Plain English with Derek Thompson - Could a Housing Recession Take Down the U.S. Economy?

Episode Date: November 3, 2023

One year ago, it was a matter of conventional wisdom among experts that the U.S. was on the brink of a recession. They were wrong. The latest GDP report showed America’s real output growing at a 4.9 percent annualized rate. That's huge. But just as we zagged a year ago, when we criticized recession predictions, I want to zag again today. It is a matter of broad conventional wisdom that the U.S. economy right now is doing really well. And, for now, it is. But challenges abound, including "higher-for-longer" interest rates, a recession in the apartment construction market, and ongoing global mayhem. Bloomberg columnist Conor Sen counts the five biggest risks to economic growth in the next year—and makes his official economic prediction for 2024. If you have questions, observations, or ideas for future episodes, email us at [e-mail].  Host: Derek Thompson Guest: Conor Sen Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Today, we're looking at the U.S. economy, the shockingly resilient U.S. economy, and why it so often seems to defy the predictions of experts. One year ago, it was a matter of conventional wisdom that the American economy was in a terrible place, that we were on the verge of a recession. Most Americans, if you asked them, told surveys we were already in a downturn. If you asked bank analysts, they told their investors in the media that we were on the brink of a recession. If you asked the most eminent economists like Larry Summers, they would say, look, well, you consider the basic structure of the economy in 2022. You have high inflation plus low unemployment. We've never wriggled out of a crisis like this without a major downturn that destroyed hundreds of thousands of jobs, and therefore a recession is inevitable. If you ask the most sophisticated probability models, they claimed that a recession was nearly inevitable.

One famous, now infamous, probability model algorithm put together by Bloomberg economists said there was a lot of, a 100% chance that within the next 12 months, we would have a downturn. It is now 13 months later, and we do not. Last week, the U.S. government reported that real GDP grew last quarter by 4.9% at an annualized rate. That is a boom. Over the last year, the last four quarters, when we were supposed to have negative growth, real GDP has grown at plus 3%, a steady 3%. So the experts were wrong. And this episode is trying to do two different things. Number one, I want to revisit the question of how so many economic experts got the last year so wrong. And second, just as we zagged a year ago when we criticized recession predictions, I want to zag again today.

It has now become a matter of broad conventional wisdom that the U.S. economy is doing very well. And the truth is, there is a lot of wisdom to this conventional wisdom. The labor market is strong. GDP is growing. Productivity is up. Real wages are growing. The inflation rate is falling and the Fed has stopped raising rates. But there are some dark spots on the horizon that I want to think about. There are some risks to growth that I want to talk through. And just as it was evidently useful to throw cold water on the pessimism of 2022, I want to, if not throw a whole bucket of cold water, let's say dab the heated brow of exuberant optimism with the cool spa towel of informed economic

skepticism. Last year's oracular guest who predicted that we would not have a recession was my friend the Bloomberg colonist Conner Sen. Today's guest to walk us through the strengths and the possible weaknesses of the 2023 and 2024 economy is the same Conner Sen. I'm Derek Thompson. This is plain English. Conner Sen, welcome back to the show. Thanks for having me, Dark. So a year ago, 15, 16 months ago, you came on the podcast and you helped me swing a big, fat wrecking ball at this idea that the U.S. was on the verge of a recession.

And what I want to do with you now is twofold. First, we're going to take a victory lap. We're going to take an informed and information-dense victory lap to explain why, I don't want to say we, why you were right about the U.S. avoiding a recession, even as interest rates just went up and up and up. And second, I asked you to help me scout the five biggest, big, bright, flashing risks to the U.S. economy right now. So, like, if the first question is, how did so many experts and economists and banks and talking heads whiff so badly on this recession call, the first mystery to unravel is, I think, actually a very specific one. Historically, rising

interest rates, boa constrict the economy. A constricted economy means higher unemployment, and then higher unemployment means yada, yada, you get less spending and you get a recession. All of this seemed obvious to so many economic experts 16 months ago, and none of it happened. How do you think the U.S. economy for practically the first time in the last century continue to add millions and millions of jobs and grow so quickly even as interest rates scale? skyrocketed up in order to fight inflation. So I'd say there were two main reasons. And the first one was that the state of the economy in the middle of 2022

was like a garden hose that was being crimped. And there was all this water trying to get out. But it was really being constrained for a lot of reasons. So a lot of people still hadn't returned to the labor force. And oil production hadn't normalized yet. And automobile producers hadn't ramped up production yet because they couldn't get semiconductors. And so that was the source of the inflation.

that was bothering everybody. You couldn't get a restaurant reservation. Lumber was really expensive. But it also was the source of relief down the road because people did join the labor force and lumber became more available. We're now producing a million more barrels of oil every day than we were a year ago.

And so even though rising interest rates and tighter financial conditions constrained growth, there were still all this sort of growth in the pipeline that could be unlocked that just needed time to work itself out on the supply chain front. And the second reason was, Can I stop you there? Because I have used a similar sort of crimped garden hose theory of everything to explain much of the chaos of 2021 and 2022 because it did feel like chaos. Like I can't get this reservation. I can't find a flight. I can't like my furniture is backlogged six months. All sorts of concerns, both prosaic and luxury. But I didn't anticipate the second half of the crimped garden hose theory of everything. The first half of that theory, the first implication of it is that there's going to be a lot of chaos.

But the second theory is that there's going to be a lot of liquidity. Like the water will flow. And that is what we had. A lot of consumers had spent the previous few years constricting, pinching, as if with the garden hose, their own spending, their own service spending, their own luxury spending. And so there was so much activity just begging to be released into the economy that it helped to counter the impact of higher interest rates. I didn't make that prediction at the time when I was talking about crimpeda garden

poses, but it's such an interesting and almost inevitable implication of the theory. So I'm glad you pointed that out. What's the second theory that you've seen that explains why we didn't get the recession that everybody anticipated? And the second reason was that interest rates went from very low to very high in a short period of time. And if you owned bonds, that was a problem for you. But a lot of people didn't own bonds. They just had houses with low mortgage rates that they locked in during the pandemic or corporations who barred money and locked it in for three or five or ten years during the pandemic. And so, yeah, if you had to borrow money starting in the middle of last year, it was painful, but a lot of people didn't, and they could just sit on this cheap debt that

they borrowed years ago, and so they could ride it out, and they didn't have to worry about where interest rates were because they didn't have to borrow. And so even though the rates went up fast, but it didn't really impact a lot of people right away. This relates to a piece that I talked about with Jason Furman on the show a few weeks ago, and that is that in general, I think the 21st century economy is less responsive to interest rates hikes than we used to be. And a part of this is that we have shifted from a hardware production economy toward more of a services economy. And when you're a hardware production, when you're a manufacturing economy and you make it really expensive to borrow money to build the

next factory or to buy the next set of equipment, you are really pinching economic activity that is essential to the growth of the economy. But when you have a services economy, and especially when you have a services recovery after the pandemic. Well, think about what those services are. You're talking about health care spending, education spending, restaurant spending, tickets to the Taylor Swift, Eros Tour. None of this is particularly sensitive to interest rates. Like, I'm not trying to speak for the millions of people that have gone to see Taylor Swift, but I don't think a lot of them are thinking, I really want to see Taylor Swift, but also interest rates are high. No, the interest rates are relevant to borrowing money, not spending money that's sitting in your checking account,

your savings account, you're going to go see Taylor Swift sing. So I think a lot of households, you're totally right, were surprisingly insulated in the short term. This is so important, in the short term, from the rise of interest rates. Is that essentially the point you're trying to make? Exactly. And I think because to your point, the economy is less interest rate sensitive than it was 10, 15, 20 years ago, interest rates had to go a lot higher to do a lot more work on the parts for the economy that are interest rate sensitive. There's a piece of this that you've touched on, but I just want to make sure we spell it out for listeners.

And that piece is wealth. The Federal Reserve just announced that the wealth, the net worth for the typical American household, the median household grew 37% in real terms between 2019, the year before the pandemic, and last year. That is the highest three-year wealth growth in recorded American history. Now, recorded American history,

according to this Federal Reserve report, goes back a few years, a few decades, but that's extraordinary. We just today saw that average credit scores hit an all-time high. So you put this together, rising wealth, high average credit scores, and it tells me that, yes, interest rates are high, and high interest rates provide an high inflation, provide an obstacle for economic success. But it's sort of like the consumer had so much fitness going into that obstacle course, right? It's like the average consumer came into this period like LeBron James going into a tough mutter. And so many economists were focused on like dramatizing the difficulty of the tough mudder.

They were like, oh my God, the path forward is going to be so intense, skyrocketing, record high speed of interest rate increases, high inflation. All of that is true. All of that is painful. But that interpretation ignores the fitness of the participant, the fitness of the households going into that obstacle course. And I think it is that fitness and that sort of wealth bank that helps so many consumers, continues to help so many consumers push through and grow the economy.

And we've certainly had the fitness to handle 12 or 18 months of high register rates. And the question for next year is, will that continue into 2024? Yes. And so perfect lead in. So let's get to the meat of our discussion. I asked you to come in here with what you identified as the five biggest risks to the U.S. economy. And I want to start, you perfectly anticipated it, I want to start with the flip side of what you just said. In 2022, we underrated just how much running room there was in the U.S. economy.

There were millions of jobs ready to be taken. There were millions of people ready to take those jobs. There were millions of barrels of oil ready to be brought online. But what about now? Let's start with this possible risk. Is it possible? Do you think, Connor, at the U.S. economy has just grabbed a lot of the low-hanging fruit from 2022, and that it might get a little bit more difficult in some ways to continue that kind of growth going forward. Right. I think the garden hose is no longer crimped, or if it is, it's very, very marginal relative to what it was 18 months ago.

And so the data we have and the growth we have is sort of, just the activity we have is a better reflection of the capacity of the economy than it was 18 months ago when production was constrained and inflation was high. So what else needs to be brought on? What else is about to be brought online? I guess is the question that I want to know. So like, you know, we had lots of people waiting on the sidelines in 2021, 2021, there's fewer of them now.

Their participation in the economy has clearly helped to grow the labor market and, by extension, grow consumer spending. If the economy is going to continue to grow, where do you see that growth coming from? So I'd say there are three obvious reasons. One is that the auto strikes just ended. And so auto production will come back when it's been somewhat curtailed for five weeks. Hollywood, we hope, comes back to work in the new year. And there hasn't been much in the way of film and television production for five months now.

So that's a catalyst. And then government is still a catalyst going forward because the inflation reduction act and all of the infrastructure bills that were passed in 2021, a lot of them still haven't started spending money. And so I'd say those are the three obvious areas that, either are temporarily constrained or that still could be growth in the future. So those might be sort of like the smaller crimped garden hoses that we can look to going forward. The second, so if point number one, the first risk of the U.S. economy is that there was a lot of low-hanging fruit and now some of the fruit is a little bit higher hanging, the second thing you

mentioned to me, and I actually thought it might be the first that we talked about, is that eventually high interest rates are going to bite. If interest rates are elevated for nine months, well, that might cool off to invests. and it might cool off housing for half a year. But if interest rates are elevated for three years, for four years, that's a very different shape to the problem, right? Right. And I think next year will be interesting, particularly in the apartment market, because it's going to be kind of the best of times, the worst of times. We are probably going to deliver more apartments to the market next year than we have in 20, 30, 40 years. But we're probably going to start the fewest number of apartments that we

have in over a decade. And so that feast and famine in that market is a reflection of, of kind of the pandemic working its way through the system and the impact of higher interest rates biting. I want to make sure that we are very specific about what you just said, because that fact could be interpreted so differently that in the next few months, people can say that the number of apartments

being brought online is the highest in 50 years, but also the number of apartments where construction is just starting might be the lowest in many years, right? So essentially we're finishing a lot of projects, but we're not sort of planting the next, harvest, right? Exactly.

So if you're a renter in a lot of markets, you can get an apartment cheaper now than you could a year ago. And that might still be the case six months from now. But the problem is there were going to be very, very few apartments delivered on the market in 2025, 26, 27, as the curtailed production we're about to see now, sort of, to your point, we're not planting for the future. And so that does become a problem down the road. I think it also must be said that, like, the fact that interest rates are so high,

The 30-year mortgage rate right now is what? High sevens, low-eightes. I haven't checked this morning. But it's somewhere in that general vicinity. Again, it's about whether high interest rates are higher for shorter or higher for longer. Interest rates that are that high for nine months just means you have a little pause in the real estate market and then people get right back to it in a year. If interest rates for the 30-year mortgage are going to be 7-8% for the next five years, for the next decade,

that's going to change the housing market. Wells Fargo just this week released report saying their prediction is that the housing market is heading back to a 1980s-style recession. And it is precisely because of these higher for longer mortgage rates that are going to keep more people from buying that next home. More people are likely to stay put wherever they are if they have locked in lower rates. If fewer people are moving, if your people are buying, will that sends a signal to home builders that they should maybe slow down as they already are in terms of starting new projects, do you share this fear that higher interest rates will trickle back through the housing market and severely crimp

residential spending, residential investment spending in the next year? Yeah, I mean, the way I would think about the pandemic 3% mortgages is like a non-renewable resource. There are people who got them. It was a one-time thing, but those are slowly working their way out of the system for a variety of reasons. And we're still selling about five million homes a year in the U.S. So that means that right now, basically, if interest rates stay higher for longer, five million people, if you're taking a mortgage, are now paying 7%, 8% on their mortgage rather than three. And that's a higher interest burden. That means they have less money to spend on everything else and could curtail consumption, investment, all sorts of things. You pointed out that there's a recent survey of apartment developers

showing that a quarter of them, the most pessimistic quarter, think that apartment construction could fall by 50% in 2024. I mean, that's not a recession in the apartment construction market. That is a severe depression. Do you think anything that severe is plausible? I understand the sentiment because right now, rents are falling, and construction loans for apartments have gone from 3, 4, 5%

to 8, 9, 10, 11, 12%. And if you're a developer, your whole business model is underwater and that sort of thing. The dynamic that they're trying to manage through is they know that because if people don't build any apartments next year, that will mean very few deliveries in 25, 26, 27. And they're trying to make the arguments for their financiers saying, we're going to see great rent growth on the other side of this because nobody else wants to build. We want to be the ones building when nobody else does. And the question is whether banks and lenders will buy that argument.

So to review where we are right now, the three biggest risks to the economy are, number one, in terms of the labor market, we've just planned. plucked a lot of the low-hanging fruit. A lot of people who are sitting on the sidelines are back in the labor force, and that sort of pool of sideline watchers might be smaller going forward. Number two, you have interest rates higher for longer that might crimp a lot of economic activity in 2024. And number three, very specifically, we're worried about the housing market and about the fact that the construction industry might severely pull back the number of homes and apartments they're building, because with interest rates this high and a record number of units coming into the market, there's less need to add to supply, less perceived need to add to supply.

The fourth thing I want to talk to you about is the auto industry. This comes naturally after houses because historically cars and houses are the two most important engines of economic growth in terms of big ticket items in people's lives. The two biggest items that people tend to buy in their life are a house and a car. And auto is wobbly in a few ways right now. Now, number one, there's the rates problem if you're worried about leases. The cost of car leases has gone way up. It's factoring in these interest rates. But then also, in an entirely different capacity, auto manufacturing has been dealing with strikes and this transition to electric vehicles. You have a very interesting parallel to the streaming revolution here.

Can you explain what's happening in the auto industry to folks? Sure. So to your point about the streaming parallel, we know that Netflix was the leader in streaming, their stock price did really well, they got a lot of subscribers, and eventually all the other traditional studios said, we have to do this. And they did. They jumped in during the pandemic. They did well. They started spending billions of dollars to do this unprofitably. And then Wall Street said, we want to see profits. And they were caught in the spot where they're not as scale and profitable as Netflix, but their cord-cutting business was happening at the same time. So they were kind of loose. on both ends. And now they're kind of in the middle where they can't generate profits or streaming growth or linear. It's just, it's kind of a mess. And autos are kind of in the same spot where they saw what happened with Tesla. They saw the valuation that Tesla got. They said, we have to do EVs. This is the future. They've invested billions, if not tens of billions of dollars in scaling up production. And now it seems like it's either not, they're not going to grow as quickly as they thought or as profitably as they thought. And at the same time, Wall Street doesn't want their gas-guzzling

anymore. They're trying to milk those profits to pay for EV investments. But if EVs are slowing, they can't just go back to gasoline vehicles, and it's not clear what they do going forward. In the near time, anyway. I love this analogy to streaming, and I think it's really at specifically when thinking about what's going to happen next year. So you look at someone, for example, in streaming, in entertainment, like Bob Eiger, who comes into this company, Disney, when it is losing $4 billion on its streaming service. And what does he decide to do? He says, we have to cut our spending on streaming directly and then raise prices on the most profitable parts of our business like amusement parks. The same thing could happen in cars. You could have

a lot of these car companies, GM, Ford, say, we're going to pull back in investments in electric vehicles because we've already sunk so much money into this so-called future of the business. And meanwhile, they're going to potentially be raising prices on electric vehicles. And that could be tough on the industry in both ways. You could have fewer sales, maybe it, with more profit, but it also means that you have less money going into the auto industry in the first place, and that could hurt 2024 growth. What do you see is the outlook for the auto industry in the next 12 months? Like, is this a sort of potential catastrophe waiting for them the same way that a lot of companies in the entertainment industry, like Warner Brothers Discovery, have just seen

their stock prices decimated, or do you think a lot of them are going to muddle through? I think we're going to see them cut their EV investments to some extent, they're going to say that growth is somewhat slower than we anticipated and we'll preserve some cash flow by doing this. And I think it's going to be more of a producer by producer's story. Like we saw this past week that Hyundai is actually doing pretty well. They've got their ionic electric vehicle. They have some scale. They don't have the sales problems that a GM does. So it could be a case of winners and losers where some of the manufacturers, not necessarily the American ones, manage this okay. And some producers are kind of a caught in a bad place where they're

unprofitable and not growing EVs, and then they've got some tough questions. Connor, can you say a bit about the regional dynamics of the electric vehicle story? Because historically, with the internal combustion engine model, you have a lot of business and a lot of labor that is concentrated around the Great Lakes region. Like, yes, the auto industry in America has always been somewhat diffused. There are, you know, Toyota plants in the southeast. But with the rise of lithium ion batteries and electric vehicles, it seems to me, that the future of car manufacturing is differently distributed within the U.S.

Can you talk a little bit about that shift of labor distribution? Sure. So the Detroit Big Three sort of are historically in the Midwest, and I think they will largely stay there, although they're doing some stuff in Kentucky and Tennessee. They're moving somewhat south. And it's really the Asian and European manufacturers that are moving to the south. And part of it is a unization story. So that's also another dynamic in this transition that we've just seen with the UAW deal. And so sort of gasoline versus electric, union versus non-union, American versus European and Asian, there are just a lot of different stories right now in this transition. So we've talked labor, we've talked interest rates,

we've talked housing, we've talked cars. The fifth and final risk that I want to talk about is the deficit. The U.S. federal deficit is skyrocketing. It is skyrocketing for two basic reasons. Number one, the U.S. has a lot of debt, and number two, the interest rate on new debt is very quickly rising. The share of federal spending on interest payments is now the highest of any period since the 1990s, and there's every reason to think it'll just get higher. More people are retiring. There's going to be more spending on Social Security, more spending on Medicare and Medicaid. It is politically toxic to cut at all into these programs, and so we should expect that these main drivers of government spending will continue to grow, and that the deficit and spending on the

deficit will continue to grow with them. Now, I think about the deficit, it's like a little bit politically fraught to talk about worrying about the deficit. I think I'm stealing a point from you that we were talking about before I brought you on the show where it's, you feel a little bit like a Reaganite talking about worrying about the deficit. I worry a little bit about it. I do think that most of the dangers posed by U.S. deficit spending are a little bit like a softer version of climate change. It is a vague but real threat whose worst impacts will happen in the medium to far-term future. And we are talking about 2024. We're talking about next year. What do you see as the strongest argument that there are short-term concerns and considerations about the deficit being this high?

Sure. So this has come out of the fact that the Fed's last interest rate hike might have been in July. and since then, inflation has come down. And so you would think if the Fed is done raising interest rates and inflation is coming down, that longer-term interest rates that are things like mortgages or benchmark two would also come down. And instead, they've gone up. And so people have been trying to figure out, well, why is that? And so that's where this deficit supply story is, that the U.S. Treasury has been issuing lots of bonds as part of this deficit,

and maybe the market can't handle the quantity of bonds that they've been issuing. And so even though the Fed might not want to raise interest rates anymore and inflation is falling, we've gotten to 8% mortgage rates. And so the risk into 24 is that, whether it's psychology or something else, that maybe inflation keeps falling, maybe the Fed even cuts interest rates, but mortgage rates are still stuck at 8%. And that would be kind of a conundrum that nobody in Washington would like, and maybe then addressing the deficit would have to be part of the story if the public were saying,

we need mortgage rates down in addition to inflation. And while I don't really think the government austerity is going to be a main story of 24, I just think it's important to point out that the pendulum has swung. One of the most important reasons why the consumer came into this period of high and now declining inflation so healthy, so LeBron James-esque, is that government spending hugely expanded in 2020. I mean, we did unprecedented things to shore up the balance sheets and incomes of average Americans during the pandemic. And we're not doing that anymore. And there's every reason to think, that we could go in the opposite direction, that there might be little tiny ways that we're going

to be looking at raising taxes rather than looking at cutting taxes or certainly not looking at things like, you know, sending out $1,000 checks to Americans when we're trying to fight inflation. So I do think that it's the reason that it's the fifth thing that we're listing is that I don't think that it's very likely to pinch economic growth next year, but it's important to point out that the pendulum is swinging when it comes to government assistance of average businesses and consumers. The last thing, the sort of bonus item that I want to throw in here, because it's, it's important, but it's pretty damn vague, is that the world is a friggin mess right now. It's not just Israel and Hamas and Palestine. It's not just Ukraine versus Russia. It's not just

the fact that China is dealing with its own near recession. It's the fact that all of this and more is happening at the same time. And the U.S. is not an island, this sort of self-sustaining economy, we have a fantastic engine of consumer growth, but our largest companies and our energy markets absolutely depend on the profitable participation of other countries around the world. And as long as so much of the world is going to be enveloped in geopolitical or economic chaos, I just want to throw that out there that I am a little bit concerned that the world just keeps getting crazier in the next 12 months. I think you're right. And it's the kind of thing that's hard to see in the economic data because problems are going to just come out of nowhere. Maybe there's a

big climate disaster that's really expensive to clean up. To your point, maybe geopolitical stuff erupts. And it's not something that goes into a model, but just looking around the world, it's certainly a risk. Now, you've been playing under my rules by enumerating your concerns about the economy in 2024. What is your actual prediction? What is, like, you were so spot on last summer when you said, everyone's talking about a recession, everyone's saying it's inevitable. I actually don't think it's going to happen at all. What does the kind of send crystal ball say right now? So probably the most encouraging news we've gotten over the past couple of weeks is that productivity growth has really rebounded. It was very negative in the first half of last year.

That was part of the reason why everybody was so negative about things. It's been about 4% over the past two quarters combines, which is great. That's like 1990s-esque. And so there was a theory for a long time that if we just ran the economy hot, that would lead to the, to faster productivity growth. And while I don't think we'll keep 4%, somewhat higher than we saw in the 2010, seems plausible for next year. So you have that kind of working for you.

At the same time, the concern about budget deficits is also a reason for optimism on avoiding recession because the government is kind of still putting money into the economy with battery factories and all these things. And I am hopeful that interest rates

can fall at least a little bit. And maybe not a lot, maybe not as some people want, but that should give some relief to the housing market, people maybe fording automobiles, banks. So I think we'll get a little relief there, and it'll just feel like an okay economy that's not too hot, too cold,

and maybe fewer headlines, but maybe people just feel kind of okay about it. I have a question about productivity. I saw the headline news that productivity jumped up again, and if you've been following the productivity story, like the government measured productivity story, it's just in a weird way, been both all over the place and incredibly boring.

If you take the quarter by quarter story, it's like, oh my God, productivity is way up, no, it's way down. No, it's way up, no, it's way down. If you take, like, the five-year, 10-year, like, rolling average story, like productivity growth has actually been relatively steady. If you only looked at this figure once every 18 months,

there'd be no news, but we look at it every few months, and as a result, we get surprised and shocked and, you know, throw out all these, you know, catastrophic or rose-colored headlines. If you decompose the number, if you look into it, do we have a sense of where, productivity growth is really happening and where it's not?

I'd say right now it's because supply chains are normalizing. So just by producing more automobiles, by just getting chips and being able that to be the finishing touch for a car, that mathematically looks as very much a lot of productivity growth. I think also just people, there was a lot of job turnover during the pandemic. And anyone who starts a new job knows they're not very productive right off the bat. And after 12 or 18 months of being in a job, you're more productive. So I think there's a lot of that. It's sort of like a game of Tetris.

where the blocks were all out of sorts, and we finally are kind of linked synced up the way we were prior to the pandemic. I think we've gotten a lot of benefit from that. Going forward, we probably need more on the investment story, on the tech AI story, perhaps, but I'm hopeful that we can do a little bit better

than we have in the past. I wonder very specifically with AI, and we're definitely not going to do like 40 minutes on AI right now, just spin off and do an entirely different speculative podcast. With AI, the thing that I'm watching for is the same thing that I've observed with my internet use, which is that the internet makes any writer like me, like you, much more productive than we were 20 years ago,

just the ability to do research, to pull up tabs, to get government data and read a bunch of analyst reports and then pull together a thousand-word column in a couple of hours and publish it instantaneously. None of this could have been done 20 years ago, but also the internet allows us to waste so much time watching random YouTube videos or whatever during the day. I'm very interested in the possibility

that AI is going to be both an incredible accelerant of some kind of human thought, and an incredible distraction for other people. Like, is ChatTBTBTBT really saving time for most people whose job is like ours in the world of letters, versus how much time is it just like, I don't know, you're screwing around

and seeing what it can do, or you're going on Mid Journey, you're going on Dolly 2 to see Dolly 3, whatever it is, just to see, like, you know, what an image might look like if you come up with the strangest possible description to show your kid. I think that productivity is going to weirdly get harder and harder to measure as we become

more of a digital and services economy because it's not as simple as oh, it took this many people and this many hardware dollars to produce a car that sold for $50,000. It's more like, you know, I can write for a hundred hours

and produce a bunch of shitty columns and podcasts. I can work for five hours and produce a brilliant column or podcast. Which of these was, like, how do I measure the productivity difference between these activities? In the case, that's a whole random sphere.

about how I do think that productivity from an official government standpoint is going to get harder and harder to measure as we become a more abstractified economy. I think you're right. And how do you measure a good column versus a bad column? As long as somebody reads it, arguably, it's not even productivity, right, if somebody's reading a column. Let's hope so for our six. Yeah, absolutely. Cuttersen, thank you very, very much for coming back. We'll have you back soon when hopefully the economy will not have entered a recession in the next year and you can do yet another dance. Thanks, Derek.

Thank you so much for listening. Plain English is hosted by me, Derek Thompson, and produced by Devin Manzi. Some great news for you all. As you probably know, we are returning, have returned back to our normal schedule of two pods a week. So be on the lookout for new episodes every Tuesday and Friday. If you like our podcast, please rate. Give us five stars. Subscribe wherever you listen.

And I'll see you later.