The Daily Beast Podcast - Why Hasn’t Biden Reversed Trump’s Tariffs to Fix Inflation?

Episode Date: November 21, 2021

Economist Austan Goolsbee, who also served on the council of economic advisors for president Barack Obama, explains why Everyone Hates Biden over the economy, what it’ll take to fix this inflation issue (clue: Trump tariffs?) and why subsidizing green energy like oil all comes back to Joe Manchin. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hello and welcome to another bonus episode of the New Abnormal, and we thank you so much for being here. Today we have an extra special guest with Austin Goolsby, who's, of course, an economic professor at Chicago Booth, as well as the former chairman of the Council of Economic Advisors for President Barack Obama and a columnist at the New York Times. Welcome to the new abnormal, Austin. I feel like I'm at home. That's a good reply. We haven't gotten that one before. I don't know if you saw these polling this Kinnapia poll today, that 59% of Americans disapprove of Biden's handling of the economy. What the fuck is going on? Well, you know, multiple things are going on.

One of the things that's going on, as you know, is this massive partisanization of everything, including the economic data. So when Donald Trump was the president, anybody that was a self-identified Democrat said the economy was going terrible. And anybody was a Republican said it was going great. And then, you know, Biden is there. It's a reverse. So just the objective number is not as, I don't know, is not as informative as what the change was. It definitely got worse. And I think part of what happened is the,

Economic polling always comes in with a lag, maybe is the way you describe it. It doesn't reflect what happened this week. It reflects how have people been feeling for the last two or three months. And over the summer, coming into the fall, it was disappointing. We thought in the spring, it looked like the virus was going away. And then we got some disappointing numbers on both economic growth and on jobs. And then you add on top of that, you got the supply chain melting down. Inflation is up.

And so people are in a sour mood. It's happened before. But to the deeper question of what the F is the deal, I think that the main thing that's happening on the economy, if you say, why is there inflation? Overwhelmingly, it's that we are acting completely differently than we ever have acted before than we have acted in the last 30 years, which is to say, we're saying, we're spending way more of our income on physical things than we really ever do. Normally, we spend our money on services like going to Disneyland, going to restaurants, flying on airplanes, going to the

dentist, going to the doctor, going to school. And that's way down. We reverse kind of a 20-year trend. And when the demand for physical stuff is higher than it's, ever been. And all the countries of the world are trying to buy physical stuff all at exactly the same time. This system is not prepared to handle that. And that's what you see. You see all these ships and they're backed up and nobody knows what you can't get the stuff. That's what made this a mess. So you think the inflation is a function of turning the economy back on. Yeah. I think it's a function of turning it back on. But also in a still endemic world where people can't go out as much. Yes. If you get control of the spread of the virus or you make people more comfortable with the endem, is that a word, indemicity, with whatever, if the virus is endemic, but people know there are treatments. And so they're like, hey, it's fine. I'm going to still go to the dentist and get my teeth cleaned or whatever, get a massage, whatever you're going to do. If we can go back to normal demand, I do think that's going to make a big difference on how much pressure is there on the supply.

I want to just pull out a little bit on this issue of inflation because this is not an American problem. This is now the UK just had these numbers yesterday. I mean, this is really a global problem, but Biden is being blamed for it. Yes. You're right on both counts. Germany announced they got the highest inflation in almost 30 years. China announced they got the highest inflation in almost 30 years. The U.S. announced we have the highest inflation. in 31 years. None of that's a coincidence. It's precisely because it's a global supply chain and

everybody's trying to buy TVs and cars and a bunch of durable goods and things which normally go down in recessions, but this time went up. They're trying to buy them all at the same time. And the factories, in addition to dealing with their own COVID outbreaks, the factory, the makers are like, wait a minute. You know, if you make a Peloton, if you make Peloton, if you make Peloton, on bikes, you got more demand than you've ever had and you're trying to figure out, should we build a second factory? Or once things come back, is everybody going to say, bye, Palatina? I never want to buy one again.

So that's a problem. But you're also right. You know, they're blaming Biden. I'm curious about this. We've had other people on this podcast who've said things like the inflation. It's transitory. Even if it's worse than we expected, it's still largely due to this phenomenon. of turning on and off the economy, but also inflation is at a 30-year high, but the last 30 years

have had, like, record low inflation. Yeah, it's an interesting point. I went 10 years haranguing for the Fed and the central banks of the world that they kept every year saying, oh, yeah, we're going to have 2% inflation next year, and they never got there. They never got the 2%. And then they started debating, maybe we should say we'll have 3%. And it was like, what difference does it make?

You dig into two. Like what? In some ways, it's been problematic, right? Because money in the bank doesn't earn. Yeah, right. So we've had low, low yield. That's what the economists would call, you know, this low yield environment. Now, that said, we could make too much of this point.

Yes, it's true. Highest than 30 years. But the last 30 years was pretty low. And 30 years ago when we had the inflation, it was temporary. You know, it went up and then it went down. But you can get too complacent with that style of argument. Because there is one argument going the other way, which is if we've, if kind of our normal steady state is actually 1%. Right. This is the Larry Summers argument, right?

Yeah, I think Larry's argument would probably be if you get six and a half percent inflation and you normally have one, that's even worse than if you normally have three and you get six and a half percent. And look, there's something to that. But Larry Summers still supports BBB. Yeah, correct. the infrastructure package, and he identified what's clearly true, that opposition to the billback better plan on inflation grounds, that's just a political argument. That's not an economic argument, because the actual amount of spending that would happen in the next 15 months, which is what's relevant for this inflation dynamic, is very small. It's a plan that's spread out over 10 years, and it's offset by raising taxes on high-income people. And so the overall impact is

even smaller. So I think Larry's correct to identify the right way to evaluate build back better is on the merits of what's in it. It's not about inflation because it doesn't have anything to do with inflation. The global corporate tax seems like a big, important thing that we're just not reading about. You know, it's funny. I'm glad you raised it because it was a major diplomatic achievement, if you want to think of it that way. To get 140, 150 or something countries to agree, not just that they will have a minimum tax rate, but of course the hard thing has always been, well, how do you define what is income to compute that percent? You know, if you say, yes, we'll pay 15 percent of your income. What does income mean? That's where,

a lot of countries played games. And they specified that they would base it on financial reported income, a thing that's much harder to, not cheap, but much harder to avoid than taxable income. The thing that we'll have to see is will the U.S. now, after so many years of complaining about tax havens, are we going to stumble on this, on the battlefield of partisanship and not actually be able to pass a tax rate that gets us to the minimum? That would be, that would be ironic, I think. I mean, South Dakota is a tax haven. Yeah, in a way, you know, the U.S., once it lowered its corporate tax rate down into the low 20s, putting ourselves as one of the lowest on the books, but really did not do much to change all the deductions.

So the U.S., before the Trump's tax cut, had the highest rate in the world on the books. And if you look at how much our companies actually paid, it was actually fairly low, below average of large economies. And Trump cut the rate dramatically, but didn't really close many loopholes or deductions. or that kind of thing. So we will be in pretty high danger of being in violation of the agreement, which is based on worldwide financial income, not taxable income. So, Austin, we don't often have somebody who worked in policy and economics in a White House. You need to get some more of our people in here.

I think he's underselling us. We've had Paul Krugman. We've had lots of very smart economists on here. Yeah. Yes. We talk to many, but many who don't have your qualifications. And let's be honest, most of your ilk is not always the most spicy to talk to. You're an exception.

But I'm curious, though, is there other levers of economic policy you think Biden should be doing to kind of kickstart this? Is there something that's being missed here? Or do you think, like, build back better is going to do a lot of it? The Trump tariffs are stupid, horrible. Get rid of the Trump tariffs and prices are going to go down on a lot of stuff. Yeah, but why isn't he getting rid of the Trump tariffs? I mean, that seems like a no-brainer. Yeah, that's what I think. But I haven't understood the clamor for protectionism is kind of alien to me as an economist. As I look at the Trump tariffs, that was probably the biggest tax increase on the middle class in the modern political history of the United States. The average family paid several thousand dollars more in taxes because of those tariffs. So I think it was a mistake. So I think you could do that. That's not really going to relieve the

supply chain pressures that we talked about, you know, if anything, it might raise the supply chain pressures, but it would affect prices. I think on the oil side, you know, you could fiddle with the strategic petroleum reserve. Also, don't you feel like this is a moment when solar is so cheap and wind and we're killing the planet anyway, like let's get off oil? Like, let's do it, man. Yeah, look, electricity and vehicle fuels are mostly different markets, but yes, to your point, if you can invest in some cleaner energies so that we might reduce the amount that we would have to spend on weather emergencies and hurricane, you know, addressing and stuff like that, I'm all for it. OPEC is really like a price-fixing organization. For sure, it's a cartel, and it has been. And if it was domestic to the United States, it would be illegal. It's not domestic to the United States, and that's how they do their thing.

Over the last 40 years, plus, you know, since the oil embargoes of the 70s, there's been a pretty substantial change in the production of oil that OPEC still produces a lot, but they do not dominate completely the production of oil in the world the way they used to. There are now a lot of non-OPEC countries that are quite important in the oil market, like Russia, like the United States, like Canada. If people say this is all OPEC, I usually don't think it's all OPEC. It's for sure about production. And definitely Russia, which constantly seems to be sticking its finger into pies to make mischief, Russia with Saudi Arabia and in discussion with some other countries appear to be trying to limit supply. And in a way, partly here we've got the

crying wolf, burn me twice, forget you thing, which is we just live this. If you look back at the US shale producers, my mom lives out in Abilene, Texas, which is right on the edge of the shale country in the Permian Basin. They had, when the price of oil was high before, they lived as high on the hog as you could live. And then everybody who made those investments in that production, when the price collapsed, they were wiped out. And now the prices back up. And so you would normally think, oh, aren't they all going to come rushing back?

But a lot of the financing for that oil drilling is like, whoa, wait a second, we just did this. And we just lost our shirts. Let's be a little slower to come booming back. I mean, what's happened with Cole is that it's so expensive that, you know, as much as Trump wanted to support it, you couldn't prop up a dying industry that's dying anyway. That's the thing we've learned.

And you brought up solar and wind. The greatest thing to happen to renewable energy is that they got the economics so that even if somebody didn't care anything about the climate, all they cared about was the bottom line. And they go ask the expert, what's the cheapest way to get the energy? Now, a lot of times the answer is solar or wind. That's the best thing that could happen to the industry. is to actually get the economics worth that it works.

But do you think now, if we're looking at this Biden government, are we still subsidizing oil and gas? We are, right? I think so. You know, there are a lot of things in the tax code that have this legacy component. The way oil royalties are treated, the way leases are treated, some for tax purposes, some for a lot of legal and regulatory. reasons. There has been and continues to be, even if now it's a little smaller, there's been a heavy emphasis on promoting fossil fuels for sure. You don't think there's any world in which there's the same kind of incentivizing for green, for real green as there is for oil and gas.

There is a world where that happens. But it's not there yet by any stretch. It's not today's world, you know, because as I always say, on stuff like Bill, back better, it always comes back to that central component of economic theory, what does Joe Manchin think? You know, because at the end of the day, you got to get 50 votes. And if the 50th vote is a guy from West Virginia who cares a lot about coal, then you can bet that the final package is not going to have as much green energy, clean, non-polluting energy components as if the 50th vote was somebody else. You know what I mean? We always try to end this show on a depressing note.

But thank you so much. I hope you'll come back, Austin. Yeah, you bet. It's a great talking to you. On that note, we'll wrap this episode of the new abnormal from The Daily Beast. In future episodes, we'll be talking to smart folks from the Daily Beast and beyond from media, culture, politics, and science. We'll help us understand what's happening to our country and the world. We hope you'll subscribe to us on your favorite podcast app and share the show on social media.

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