stayed flat for, you know, 2017 to 2020 before kind of jacking back up again in the Biden administration. Yeah, I, I, I, I, we looked at that data before, too. We did a study back in 2018, trying to connect the dots. And here we're going into the next part of the conversation, but just because you brought us here, we try to connect the dots between regulation, less regulation, more regulation and economic growth. And we use that data, you know,

know back in that 2018, 2019 study, and could not connect the dots, simply could not connect the dots. No matter what we did, transformations, lags, leads, different data, so forth and so on, we couldn't figure out how to connect those dots. Meaning that there was no correlation between regulation and growth. No. The other thing we found was if you look at the growth in that data that Justin's referring, to the number of restrictive words as a share of the growth rates in that are very consistent

with the growth rates in GDP. So, you know, take a ratio of the two, there's no change. So as the economy gets bigger, you have more, you know, okay, you have more regulation, you know, but it's not like it's increasing relative to the size of the economy, or at least that's what we found. And I suspect that's the case here, too, because 1.3 million, what's that, is that for 2024, Justin? I think that's 2022.

I think that's the latest. It might be 2023. That might be the latest data. I think it's 2023. Yeah, because it was one, it's, you know, it's been rising four or five percent per random, I think, something like that. And that's, again, nominal GDP that has been, you know, abstracting from the most recent period with the inflation, four to five percent of GDP.

But that's a good one. That's a really good one. Yeah, very good. Chris, you want to go? Sure. $1.4 trillion dollars in the budget? No. No.

Is it related to the topic at hand? It is. And it's a callback to a previous podcast. American Action Forum cost of regulation. Yes. Okay, that's a really good stat. That is a cowbell. That gets a cowbell.

Yeah. Okay. Go ahead. That's a really good stat. What is that? Yeah. So this was, we had a podcast with Douglas Holst-Akins on the American Action Forum. what they do is they have a website where they track the costs of various regulations

put forward by various agencies in the government. So they look at the federal register, they pull the cost estimates, and they're aggregating them, and they have a time series going back. So it's a very nice data set from that standpoint. Everything is reference and cross-reference. So you can go to 2024, for example. That's where I pulled up this $1.4 trillion number. and then it shows you a list of all the different rules that were made that amount to this figure.

So it's helpful from that perspective. What I don't like about it or I think where we need to have some perspective is that this just measures the cost of regulations, right? So, for example, the biggest cost that they identified for 2024 is $870 billion for changing the emission standards on vehicles. I think sold or produced after 2027. Right? So EPA is going to change that rule. Cars have to be more efficient, produce less emissions. That's going to cost $870 billion in their estimate.

But that ignores any of the benefits, right? So there's health benefits, there's environmental benefits, right? So if you look at the full study, it's actually positive to $2 trillion or something in the long run. So I think as we think about Doge and regulations, we have to be very careful. in terms of just focusing on the cost aspect, because there are benefits presumably attached to each of these different programs that we're talking about. Yeah. When Doug was on, he said under the Trump administration, the cost of regulation rose

by some small amount. Oh, 10s of millions. 100 million. Yeah, 100 million. And it's risen by hundreds of billions under the Biden administration. But if you go back and look, and he's very trained. The data is very transparent on the website. It's very good, very good data.

It all is around fuel efficiency, the cost of fuel efficiency. As you say, it doesn't consider the benefit of using less fossil fuel and lower emissions. So I don't know. I didn't come away thinking that that's proof positive or proof at all that regulation was significantly reduced or the growth in regulation was significantly reduced in the Trump administration compared to the Biden's because if you exclude the fuel efficiency standards, they were about the same, I think, the increase in cost of regulation under both administration is about the same. But that's a really good one, really good one.

You want one more? Yeah, laid on us. Okay. And this is related to the topic at a hand, you know, regulation and the size of government, 8%. 8%. It's, and to move things along, I'll give you some hints. It's from a survey. Is it a growth rate? No, it's from a survey. It's not our survey. Businesses that say regulation is their top concern. Ding, ding, ding, ding. Yeah. National Federation of Independent Business, the trade group for small businesses, every month they do a survey. And one of the

questions is what's what's bugging you most about, you know, your economy. And at this point, only 8% say it's regulation. The peak was back early in the Clinton administration, almost 20, 25% of respondents said that was their number one concern. Right now, the number one concern is more around the cost of labor, the quality of labor, inflation, meaning cost of inputs into their businesses. Regulation is low on the list. But interestingly, when you talk to business people, they say regulation. They go, you know, what could make your business work better and more efficiently? And they say regulation. It's common for that to happen. And when I have these conversations with the senior executives of businesses, I say, well, exactly what regulation would make a

difference. And there, I never get a clean answer. It's not like, and sometimes I get an answer, but it's like the most esoteric thing that you could possibly think of. You know, it's something that's so and I'm not saying it's good or bad or anything. I'm just saying it, it's hard to think that that really is going to change the dial on how the macro economy is going to perform anytime, you know, in our lifetime. It's just hard, hard to do. So I want to talk of my, you can get my general the sense of my general view here that, you know, regulation, and again, it's kind of like Doge and government efficiency. Have at it. We should look at every regulation consistently all the time because, you know, regulations get stale as business environments and conditions change,

and the regulatory environment should keep up with that. If it doesn't, it's not a good thing. So we need to constantly be reevaluating, thinking about, you know, regulations. all on board with that. But I'm very hard pressed to come to the conclusion that if I change regulation in any meaningful way, that I'm going to change the macroeconomy's performance in any meaningful. And by the way, Justin can see Justin goes back and looks at the literature. I've looked at the literature on this. Maybe I'm missing something. But I can't find any research, except my research, I've seen a little bit of research from Goldman Sachs, maybe a couple other academic papers, but nothing out there has been able to connect the dots between regulation

and macroeconomic performance. Am I wrong, Justin? Have you seen anything? Did you go look? I would say you're wrong. Really? Okay. Oh, gee, really? I missed it. Not me telling my boss that he's wrong. No, go ahead. I think the Mercatus Center has done some really great work on this. But, but it's not just, I think Mercatus is great, but it's not just their own working papers. They're these in like the review of economic dynamics. These are solid journals. So, and this is where I'm cautiously optimistic with Doge, except for the fact that, again, pushing immediate and meaningful macroeconomic change through deregulation is, I'm skeptical of.

But what they do is they take their reg data and they, there's a couple of different papers that they have that I think are helpful. But they, they take their, their reg data to point two, whatever the version is. they have right now. And one of their papers kind of pumps it into like a Schumpeterian endogenous growth model. And they create a counterfactual where if we were to hold economic or regulation stagnant at 1980 levels, what would the counterfactual economy look like? And they find that by, they use, they kind of go to 2012. And they find that the economy is about $4 trillion smaller in nominal terms compared to if we had held regulations at 1980 levels.

So I think what that would tell me is that, you know, there is some long run as regulation accumulates on top of itself. There's some long run economic effects that don't necessarily get seen, you know, over the last, over, you know, the one, two, three years that their new regulations are implemented, but that might be seen over a 40, 50 year period. $4 trillion. So I think the economy GDP is what, $32 trillion, something like that? So you're saying it would be $36 or $37 trillion, something like that. Assuming their estimate is.

And that includes the benefits and the cost. I mean, what's the, is there any concrete examples or is it just this melange of regulation? The way I understand it, it's the total kind of restrictive. Oh. Is there any intuition behind other than less regulation means more growth? I think they're specifically looking at kind of the mechanism through which regulation prohibits productivity, namely firms having to shift resources away from investments, even kind of capital expansions over into less productive roles like compliance.

So I think one of their studies found that operating. cost rise 0.2% for every 1% increase in regulatory restrictions. And then looking, they had a study that looked at data from 1998 to 2017 that showed that regulatory restrictions grew 3.55% per annum over that period leading to a 3.34% average per year increase in operating costs. And that's mostly coming through compliance. So I think that's kind of the mechanism through which they're looking is this shift in kind of productivity enhancing investments over to maybe you can call it counterproductive. called stagnant productivity that is compliance to regulations. You know, the one thing I would, and I'm definitely going to take a look at this.

You know, the one area where at least my intuition has been that regulation matters is if it changes a lot. You know, my sense is that if businesses have clearly defined regulation, bright yellow lines, everyone knows what they are. They're very transparent. And they don't change too often. You know, if they're changing consistent or if they're changing in a capricious way for certain businesses within an industry, that's a real problem. That creates, you know, I think significant headwinds to broader economic growth. But if it is consistent and transparent, then businesses can navigate around almost anything.

And the example I use is financial service. banking because again that's what I know best that's the industry I know best and you know you go back and take a look at Dodd Frank you know we had a financial crisis financial system crater needed a government bailout we all came back and said we don't want that again so we've got to make some changes some big significant regulatory and other changes to the banking system and you know those are big they were big massive changes you know, a lot more capital, you know, a lot more liquidity, a lot more supervision and oversight.

You know, if you're talking about an industry, talking about regulation, that's an area where massive increase in regulation or change in regulation. But then you go back and you look at the return on equity or return on assets, these are measures of profitability in the banking system. Compare what they were prior to the financial crisis to now. They're pretty much the same, you know, they're not much different. They're a little lower now, but that probably, goes to the fact that the yield curve is

inverted to flat, you know, was more positively sloped and that's really key to profitability. Probably goes to, and, you know, back before the financial crisis, that was clearly unsustainable. What was going on then, all the lending, subprime lending and other things were going on were just not sustainable. So you could

generate excess profits, you know, but that can't carry on forever. So, you know, that to me, and if you go back and look at, what is it that the key link between the banking system and the economy is? What is it fundamentally that the banking system provides to the economy? It's credit.

If I go look at credit, the growth in credit, it's exactly equal to the growth in GDP since the financial crisis. So exactly what you'd want to, you know, if I were a regulator looking on down high, what I want to get is that. It's performing exactly as the way I want it to perform. I don't want it to be way ahead of the economy. I don't want it to be behind the economy. I want it to be with the economy. And it's exactly there. So I look at that and I go, you know, I'm not.

Again, I think it's a good thing to look at regulation. I certainly think there's changes we should make to banking regulation to make it, you know, work even better. But, you know, hard for me to, you know, connect those dots in the one industry, one sector I know. And that's an industry that is probably the most or among the most heavily regulated in the economy. I don't know, Chris, what do you think? Don't tell me you found another academic study that contradicts me. No, well, where my mind went with that question is the cross-country studies, right? I think there are plenty of cross-country studies that have looked at, you know, economies

that are highly regulated, lots of barriers to entry. Clearly, they don't grow as fast, right? So the classic examples, looking at European countries versus the U.S. So I think you're on board with the statement that regulations do matter. No, yeah, yeah, yeah. They clearly can be stifling. But the types of cuts we're talking about here are adjustments we talk here, more along the edges, making things a little bit more efficient, a little bit, you know, smoother.

and they're not going to be so radical in terms of the economic impact that we would expect. Marissa, anything on this topic? I just think it depends on the type of regulation you're talking about. If you're talking about inhibiting businesses from forming or starting up or jumping through hoops to hire people or acquire labor and these kinds of things, they're really detrimental to growth because, you know, you're preventing the business startups and the formations like we have here, right? taking an established, fast-growing, large industry that's already has a strong foothold in the economy and putting regulations on that that kind of tweak around the edges or kind of just make sure that there's a level playing field or there's oversight.

I mean, I think that's a very different kind of regulation for growth than the former, which I think a lot of the European regulations do the former. Here's the other thing. So when you think about the industries that the Trump administration is thinking about focusing on it with regard to regulation, less regulation, one is obviously banking and financial systems services more broadly. We talked about crypto. The other one is energy. And here I'm confused a little bit about energy. I mean, I get this kind of battle between clean energy and fossil fuel.

but it feels like how can we can they change regulation to any significant degree can the administration change it to any significant degree to move the significantly move the dial with regard to what it means for energy production in the macro economy because take a look at oil production you know the frackers here are producing I think 13 and a half million barrels of oil a day

more than they ever have by orders of magnitude I believe yeah and that's under the Biden administration What is it, what do we are hoping to achieve here? I mean, you know, in terms of less regulation of fossil fuels, more oil production? I'm not sure. Really? And that's what they're looking for, right? But drive down the price.

But drive down the price. You just said it. Why would a fracker produce more if I'm going to drive down the price, you know, that they haven't been, they've been more, more very cautious of putting more rigs in the ground. Not, I don't think, because of regulatory. maybe on the margin, but it's mostly about price, right? At $70 a barrel, they're not making a whole lot of money, you know, to, and they don't, they don't see oil prices rising in the future to any significant way, so they're being much more cautious in their, in their investment in rigs

and other things. So I'm confused about that. How is that going to move the dial on the macro economy in a meaningful way? I don't see. Justin, any push back there on what I just said? I don't think so. I mean, again, I think it's one of those things where, you know, when you're on the campaign and, you know, inflation's out of control and you're like, you know, I'm going to lower cost across the poor for groceries and for oil and all these things. Even, you know, when production is at an all-time high, you know, there's a lot of that campaign bluster and even Trump has kind of said things like, actually, this is going to be kind of hard, you know, the lower grocery prices and whatnot. But, you know, keeping one thing that, that I want to suggest that. that might play into it. And again, this is not something that's going to be beneficial for Trump and his legacy,

but something that might, you know, drive more longer run investment in oil, is that if I think maybe that oil producers and explorers, you know, those who go out and explore for new lands to drill on, I want to suggest that they probably would hold back their exploration activity and investment in development of new lands. rigs over the, over the medium and long term, if they see a, a government-led wave, a way that is trying to phase out fossil fuels and, you know, institute more cleaner energy in, in the economy. And so theoretically, again, I don't have any empirical evidence for this, but theoretically,

if there's government-led opposition to that transition to clean energy and a more kind of a attempt to stabilize the oil and gas industry that might lead to more investment kind of not now, but in the next 10 years, let's say, maybe 15, 20 years, just a suggestion. Yeah, right, right. Okay, I wanted to say, one, throw out one other industry. I think the administration will be, the administration will be focused on. And here, I'm not, I don't know. I'm confused a little bit. I don't know how to think about this is technology.

And more specifically, you know, artificial intelligence and social media platforms. On the AI, I can see both sides of that argument, right? No regulation means, and that's kind of sort of what we have now in the U.S., no regulation around AI. You know, we are expanding our AI capabilities very rapidly. You know, obviously that's getting some support from policy, you know, the Chips Act and chips, other R&D activities. But that's often running. And the rest of the – it's hard to know what's going on in China, but if you look over in Europe, not happening, at least not to the same degree.

And that may go to regulation. So your point, Chris, that, you know, they're much more reticent to go down the AI path for fear of all the different dystopic kinds of concerns that people. have around AI, which goes to my confusion and ambivalence, shouldn't we be worried about that too? I mean, if an AI can impersonate me and I don't have to worry about cyber and don't have to worry about, you know, the fallout from artificial intelligence on labor markets and everything else. So I, there I'm, I don't know. I'm, you know, again, I think it's a pretty nuanced kind of argument, but I don't know that it changes the dialogue growth in a meaningful way. I don't know. Anyone has a view on technology and regulation? No? Well, I mean, it's sort of embodied by the whole TikTok thing that's going on right, right? Like there's this sort of battle between free speech and free access to information on the one hand and then national security concerns.

specifically about China on the other, and Trump has come out and said he doesn't want to get rid of TikTok, which seems antithetical to his stance on China and national security when it comes to China. So this is all to say, I'm very confused about it as well. I'm not exactly sure what regulation we're talking about when a lot of times when we talk about tech. You know, I'm not, I'm not sure what the endgame here is because a lot of it seems to be kind of contradictory. Yeah. Okay. Any other industries that the incoming administration is going to be focused on in this

effort to lighten up regulation? I mean, I mentioned financial services banking, energy, crypto, technology, any other industry that comes to mind? Maybe healthcare. Maybe healthcare. Yeah, maybe a little bit of health care. Yeah, okay. All right. We've got to have these folks from the McCatus Institute on. Yeah, I think that it's just to dig deeper into this subject matter and get the other side of this because I miss that work. I did not see that work. I'll take a look. But it'll be good to have them on. Okay. Anything else? We're pretty long in the tooth here on this podcast. Covered a lot of ground. I mean, as you can see, my kind of bottom line is these are all good things to pursue Doge and the government efficiency. take a skeptical view of regulation and antitrust,

but I don't know that that adds to tens of percent of GDP or hundreds of thousands or certainly not millions of jobs. I just don't know. I just don't see that, at least not any time in the next few years. But any last parting words before we call this a podcast? Just that all this is harder to, it's not, you can't wave a magic wand and do all this stuff, right? So all of this, much of this stuff, most of what we're talking about has to go through Congress.

So even with the regulation, you can't just get rid of regulation that's already law. You know, you can get rid of regulation that's maybe been on the books for a couple of months, but that's it. So it's more talking about slowing down the pace of new regulation than it is about rescinding regulation that's already on the books. So it's hard to do. And of course, we didn't talk at all about the Chevron deference. and what that means from the courts getting involved, and that's a whole other kind of conversation. I will say that Trump had a very high lose rate in court,

over his first term, was the highest spending president, like 50% of the regulations that he would try to rescind that would get tied up in the court when he'd end up losing that battle. So, yes, it is a very, it'll be a fraught kind of four years ahead with trying to rescind regulation. Right, right.

Okay, very good. Well, I hope you guys have a great New Year's, Happy New Year. And don't indulge in that. I know. It's not a good thing. I don't think. I don't think it is.

So be careful on that. Chris, I do feel for you, your value of your Bitcoin empire is a little lower today, apparently, than it had been. It's actually unchanged. Unchanged. Unchanged. Okay. Good to hear that. Unchanged.

Send me a bottle of champagne or something with your winnings. But anyway, I think we're going to call this a podcast. Take care, everyone. We'll talk to you next week.