Moody's Talks - Inside Economics - Red Shirts and REFIs

Episode Date: April 22, 2022

Jared Bernstein, Member of the White House Council of Economic Advisers, joins the podcast to discuss the state of the U.S. economy, including the labor market, inflation, housing and recession risks.Full episode transcript For more from Jared Bernstein, follow him on Twitter @econjared46. Follow Mark Zandi @MarkZandi, Ryan Sweet @RealTime_Econ and Cris deRitis on LinkedIn for additional insight.  Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and it's a bright sunny day here in suburban Philly. And I'm joined by my, I've got two colleagues now. Ryan went AWOL last week, but he's back. Hey, Ryan. A wall, I was on vacation, Mark. I had to take the kids to Hershey Park.

That's synonymous from my perspective, you know. I did bring the mic. I was ready to do the podcast, but Hershey Park is full of kids, and there's no quiet place to be found. As Hershey, I mean, I, you know, I took my kids there when I was your age, probably, what is that, 20 years ago now. And I wonder if it's changed at all. Does it look like it's changed? Is it the same?

No. No, I remember it looked the same as when I went there as a kid. Oh, is that right. Nothing's changed. Yeah, the chocolate factory, the chocolate world, all that stuff is pretty much the same. It's pretty much the same. Well, the chocolate is, you know, obviously can't touch that. That's the highlight.

It's a classic, yeah. Good. We got Chris Doretties. Chris, hey, how you doing? Doing well. How are you doing, Mark? You're not in the office today, or are you in the office? I am in the office. I just pulled the blinds here. Oh, you pulled the blinds. Okay, very good. And Ryan, Chris never goes AWOL on me. He, you know, vacation or not. Oh, no, once he did. Right. No, no, even he went on vacation. He was in Italy. He was in some kind of wine cellar or something doing the podcast. I was on the podcast, though. Come on. Yeah. Yeah, that's right. Very good. And we've got a guest. We've got a guest. We've got a guest. Jared, Jared, Jared, hi. How are you? Hi. Hello. Hello.

everybody. And for folks that don't know, Jared is on the Council of Economic Advisors in the Biden administration. It's really a pleasure and honor to have you here. He indicated that he'd be with us for a couple hours. I wish. As you said, taxpayers would begin to question that. So we're very glad for the time you can spend with us. So we really do appreciate that. And a lot of ground to cover. We want to play the game. Just statistics. Statistics game, and I know, Jared, you're a fan of that game. As I recall, I don't know if I told Ryan and Chris this, I think we, early on in the podcast a year ago, there was a question about Chinese GDP. Oh, yeah. Quarter of quarter. Yeah. So that was where that was where I realized the

fix had to be in because somebody cited nominal. Okay, here's what happened. If I may have this wrong, but you guys will remember. Somebody cited quarterly nominal, China. Chinese GDP growth, non-annualized or something, and somebody else knew what it was. And at that point, I was like, oh, okay. So there's a fix. I get it. That's cool. But the reality was no fix, no fix.

Actually, last week I blew these guys' minds. No, it was two weeks ago. Right, Chris? What was that? Yes. The food price index. Oh, yeah, the U.N. food price index. Oh, my goodness.

Yeah, that was fun. There's a fix. No fix. Chris and Marker in cahoots. Yeah, see, Ryan gets really upset if someone else wins the game because he's a maven. But Jared, thanks for coming on. And before we kind of dive in, I thought maybe we could just spend a few minutes. You can describe for the folks out there.

What do you do for a living at the scene? Yeah, no, it's a good question. I mean, broadly speaking, the Council of Economic Advisors provides economic advice to the president to the administration more granular. we really do four things. We write the economic report of the president every year, and that just came out, and we're so proud of it. And I hope people will go through it. It's just our senior economists and staff did such a great job. Secondly, we make sure the president is up to speed on the data flow, which is what you guys talk about all the time. Almost every day,

there's a data report, and that goes into his book with our commentary. The third thing is we we work on policy processes. So when we're talking about energy policy, countercyclical policy, really, any of the policies that are in the economic sphere, members of the CEA are working on those behind the scenes, and that can be a matter of days, weeks, or months. And then finally, metaphorical fire drills. You know, you're sitting at home on a Sunday morning and the Turkish lawyer crashes and the president wants to know what the heck was that about. You have to tell them. Yeah. And the one thing I found fascinating, I didn't know this until recently, was that you actually see some of these economic statistics before the rest of

us do, right, to help you be able to give the commentary to the president when the real time or even before the rest of the moment. Yeah, typically the data reports go in the president's book the night before, but not only do we not talk about them when they come out the next day, but in order to respect market reactions, we don't talk about the reports until an hour after they're released. So that usually means 9.30, but here's a statistical question.

Sometimes it means 10.15. What report would that be? Industrial production. Industrial production. Damn. Ding, ding, ding. Sometimes it means 11, I think. I'm right about that.

That could be a slew of things. It could be business inventories, And the HB. There's a lot of stuff comes out of. I was thinking jolts. Doesn't jolts come out of 10? Doesn't that come out of 10?

It does. Yeah, so we wouldn't talk about that until 11th. Interesting. So you wait one hour after the release before you're able to talk about it. Not only do we wait,

but that's actually a rule in the OMB, in the Office of Management Budget Registry. That's not just arbitrary. That's actually a rule. A rule that was often broken by the prior administration by those.

I was going to say, even by the president, as I recall, president. Yeah. Yeah, as I recall. And so how did you find your way to the CEA? I mean, I think we- $3.95 to the memorial. Oh, sorry, no, that's not. I've worked in, I've worked in political economy for much of my career. I was at the Economic Policy Institute when I first came to Washington, working closely with Larry Michelle and other folks there, Dean Baker, and I still think the EPA now headed by Heidi Shareholz is one of our greatest think tanks.

Anyway, went over to the Center on Budget for a while, which is just the premier kind of public finance group, focusing more on low-income people. And like many political economists in Washington come in and out of government, I worked for the Clinton administration, and then I was President Biden's chief economist when he was the vice president. And that was a really interesting time. That was in 2009 and 10 during the financial crisis where Vice President Biden was the implementer in chief of the Recovery Act.

And so I spent a lot of time on that. And as someone with very much of a Keynesian background, that was very interesting to me. Yeah. So you've known the president for quite some time now. I have. It's been my privilege, yeah. Yeah. And so were you his economy, the chief economist for the vice president through both terms? I can't quite remember. No, no. Ben Harris took over and now Ben is a assistant secretary at Treasury. Ben and Ben and I enjoy the fact that we have that in our past. and there's a great guy here named Mike Pyle,

who is the chief economist for Vice President Harris. So that is an active position. Right. And we've had touch points all along, you know, going all the way back to EPA. I think during the financial crisis. You and I? I believe so. I think that's right.

Yeah. And when you were at the center, you commissioned some work that. That's right. that I did with Alan Blinder. That's right. It was a really great piece. Looking back at the Recovery Act, that piece still gets cited all over the place. Does it?

Yeah. Yeah, I mean, you and your team have been very helpful to us along the way. And you're kind. Very much appreciate the insights. You know, I had to convince Alan, Alan Blinder, the vice chair of the Fed. And, you know, of course, Princeton professor, this great, wonderful person, who, by the way, I should say, you know, there are some people. that when they when you talk with them you just like everything they say you disagree with and there's

some people you know no matter what they say you go oh man I agree with that and Alan blinder is one of those guys everything he says I agree with it's like I you know it's amazing you're second place Jared by the way you're in second that's interesting you should say that because I feel not only does out do I agree with what Alan says with an asteris that I'll share with you in a second but it's the way he says it. Yeah, exactly. He's so crystal clear. He's engaging. He's, um, he's really funny also. I remember, um, he stood up at a Fed conference that I was at once and we were talking about messaging, how the Fed messages. And he said, first of all, nobody even knows what the Fed is. He said, I was talking about the Fed the other night. I was talking about this thing, the Federal Reserve.

And someone thought I was talking about a national park, like a forest somewhere. That's an Alan Blinder. I mean, he has tons of lines. Alan Blinder has, I've stolen so many Alan Blinder phrases. One of the things he says is when he talks about policies that exacerbate inflation, that like tax cuts for rich people, he says that's unnecessary roughness to the income distribution. Yeah, right. Because the primary distribution is already going in that direction.

So why would you want to make the secondary distribution even more? unequitable. Their only reason they're disastrous is we've disagreed on trade policy, but it's always been very collegial and hopefully, you know, I know we've listened to each other, but I guess the truth is I've learned way more from Allen that I'll ever learn from me. Yeah, he's great. Just because he's so knowledgeable. Yeah, I did have to convince him, though, to tell you to do that study. I remember, I go, Alan, we just got to put a stake in the ground here for history. Yeah, I'm glad you. That was a good summer working on that paper with Alan Blander. Thank you for for commissioning that that was very helpful um well i before we get to the game uh you know i thought

it might be good to get a sense from you of how you think things are going i mean just to preface this it feels like there's a lot of pessimism out there i don't know how you're uh reading things but you know you've got consumers they're down in the dumps you look at the university Michigan's sentiment survey, and that's about as low as it's been since the financial crisis. Actually, it got a bit of a bump in the last greed. Oh, did it? Yeah, it's actually about, but I mean, just partially, you know, it's still, it's still low. But it got a pretty significant bump up about 10% I think in the overall index. It's something in that name. Well, you're, you're looking for that, those green shoots I can see. Yeah, no, no, I don't want to overstate that at all.

In fact, back when I worked for the green shoot reference, for those who don't get it, it's back when I worked for the Obama administration. People were talking about green shoots in terms of the recovery. And I was on a TV show once where people could call in. This is when I worked for the vice president. And I remember someone saying, you guys must be smoking green shoots. Sounds like an Allen blinder line. So anyway, my point is that, you know, I'm just correcting.

You know, there was that, but it's still, the premise of your question is, of course, correct. Well, you know, an economist generally, they're pretty low to say, okay, we're going to have a recession. I don't know if you've noticed, but you had Deutsche Bank last week or was it the week before. And then I think yesterday or the day before that, Fannie Mae, Doug Duncan, the chief economist over at Fannie, I presumably, it's from him calling for recession in 2020. Yeah, yeah, yeah, but wait a second. Like back up, my friend. Like, we are in an economy that is faced with some very considerable headwinds, which I'm sure we'll talk about, and boosted by some very considerable tailwinds, which we should also talk about. And, you know, I know that sometimes people say, like, oh, the press is just focused on the negative. If it bleeds, it leads, it leads.

And everything's inflation, inflation, inflation all the time. I'm not really bringing that argument to the table. I think people don't need the media to tell them that inflation is elevated. They see it themselves. But I do think that the coverage has often ignored not just a set of tailwinds, but many fingerprints on those tailwinds of President Biden's policies. So the fact that we're sitting here with an unemployment rate that's a tick above where it was before the pandemic, 36 versus 35, the fact that household balance sheets,

if you look at net worth or if you look at debt service obligations are in pretty stellar shape. By the way, I realize that's very much talking about inequality. That's very much a macro or aggregate observation. And in fact, you yourselves have done really useful work on the disaggregation of those savings rates. Maybe you'll talk about them. But based on the strength of the job market, the number of jobs, the strength of household balance sheets, the growth of total compensation, jobs and wages together. There are a lot of tailwinds operating

as well, and I think we should be mindful of them and take a balanced view. That doesn't mean that you put your head in sand, and in fact, far from it. And maybe if we get a chance in our discussion, I can tell you all the things that we're trying to do to help ameliorate, ease some of those price pressures that consumers are facing, because we take them very seriously. Every time the president talks about the economy, he talks about these inflationary pressures. But we should be balanced in our headwind tail analysis. Yeah, agreed. And I'm with you on that. Although my colleagues here, they're a little bit more pessimistic. We had Michael Strain. You know, Michael, he's the runs research over at A.E. Many of his arguments end up being quite strained.

Listen carefully. But he's a good guy. He's a great thoughtful guy. And of course, he's pretty pessimistic and so are these two i yeah i'll have to say i mean i think uh ryan you were what were you saying what was a probability of recession over the next couple of years i can't remember you 75 percent or something yeah i think i said 70 and then mr derides who's kind of down the fairway i call him down the fairway derides you know he's even over 50 percent isn't that right 55 you know 55 percent yeah so when that was within 18 months right within 18 with 18 with 18 months. I'm at one third, by the way, just to be on the record. You always have to say, what's your time frame when you say your recession problem? 12 to 18 months, I think,

I'm kind of focused on. Beginning in, we're even more precise, you know, we won't tell you the exact day. I think a lot of this, look, again, I get it, we have the models, we should run the models, we run them all. We pay attention to all of the probabilities that folks like you are putting out. I think we should be very aware, and I'd be interested in other members of the panel talking about this, see if you agree that we are in a very unique and sui generis economy. And while we can plunk all we want into our models, it's a little tricky to deal with some things that are so unusual. So, for example, of course, the pandemic. The pandemic is still upon the land. Obviously, its impacts on the economy have been diminished. The Russian Ukraine,

Putin's unjust and unprovoked war is very much in the mix. And we're entering this period with the tailmen's I talk about. So look, I've taken some of these regression probability models and I've then put in things like household balance sheets or I'm trying to remember. Like that service. You mean? Yeah, exactly. Like the debt service. And the probability shift a lot.

So look, there's something to be said for taking a tried and true, you know, probate model with a yield curve and seeing what you get. But I think you have to, I think you have to be mindful of how unusual the situation is. Too many analyses I've seen don't take account of some very different factors in play right now. Yeah, I think, I mean, you're making an important point that just to broaden that out, that the kind of the fundamentals of the economy feel like they're in very good shape. And when I say fundamentals, like kind of the balance sheet of the economy, and you've been talking about the household balance sheet, that service is a percent of income that households have to devote to servicing interest

in principle. And that's pretty, I think it's at a record low or pretty close. Corporate balance sheets feel like in pretty good shape. State local government balance sheets feel like they're in no small part because of the American Rescue Plan and and all the money that went to state law government. Yeah. Are you familiar with the statistic? I probably should have put this on my list for the game. It's the private financial balance, which is a pretty important indicator of precisely this,

basically savings versus, you know, gross private savings minus gross private investment. That's in good shape right now. So look, nobody's discounting the risks. And in fact, as I said, the president talks about them every time. he speaks, I think our job here at the White House is less to noodle around, you know, which probability is most believable. I mean, we do that here at the CEA because, you know, we want to make sure we're seeing what markets are thinking about. But more, what is the, how are households doing? How are they prepped for whatever comes their way? And what kind of,

quote, insurance policies are, need to. to be in place to help them if things were to deteriorate. And furthermore, what can we do in the near term, medium term, and long term to help address some supply side constraints? Whether we're talking about the ports, whether we're talking about competition policy, whether we're talking about the labor force, which I hope we get to talk about,

because I know you all think about that. And I think it's, you know, here's something that you'll find interesting maybe. And I wonder if you do this. When the jobs report comes in, everybody goes and looks at the jobs number, payroll jobs number. That's not the first number I look at.

I look at the LFPR. And then I look at the jobs number. That's how important I think labor force participation is right now in terms of the, of again, kind of helping to meet the strongest labor demand by some measures we've ever seen. Well, I want to come back to all of that. And before that, we're going to do the game.

But I have one more question, since we're on this discussion around recession risks and get your take on the yield curve. So this has generated a lot of angst in different circles. The yield curve is a difference between long term and short term interest rates. Typically, long rates are higher than short rates, but every so often short rates rise above long, the curve so-called inverts. And that's been a very prescient indicator of future recession. And if you go back to the beginning of April, the yield curve as measured by the two-year

treasury yield and 10-year inverted for a few days, which kind of made people go, you know, on high alert here with regard to recession risk. So question to you, in this group, I should say, has debated this on a number of podcasts. And we all have, I think I'm a, I'm not a proselytizer, but I am a believer in the yield curve. I think Ryan is a denier. Skeptic. Skeptic. I keep forgetting that.

Yield curve denier. I didn't know that there was such a category. You can probably throw me in there. Chris goes in either direction. He's down the fairway, Chris. So I'm not sure exactly where he stands on the yoke curve. So what's your thoughts on that? How much hand-wringing should it would be doing over the message or non-message in the shape of the year?

I don't think we should ever try to reduce our understanding of where the end. economy is and where it's going by one variable, or in this case, the delta between, you know, two variables at different maturities. I think, I try not to be the one hand, other hand economists that much, but in this case, I really am. On the one hand, you've got all these people saying, hey, this time is different. And then on the other hand, like, all the people who say this time is different are often wrong. So I think it's, it's, it's, It's a challenge. It's also something that at the White House, we try to be pretty careful about talking about

market variables in any sort of granular way. So I probably don't want to say a lot about that. What I will say is that it is, this is, again, and I'm not going to go through this because I already did. This is a very unique moment in economic history with lots of different. cross-cutting currents, some strong headwinds, some very strong tailwinds. So I'd certainly look at the yield curve as one variable. I wouldn't overweight it.

And I might probably give it a little bit of underweight. I don't know if I'd quite join Ryan's Club, but I'd come to their meetings. See, there you go. All you've got to do is come to the meetings. Very good. Okay. All right, let's play the game. Before we play the game, as we were talking about all this.

You do know, Jerry, this is my podcast. I'm just saying, but go ahead. I don't think so. Well, that's why I'm going to ask you, if you, that's what I'm going to ask you is, is, you know, this all led me to think about a joke that I was thinking about this morning. And I, if you have a second, I could tell you. Yeah, fire away. Yeah.

So, I think this is the captain of the captain of the ship is a sailing along and he sees a war ship. coming his way, a very big and threatening worship. And he says to his first mate, get me my red shirt. And his first mate says, I will captain, but we need to prepare for battle. Why are your red shirt? And he says, because if in the course of battle, I am stabbed and I start to bleed, I don't want the crew to see me bleeding. And that will inspire them to know their captain is, you know, fighting for them.

And he got him his red shirt and the story got around the crew. and everyone was so uplifted by the captain's bravery that they fought and just put all their fight into it and they defeated the much bigger warship. And they were all very happy. And the next day, they were sailing along and eight huge warships. Each one bigger than the one from yesterday

came sailing around the corner. And the captain says to his first mate, get me my brown pants. Oh, no. Here we go. So I think the question is, are we talking about a red shirt? economy or a brown pants a country. And I think we're talking, you know, that is, that is,

that is the great. I think we're, you know, I think we're, I think we're in, I think we're in, I think we're in red shirt territory. We can, we can fight this battle. Hold it. Is that your joke or did you hear that joke? Um, I didn't make joke. Yeah, thank you. I didn't make it up. Oh, it's fantastic. I mean, that's that is summarizes things. beautifully. Okay, let's play the game. And of course, of course the game, let me just describe for any listener who has not been listening to us, which would be, you know, why aren't you been listening to us? But the game is we each tell a statistic. The rest of us try to figure out what that statistic is through questions and some clues and deductive reasoning. The best statistic

is one where it's not so easy that we all get at slam dunk, not so hard that. you know, forget about it. And you get bonus, you get a bonus star if it's apropos to what we're talking about or something that's relevant to the statistics. I will say this week was hard, for me at least, because there were no statistics, I mean, or very few statistics. There's a lot of housing. Yeah, housing starts. Been on housing, yeah. I'm sure maybe we're all going to mind the same statistics. I don't know, but we'll see. But you can think, more expansively here because, you know, obviously a little bit of a quiet week. But anyway, who would like to go first?

Maybe we won't let, we won't have Jared go first. No. So he can get into the flow. What do you think? Should we go? What do you think, Ryan? Should you go? Like Chris go first.

It was like a housing. It's going to be housing. Yep. Jared, Chris is a houseer. He's a former Fannie Mae modeler. Oh, I think that's such a great, such a crucial area of policy. you right now. So we'll come back to that. Yeah, let's do. We'll definitely come back to that. All right. All right. Better be good. No.

You got a track record to maintain here. I'm glad Ryan's back. So 116.8441. Oh, my. Okay. Whoa. How many decimals do you just go out there? Wait. It's reported by the source. 116.844. Is it a housing statistic? It is not a housing statistic. Oh, you threw us for a loop. Yeah. Is it an index number?

It is an index, yes. Yes. Anything related to prices? Well, in a very broad sense, yes. A broad sense. But not house prices. It came out this week? Came out this week.

It did. What year? This may be. this week. Oh, well, it came out on the Friday last Friday. Yeah, it was after our podcast. Oh, what could that be, Ryan? You should know these, you should know that. Oh, you were at Hershey Park. I was certain Hershey Park. Somewhere else. Yeah. Would you like this industrial production? Nope. Industrial production came out on Friday. No. Would you like a hint? Can you give us a hint? Can you give us a hint? Like, what's the

I'm glad you asked for it? Wait, hold on. Before you give us a hint, this is a form of a hint. If it's an index, it's based in some year and a hundred. What year is it? So in other words, It's 16% above something that was 100 when. Oh, gosh. You don't know. That's okay. I'll have to look out. So can you give us a like a broad hint?

I'll give you the hint. Okay. A musical hint? I can't hear that. What is that? Do you hear it? No. Oh, let me go back.

Name this tune now? Name this tune. It's such a great hint. You are getting very. very creative. I'm getting sophisticated here. Over the top, creative here. Is that hurdle? Oh, something about the dollar. The strength of the dollar. The trade weighted dollar. That's how much the dollar index? Oh, the nominal. Is it the nominal broad trade weighted dollar? It is the nominal broad. Yeah, that's a good one. Dollar index. That is not a good one, Jared. I don't know what the heck. That's a great. That is a great. The dollar is really important right now.

It's $1.16. Thank you. Jared, you can come out anytime. You could have said like 108 and 132, you know, like the euro and the pound, but you've got to give us the innocuous Fed index. Okay. Well, anyway, what's it saying? What's the deal on the dollar? Well, it's up. It's showing that the dollar has been strengthening recently. The dollar is up 10% against the euro.

I'm sorry, 10% against the yen and 5% against the euro so far this year. So strengthening dollar in the context of inflation, it's good for consumers, right? Foreign goods are cheaper, right? That helps to reduce some of the inflationary effects. Not great for exporters or for multinational corporations that are converting their foreign exchange back to dollars. So there could be some knock on consequences here. We could get a flood of imports as a consequence. But at least for the short term, this is a benefit for a benefit for consumers.

consumers in terms of containing some of the inflationary pressure. I actually got a question from a client. It was yesterday about the dollar. In our forecast, we have the dollar coming down. And the logic being that there's a flight to quality or, you know, given all the risks, the Russian invasion and pandemic, there's been a flight to quality into the U.S. assets and the dollar. And that will come out over time. When I say down, not down right away, but down.

over the next year or two. And then the other is, you know, of course, the Fed's on high alert. Right. That's really juiced up the flows of capital, near-term capital into the U.S. And that'll abate as the rest of the world catches up central banks like the ECB and BEOE start to catch up. I don't know. What do you think of that? That was a pretty controversial forecast. I don't know what you think about. I would have, personally, I would take the, I would probably take the other side of that forecast. But the dollar is one of the hardest variables to forecast. And I heard that from Mori Outsfeld, and he knows a lot about that sort of thing.

So I think that, you know, I would predict a strengthening dollar based on Fed policy and relative growth rates. I'm sure you all, maybe one of you are going to use this. I'm sure you all saw the IMF forecasts that came out this week. Yeah. And they were showing, you know, decelerated global growth, but still stronger here than in other countries that are more exposed to the conflict. Yeah, in our modeling, the other thing that matters in the intermediate term, not next month or even in a year, but over the next several years,

is the trade deficit, which has gapped out quite a bit because the U.S. economy has been so much stronger than the rest of the world. So, you know, we have been importing a lot of product and exports have been soft. So that also starts to weigh on the dollar. I think I was the first one who got that. I just want to kind of record that. Yeah, you're right. Yeah, it's true.

Yeah, I don't know if that's cowbell material. Cal bell, you get a cowbell for you, you know, it's a, I think so. Is it Cal Bell? Yeah. Okay. Oh, I got to get it. I moved the location of them. Okay.

Okay. All right. Go get that cowbell. All right. Jared, you're up. What's your... Oh, cool. Okay.

Well, I brought two because this sounded fun to me. One is, I think, pretty easy. And the other, I think, is pretty hard. And I'll give you a lot of great hints on it. And I'll bet you get it. The first one is 1%. And it came. The insured unemployment rate.

Exactly. Wow. Now that is a cowbell. That is the cowbell. No, that's exactly right. And it's the lowest insured unemployment rate since 1970. And just for listeners to understand, how are we talking about an unemployment rate that isn't 3.6%, which is the one you have in your head from the Bureau of Labor Statistics, on the big jobs day.

This is a rate that comes out every Thursday when the Bureau releases the unemployment insurance claims data. And it's the percent, it's continuing claims over covered employment. So it's kind of a different statistic. But it moves very much with the overall unemployment rate. And I just brought it over because I thought it was a very top of how tight the job market is. That's good one. In that regard.

Oh, Chris, did you want to say something? I'm sorry. I just said that's a good one. That is a good one. Can I ask you, this is a question I wanted to ask you, because I'm confused, where do you think we are relative to full employment? Are we at, now you look at that 1% insured unemployment rate, you say, that's got to be full employment, but are we at full employment?

Or how do you think about that? The way I think about that right now is in a very dynamic sense, which is to say that I don't think you can evaluate whether we're at full employment without thinking about the labor force and labor supply. Remember, as we all know, payroll employment is still down 1.6 million from its pre-pandemic peak, much less its pre-pandemic trend. So you would look at that and think there's room to grow. At the same time, the labor demand indicator that all the cool kids are looking at these days, which is payroll employment plus openings, that's the demand side, payroll employment plus openings. So payroll employment is, you know, 160 million, whatever it is,

and openings are another 11 million on top of that, relative to the labor force, that gap there would suggest, you know, a very hot labor market and some people would call that full employment. I wouldn't because I think that that that ignores one of the most important, and in my view, one of the more hopeful trends in the current economy, which is the improvement in labor supply. There is a identifiable trend. It's not a one-month thing. And in fact, too few people recognize the fact that labor of force growth is actually stronger in this recovery than in any of the past five recoveries up to this point. Now, it was coming from a lower trough, of course. So there's a bounce back in there. But especially if you look at prime age workers, they're

labor force participation rate is only 50 basis points below its prior peak. And so I wouldn't call us at full employment unless I'm willing to assume that LFBR is stuck, that that participation is stuck. And I don't think it is. It's moving. It's on the move. A broader point, and then I'll stop, is that I do think that economists have a lot of thinking to do right now, more broadly about what the capacity variables are right now. What level is U-STAR, which is GDP full capacity, U-STAR, which which is the full employment, unemployment rate, R-star, the neutral interest rate. All of those, I think, are perhaps undergoing structural shifts, and they're hard to target in the best of times. I think they're particularly hard now.

Yeah. My sense is that there's still room to go here because we're creating 500,000 plus jobs per month. If we were at full employment, there's like zero probability we could be generating over a half a million jobs each and every month. That's just not consistent. Yeah, that's a good way to frame it. And the other thing is, you know, I know you mentioned the cool kids statistic with the unfilled jobs. You know, as a, as an employer who post jobs, once you post a job, pretty unusual if you would take down the posting, it's going to stay there. So I'm not sure we're actually measuring there, you know, because, you know, the economy reopened back a year ago and everyone posted a job at the same time.

time because, well, we were reopening and they just, I don't know. That's a really good point. People take that down. I'm going to have to noodle over that. It's a really good point. You said you had a second statistic. I do have a second statistic. It's 17.

And I'm going to give you a bunch of hints to help you get it. Now, you might think this is very obscure. The reason I think it's okay to bring to the table is because the president of the United States talked about it last week. Whoa. On Friday, which is a hint. 17. Did it come out on Friday?

It did. Was this the Empire State Manufacturing Center right? No. Well, I know the Philly Fed was at 176, but that was this one. No, this is just a good old 17, an integer. An integer, 17 on the nose. And I can give you more hints. Okay.

This wasn't, this number wasn't in the report, but if you count up, the number of, well, that's, that's, if I'm going to give it away, if I start going to say that. The CEA tweeted about this. So this is not that obscure. We tweeted about this number. Okay, I'm going to give you a big hint just to move the thing along here. On Friday, Bureau released the state and local unemployment report. Oh, is it a good one.

17 states have under below 4%. 17 states have. 17 states have the lowest unemployment on record going back to 1976. Wow. Wow. That is cool. That is interesting. Bad ass statistic.

Am I right? Yeah, that's a good one. We should know that. We should be tracking that. That's a really cool. Yeah. President mentioned it in a statement. We tweeted on it.

The 17 states are the like the mountain west and south where growth has been strong? A lot of them. I remember Utah. Nebraska was in their Alabama, Georgia, I think. But if you just go to the CEA Twitter thread, you'll see all the, yeah, yeah. We list them all that. That is actually a really, that's a cool one.

That's a really good one. Yeah. In fact, we should create that measure and track that over time. That would be really good to look at. All right, Chris, you're up. Oh, Ryan. Oh, Ryan. Sorry, I'm sorry.

Yeah, sorry. Ryan, you're up. All right, minus 68%. Oh, geez. It may sound bad, but I'll weave it back into Jared's point that the consumer is in good shape. So there's your hint. Sort of consumer. Is that the decline in debt payments over the last?

No. Is that on the right track? No. Okay. Give us a hint. It came out this week. It came out this week. It's year over year.

and it's a weekly number. It's not from UI claims, is it? It is not from UI claims. Is it a housing-related one? It is housing-related. Oh, okay. Is that the decline in inventories over the past year? No, that would be too big.

That would be, that would be enormous. Eventories are actually set to start to resume rising in the summer. MBA series? Oh, is it the MBA? Refis. Refis. Oh, refis? Oh, refis.

Oh, refis. Over the past year, they're down 68%. Oh, down. Oh, so first of all, you should say negative 68%. Did I say down? He did. No, he did say down. Sorry.

I'll say negative, all right. But we are a little dyslexic on this podcast. We do have a bad track record. Negative. That's really interesting. Explain it, right? It was just a reflection of the rise, both the 15-year fixed mortgage rate and the 30-year fixed mortgage rate.

So both of them have, you know, important implications for revise. So, you know, I think Chris brought up. Chris and I were on a call and he mentioned that, you know, he saw a stat that 90% of mortgages outstanding have a rate less than 5%. So we're kind of, you know, mortgage rates are above that. So now the incentive to refi is low. But the impact on spending is going to be really small because cash out refinancing has been pretty low over the last several years. It's not a big source of spending for or something. I actually know this. Guess how, here's a good statistic or question. how much cash do consumers households take out of their homes vis-a-vis cash-out refi in calendar year

2021 roughly i know in the first quarter of this year was 50 billion okay well that gives you that gets you pretty close 275 billion dollars last year yeah that's a good one and you're saying it you know but you still can get cash out refi at high rates because people because there's all this equity homeowner's equity that people want to pull out and they may might be caught effective given interest rates rising and cards rates on credit cards and other vehicles yeah get 2.6 trillion dollars in excess savings like yeah maybe that's not the first place people go to pull cash out I have a question about this um our friend Jim Parrott was talking to me about this phenomenon Jim's a friend on he's been on the podcast great great housing

expert and um he was talking about a bunch of businesses you know these shops that sort of exist to do refiles. And when we're thinking about the impacts of how sharply the mortgage rate has been climbing, I would imagine this has implications for that side of the housing finance business. Is that, yeah. They're laying off for crazy. Yeah. Yeah. That's one place where there are layoffs. Yeah. Of that 100, how many UI claims last month? 184,000 last week. Yeah. I think a fair share probably would be in that industry. Okay, that's a good one. I've got one for you. I don't know. I don't if this is easy or hard. I'm not sure. So I'll just start out. $1,700. I saw this. I saw this. I bet you did. Yeah. Is this a tax related? Not tax related, no. That would be good, though, because the tax season's wrapping up.

The tax refunds. Yeah, but that's not this. It's like an average income. for some household? Nope. Oh, okay, give us a hint. It's housing related. Oh. Housing related. It's not a statistic that we get from a release.

Oh, a redfin, right? Increase in the payments on the asking. Well, you're kind of in the ballpark. Yeah. You're kind of in the ballpark. Okay. It's probably too hard. It turns out it's too hard.

I'll just lay it out there. that's the monthly payment on a home. Oh. Median priced home with a 20% down payment at a 5.11 interest rate, which is where Freddie Mac says the 30-year fixed rate was last week. I see. And the median price home, you know, it's hard for people, it's harder for me to get my mind around. It's now $390,000. So half of homes that transactor above that price, half below.

So if you buy the median priced home 390,000. $2,000,000, put 20% down. Of course, many people might not do that, but let's just go with it to make it easy. And you attach a 5.11% interest rate. It's $1,700. Now, here's another question. What was the monthly payment on the same median priced home at the prevailing interest rate a year ago?

$1,200. Just trying that hour. Actually, a little less, a little less than $1,200. That's a $500 per month increase in the monthly payment. that gives you a sense of, you know, this is going to do some damage, you know, in terms of housing activity. We're going to see some real slowing in. That's not necessarily a bad thing. The housing market was pretty unhealthy. So actually some cooling in the housing market would be a good sign. Yeah, I would agree with that. I mean, home sales, though, haven't been inordinately

high because of supply constraints, but, yeah, house price growth. Yeah. And so we'll see some in the small moderation house price growth, which is, I think that's a good segue to the next part of the conversation around inflation, Jared. And I think, you know, obviously this is top of mind for most Americans. You know, I think it probably goes back to why consumers are pretty down on things because they're, you know, obviously paying a lot more at the gas pump and when they go shopping. There's a lot to talk about here. But I guess my first question, because I do want to talk about the outlook for inflation, but my first question to get there is, Why? What's going on here? Why is inflation as high as it is? And I know there's probably a lot of

reasons, but, you know, how do you think about this? Why 8.5% CPI inflation as of March of this year? Well, I think the explanation is most simply framed as the intersection, or if you want to call it the collision between very strong demand and constrained supply. I think the first order explanation has to include both of those. I know there are those who want to focus just on the demand side and those who want to focus just on the supply side. I think you have to focus on both. And I think one of the ways in which you can understand why that calculation or why that framing, that simple equation is germane, is to think about. where we see elevated inflation, and the answer is pretty much in every advanced economy.

I saw that the inflation rate March over March for the EU recently posted at 7.5 percent, historical record. Of course, Putin's unprovoked war is in that mix. They're more exposed to some of the commodity issues, particularly energy. But I think, if you start looking around the world and look at the comparisons between countries, you'll see that every country is experiencing highly elevated inflation, advanced economy. I mean, even Japan has ticked up recently, but that's in the one and two range. And so you have to ask yourself, what are all of these countries experience? Well, yes, they all had some fiscal and monetary policy, but that was different everywhere.

They all experienced the pandemic. And this is a chapter in the economic court of the president. Pandemic is absolutely fundamental in understanding the current inflation. So there's been a lot of criticism. This goes back to the American Rescue Plan. The seminal legislation passed March of last year, close to $2 trillion in government support to help the economy navigate through the pandemic. And there's been a lot of criticism of that.

You know, clearly that's that, that American Rescue Plan, and we've done a lot of work in this area, has been key to getting the economy where it is today in terms of jobs, in terms of low unemployment, and, you know, making sure that Americans, you know, were able to financially navigate through without losing their jobs. But there's the criticism here is that it, you know, this has juiced up demand and that this is key to, you know, what's going on, why inflation as high as it is. So just curious, how you think about that for a second? Well, again, I think here we have to be very even-handed and understand that two things.

One, of course, there's been criticism. We were getting into this earlier, you know, all the focus on inflation. There's also been a lot of praise. And in fact, if you look at some of the publications coming out of the shop called Moody's.com, you'll see some very fulsome analysis of how important the rescue plan was. And you're not alone. Lots of others have found that as well. I think number, and the second point is that, you know, we talk about demand.

What does that word mean? I mean, to the average person, if I went home and talked to my wife about demand, she'd be like, well, what are you talking about? Let's be very clear here. We're talking about jobs. We're talking about an unemployment rate that is. back to where it was pre-pandemic, pulling forward a recovery by years relative to what forecasters thought would be the case. We had lower child poverty in 2021 than we did in 2020

and lower in 2020 than I believe in 2019. We somehow managed to have lower child poverty. It wasn't magic. It was because of the rescue plan in 21, that is, and the impact it had on family incomes. We're coming out of this downturn with fewer evictions than any expected, with stronger balance sheets than anyone expected, with very little scarring in terms of lasting economic damages on individuals and households. That's what that word demand needs. So, yes, we got more heat on the price side, but we got more growth and a lot more very meaningful benefits for the well-being of American households. So here we are, 8.5% CPI inflation year-over-year-year- or through March, obviously just out of bounds and incredibly painful. Ryan's actually done a lot

of good work calculating the increase in monthly costs for the typical American household. I think we're up to what, $350 more a month, mine, something like that to cover the higher inflation. So, and when I think about, you know, what can be done to address this, I kind of think of three buckets. And maybe we can just take one time. The first is around energy prices. Obviously, the Russian invasion and the spike in oil and gasoline diesel prices is front and center. And I know you've been doing a lot of things in this area and we should talk about it. The second is global supply chains.

And this goes back to the pandemic and the disruptions to particularly Asia, China, where a lot of the chains begin. And that's been highly disruptive. one of the reasons why vehicle prices and furniture prices and consumer electronic prices have gone skyward. And the third bucket is, I would say housing. I want to talk about this because, you know, rank growth is extraordinary. I mean, double digit. And this is a problem for every American because you got to live somewhere. And, you know, what are we going to do about this? So I'll leave it up to you. Where do you want to start? I mean, there's, I know you're working on all these things.

We're working on all those things, and I could take the rest of our time and take you through our agenda. And I don't want to do that only because I want to hear what the group has to say. I would say that I've never been part of an administration. And you know, as I said earlier, I've been in this political economy world for many decades. I've never been part of an administration that is doing more to try to help on the economy supply side as this one. I mentioned my Keynesian bona fides earlier in the conversation. If you've looked at my work up to now, it focuses largely on this idea that what came to be called secular stagnation, the idea that demand and the macro economy, particularly here, has been persistently too weak and that this has had disproportionate effects on vulnerable households, on communities of color, and that we have to do things to strengthen demand. I didn't think as much about the supply side because we didn't have these kinds of problems.

But here, we spend every working day at the behest of President Biden trying to think of what we can do to help on the supply side. And energy prices, of course, we've presided over some of the largest releases from the strategic petroleum reserves. That feeds quite directly into oil prices and gas prices. We've seen some of that. there's a much broader agenda over the longer term, including a path to renewable energy and much more climate-friendly production. On the global supply chains, we've done more than I ever could have imagined. And we have a supply-side task force run by a really dedicated group of people here,

helping the ports move to a 24 and 7 schedule. Mark, you and I've talked about economics for decades. I don't think we ever talked about dwell time. Containers and port. We never use those two words. Every day I'm looking at dwell times. And dwell times are down by 50%. By the way, I should say, dwell times are the amount,

not like everybody knows what they are, the length of time that a container spends in a port. So that's a snarl in the global supply chain. We're helping to improve trucking. We're having real success there in terms of increasing people's working through backlogs there, CDL policies. And on housing, look, again, I think the best thing to do would be to look at our most recent budget, which is on the website of the OMB.gov.

We have deep programs. And Mark, I know you know all about these. I think you helped us think through some of them. It increases policies to increase affordable housing supply, which is so essential, increasing the housing choice voucher program, first generation home buyer support. one of the really interesting ideas is some ideas to help push back on exclusionary zoning. And here I just want to end on one point because people don't know enough about this. We're actually doing something now historical in the field. This is happening to help diminish exclusionary zoning. It's through the bipartisan infrastructure law of all things. And the idea is that if you want to...

the federal government to support a project in your town or city from the infrastructure law, which is legislated. It's moving out into the field. It's almost a trillion dollars of infrastructure investment over 10 years. And you can show how that project helps push back on exclusionary zoning, how that project helps increase housing and density around areas of transportation hubs, for example, that is an added advantage to you in your bid to get that help. And it's working. We have examples of how that's being taken up by various cities.

So I thought that's a very creative idea. And we could talk much longer about all of those ideas. But we're tackling all that stuff as best we can. You make a good point. I mean, generally policies focused on the demand side, because that's what you're can influence quickly in the near term and it's clearer and clearly that's where the feds is entirely focused but actually trying to influence the supply side of the economy which obviously would take it all the damage here from the pandemic it's a supply side shock the Russian invasion

that's a supply side shock so you have to work on trying to improve what's going on the supply side of the economy that's not easy that's just not generally where economists and policymakers have put their thought, but obviously makes it a lot more difficult. Just a couple of things on all the policies you mentioned, back on energy, just curious how you would respond to the criticism around the, you know, restrictions on pipelines and permitting, you know, I hear this a lot from clients that, you know, the administration has been, you know, very down on fossil fuels, you know, focused on climate. You know, what's the tradeoffs there?

How do you think about that? I think that we have to walk and chew gum at the same time. We have to help people get through this period of elevated oil prices. And we can't say to them, hey, everybody, hold tight. We're making a transition. I'm doing air quotes, which you can't see on the radio. You know, transition is economies for somebody's about to get whacked. And so we're very mindful of helping households get through this period of elevated energy prices as best we can while plotting a course towards robust, renewable production.

And that means American market share for battery production, for solar power, for wind, make it here, buy it here, build it here. these are all parts of the Biden agenda. But you can't get there unless you take the people with you. In terms of the friendliness, you know, there are thousands upon thousands of open permits that companies already have. The president increased some just the other day last Friday. So, you know, that criticism doesn't really land with me. I think if you ask yourself if these companies are making some real money right now, the

answer is, of course, they are. I think probably a more important question, one which big minds like the folks here on your side should take up is, are we seeing the kind of elasticity of response in terms of supply production, in terms of rigs in the field, to these elevated prices? By some measures, at least initially we weren't. Maybe more lately we've seen a little bit more of that. But I think that's an important question in this space. Yeah, the one thing I've noticed, I was just looking at the rig counts, which is obviously a good proxy for, production of oil and gas in the U.S. in the fracking fields. And if you look at the year-over-year growth and the number of rigs, it's just incredibly steady. You know, since oil prices got

above 70 bucks a barrel headed north, because 70s kind of, by my calculation, break-even, you know, for the typical, you know, rig out there operating. But ever since we got above 70, it's been, you know, incredibly stable year-over-year growth. It's almost like this is the physical limit on what the industry can actually do in terms of increasing production. And to get it to go above that, you know, is just not possible given the physical constraints that they, you know, they operate under. So it's almost, it's still, the rig counts are still a bit below where they were pre-pendemic, but they're getting back pretty fast.

So this argument that there's these constraints on the ability of these companies to, to increase production just doesn't square with the data, at least not from what I can tell. But, yeah, I agree with that. Yeah. Back on housing, you didn't mention, or maybe you didn't, I missed it, all the various tax credits that are available, like LI-Tech, low-income housing tax credit. You know, there's been new market tax credits. I mean, I bring that up because I think that could have more of an impact sooner in terms of lifting supply. And, you know, it also might get some bipartisan support because, you know, obviously, you know, it's on the tax side and Republicans might be more interested in that. I just need to be. Yeah, no, it's an important point. Again, I think. that there are those probably, was Chris or Ryan who come from a housing background? Chris. Chris could get very excited when we start talk about this

and others whose eyes glaze over. So I wanted to be respectful to the latter group. But yes, I mean, again, we have a very nice fact sheet at OMB.gov from our most reason budget, which just came out a couple of weeks ago. The budget proposes 50 billion in mandatory funding an additional low-income housing tax credits that's LI-TEC to help increase housing supply, to help stabilize housing prices over the longer term.

There's money in there for funding state and local housing finance agencies that provide grants and other financing tools to agencies. Mark, there's something that you talked about, which is helping to finance community development financial institutions, which fund new construction and rehabilitation. There's a rural component, $2 billion for rural housing loan and grant program. And all of this, all of this alphabet soup is designed to do one thing. It's to make penciling out building low and moderate income housing feasible.

Because I think the market failure here is in the absence of these supports, builders are, especially right now, have all the incentives they need to build rich people's houses, but not to build middle and lower income people who have to which, by the way, I include manufactured housing and accessory development units. All of those are important. Chris, does this resonate with you from your background? I would say the exclusionary zoning resonates the most. I think that is actually the greatest barrier. Talk to a lot of builders. I don't think they're averse to building affordable housing. They could make it work, except in the current environment, given the supply chain issues, they're facing the higher costs.

But it's really what they tell me is that it's the zoning that really dissuades it, right? It's just not possible to build in certain areas where there's clearly the demand, but the laws don't or the regulations don't permit it. Yeah. I'm excited most about that proposal. Yeah, no, that's a great proposal. So there's two things. There's a proposal to undertake doing what we can to get,

of exclusionary zoning. But, you know, people always say, oh, the federal government can't do anything about exclusionary zoning. That's a local thing. And, you know, I think we've proved that we can come up with innovative policies that could help there. And just once more, let me say, there is a policy in the field that is actively doing this. In the bipartisan infrastructure bill, jurisdictions gets rewarded when they apply for funds where their land use policies promote density, which is a key to boosting supply and often pushes back on exclusionary zoning. So, So that's a policy that's in the field. You've got to think creatively about how we can leverage federal resources to crack that nut.

Oh, you're right. This is a first. It's always been. Oh, it's a local NIMBY issue, right? Yeah. I want to be respectful of your time. I know the taxpayer is calling. I just want to end with a kind of an open-ended, more open-ended final question.

Maybe give us a little bit of guidance as economists. You know, what should we be thinking about that we're not thinking about? I mean, I know that's, you know, a little blue sky, but is there some area of thought research that would be helpful to you, a policymaker? Absolutely, absolutely. First of all, keep doing what you're doing. Your work is tremendously helpful to us, and I don't say that because it's always patting us on the back.

It's helpful to us when it's patting us on the back and whacking us on the head. I think the let me let me tick off a few things that I know I walk around thinking about all of them have to do with with risk with probability of things going going badly I think that. I think that digital currencies embeds significant risks. There are potential innovations that we shouldn't ignore. but I think the risks of crypto in particular are something that we've tried to think about here. The president had an executive order. The Treasury put out a report on this that I thought elevated these risks. One thing that appears to be happening in this space is that many disproportionate numbers of people of color

have been investing in some of these digital assets. And I think making sure people understand those risks is super important, at the individual level, but also at the systemic level. I'm a very big devotee of the Minsky theory of, you know, cyclical innovations biting you in the, in the rear end, if you ignore them, as cycles evolve. I think that, you know, we're in a situation where we have the, the, the, the, the, the conflict and the war in Ukraine, creating risk in terms of commodity prices. We've just, we're still dealing with a hundred year pandemic. And I think that the, this should give us,

economists should think about two things in this context. One, what are the best policies to have in place to ensure both individual, community, and macro, macroeconomic well-being in the face of elevated risks, tell probabilities that you may not, climate's another one, tell probabilities that, you know, may look like, you know, they're not going to fall on your head tomorrow, but are very real, have to be taken very seriously. What policy agenda should we have in place to provide the insurance against those risks, both for people and for the macroeconomy. And then secondly, part of that, do not, economists hear my voice, do not assume perfect implementation of everything.

You know, too often we're like, we have an unemployment insurance system. Assume it works perfectly. What we need are our greatest minds thinking about ways to ensure that the implementation of our risk management policies that I'm advocating, can be effectively implemented. Some of that means fixing your roof when the sun shines, by the way, and not waiting to a recession to question the software in the UI system. But please, brothers and sisters in our field, don't assume seamless implementation. Those are great ones.

And we're certainly thinking about both, the digital currency and kind of like risk management and thinking about what kinds of things should be, we should be. be we should be implementing warts and all to try to make sure that if we get into those tail scenarios that we have some policies that can help out and help us navigate through. But let me let me end it here and thank you, Jared, for a wonderful conversation, but more importantly for the service that you've provided to our country over the years. You know, obviously you're very thoughtful and I know you've sacrificed a lot to be able to, provide this help to all of us. And so thank you for that. And it was good to have you on,

my friend. Thank you so much. My pleasure. Thanks so much. I hope I see you soon. Bye-bye. Well, that was a great conversation with Jared. A lot to think about there. But maybe we'll just spend a few minutes and try to recap. Maybe the way to do that is, I'll just an open-ended question. What do you think? Was there anything he said that resonated with you, especially or you would push back on anything that you'd like to point out. Chris, anything to anything come to mind for you? Yeah, he made a lot of great points and it was great to get his insights into what the administration is thinking. I loved his joke. That joke was good. That joke was fabulous. That'll go down in the annals of inside economics for sure. I'll definitely use that.

That was really wonderful. So now we're going to get a debate. Do we want cowbells to ask Carl for funding to get inside economic cowbells or t-shirts as a red shirt or brown pants. Yes. Well, you know, I would say both. You know, come on, Carl. You know, what's the deal? But what do you think, Chris? Any pushback?

Any anything in particular? One thing that stood out just at the end there was as he was going through some of the issues. I would certainly agree with him. And I'll paraphrase here. I'm a big advocate of government infrastructure and actually investing in government infrastructure as something we need to do for the next credit. There was unemployment insurance benefits that we were able to get out this time, but that

system is quite clunky. We could refine that further. There are lots of things that we should really be investing in in terms of how we can optimize the government strategies so that when we do get into trouble, we have the two. tools, the data, the systems in place to respond. So I would certainly put a plug for that investment. I don't think it's that large. I think the dividends would pay off substantially next time around. Yeah, very good. And Ryan, anything in particular stand out for you? No, just second word, Chris. I think the pandemic showed that our UI system is broken.

But I think early on in our conversation, he was talking about a recession and that household balance sheets are in really good shape. I do think that that doesn't get enough attention. You brought up corporate balance sheets. You're not paying attention. You say 75% probability of recession. I'm paying attention to it, but here's the point is that, yeah, usually recessions are caused by some glaring and balance in the economy, but this is an unusual cycle. This is going to be more boom bust, and we didn't get into it. But, I mean, financial markets are already talking about a 94% probability of a 75 basis point rate hike in June. I missed that, really?

Yeah, it just popped up on the terminal. So, yeah, I mean, the Fed is going to get back to neutral as fast as they can. And I just think that something is, we're going to be vulnerable to something else, anything else that goes wrong. So it doesn't have to be an imbalance with consumers or households. It could just be your garden variety boom, bust type cycle. Are we putting too much emphasis on probability of recession and not enough on severity? On severity? Severeity.

I think that's a great point. I'm hearing universal. Nobody thinks that the next recession actually would be quite severe because of all the economic fundamentals and the strengths. I got that question this week from a reporter asking me about what's the probability recession and what would it be as severe as the pandemic or would it be closer to the Great Recession or 2001. So yeah, I agree with you. It will be a mild recession. Well, the thing is economists are low to call recession. They're even lower to call a severe recession. I mean, I can even go back to the financial crisis when it first happened. It started in January of 2008, and it looked like that was going to be, oh, this is going to be a mild recession. And what happens is it starts feeding on itself, right, and exposing any things that you don't even know are a problem, you know, or certainly not to the degree that they are. But I, yeah, so my point is we should be rooting out those things. What are the fissures? What are the cracks in the foundation here? Yeah. And so far, right, as we've discussed, they really aren't glaring ones. Yeah.

It's hard to find them, right? You can find pockets in households, right? So certainly lower income households or zombie corporations are out, you know, out there that have been surviving because of the low interest rate environment. So clearly there's going to be some pain in the next recession. But hard to see. Well, that's a problem. Go back again to the financial crisis.

Do you remember the then Fed chair Ben Ben Bernanke giving a speech on subprime mortgage? Right. So we had all said, okay, if there is a. kind of a soft spot in the system that might get exposed and create a bigger problem, it would be all this mortgage lending because obviously the housing market was, you know, gangbusters and prices were rising and a lot of building and everything else. Yeah, be contained, right? And he came out with the speech saying subprime mortgage, no big deal.

I mean, I'm not, I'm paraphrasing obviously, but that was clearly the message. So, you know, again, back to my point, you know, we're pretty reluctant to call out, you know. But I will say this does not feel the fundamentals of this economy feel pretty good to me. I mean, very different than the fundamentals that prevail prior to the financial crisis. So I agree with you on severity you would think it would be relatively mild. But don't you think we do a pretty good job? I mean, we keep track of the probability of recession, but we have that risk matrix, the global and U.S. risk matrix.

And it's the catalyst that determines the severity and the length of the recession. And we kind of identify what potential catalysts are. And we could be wrong. We could miss a couple. But I think we have a pretty... That's a good tool to... Yeah, I really like that tool. We identify all these potential risks.

What's the probability of that risk? And then also what's the severity, the economic loss, the present value of the economic loss, if that risk actually were to occur. It is interesting. You know, you have one. I have one. I don't know if Chris has one. They're similar, but they're not the same, which is actually quite interesting. You know, very interesting.

We'll have to get together. Yeah. You know, where I would push back, and I remember I said, you know, Jared is one of these guys that there's other than Alan Blinder. He's the only guy I mostly agree with on everything. And by the way, the one thing that he was alluding to he and Blinder and I agreeing on trade, that's the one area, I agree with Blinder on trade. You know, I disagree with Jared. At least I don't know where he stands now, but, you know, historically, he's been much more skeptical of trade. And in the context of China, maybe that makes more sense.

but, you know, I was before China, you know, thought, you know, and even with China, I thought Trans-Pacific Partnership was a better way to go than trade war and higher terrorists. But anyway, I say that with this comment, and that is I would push back on his, his explication for why inflation is so high. You know, of course, his demand and supply, he seemed to be suggesting it, you know, demand is almost or not in the same, it's in the same ballpark as supply as driving a higher inflation, I just don't see it that way. I think what we're observing, yeah, the pickup of inflation a year ago when the economy reopened and we had the American Rescue Plan, yeah, that was demand-driven

inflation mostly. But what we're observing now, that is almost entirely supply side. I don't see that as demand. In fact, consumer demand has been, you know, pretty pedestrian, you know, over the last, almost in terms of goods, it's been flat for a year and for overall consumer spending, it's been pretty pedestrian. Here's a statistic for you. I just calculated this. The growth in consumer spending since the pandemic hit over the past two years through March is average annual, real consumer spending, is 2.3%. Excuse me, 2.3%. You know what it was in the two years prior to the pandemic through March of 2020? 2.4%. No different. So consumer spending is not, is demand is just demand. It's really the supply side of this economy that's been all messed up. But it's interesting that, you know, he, he, he, seems to be saying uh demands more of an issue here than you then supply is an issue but demand is more of an issue than i would say so if i had to push back on them that's where i would push back in terms of his uh you know assessment of where the economy is anyway a lot to think about there

a really good conversation uh i'm going to advertise my twitter handle again at mark zandy uh just saying you can follow me on uh twitter uh you haven't been very active recently i had been active yeah no you haven't or maybe i just don't know how to use a twitter account because when i was on vacation i was like let's see what mark's saying really i thought i geez you know i don't want to go down the twitter rabbit hole like you know that'd be you get it's easy to go down that that rabbit hole but no yeah yeah i thought it was pretty active geez i that's yeah or maybe just a few days i was checking yeah and you what's your twitter handle at real time underscore econ there you go and chrisette is not really active on twitter he's a big as we pointed out in the past

LinkedIn Maven. I mean on LinkedIn. Yeah. Okay. Well, I think we're going to call it a podcast. We didn't get to listeners questions. We got to do that. You know, got to remind me to get back to listeners' questions because they're piling up. I have a bunch of good ones, but we'll do that next week because we're running out of time. So with that, thank you for your attention and we'll call it a podcast. See you next week.