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The opinions expressed on
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this program
represent the viewpoints
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of individual authors
or contributors
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and do not necessarily reflect
those of Troy University.
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This is E Conversations,
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a joint production of Troy
Television and the Manual H.
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Johnson Center
for Political Economy.
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Now, here's your host, Dr.
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Dan Sutter.
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Hello and welcome
to your conversations.
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I'm your host, Dr.
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Dan Souder of the Johnson Center
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for Political Economy
at Troy University.
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Political strategist
James Carville coined
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the memorable phrase, It's
the economy, stupid.
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During Bill Clinton's
1992 election campaign, economic
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conditions clearly impact
American elections.
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So how is the economy doing
as we head
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toward
our presidential election?
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The current state of the economy
seems more contentious
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than ever, as by some measures,
the economy is improving
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with inflation
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having fallen while GDP growth
was unexpectedly strong in 2023.
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Yet many Americans report
that they're struggling more
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than ever to make ends meet.
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Are some Americans
voicing their opposition
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to President Biden
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when they say that the economy
is doing poorly?
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Aggregate economic statistics
only tell part of the story.
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So today, only conversations
will be doing a deep dive
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into where the economy stands
today.
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Join me on the show today to
help dig into the numbers as Dr.
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Vance, again,
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the founder of and president
of Economic Consulting.
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Doctor, again, your bachelors
and doctoral degrees
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from Texas Tech University
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and taught at TAC
and Sam Houston State
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before moving into the public
policy world
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where he previously worked
for the Texas Public
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Policy Foundation
and the Pelican Institute
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and has also served
as an economist
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with the Office of Management
and Budget.
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He hosts the Let People
Prosper Podcast and serves
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as a research fellow
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with the American Institute
for Economic Research.
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Welcome
to you Conversations. Vance.
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Hey, Dad, it's
a pleasure to be with you today.
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So let's get started here.
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The we know a couple of years
ago, inflation
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hit a 40 year high.
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So we know that the economy
was not doing very well
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a couple of years ago.
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And in 2020, we had a huge
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spike in unemployment
due to the COVID recession.
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But, you know,
let's take a look at whether
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where the numbers stand now,
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because it seems like
we're doing a little better.
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you're right.
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So things have been looking
better.
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And when you're looking
at the unemployment rate, 3.9%
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currently 3.2% inflation rate,
when you're looking at CPI,
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inflation, what you have
there is the misery index,
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where you just add
those two together
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showing 7.1%,
which kind of looks like
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the middle of the pack
right now.
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When you go back
over the last 20, 30 years,
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it's not quite as high,
of course, as it was in 2000,
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whatever
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we were during the pandemic
and the economic lockdowns
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and everything else
that happened during that
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period, as the unemployment rate
soared to about 14%,
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even though inflation stayed
closer to 2%,
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you were looking at 16,
17% misery index.
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So today, from
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that standard
of the misery index,
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I think things are looking
better.
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And that's
what Biden has talked about
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during the State of the Union
and other situations.
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The problem
is, is when you start
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looking at more of the details
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under the hood
of those highlights,
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where you really start
to see more of the problems
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that I'm sure
we'll talk about today.
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Yeah. Yeah.
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Here's
another way of looking at this.
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The last one
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was a snapshot of the economy
where we stand now versus
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where we stood in February of
of those previous years.
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Where we've done here is
it's just we have some things up
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over the president first
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three years essentially
of the presidential term.
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So we have the total increase
in the CPI
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and then the average
unemployment
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rates of unemployment
have been higher earlier
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and it's low now.
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We're catching that
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with an average over the entire
three years of the presidential
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term.
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So and here we see
a pretty markedly
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different story compared to
our recent administrations.
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Well, that's right.
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And I think what we've seen
is that
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higher level of inflation
over the last three plus years
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has really contributed to that
cumulative increase of 18.5%.
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If you just look at January 20,
21 to now, basically
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when Biden took office
until now,
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you know,
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average weekly earnings,
which I think is a good measure
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to look at
when you're looking at how much,
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how many, how much the people's
hourly wages are going up
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or decreasing
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along with the number of hours
that they're working.
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You look at the average weekly
earnings
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and what you see
is that adjusted for inflation,
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they're down 4.2%
since January of 2021.
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That's also indicative of why
I think people are concerned
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about the economy.
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It's still one of the top
concerns that's out there.
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Even as inflation has moderated,
inflation
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was close to 9% in October 2022,
not that long ago.
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Now it's down closer to 3%.
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So it's moderated.
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We also have to remember that
that is compounding over time,
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which is where you get this
18.5% increase.
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And average weekly
earnings have not kept pace.
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And that's not a good sign.
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And it makes it more difficult
to put food on the table,
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save for a rainy day
and do a lot of other things.
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One thing we also saw, Dan
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during COVID and everything else
where these checks
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that were sent out,
the plus ups with unemployment
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insurance
that were increased by the
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by the federal government,
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all that added
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to a lot more money in people's
for households and savings.
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Excess savings,
what it's called,
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increased
dramatically during that period
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that is now being depleted
quickly
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because inflation has gone up
so high
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and people are having
to use more of that income
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when all that goes away, Dan,
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it's going to be interesting
to see what happens
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to consumption, to investment
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and whether or not
people want to work
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because they've been able
to rely on a lot of that
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excess savings
over the last couple of years.
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And that'll put them in a much
worse situation.
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Yes, it's
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sort of
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those extra savings is provide
a little bit of a buffer here.
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But I think those who have that
buffer have pretty much
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expended it at this point.
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But if we look a little bit
farther, I mean, certainly,
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you know, the stock markets,
this is the Dow Jones
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Industrial Average,
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but the stock markets
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tend to be doing
pretty well as as well.
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They've all in the last couple
of days here reached new highs.
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So the stock market is another
area where you sort of certainly
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we don't have a stock market
crash going on or anything
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horribly, terribly
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wrong going on in the stock
market at this point.
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All right.
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Yeah, that's right.
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I mean, here recently
we've seen it break out of the
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the trend that had been
for a while
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as you kind of see it going
kind of flat for that
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in that in that chart.
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And now it's come up here
recently And, you know,
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we've hit at record
highs in nominal terms,
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although if you adjusted
for inflation,
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I think we've still got
a little bit of ways to go.
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But it's it's it's near
the top either way.
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But the question to me, though,
Dan, too,
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is to look at the underlying
fundamentals of the economy.
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What have been the profitability
of many of these firms?
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Profits haven't been as great.
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And if profit is the mother's
milk, if you will, of
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the stock market,
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then how why are we going
so high on this on these stocks?
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And I think a big part of that
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has to do
with the Federal Reserve.
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You have to
look at what Congress did
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with running up
massive deficits.
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The debt is increased by
about $10 trillion since 2020.
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So that was under Trump
and Biden.
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We've got a lot of excess
spending going on.
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But then when you look at
what the Federal Reserve
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did, their balance sheet,
our central bank's balance sheet
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increased from $4 trillion
before the pandemic
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to $9 trillion,
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and now it's down to about seven
and a half trillion dollars.
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But it's still nearly double
what it was before the pandemic.
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So there's a lot of liquidity
and money
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that's going
into all these markets.
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And if you don't want it
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in the housing market,
if you don't want it in
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other assets that are out there
and you want to put something
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where you want to get
a rate of return,
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you look at the stock market
and I think that's why the Dow
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Jones, the S&P 500, the NASDAQ,
the major indices have hit
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these record highs here
recently.
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But one of the things
that I'm concerned about
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is the price to earnings ratio,
the p e ratios, which
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give you an indication
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of whether or not
they're overpriced
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or if there are bubbles
and things of that nature.
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Historically,
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they've been somewhere
in the range of 16 to 18,
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and now they've been running
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above 24
for quite a while, actually.
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And so that is a concern
that I think we have
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with the stock market,
is that the earnings
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are not keeping pace
with these stock prices,
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which could indicate, you know,
slower prices or lower prices
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in the near future.
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Well,
and that would be important for
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people who have their savings
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now in the stock market, if
the stock market is overpriced.
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Now, as we get into
when you know,
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although the numbers overall
are not looking,
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you know, not looking bad,
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when we look
at the overall numbers,
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one thing is troubling
is that a distressing
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percentage of Americans
are saying
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that they think the economy
is doing badly or saying
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that they're having a hard time
making ends meet.
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And this is
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just a couple of calls
from the Pew Research Center,
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but it's you see this
in a number of different polls.
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It wasn't just like picking
one out,
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one poll
here to get this result.
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So talk a little bit about
this and like, you know,
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I guess, are Americans seeing
something that isn't there
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or that isn't showing up
in the aggregate statistics
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or what
do you think's going on here?
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Yeah, Dan,
I think that's a great point.
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And you're right,
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you're not cherry
picking the data
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because a lot of polls are
showing the same results here.
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And so whatever I'm looking at
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and you're
looking at the headline numbers
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that come out, you know,
it shows 250,000 jobs created.
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The unemployment rate, 3.9%.
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All of these things, I think,
can make things look good.
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But whenever you start
pulling people,
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asking them how they're doing,
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they're indicating that
this is not a good situation.
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And so even though that misery
index
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that we talked about earlier
is, you know,
251
00:09:52,858 --> 00:09:55,227
about middle of the pack, maybe
it's kind of average right now.
252
00:09:55,227 --> 00:09:58,230
We'd like for it to be lower.
253
00:09:58,230 --> 00:09:59,432
But there's something else
254
00:09:59,432 --> 00:10:01,601
that's happening
to people's incomes
255
00:10:01,601 --> 00:10:03,803
and their way of life,
their livelihoods.
256
00:10:03,803 --> 00:10:06,172
That's not reflected
in those numbers.
257
00:10:06,172 --> 00:10:09,175
And I think that's where it goes
back into the situation of
258
00:10:09,208 --> 00:10:10,343
the inflation
259
00:10:10,343 --> 00:10:14,947
that's been compounding over
time, where their real average
260
00:10:14,947 --> 00:10:18,651
weekly earnings are down 4.2%
since January of 2021.
261
00:10:18,651 --> 00:10:21,020
They just can't buy
as much as they could before.
262
00:10:21,020 --> 00:10:22,722
You have other things.
263
00:10:22,722 --> 00:10:25,091
Other prices
keep going up at a faster clip.
264
00:10:25,091 --> 00:10:27,193
You have many people who are
still sitting on the sidelines.
265
00:10:27,193 --> 00:10:30,196
Is the labor force participation
rate continues to struggle
266
00:10:30,196 --> 00:10:31,397
across the economy.
267
00:10:31,397 --> 00:10:32,999
I think that's
another big part of this.
268
00:10:32,999 --> 00:10:34,934
And finally,
269
00:10:34,934 --> 00:10:38,237
I think people are concerned
about their jobs for the future.
270
00:10:38,371 --> 00:10:39,572
One of the things you look at
271
00:10:39,572 --> 00:10:41,207
is the non-farm payroll job
272
00:10:41,207 --> 00:10:44,043
show, 250,
300,000 jobs added per month
273
00:10:44,043 --> 00:10:45,645
when you look
at the household survey.
274
00:10:45,645 --> 00:10:47,480
Those have actually been
declining.
275
00:10:47,480 --> 00:10:50,483
Jobs have been declining
in four of the last five months.
276
00:10:50,616 --> 00:10:52,551
And so that also indicates
why people are
277
00:10:52,551 --> 00:10:53,919
concerned about the economy.
278
00:10:55,221 --> 00:10:57,256
Well, another possibility,
279
00:10:57,256 --> 00:10:59,759
you know, certainly
Paul Krugman and some other
280
00:10:59,759 --> 00:11:02,762
prominent commentators
have raised this possibility.
281
00:11:03,095 --> 00:11:04,797
There's a pretty strong
partizan divide
282
00:11:04,797 --> 00:11:07,400
when you look a little bit
deeper into those surveys
283
00:11:07,400 --> 00:11:10,970
as some additional numbers
from the Pew folks out.
284
00:11:11,237 --> 00:11:12,805
But again,
this is representative
285
00:11:12,805 --> 00:11:14,907
what you see
with a lot of the polls
286
00:11:14,907 --> 00:11:17,143
that, you know,
when you ask Democrats,
287
00:11:17,143 --> 00:11:20,479
about 44% of Democrats
think the economy is doing
288
00:11:20,479 --> 00:11:21,781
excellent or good,
289
00:11:21,781 --> 00:11:24,417
but only about 12%
of Republicans rate it that way.
290
00:11:24,417 --> 00:11:25,384
And that gives us about
291
00:11:25,384 --> 00:11:29,722
an average overall, about 28%,
which isn't particularly high.
292
00:11:29,922 --> 00:11:32,925
But this divergence
is pretty significant.
293
00:11:32,958 --> 00:11:34,560
You know,
it does raise the question,
294
00:11:34,560 --> 00:11:36,629
as I mentioned,
that some economists
295
00:11:36,629 --> 00:11:40,066
have been speculating about
maybe Republicans just don't
296
00:11:40,066 --> 00:11:43,669
like Biden, and it's maybe it's
wishful thinking or projection
297
00:11:43,869 --> 00:11:46,872
for them to think, the economy's
doing so terrible.
298
00:11:47,006 --> 00:11:49,408
But they are. They are.
299
00:11:49,408 --> 00:11:52,011
I personally think that there is
some objective
300
00:11:52,011 --> 00:11:52,611
truth out there.
301
00:11:52,611 --> 00:11:54,814
So we we do need to
look at these numbers.
302
00:11:54,814 --> 00:11:58,784
And if it was only in the hands
of Republican voters, that
303
00:11:58,818 --> 00:12:01,821
those who think that the economy
is doing bad, you know,
304
00:12:02,221 --> 00:12:03,622
I guess
we would want to dismiss that.
305
00:12:03,622 --> 00:12:04,523
But that's what we've got to dig
306
00:12:04,523 --> 00:12:07,359
into these numbers
a little bit more here, right?
307
00:12:07,359 --> 00:12:08,561
Well, yeah,
that's exactly right.
308
00:12:08,561 --> 00:12:11,664
Dan, one of things that I would
highlight from that survey
309
00:12:11,664 --> 00:12:15,201
you just put out there
was only 44, 44% of Democrats
310
00:12:15,501 --> 00:12:16,869
think it's excellent or good.
311
00:12:16,869 --> 00:12:18,471
So, yes,
it's down to Republicans.
312
00:12:18,471 --> 00:12:19,672
So that may be a reason
313
00:12:19,672 --> 00:12:21,373
for politics and everything else
that's going on.
314
00:12:21,373 --> 00:12:22,641
But even the Democrats
are saying
315
00:12:22,641 --> 00:12:25,678
that less than a majority of
the Democrats are saying
316
00:12:25,878 --> 00:12:28,514
that this is not an excellent
or great economy.
317
00:12:28,514 --> 00:12:29,715
And so I think that's reflective
318
00:12:29,715 --> 00:12:32,051
of a lot of the discussion
that we were having here today
319
00:12:32,051 --> 00:12:34,220
is we've got to look underneath
the headlines.
320
00:12:34,220 --> 00:12:35,287
That's great.
321
00:12:35,287 --> 00:12:36,889
Well, what we see on TV,
322
00:12:36,889 --> 00:12:38,090
but let's make sure
we actually see the
323
00:12:38,090 --> 00:12:39,925
what the facts are behind that.
324
00:12:39,925 --> 00:12:42,361
Other parts of the labor
market has also been that
325
00:12:42,361 --> 00:12:45,097
people are working
more part time than full time
326
00:12:45,097 --> 00:12:46,932
and they're taking on multiple
jobs.
327
00:12:46,932 --> 00:12:48,467
That's also not a good situation
328
00:12:48,467 --> 00:12:50,169
for a lot of
families across the country.
329
00:12:51,203 --> 00:12:52,104
Well,
330
00:12:52,104 --> 00:12:53,672
what do you do, Joe, to
331
00:12:53,672 --> 00:12:56,008
jump off here
is that when we think about the
332
00:12:56,008 --> 00:12:58,611
CPI particularly,
that's an average.
333
00:12:58,611 --> 00:13:03,282
And so, you know, they're trying
to measure the market basket.
334
00:13:03,282 --> 00:13:05,551
They're taking a market
basket of goods,
335
00:13:05,551 --> 00:13:07,353
but that's like one
sort of standard
336
00:13:07,353 --> 00:13:09,421
or typical market basket.
337
00:13:09,421 --> 00:13:11,357
And not all prices
go up at the same rate.
338
00:13:11,357 --> 00:13:12,892
So that means that
339
00:13:12,892 --> 00:13:14,059
if you want to think about
340
00:13:14,059 --> 00:13:17,863
the fact of the inflation rate
that some people face
341
00:13:18,063 --> 00:13:21,233
is going to be different
from that average CPI number.
342
00:13:21,233 --> 00:13:24,236
So to talk a little bit
more about this for us.
343
00:13:25,104 --> 00:13:26,338
Yeah, that's a great point.
344
00:13:26,338 --> 00:13:29,775
And you know, the CPI,
the Consumer Price Index,
345
00:13:29,775 --> 00:13:30,843
is this basket.
346
00:13:30,843 --> 00:13:31,410
They go out
347
00:13:31,410 --> 00:13:32,011
and they
348
00:13:32,011 --> 00:13:32,545
they measure
349
00:13:32,545 --> 00:13:36,382
about 60,000 goods services they
put into this overall basket.
350
00:13:36,615 --> 00:13:38,584
And they do this
on a monthly basis.
351
00:13:38,584 --> 00:13:41,654
They have a base year
of 1982, 84.
352
00:13:41,821 --> 00:13:43,589
And we know that a lot of things
have changed since then.
353
00:13:43,589 --> 00:13:45,257
So there's different biases
that are involved
354
00:13:45,257 --> 00:13:47,193
substitution, bias, income bias.
355
00:13:47,193 --> 00:13:49,495
There's different ones
that that are part of this.
356
00:13:49,495 --> 00:13:51,964
But it does
at least give us something
357
00:13:51,964 --> 00:13:54,099
to be able to look at
what the changes are over
358
00:13:54,099 --> 00:13:55,501
time for this
359
00:13:55,501 --> 00:13:58,370
basket of goods and services,
even if it is an average.
360
00:13:58,370 --> 00:14:01,674
But there certainly has been
increases in food and energy.
361
00:14:01,774 --> 00:14:02,908
Some of those are coming down
362
00:14:02,908 --> 00:14:05,044
now, which is bringing down
the headline number.
363
00:14:05,044 --> 00:14:07,580
But even the core CPI.
So exclude food and energy.
364
00:14:07,580 --> 00:14:08,747
So you just look at the more
365
00:14:08,747 --> 00:14:11,951
stable prices,
those are up nearly 4%.
366
00:14:12,351 --> 00:14:14,053
And what does this really
matter?
367
00:14:14,053 --> 00:14:18,023
Will the Federal Reserve has
a target inflation rate of 2%.
368
00:14:18,023 --> 00:14:18,691
Now they like to look
369
00:14:18,691 --> 00:14:20,926
at the personal consumption
expenditures index,
370
00:14:20,926 --> 00:14:22,528
a different measure
of inflation,
371
00:14:22,528 --> 00:14:24,430
which is also running around 3%.
372
00:14:24,430 --> 00:14:27,399
But regardless,
all the inflation measures are
373
00:14:27,399 --> 00:14:29,568
running well above 2%
374
00:14:29,568 --> 00:14:31,437
and some are saying
they're going to cut
375
00:14:31,437 --> 00:14:33,439
interest rates
about three times this year.
376
00:14:33,439 --> 00:14:35,908
I think that's very optimistic
377
00:14:35,908 --> 00:14:38,477
because inflation has continued
to run hotter
378
00:14:38,477 --> 00:14:39,812
and over
the last couple of months,
379
00:14:39,812 --> 00:14:43,182
the rate of inflation
annualized has been close to 7%.
380
00:14:43,582 --> 00:14:45,551
So I think we've got a lot
of other problems
381
00:14:45,551 --> 00:14:46,886
within this
inflationary picture,
382
00:14:46,886 --> 00:14:48,387
which is not reflected by
383
00:14:48,387 --> 00:14:51,390
the data, the statistics
that you put up on the screen.
384
00:14:51,457 --> 00:14:53,525
And one reason why
I still have a lot of concern
385
00:14:53,525 --> 00:14:55,661
for what's going
on, the future of the economy.
386
00:14:55,661 --> 00:14:56,896
If they can't cut
387
00:14:56,896 --> 00:14:59,298
interest rates as fast
or as much this year,
388
00:14:59,298 --> 00:15:01,066
what's that going to do
in the stock market?
389
00:15:01,066 --> 00:15:01,467
What's going to be
390
00:15:01,467 --> 00:15:03,602
that's a mortgage
mortgage market and other things
391
00:15:03,602 --> 00:15:05,371
that are going to be reflective
in a slower
392
00:15:05,371 --> 00:15:09,475
economy and less economic growth
and fewer jobs being provided?
393
00:15:10,442 --> 00:15:12,511
Well,
those are excellent points.
394
00:15:12,511 --> 00:15:16,582
And one other thing I'd add in
there is that we've seen a lot
395
00:15:16,582 --> 00:15:19,018
of inflation
in food and energy,
396
00:15:19,018 --> 00:15:20,586
especially over
the last three years.
397
00:15:20,586 --> 00:15:22,655
Those are a couple of the areas
that have been the highest.
398
00:15:22,655 --> 00:15:25,624
And the statistics, consumption
statistics show
399
00:15:25,624 --> 00:15:28,761
that lower income Americans
spend a higher percentage
400
00:15:28,761 --> 00:15:32,798
touch of their
budget on food and energy.
401
00:15:32,798 --> 00:15:34,099
So that's one thing.
402
00:15:34,099 --> 00:15:34,833
Yeah,
403
00:15:34,833 --> 00:15:36,735
there are some reasons
for excluding that
404
00:15:36,735 --> 00:15:40,539
for like the core inflation,
but for for many Americans,
405
00:15:40,539 --> 00:15:42,541
lower income Americans
especially,
406
00:15:42,541 --> 00:15:44,410
who probably don't have
the extra savings
407
00:15:44,410 --> 00:15:46,312
to afford somewhat
higher prices
408
00:15:46,312 --> 00:15:48,681
they're facing, if anything up
probably a little bit.
409
00:15:48,681 --> 00:15:51,517
They've faced a little bit
more inflation over the last
410
00:15:51,517 --> 00:15:55,287
three years than their 89.5%
run up as on.
411
00:15:56,221 --> 00:15:57,589
Yes, exactly right.
412
00:15:57,589 --> 00:15:59,425
And I think another thing, too,
Dan, that
413
00:15:59,425 --> 00:15:59,692
I know
414
00:15:59,692 --> 00:16:01,961
you looked at some of this
and I have as well, is
415
00:16:01,961 --> 00:16:03,062
of course, it's also different
416
00:16:03,062 --> 00:16:04,163
depending on which state
you're in.
417
00:16:04,163 --> 00:16:06,298
Yeah, I'm in Texas now.
418
00:16:06,298 --> 00:16:07,333
You're in Alabama.
419
00:16:07,333 --> 00:16:09,702
That's going to have slower
growth rates
420
00:16:09,702 --> 00:16:11,470
and the cost of living
this basket
421
00:16:11,470 --> 00:16:13,806
than places like California
and New York. Right.
422
00:16:13,806 --> 00:16:15,441
And then we wonder
why people are moving with
423
00:16:15,441 --> 00:16:19,278
their feet for those high tech,
high cost of living places
424
00:16:19,378 --> 00:16:20,813
to places that are cheaper
425
00:16:20,813 --> 00:16:23,949
and have lower income taxes
and other deregulation
426
00:16:23,949 --> 00:16:24,750
and things of that nature.
427
00:16:25,851 --> 00:16:26,185
We've
428
00:16:26,185 --> 00:16:29,421
already mentioned that once
we have inflation,
429
00:16:29,421 --> 00:16:31,457
especially
a good amount of inflation,
430
00:16:31,457 --> 00:16:33,525
you really have to look at
whether we call real
431
00:16:33,525 --> 00:16:37,796
or inflation adjusted income as
opposed to just nominal income.
432
00:16:37,896 --> 00:16:40,399
And here we can
see some numbers
433
00:16:40,399 --> 00:16:41,934
reflecting
what we've already talked about,
434
00:16:41,934 --> 00:16:44,937
how over the last
couple of years
435
00:16:45,237 --> 00:16:47,673
wages haven't been keeping up
with inflation.
436
00:16:47,673 --> 00:16:49,408
But one thing
I just want to add to this
437
00:16:49,408 --> 00:16:52,411
is that some research
from the Federal Reserve banks
438
00:16:52,778 --> 00:16:56,181
show that like in 2022,
there is about 10 to
439
00:16:56,181 --> 00:16:59,385
15% of Americans didn't
really get any raise at all.
440
00:16:59,785 --> 00:17:01,053
And with inflation,
441
00:17:01,053 --> 00:17:02,821
with the level
where it was that year,
442
00:17:02,821 --> 00:17:05,190
if you were one of the Americans
who didn't get any
443
00:17:05,190 --> 00:17:08,894
raise and inflation overall
was at least 7% for the year,
444
00:17:09,228 --> 00:17:12,364
and that's a really big cut
in your real income,
445
00:17:12,931 --> 00:17:15,934
then inflation means your real
incomes going down that much.
446
00:17:15,934 --> 00:17:16,935
And that's a pretty
447
00:17:16,935 --> 00:17:20,272
that's a pretty hefty
reduction for some folks.
448
00:17:21,874 --> 00:17:23,375
Yeah, it really is.
449
00:17:23,375 --> 00:17:25,310
And especially it hurts
the poorest
450
00:17:25,310 --> 00:17:28,313
among us
the most as their inflation
451
00:17:28,414 --> 00:17:31,517
goes up all around them
and then their pay is more fixed
452
00:17:31,517 --> 00:17:33,619
if they're getting
any pay increase at all.
453
00:17:33,619 --> 00:17:35,587
And so that really hurts them
even more.
454
00:17:35,587 --> 00:17:37,756
So as we're talking about
some of these averages,
455
00:17:37,756 --> 00:17:40,893
like even mine
earlier, of the 4.2% reduction
456
00:17:40,893 --> 00:17:44,263
in real average weekly earnings
since January of 2021,
457
00:17:44,430 --> 00:17:45,497
of course, that's an average
458
00:17:45,497 --> 00:17:47,633
that for the average person
that's out there.
459
00:17:47,633 --> 00:17:48,167
So there are many,
460
00:17:48,167 --> 00:17:51,937
many more that have been
that seeing their wages
461
00:17:52,438 --> 00:17:55,074
be deflated,
their purchasing power go down
462
00:17:55,074 --> 00:17:58,077
tremendously because their wages
are increasing at all.
463
00:17:58,243 --> 00:17:59,945
And so this is a major problem.
464
00:17:59,945 --> 00:18:02,081
It's another reason why, though,
Dan, that many people over
465
00:18:02,081 --> 00:18:05,384
the last few years have been
switching jobs so frequently.
466
00:18:05,451 --> 00:18:09,021
A number of one reason
why is inflation.
467
00:18:09,021 --> 00:18:10,222
Well,
they're not seeing an increase
468
00:18:10,222 --> 00:18:11,190
in the job that they're in,
469
00:18:11,190 --> 00:18:12,391
so they're going to go somewhere
else.
470
00:18:12,391 --> 00:18:12,591
Right.
471
00:18:12,591 --> 00:18:14,726
Well, that also has
a higher transaction cost
472
00:18:14,726 --> 00:18:16,295
for each one of those employers.
473
00:18:16,295 --> 00:18:18,397
They're now having to hire
additional worker
474
00:18:18,397 --> 00:18:20,365
and train them
and everything else.
475
00:18:20,365 --> 00:18:23,902
And then that raises the prices
that we pay at the same time.
476
00:18:24,069 --> 00:18:26,004
So there are many factors
at play.
477
00:18:26,004 --> 00:18:27,673
And then I don't know
where you were
478
00:18:27,673 --> 00:18:29,541
this about,
you know, four years ago,
479
00:18:29,541 --> 00:18:33,011
but we had the where we had
the pandemic and the lockdowns
480
00:18:33,011 --> 00:18:33,679
and everything else.
481
00:18:33,679 --> 00:18:35,547
There were a lot of economists
that were talking about a
482
00:18:35,547 --> 00:18:36,815
transitory inflation.
483
00:18:36,815 --> 00:18:39,485
I'm doing air quotes
here, but transitory inflation.
484
00:18:39,485 --> 00:18:41,553
And I think that made some sense
early
485
00:18:41,553 --> 00:18:43,755
on because of the supply chain
disruptions.
486
00:18:43,755 --> 00:18:46,925
The idea was once the supply
chains came back online
487
00:18:47,092 --> 00:18:48,861
that inflation would go down,
488
00:18:48,861 --> 00:18:50,462
maybe even have
some deflation, prices
489
00:18:50,462 --> 00:18:53,065
would go back
to some sort of price stability.
490
00:18:53,065 --> 00:18:55,300
But the problem was that
there were so many other factors
491
00:18:55,300 --> 00:18:58,170
at play with massive deficits
by Congress,
492
00:18:58,170 --> 00:19:00,072
by the Fed,
printing so much money,
493
00:19:00,072 --> 00:19:02,141
too much money, chasing too
few goods,
494
00:19:02,141 --> 00:19:04,042
you're going to have longer
term inflation.
495
00:19:04,042 --> 00:19:06,111
So I was always
in the persistent inflation
496
00:19:06,111 --> 00:19:08,580
camp, which I got a lot of bad
rap for a little while.
497
00:19:08,580 --> 00:19:11,283
But I think that it's important
for us to understand
498
00:19:11,283 --> 00:19:13,785
the dynamics of inflation
and the economy
499
00:19:13,785 --> 00:19:15,554
and not just look at one off
things
500
00:19:15,554 --> 00:19:18,056
like supply shocks
or something else.
501
00:19:18,056 --> 00:19:20,726
But you mentioned
the supply chain disruptions.
502
00:19:20,726 --> 00:19:23,428
And that's another reason
why we you know,
503
00:19:23,428 --> 00:19:27,232
the perhaps the CPI numbers,
they were at a 40 high, 40 year
504
00:19:27,232 --> 00:19:27,866
high,
505
00:19:27,866 --> 00:19:29,134
but they
they might not have been
506
00:19:29,134 --> 00:19:32,004
telling the whole story
because there is
507
00:19:32,004 --> 00:19:34,072
there are real costs
when goods aren't
508
00:19:34,072 --> 00:19:36,875
actually available,
even at a higher price. Right.
509
00:19:38,243 --> 00:19:39,011
Exactly right.
510
00:19:39,011 --> 00:19:42,614
And recently there was a
good paper out by Larry Summers,
511
00:19:42,781 --> 00:19:45,150
who was in the Clinton
administration.
512
00:19:45,150 --> 00:19:47,152
He also did some work
in the Obama administration.
513
00:19:47,152 --> 00:19:50,889
So more of a left of center,
if you will, in a lot of ways.
514
00:19:51,023 --> 00:19:52,558
And his research
515
00:19:52,558 --> 00:19:56,295
showed that if we use
the same sort of CPI basket,
516
00:19:56,295 --> 00:19:57,596
because they change it up
over time
517
00:19:57,596 --> 00:19:59,364
with different weights
and things of that nature,
518
00:19:59,364 --> 00:20:01,166
if it was the same as
what would they had been doing
519
00:20:01,166 --> 00:20:02,868
using back to the 1980s,
520
00:20:02,868 --> 00:20:03,702
inflation
521
00:20:03,702 --> 00:20:03,902
would have
522
00:20:03,902 --> 00:20:05,771
been higher than the 9%,
523
00:20:05,771 --> 00:20:08,240
it would have been closer to 12
or 13%.
524
00:20:08,240 --> 00:20:10,943
So that may better reflect
the cost that we're paying.
525
00:20:10,943 --> 00:20:11,944
And why is that?
526
00:20:11,944 --> 00:20:15,981
Well, it's because today CPI
doesn't include interest rates.
527
00:20:16,415 --> 00:20:18,684
It doesn't
include the other costs
528
00:20:18,684 --> 00:20:21,420
that we're seeing for credit
card debt, for mortgage debt.
529
00:20:21,420 --> 00:20:22,821
It just looks at the rate
530
00:20:22,821 --> 00:20:25,257
the imputed rent that you're
paying on your mortgage,
531
00:20:25,257 --> 00:20:27,826
not the higher interest rates
that are associated with that.
532
00:20:27,826 --> 00:20:30,262
So it keeps the inflation
rate lower
533
00:20:30,262 --> 00:20:31,964
than what it otherwise would be,
meaning
534
00:20:31,964 --> 00:20:33,899
the cost of that basket
is going to be lower
535
00:20:33,899 --> 00:20:35,334
than what it otherwise would be.
536
00:20:35,334 --> 00:20:37,302
And so I think this is also more
reflective
537
00:20:37,302 --> 00:20:39,371
of what people
are feeling on the ground.
538
00:20:39,371 --> 00:20:42,474
And yes, the supply
chain disruptions were costly
539
00:20:42,474 --> 00:20:45,544
and hit us pretty hard
and they came back online.
540
00:20:45,711 --> 00:20:49,881
But remember, many countries
didn't open up four years later.
541
00:20:49,881 --> 00:20:51,783
In fact, China shut down
542
00:20:51,783 --> 00:20:53,151
multiple times
543
00:20:53,151 --> 00:20:56,321
and that restricted the supply
chains across the country.
544
00:20:56,555 --> 00:20:58,824
What did America do?
We switched to other countries.
545
00:20:58,824 --> 00:21:01,927
We buy a lot more from Taiwan,
Vietnam, other places
546
00:21:01,927 --> 00:21:04,930
that were kept more in line
at a lower cost.
547
00:21:05,030 --> 00:21:06,932
And it's one reason
why I think it's so important
548
00:21:06,932 --> 00:21:09,434
for us to keep looking
at our corporate income tax.
549
00:21:09,434 --> 00:21:10,502
The Biden administration
550
00:21:10,502 --> 00:21:13,605
came out recently to say
to raise it from 21 to 28%,
551
00:21:13,739 --> 00:21:15,907
which would make us less
competitive in the world.
552
00:21:15,907 --> 00:21:18,243
Well, we had reduced it
in the Trump administration
553
00:21:18,243 --> 00:21:21,647
from 35%, which was the highest
in the developed world, to 21%,
554
00:21:21,647 --> 00:21:24,149
which is about the
developed world's average.
555
00:21:24,149 --> 00:21:25,851
So if we start raising
that again,
556
00:21:25,851 --> 00:21:27,219
we're going
to have even more incentive
557
00:21:27,219 --> 00:21:29,054
for businesses
to move elsewhere.
558
00:21:29,054 --> 00:21:31,023
Instead of having
more production here at home.
559
00:21:32,691 --> 00:21:33,425
Just why we
560
00:21:33,425 --> 00:21:36,495
mention one more thing here,
because the baby formula
561
00:21:36,495 --> 00:21:40,432
shortage
was really terrible for parents
562
00:21:40,432 --> 00:21:42,367
with young children
needing a formula.
563
00:21:42,367 --> 00:21:43,602
But I think it also story
564
00:21:43,602 --> 00:21:46,738
shows here
that when a good isn't available
565
00:21:47,506 --> 00:21:50,542
either, the price
that enters into the CPI
566
00:21:50,542 --> 00:21:51,843
becomes a little bit misleading
567
00:21:51,843 --> 00:21:52,411
because
568
00:21:52,411 --> 00:21:55,914
the CPI is sort of presuming
that the good is available there
569
00:21:55,914 --> 00:21:59,017
for a purchase at that price
and when it's not available at
570
00:21:59,017 --> 00:22:02,688
all, that's a that's pain
or real hardship
571
00:22:03,121 --> 00:22:05,991
that people face,
that they're simply being left
572
00:22:05,991 --> 00:22:07,726
out of of the CPI.
573
00:22:07,726 --> 00:22:11,496
So, you know, as things weren't
available in another way, I put
574
00:22:11,530 --> 00:22:13,899
you could think about it
is that how much would
575
00:22:13,899 --> 00:22:16,935
the price of baby formula or
other goods have to have gone up
576
00:22:17,202 --> 00:22:19,971
to keep some on the shelves,
to keep some available?
577
00:22:19,971 --> 00:22:20,672
And that would have been a
578
00:22:20,672 --> 00:22:23,842
higher
inflation would have been higher
579
00:22:23,842 --> 00:22:25,644
than was being measured
at that time.
580
00:22:25,644 --> 00:22:28,180
So, you know, something
581
00:22:28,180 --> 00:22:31,216
that hit us, too, Dan, because
we had a baby around that time.
582
00:22:31,416 --> 00:22:32,984
yeah,
we couldn't find baby formula.
583
00:22:32,984 --> 00:22:34,920
So it affected us directly
584
00:22:34,920 --> 00:22:36,755
and it was very difficult
for a little while
585
00:22:36,755 --> 00:22:38,423
of trying to find it
and everything else.
586
00:22:38,423 --> 00:22:40,359
And then you maybe
pay more online,
587
00:22:40,359 --> 00:22:41,293
but we were willing to pay it,
588
00:22:41,293 --> 00:22:43,228
willing
and able to pay that price.
589
00:22:43,228 --> 00:22:44,329
Many people were not.
590
00:22:44,329 --> 00:22:46,531
It's also a good economic lesson
of how
591
00:22:46,531 --> 00:22:48,500
we have to be cautious
about calling things
592
00:22:48,500 --> 00:22:50,402
price gouging and everything
else.
593
00:22:50,402 --> 00:22:52,404
Remember, the market is the best
at allocating
594
00:22:52,404 --> 00:22:54,973
resources through the prices
that are given.
595
00:22:54,973 --> 00:22:55,307
You're either
596
00:22:55,307 --> 00:22:56,842
going to have rationing
through the price system,
597
00:22:56,842 --> 00:22:59,177
which is well functioning
or through rationing.
598
00:22:59,177 --> 00:23:00,812
And in this case,
we found rationing
599
00:23:00,812 --> 00:23:02,781
to be the case
instead of the prices.
600
00:23:02,781 --> 00:23:04,449
So we've got to be careful
about talking about,
601
00:23:04,449 --> 00:23:06,051
you know, price
gouging or something
602
00:23:06,051 --> 00:23:08,787
where people who spent
an entire afternoon driving
603
00:23:08,787 --> 00:23:11,857
from store to store trying
to find baby formula, okay.
604
00:23:11,857 --> 00:23:13,358
Even if they were able to find
they didn't
605
00:23:13,358 --> 00:23:14,092
have to pay that much.
606
00:23:14,092 --> 00:23:16,161
But think of all the gas
they used up
607
00:23:16,161 --> 00:23:19,131
and their time that they spent
trying to get that.
608
00:23:19,297 --> 00:23:20,165
Now, you've
609
00:23:20,165 --> 00:23:23,168
mentioned the interest rates,
mortgage interest rates.
610
00:23:23,335 --> 00:23:26,405
And so let's come back to this
because as you said,
611
00:23:26,838 --> 00:23:28,073
interest rates in general,
612
00:23:28,073 --> 00:23:30,409
not just mortgage interest
rates, they have a slide here
613
00:23:30,409 --> 00:23:32,778
showing what's happened
with mortgage interest rates,
614
00:23:32,778 --> 00:23:34,413
but all interest rates
have gone up
615
00:23:34,413 --> 00:23:38,150
and that impacts households
as well as in a way, as you
616
00:23:38,150 --> 00:23:40,585
mentioned, there's the CPI is
and picking up.
617
00:23:40,585 --> 00:23:42,087
So tell
us a little bit about this.
618
00:23:43,321 --> 00:23:45,891
Yeah, these these
interest rates are influenced
619
00:23:45,891 --> 00:23:49,795
a lot by the debt that Congress
puts in place, right?
620
00:23:49,795 --> 00:23:51,730
So if they issue more Treasury
securities,
621
00:23:51,730 --> 00:23:55,801
that pushes supply to the right
and a raise it
622
00:23:55,867 --> 00:23:58,336
it reduces the price
and it raises interest rates.
623
00:23:58,336 --> 00:23:59,504
And and
624
00:23:59,504 --> 00:24:01,673
but that also influences
a lot of of the interest
625
00:24:01,673 --> 00:24:03,575
other interest rates
throughout the economy.
626
00:24:03,575 --> 00:24:06,578
It also as influenced
by the Federal Reserve,
627
00:24:06,578 --> 00:24:07,512
our central bank
628
00:24:07,512 --> 00:24:09,781
where they have a target
federal funds rate
629
00:24:09,781 --> 00:24:11,616
which is the overnight
lending rate between banks.
630
00:24:11,616 --> 00:24:12,551
That basically is telling you
631
00:24:12,551 --> 00:24:15,620
how much the cost of credit is
going to be across the country.
632
00:24:15,787 --> 00:24:17,355
And they had it at basically
633
00:24:17,355 --> 00:24:20,992
a zero, essentially zero
for a couple of years
634
00:24:21,193 --> 00:24:24,463
during COVID to really allow
for more liquidity
635
00:24:24,463 --> 00:24:25,430
into the marketplace.
636
00:24:25,430 --> 00:24:27,098
This is also
when they increase their balance
637
00:24:27,098 --> 00:24:29,434
sheet
from 4 trillion to 9 trillion.
638
00:24:29,434 --> 00:24:32,871
And then in July of 2022,
639
00:24:33,038 --> 00:24:36,908
they began to raise or around
that time in 2022,
640
00:24:36,908 --> 00:24:39,978
they began to raise that
federal funds rate up to where
641
00:24:39,978 --> 00:24:43,748
it got to 5.25 to 5.5%,
where it's at today.
642
00:24:43,748 --> 00:24:46,751
And they've been pausing now
for a while and not changing it.
643
00:24:46,785 --> 00:24:50,055
But during that time,
we saw very low mortgage rates,
644
00:24:50,055 --> 00:24:53,058
which are connected to the ten
year Treasury note rate that the
645
00:24:53,291 --> 00:24:55,927
the Treasury puts out there
with their debt and debt.
646
00:24:55,927 --> 00:24:57,662
It's also efforts
by the Federal Reserve.
647
00:24:57,662 --> 00:24:59,498
That's
why bringing this all together
648
00:24:59,498 --> 00:25:02,701
and that contributed
to higher mortgage rates,
649
00:25:02,834 --> 00:25:05,203
whatever those other rates
began to increase.
650
00:25:05,203 --> 00:25:08,306
And I think that they're going
to stay higher for longer,
651
00:25:08,473 --> 00:25:11,910
given that inflation is going to
be higher than longer as well.
652
00:25:12,077 --> 00:25:13,011
And what does that mean?
653
00:25:13,011 --> 00:25:15,747
That means just two years ago
you could have got a mortgage
654
00:25:15,747 --> 00:25:19,150
at an interest rate of about 3%
and now you're going to pay
655
00:25:19,184 --> 00:25:20,819
in 7%. That's double.
656
00:25:20,819 --> 00:25:22,854
If you happen to have
an adjustable rate mortgage,
657
00:25:22,854 --> 00:25:25,657
your mortgage payment
per month can double
658
00:25:25,657 --> 00:25:26,992
compared to what you were before
659
00:25:26,992 --> 00:25:28,960
that you can't afford it
and you lose your home.
660
00:25:28,960 --> 00:25:31,263
Or if you try to sell your home
and go buy another home,
661
00:25:31,263 --> 00:25:33,498
you probably can't afford it
because housing values are up
662
00:25:33,498 --> 00:25:34,900
and interest rates are up.
663
00:25:34,900 --> 00:25:37,903
So it's put people in a tough
situation in the housing market
664
00:25:38,003 --> 00:25:39,571
where I really think
that we're going to continue
665
00:25:39,571 --> 00:25:42,741
to see some depreciation
of housing across the country,
666
00:25:42,908 --> 00:25:46,144
especially in particular markets
like San Francisco, Austin,
667
00:25:46,144 --> 00:25:46,778
which is nearby
668
00:25:46,778 --> 00:25:47,445
where I'm at,
669
00:25:47,445 --> 00:25:49,114
you're already
seeing a lot of this happen,
670
00:25:49,114 --> 00:25:50,782
especially for new sales.
671
00:25:50,782 --> 00:25:53,852
New sales around
the Austin area are down 18%.
672
00:25:53,852 --> 00:25:56,454
The prices are just over
the last year.
673
00:25:56,454 --> 00:25:59,324
So that that process, just like
we saw during the great
674
00:25:59,324 --> 00:26:02,327
financial crisis of the 2000,
is happening again.
675
00:26:02,394 --> 00:26:05,096
Deflationary pressure
within the housing market
676
00:26:05,096 --> 00:26:06,631
because of those
higher interest rates
677
00:26:06,631 --> 00:26:08,767
and because
the housing prices are so high.
678
00:26:08,767 --> 00:26:10,435
So I think that's going
to continue for a while, Diane,
679
00:26:10,435 --> 00:26:11,937
which is going to have
a lot of influence
680
00:26:11,937 --> 00:26:14,940
on people's
livelihoods across the economy.
681
00:26:15,774 --> 00:26:17,609
And it's not just housing.
682
00:26:17,609 --> 00:26:20,312
Is there anything that consumers
buy on credit?
683
00:26:20,312 --> 00:26:23,381
Because many people are going
to buy a lot of things, Cars
684
00:26:23,481 --> 00:26:24,215
in particular.
685
00:26:24,215 --> 00:26:27,252
But also, I mean,
many people will buy appliances
686
00:26:27,319 --> 00:26:31,356
in other the home repairs
and have to put on credit.
687
00:26:31,356 --> 00:26:33,158
So all those interest rates
have gone up.
688
00:26:33,158 --> 00:26:34,426
So all of those things,
689
00:26:34,426 --> 00:26:35,427
people are getting squeezed
690
00:26:35,427 --> 00:26:38,229
on a lot of different margins
here, right?
691
00:26:38,229 --> 00:26:39,264
That's exactly right.
692
00:26:39,264 --> 00:26:42,767
A credit card debt rate
is reached $1,000,000,000,000.
693
00:26:43,001 --> 00:26:44,836
And doesn't interest
those Interest rates
694
00:26:44,836 --> 00:26:46,905
are now up to about 24%.
695
00:26:46,905 --> 00:26:47,572
They'll come down
696
00:26:47,572 --> 00:26:51,409
for a while, 16, 17%,
but now they're back to 24%.
697
00:26:51,543 --> 00:26:53,511
And if you were just real quick
for the audience,
698
00:26:53,511 --> 00:26:56,181
I mean, back in the seventies,
we had the great inflation,
699
00:26:56,181 --> 00:26:58,316
double digits, inflation
and everything else.
700
00:26:58,316 --> 00:27:02,320
In about 1980, the prime rate
or the rate for mortgages
701
00:27:02,320 --> 00:27:04,255
was close to 20%.
702
00:27:04,255 --> 00:27:07,092
So even at the 7%,
we're still getting a relatively
703
00:27:07,092 --> 00:27:08,860
good deal,
historically speaking,
704
00:27:08,860 --> 00:27:10,762
but it feels very expensive
today.
705
00:27:10,762 --> 00:27:12,497
This is one reason
why I've been so adamant
706
00:27:12,497 --> 00:27:14,366
about the Federal Reserve
cutting its balance
707
00:27:14,366 --> 00:27:15,834
sheet and Congress stop
708
00:27:15,834 --> 00:27:18,269
spending so much
and running a massive deficits
709
00:27:18,269 --> 00:27:19,571
because if we don't,
we're going to run
710
00:27:19,571 --> 00:27:22,107
into the same sort of problem
we did there in the 1970s,
711
00:27:22,107 --> 00:27:23,441
and then we're all going
to be facing higher
712
00:27:23,441 --> 00:27:26,578
interest rates, higher inflation
and less economic opportunity.
713
00:27:27,245 --> 00:27:28,913
Well, we're near
the end of our time.
714
00:27:28,913 --> 00:27:32,183
So anything you'd like
to add here to just sum up?
715
00:27:33,451 --> 00:27:35,387
Well, I appreciate
you having me on the show, Dan,
716
00:27:35,387 --> 00:27:37,822
and all these key,
key issues that are going on.
717
00:27:37,822 --> 00:27:38,723
I hope
718
00:27:38,723 --> 00:27:41,760
America takes a more pro-growth
policy approach moving forward.
719
00:27:41,860 --> 00:27:43,662
And I hope maybe some people
720
00:27:43,662 --> 00:27:45,964
check out my podcast
at at Advanced Income.
721
00:27:45,964 --> 00:27:47,499
You can check me out
or let people prosper.
722
00:27:47,499 --> 00:27:50,201
So wherever
they get their podcasts, well,
723
00:27:50,201 --> 00:27:51,302
I hope they do it.
724
00:27:51,302 --> 00:27:54,172
And thanks, Vance,
for coming on the show.
725
00:27:54,172 --> 00:27:56,241
And thank you all
for joining us.
726
00:27:56,241 --> 00:27:59,244
Join us again next time
for another E Conversations.
727
00:28:02,480 --> 00:28:04,649
This has been E Conversations,
728
00:28:04,649 --> 00:28:07,952
a joint production of Joy, Coach
Vision and Emmanuel H.
729
00:28:08,019 --> 00:28:11,089
Johnson Center for Political
Economy at four University.
00:00:00,266 --> 00:00:01,468
The opinions expressed on
2
00:00:01,468 --> 00:00:03,236
this program
represent the viewpoints
3
00:00:03,236 --> 00:00:05,538
of individual authors
or contributors
4
00:00:05,538 --> 00:00:08,575
and do not necessarily reflect
those of Troy University.
5
00:00:12,412 --> 00:00:14,614
This is E Conversations,
6
00:00:14,614 --> 00:00:18,084
a joint production of Troy
Television and the Manual H.
7
00:00:18,084 --> 00:00:20,754
Johnson Center
for Political Economy.
8
00:00:20,754 --> 00:00:22,655
Now, here's your host, Dr.
9
00:00:22,655 --> 00:00:25,658
Dan Sutter.
10
00:00:26,059 --> 00:00:28,395
Hello and welcome
to your conversations.
11
00:00:28,395 --> 00:00:29,362
I'm your host, Dr.
12
00:00:29,362 --> 00:00:30,964
Dan Souder of the Johnson Center
13
00:00:30,964 --> 00:00:33,633
for Political Economy
at Troy University.
14
00:00:33,633 --> 00:00:36,002
Political strategist
James Carville coined
15
00:00:36,002 --> 00:00:38,972
the memorable phrase, It's
the economy, stupid.
16
00:00:38,972 --> 00:00:42,675
During Bill Clinton's
1992 election campaign, economic
17
00:00:42,675 --> 00:00:45,678
conditions clearly impact
American elections.
18
00:00:45,745 --> 00:00:47,614
So how is the economy doing
as we head
19
00:00:47,614 --> 00:00:49,983
toward
our presidential election?
20
00:00:49,983 --> 00:00:52,552
The current state of the economy
seems more contentious
21
00:00:52,552 --> 00:00:56,089
than ever, as by some measures,
the economy is improving
22
00:00:56,222 --> 00:00:57,057
with inflation
23
00:00:57,057 --> 00:01:01,061
having fallen while GDP growth
was unexpectedly strong in 2023.
24
00:01:01,528 --> 00:01:04,064
Yet many Americans report
that they're struggling more
25
00:01:04,064 --> 00:01:05,465
than ever to make ends meet.
26
00:01:06,533 --> 00:01:08,768
Are some Americans
voicing their opposition
27
00:01:08,768 --> 00:01:09,602
to President Biden
28
00:01:09,602 --> 00:01:12,605
when they say that the economy
is doing poorly?
29
00:01:12,906 --> 00:01:15,909
Aggregate economic statistics
only tell part of the story.
30
00:01:16,076 --> 00:01:18,845
So today, only conversations
will be doing a deep dive
31
00:01:18,845 --> 00:01:21,414
into where the economy stands
today.
32
00:01:21,414 --> 00:01:24,717
Join me on the show today to
help dig into the numbers as Dr.
33
00:01:24,717 --> 00:01:25,652
Vance, again,
34
00:01:25,652 --> 00:01:28,855
the founder of and president
of Economic Consulting.
35
00:01:29,422 --> 00:01:32,025
Doctor, again, your bachelors
and doctoral degrees
36
00:01:32,025 --> 00:01:33,626
from Texas Tech University
37
00:01:33,626 --> 00:01:36,262
and taught at TAC
and Sam Houston State
38
00:01:36,262 --> 00:01:38,364
before moving into the public
policy world
39
00:01:38,364 --> 00:01:40,533
where he previously worked
for the Texas Public
40
00:01:40,533 --> 00:01:43,536
Policy Foundation
and the Pelican Institute
41
00:01:43,570 --> 00:01:45,205
and has also served
as an economist
42
00:01:45,205 --> 00:01:48,174
with the Office of Management
and Budget.
43
00:01:48,174 --> 00:01:51,444
He hosts the Let People
Prosper Podcast and serves
44
00:01:51,444 --> 00:01:52,412
as a research fellow
45
00:01:52,412 --> 00:01:55,415
with the American Institute
for Economic Research.
46
00:01:55,448 --> 00:01:57,150
Welcome
to you Conversations. Vance.
47
00:01:58,318 --> 00:02:00,820
Hey, Dad, it's
a pleasure to be with you today.
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00:02:00,820 --> 00:02:02,155
So let's get started here.
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00:02:02,155 --> 00:02:06,292
The we know a couple of years
ago, inflation
50
00:02:06,292 --> 00:02:07,594
hit a 40 year high.
51
00:02:07,594 --> 00:02:10,563
So we know that the economy
was not doing very well
52
00:02:10,563 --> 00:02:11,798
a couple of years ago.
53
00:02:11,798 --> 00:02:13,466
And in 2020, we had a huge
54
00:02:13,466 --> 00:02:16,569
spike in unemployment
due to the COVID recession.
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00:02:17,003 --> 00:02:18,972
But, you know,
let's take a look at whether
56
00:02:18,972 --> 00:02:20,206
where the numbers stand now,
57
00:02:20,206 --> 00:02:22,909
because it seems like
we're doing a little better.
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00:02:22,909 --> 00:02:23,576
you're right.
59
00:02:23,576 --> 00:02:25,078
So things have been looking
better.
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00:02:25,078 --> 00:02:29,582
And when you're looking
at the unemployment rate, 3.9%
61
00:02:29,582 --> 00:02:33,953
currently 3.2% inflation rate,
when you're looking at CPI,
62
00:02:33,953 --> 00:02:36,990
inflation, what you have
there is the misery index,
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00:02:36,990 --> 00:02:38,691
where you just add
those two together
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00:02:38,691 --> 00:02:41,461
showing 7.1%,
which kind of looks like
65
00:02:41,461 --> 00:02:43,029
the middle of the pack
right now.
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00:02:43,029 --> 00:02:45,965
When you go back
over the last 20, 30 years,
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00:02:45,965 --> 00:02:49,903
it's not quite as high,
of course, as it was in 2000,
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00:02:50,069 --> 00:02:50,503
whatever
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00:02:50,503 --> 00:02:54,741
we were during the pandemic
and the economic lockdowns
70
00:02:54,741 --> 00:02:56,209
and everything else
that happened during that
71
00:02:56,209 --> 00:03:00,079
period, as the unemployment rate
soared to about 14%,
72
00:03:00,380 --> 00:03:02,882
even though inflation stayed
closer to 2%,
73
00:03:02,882 --> 00:03:06,019
you were looking at 16,
17% misery index.
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00:03:06,152 --> 00:03:07,287
So today, from
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00:03:07,287 --> 00:03:09,189
that standard
of the misery index,
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00:03:09,189 --> 00:03:11,057
I think things are looking
better.
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00:03:11,057 --> 00:03:13,326
And that's
what Biden has talked about
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00:03:13,326 --> 00:03:15,728
during the State of the Union
and other situations.
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00:03:15,728 --> 00:03:16,930
The problem
is, is when you start
80
00:03:16,930 --> 00:03:18,631
looking at more of the details
81
00:03:18,631 --> 00:03:20,934
under the hood
of those highlights,
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00:03:20,934 --> 00:03:23,670
where you really start
to see more of the problems
83
00:03:23,670 --> 00:03:25,738
that I'm sure
we'll talk about today.
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00:03:25,738 --> 00:03:26,773
Yeah. Yeah.
85
00:03:26,773 --> 00:03:28,775
Here's
another way of looking at this.
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00:03:28,775 --> 00:03:29,676
The last one
87
00:03:29,676 --> 00:03:32,779
was a snapshot of the economy
where we stand now versus
88
00:03:32,946 --> 00:03:35,949
where we stood in February of
of those previous years.
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00:03:36,216 --> 00:03:39,485
Where we've done here is
it's just we have some things up
90
00:03:39,752 --> 00:03:41,421
over the president first
91
00:03:41,421 --> 00:03:44,424
three years essentially
of the presidential term.
92
00:03:44,424 --> 00:03:47,160
So we have the total increase
in the CPI
93
00:03:47,160 --> 00:03:48,962
and then the average
unemployment
94
00:03:48,962 --> 00:03:51,431
rates of unemployment
have been higher earlier
95
00:03:51,431 --> 00:03:52,298
and it's low now.
96
00:03:52,298 --> 00:03:53,566
We're catching that
97
00:03:53,566 --> 00:03:56,603
with an average over the entire
three years of the presidential
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00:03:56,970 --> 00:03:58,171
term.
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00:03:58,171 --> 00:04:01,374
So and here we see
a pretty markedly
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00:04:01,374 --> 00:04:04,444
different story compared to
our recent administrations.
101
00:04:05,478 --> 00:04:06,613
Well, that's right.
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00:04:06,613 --> 00:04:08,281
And I think what we've seen
is that
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00:04:08,281 --> 00:04:11,818
higher level of inflation
over the last three plus years
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00:04:11,818 --> 00:04:16,222
has really contributed to that
cumulative increase of 18.5%.
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00:04:16,456 --> 00:04:20,260
If you just look at January 20,
21 to now, basically
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00:04:20,260 --> 00:04:22,161
when Biden took office
until now,
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00:04:22,161 --> 00:04:22,395
you know,
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00:04:22,395 --> 00:04:24,364
average weekly earnings,
which I think is a good measure
109
00:04:24,364 --> 00:04:26,332
to look at
when you're looking at how much,
110
00:04:26,332 --> 00:04:29,135
how many, how much the people's
hourly wages are going up
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00:04:29,135 --> 00:04:30,336
or decreasing
112
00:04:30,336 --> 00:04:33,039
along with the number of hours
that they're working.
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00:04:33,039 --> 00:04:34,641
You look at the average weekly
earnings
114
00:04:34,641 --> 00:04:37,443
and what you see
is that adjusted for inflation,
115
00:04:37,443 --> 00:04:41,247
they're down 4.2%
since January of 2021.
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00:04:41,481 --> 00:04:45,084
That's also indicative of why
I think people are concerned
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00:04:45,351 --> 00:04:46,319
about the economy.
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00:04:46,319 --> 00:04:48,588
It's still one of the top
concerns that's out there.
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00:04:48,588 --> 00:04:51,691
Even as inflation has moderated,
inflation
120
00:04:51,691 --> 00:04:56,362
was close to 9% in October 2022,
not that long ago.
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00:04:56,496 --> 00:04:58,197
Now it's down closer to 3%.
122
00:04:58,197 --> 00:04:59,432
So it's moderated.
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00:04:59,432 --> 00:05:02,702
We also have to remember that
that is compounding over time,
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00:05:02,702 --> 00:05:05,471
which is where you get this
18.5% increase.
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00:05:05,471 --> 00:05:08,308
And average weekly
earnings have not kept pace.
126
00:05:08,308 --> 00:05:09,409
And that's not a good sign.
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00:05:09,409 --> 00:05:11,944
And it makes it more difficult
to put food on the table,
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00:05:11,944 --> 00:05:15,081
save for a rainy day
and do a lot of other things.
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00:05:15,348 --> 00:05:16,816
One thing we also saw, Dan
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00:05:16,816 --> 00:05:19,052
during COVID and everything else
where these checks
131
00:05:19,052 --> 00:05:21,187
that were sent out,
the plus ups with unemployment
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00:05:21,187 --> 00:05:23,289
insurance
that were increased by the
133
00:05:23,289 --> 00:05:24,590
by the federal government,
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00:05:24,590 --> 00:05:25,425
all that added
135
00:05:25,425 --> 00:05:29,495
to a lot more money in people's
for households and savings.
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00:05:29,529 --> 00:05:31,064
Excess savings,
what it's called,
137
00:05:31,064 --> 00:05:33,166
increased
dramatically during that period
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00:05:33,166 --> 00:05:35,335
that is now being depleted
quickly
139
00:05:35,335 --> 00:05:37,704
because inflation has gone up
so high
140
00:05:37,704 --> 00:05:39,906
and people are having
to use more of that income
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00:05:39,906 --> 00:05:41,441
when all that goes away, Dan,
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00:05:41,441 --> 00:05:43,242
it's going to be interesting
to see what happens
143
00:05:43,242 --> 00:05:45,144
to consumption, to investment
144
00:05:45,144 --> 00:05:46,713
and whether or not
people want to work
145
00:05:46,713 --> 00:05:48,881
because they've been able
to rely on a lot of that
146
00:05:48,881 --> 00:05:51,250
excess savings
over the last couple of years.
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00:05:51,250 --> 00:05:54,153
And that'll put them in a much
worse situation.
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00:05:54,153 --> 00:05:54,887
Yes, it's
149
00:05:54,887 --> 00:05:55,221
sort of
150
00:05:55,221 --> 00:05:58,691
those extra savings is provide
a little bit of a buffer here.
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00:05:58,691 --> 00:06:02,528
But I think those who have that
buffer have pretty much
152
00:06:02,662 --> 00:06:03,930
expended it at this point.
153
00:06:03,930 --> 00:06:06,933
But if we look a little bit
farther, I mean, certainly,
154
00:06:06,933 --> 00:06:10,236
you know, the stock markets,
this is the Dow Jones
155
00:06:10,236 --> 00:06:11,170
Industrial Average,
156
00:06:11,170 --> 00:06:12,338
but the stock markets
157
00:06:12,338 --> 00:06:15,675
tend to be doing
pretty well as as well.
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00:06:15,675 --> 00:06:20,213
They've all in the last couple
of days here reached new highs.
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00:06:20,913 --> 00:06:24,183
So the stock market is another
area where you sort of certainly
160
00:06:24,183 --> 00:06:28,721
we don't have a stock market
crash going on or anything
161
00:06:28,921 --> 00:06:30,323
horribly, terribly
162
00:06:30,323 --> 00:06:33,326
wrong going on in the stock
market at this point.
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00:06:33,426 --> 00:06:34,293
All right.
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00:06:34,293 --> 00:06:35,628
Yeah, that's right.
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00:06:35,628 --> 00:06:37,864
I mean, here recently
we've seen it break out of the
166
00:06:37,864 --> 00:06:39,866
the trend that had been
for a while
167
00:06:39,866 --> 00:06:42,101
as you kind of see it going
kind of flat for that
168
00:06:42,101 --> 00:06:43,603
in that in that chart.
169
00:06:43,603 --> 00:06:46,706
And now it's come up here
recently And, you know,
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00:06:47,573 --> 00:06:49,776
we've hit at record
highs in nominal terms,
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00:06:49,776 --> 00:06:51,644
although if you adjusted
for inflation,
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00:06:51,644 --> 00:06:53,546
I think we've still got
a little bit of ways to go.
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00:06:53,546 --> 00:06:56,082
But it's it's it's near
the top either way.
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00:06:56,082 --> 00:06:57,683
But the question to me, though,
Dan, too,
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00:06:57,683 --> 00:07:00,153
is to look at the underlying
fundamentals of the economy.
176
00:07:00,153 --> 00:07:03,156
What have been the profitability
of many of these firms?
177
00:07:03,222 --> 00:07:04,991
Profits haven't been as great.
178
00:07:04,991 --> 00:07:08,127
And if profit is the mother's
milk, if you will, of
179
00:07:08,194 --> 00:07:09,128
the stock market,
180
00:07:09,128 --> 00:07:12,665
then how why are we going
so high on this on these stocks?
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00:07:12,832 --> 00:07:14,200
And I think a big part of that
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00:07:14,200 --> 00:07:16,035
has to do
with the Federal Reserve.
183
00:07:16,035 --> 00:07:17,470
You have to
look at what Congress did
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00:07:17,470 --> 00:07:18,805
with running up
massive deficits.
185
00:07:18,805 --> 00:07:22,141
The debt is increased by
about $10 trillion since 2020.
186
00:07:22,308 --> 00:07:24,110
So that was under Trump
and Biden.
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00:07:24,110 --> 00:07:26,412
We've got a lot of excess
spending going on.
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00:07:26,412 --> 00:07:28,381
But then when you look at
what the Federal Reserve
189
00:07:28,381 --> 00:07:30,983
did, their balance sheet,
our central bank's balance sheet
190
00:07:30,983 --> 00:07:33,953
increased from $4 trillion
before the pandemic
191
00:07:34,120 --> 00:07:36,022
to $9 trillion,
192
00:07:36,022 --> 00:07:38,524
and now it's down to about seven
and a half trillion dollars.
193
00:07:38,524 --> 00:07:41,227
But it's still nearly double
what it was before the pandemic.
194
00:07:41,227 --> 00:07:42,829
So there's a lot of liquidity
and money
195
00:07:42,829 --> 00:07:44,464
that's going
into all these markets.
196
00:07:44,464 --> 00:07:45,231
And if you don't want it
197
00:07:45,231 --> 00:07:47,333
in the housing market,
if you don't want it in
198
00:07:47,333 --> 00:07:49,836
other assets that are out there
and you want to put something
199
00:07:49,836 --> 00:07:51,404
where you want to get
a rate of return,
200
00:07:51,404 --> 00:07:53,573
you look at the stock market
and I think that's why the Dow
201
00:07:53,573 --> 00:07:57,443
Jones, the S&P 500, the NASDAQ,
the major indices have hit
202
00:07:57,443 --> 00:07:59,212
these record highs here
recently.
203
00:07:59,212 --> 00:08:00,847
But one of the things
that I'm concerned about
204
00:08:00,847 --> 00:08:04,116
is the price to earnings ratio,
the p e ratios, which
205
00:08:04,684 --> 00:08:05,651
give you an indication
206
00:08:05,651 --> 00:08:07,753
of whether or not
they're overpriced
207
00:08:07,753 --> 00:08:09,655
or if there are bubbles
and things of that nature.
208
00:08:09,655 --> 00:08:10,223
Historically,
209
00:08:10,223 --> 00:08:12,592
they've been somewhere
in the range of 16 to 18,
210
00:08:12,592 --> 00:08:13,793
and now they've been running
211
00:08:13,793 --> 00:08:16,095
above 24
for quite a while, actually.
212
00:08:16,095 --> 00:08:18,097
And so that is a concern
that I think we have
213
00:08:18,097 --> 00:08:19,599
with the stock market,
is that the earnings
214
00:08:19,599 --> 00:08:21,901
are not keeping pace
with these stock prices,
215
00:08:21,901 --> 00:08:25,538
which could indicate, you know,
slower prices or lower prices
216
00:08:25,538 --> 00:08:26,572
in the near future.
217
00:08:26,572 --> 00:08:29,575
Well,
and that would be important for
218
00:08:29,675 --> 00:08:31,210
people who have their savings
219
00:08:31,210 --> 00:08:34,680
now in the stock market, if
the stock market is overpriced.
220
00:08:35,014 --> 00:08:38,384
Now, as we get into
when you know,
221
00:08:38,551 --> 00:08:41,554
although the numbers overall
are not looking,
222
00:08:42,121 --> 00:08:43,623
you know, not looking bad,
223
00:08:43,623 --> 00:08:45,892
when we look
at the overall numbers,
224
00:08:45,892 --> 00:08:49,195
one thing is troubling
is that a distressing
225
00:08:49,195 --> 00:08:51,898
percentage of Americans
are saying
226
00:08:51,898 --> 00:08:54,667
that they think the economy
is doing badly or saying
227
00:08:54,667 --> 00:08:57,270
that they're having a hard time
making ends meet.
228
00:08:57,270 --> 00:08:58,037
And this is
229
00:08:58,037 --> 00:09:01,541
just a couple of calls
from the Pew Research Center,
230
00:09:01,541 --> 00:09:04,710
but it's you see this
in a number of different polls.
231
00:09:04,710 --> 00:09:07,547
It wasn't just like picking
one out,
232
00:09:07,547 --> 00:09:10,182
one poll
here to get this result.
233
00:09:10,182 --> 00:09:12,718
So talk a little bit about
this and like, you know,
234
00:09:13,753 --> 00:09:16,923
I guess, are Americans seeing
something that isn't there
235
00:09:16,923 --> 00:09:21,227
or that isn't showing up
in the aggregate statistics
236
00:09:21,227 --> 00:09:24,230
or what
do you think's going on here?
237
00:09:24,597 --> 00:09:26,365
Yeah, Dan,
I think that's a great point.
238
00:09:26,365 --> 00:09:27,533
And you're right,
239
00:09:27,533 --> 00:09:28,734
you're not cherry
picking the data
240
00:09:28,734 --> 00:09:31,404
because a lot of polls are
showing the same results here.
241
00:09:31,404 --> 00:09:33,706
And so whatever I'm looking at
242
00:09:33,706 --> 00:09:36,042
and you're
looking at the headline numbers
243
00:09:36,042 --> 00:09:39,045
that come out, you know,
it shows 250,000 jobs created.
244
00:09:39,178 --> 00:09:41,314
The unemployment rate, 3.9%.
245
00:09:41,314 --> 00:09:44,250
All of these things, I think,
can make things look good.
246
00:09:44,250 --> 00:09:45,651
But whenever you start
pulling people,
247
00:09:45,651 --> 00:09:47,386
asking them how they're doing,
248
00:09:47,386 --> 00:09:49,589
they're indicating that
this is not a good situation.
249
00:09:49,589 --> 00:09:51,157
And so even though that misery
index
250
00:09:51,157 --> 00:09:52,858
that we talked about earlier
is, you know,
251
00:09:52,858 --> 00:09:55,227
about middle of the pack, maybe
it's kind of average right now.
252
00:09:55,227 --> 00:09:58,230
We'd like for it to be lower.
253
00:09:58,230 --> 00:09:59,432
But there's something else
254
00:09:59,432 --> 00:10:01,601
that's happening
to people's incomes
255
00:10:01,601 --> 00:10:03,803
and their way of life,
their livelihoods.
256
00:10:03,803 --> 00:10:06,172
That's not reflected
in those numbers.
257
00:10:06,172 --> 00:10:09,175
And I think that's where it goes
back into the situation of
258
00:10:09,208 --> 00:10:10,343
the inflation
259
00:10:10,343 --> 00:10:14,947
that's been compounding over
time, where their real average
260
00:10:14,947 --> 00:10:18,651
weekly earnings are down 4.2%
since January of 2021.
261
00:10:18,651 --> 00:10:21,020
They just can't buy
as much as they could before.
262
00:10:21,020 --> 00:10:22,722
You have other things.
263
00:10:22,722 --> 00:10:25,091
Other prices
keep going up at a faster clip.
264
00:10:25,091 --> 00:10:27,193
You have many people who are
still sitting on the sidelines.
265
00:10:27,193 --> 00:10:30,196
Is the labor force participation
rate continues to struggle
266
00:10:30,196 --> 00:10:31,397
across the economy.
267
00:10:31,397 --> 00:10:32,999
I think that's
another big part of this.
268
00:10:32,999 --> 00:10:34,934
And finally,
269
00:10:34,934 --> 00:10:38,237
I think people are concerned
about their jobs for the future.
270
00:10:38,371 --> 00:10:39,572
One of the things you look at
271
00:10:39,572 --> 00:10:41,207
is the non-farm payroll job
272
00:10:41,207 --> 00:10:44,043
show, 250,
300,000 jobs added per month
273
00:10:44,043 --> 00:10:45,645
when you look
at the household survey.
274
00:10:45,645 --> 00:10:47,480
Those have actually been
declining.
275
00:10:47,480 --> 00:10:50,483
Jobs have been declining
in four of the last five months.
276
00:10:50,616 --> 00:10:52,551
And so that also indicates
why people are
277
00:10:52,551 --> 00:10:53,919
concerned about the economy.
278
00:10:55,221 --> 00:10:57,256
Well, another possibility,
279
00:10:57,256 --> 00:10:59,759
you know, certainly
Paul Krugman and some other
280
00:10:59,759 --> 00:11:02,762
prominent commentators
have raised this possibility.
281
00:11:03,095 --> 00:11:04,797
There's a pretty strong
partizan divide
282
00:11:04,797 --> 00:11:07,400
when you look a little bit
deeper into those surveys
283
00:11:07,400 --> 00:11:10,970
as some additional numbers
from the Pew folks out.
284
00:11:11,237 --> 00:11:12,805
But again,
this is representative
285
00:11:12,805 --> 00:11:14,907
what you see
with a lot of the polls
286
00:11:14,907 --> 00:11:17,143
that, you know,
when you ask Democrats,
287
00:11:17,143 --> 00:11:20,479
about 44% of Democrats
think the economy is doing
288
00:11:20,479 --> 00:11:21,781
excellent or good,
289
00:11:21,781 --> 00:11:24,417
but only about 12%
of Republicans rate it that way.
290
00:11:24,417 --> 00:11:25,384
And that gives us about
291
00:11:25,384 --> 00:11:29,722
an average overall, about 28%,
which isn't particularly high.
292
00:11:29,922 --> 00:11:32,925
But this divergence
is pretty significant.
293
00:11:32,958 --> 00:11:34,560
You know,
it does raise the question,
294
00:11:34,560 --> 00:11:36,629
as I mentioned,
that some economists
295
00:11:36,629 --> 00:11:40,066
have been speculating about
maybe Republicans just don't
296
00:11:40,066 --> 00:11:43,669
like Biden, and it's maybe it's
wishful thinking or projection
297
00:11:43,869 --> 00:11:46,872
for them to think, the economy's
doing so terrible.
298
00:11:47,006 --> 00:11:49,408
But they are. They are.
299
00:11:49,408 --> 00:11:52,011
I personally think that there is
some objective
300
00:11:52,011 --> 00:11:52,611
truth out there.
301
00:11:52,611 --> 00:11:54,814
So we we do need to
look at these numbers.
302
00:11:54,814 --> 00:11:58,784
And if it was only in the hands
of Republican voters, that
303
00:11:58,818 --> 00:12:01,821
those who think that the economy
is doing bad, you know,
304
00:12:02,221 --> 00:12:03,622
I guess
we would want to dismiss that.
305
00:12:03,622 --> 00:12:04,523
But that's what we've got to dig
306
00:12:04,523 --> 00:12:07,359
into these numbers
a little bit more here, right?
307
00:12:07,359 --> 00:12:08,561
Well, yeah,
that's exactly right.
308
00:12:08,561 --> 00:12:11,664
Dan, one of things that I would
highlight from that survey
309
00:12:11,664 --> 00:12:15,201
you just put out there
was only 44, 44% of Democrats
310
00:12:15,501 --> 00:12:16,869
think it's excellent or good.
311
00:12:16,869 --> 00:12:18,471
So, yes,
it's down to Republicans.
312
00:12:18,471 --> 00:12:19,672
So that may be a reason
313
00:12:19,672 --> 00:12:21,373
for politics and everything else
that's going on.
314
00:12:21,373 --> 00:12:22,641
But even the Democrats
are saying
315
00:12:22,641 --> 00:12:25,678
that less than a majority of
the Democrats are saying
316
00:12:25,878 --> 00:12:28,514
that this is not an excellent
or great economy.
317
00:12:28,514 --> 00:12:29,715
And so I think that's reflective
318
00:12:29,715 --> 00:12:32,051
of a lot of the discussion
that we were having here today
319
00:12:32,051 --> 00:12:34,220
is we've got to look underneath
the headlines.
320
00:12:34,220 --> 00:12:35,287
That's great.
321
00:12:35,287 --> 00:12:36,889
Well, what we see on TV,
322
00:12:36,889 --> 00:12:38,090
but let's make sure
we actually see the
323
00:12:38,090 --> 00:12:39,925
what the facts are behind that.
324
00:12:39,925 --> 00:12:42,361
Other parts of the labor
market has also been that
325
00:12:42,361 --> 00:12:45,097
people are working
more part time than full time
326
00:12:45,097 --> 00:12:46,932
and they're taking on multiple
jobs.
327
00:12:46,932 --> 00:12:48,467
That's also not a good situation
328
00:12:48,467 --> 00:12:50,169
for a lot of
families across the country.
329
00:12:51,203 --> 00:12:52,104
Well,
330
00:12:52,104 --> 00:12:53,672
what do you do, Joe, to
331
00:12:53,672 --> 00:12:56,008
jump off here
is that when we think about the
332
00:12:56,008 --> 00:12:58,611
CPI particularly,
that's an average.
333
00:12:58,611 --> 00:13:03,282
And so, you know, they're trying
to measure the market basket.
334
00:13:03,282 --> 00:13:05,551
They're taking a market
basket of goods,
335
00:13:05,551 --> 00:13:07,353
but that's like one
sort of standard
336
00:13:07,353 --> 00:13:09,421
or typical market basket.
337
00:13:09,421 --> 00:13:11,357
And not all prices
go up at the same rate.
338
00:13:11,357 --> 00:13:12,892
So that means that
339
00:13:12,892 --> 00:13:14,059
if you want to think about
340
00:13:14,059 --> 00:13:17,863
the fact of the inflation rate
that some people face
341
00:13:18,063 --> 00:13:21,233
is going to be different
from that average CPI number.
342
00:13:21,233 --> 00:13:24,236
So to talk a little bit
more about this for us.
343
00:13:25,104 --> 00:13:26,338
Yeah, that's a great point.
344
00:13:26,338 --> 00:13:29,775
And you know, the CPI,
the Consumer Price Index,
345
00:13:29,775 --> 00:13:30,843
is this basket.
346
00:13:30,843 --> 00:13:31,410
They go out
347
00:13:31,410 --> 00:13:32,011
and they
348
00:13:32,011 --> 00:13:32,545
they measure
349
00:13:32,545 --> 00:13:36,382
about 60,000 goods services they
put into this overall basket.
350
00:13:36,615 --> 00:13:38,584
And they do this
on a monthly basis.
351
00:13:38,584 --> 00:13:41,654
They have a base year
of 1982, 84.
352
00:13:41,821 --> 00:13:43,589
And we know that a lot of things
have changed since then.
353
00:13:43,589 --> 00:13:45,257
So there's different biases
that are involved
354
00:13:45,257 --> 00:13:47,193
substitution, bias, income bias.
355
00:13:47,193 --> 00:13:49,495
There's different ones
that that are part of this.
356
00:13:49,495 --> 00:13:51,964
But it does
at least give us something
357
00:13:51,964 --> 00:13:54,099
to be able to look at
what the changes are over
358
00:13:54,099 --> 00:13:55,501
time for this
359
00:13:55,501 --> 00:13:58,370
basket of goods and services,
even if it is an average.
360
00:13:58,370 --> 00:14:01,674
But there certainly has been
increases in food and energy.
361
00:14:01,774 --> 00:14:02,908
Some of those are coming down
362
00:14:02,908 --> 00:14:05,044
now, which is bringing down
the headline number.
363
00:14:05,044 --> 00:14:07,580
But even the core CPI.
So exclude food and energy.
364
00:14:07,580 --> 00:14:08,747
So you just look at the more
365
00:14:08,747 --> 00:14:11,951
stable prices,
those are up nearly 4%.
366
00:14:12,351 --> 00:14:14,053
And what does this really
matter?
367
00:14:14,053 --> 00:14:18,023
Will the Federal Reserve has
a target inflation rate of 2%.
368
00:14:18,023 --> 00:14:18,691
Now they like to look
369
00:14:18,691 --> 00:14:20,926
at the personal consumption
expenditures index,
370
00:14:20,926 --> 00:14:22,528
a different measure
of inflation,
371
00:14:22,528 --> 00:14:24,430
which is also running around 3%.
372
00:14:24,430 --> 00:14:27,399
But regardless,
all the inflation measures are
373
00:14:27,399 --> 00:14:29,568
running well above 2%
374
00:14:29,568 --> 00:14:31,437
and some are saying
they're going to cut
375
00:14:31,437 --> 00:14:33,439
interest rates
about three times this year.
376
00:14:33,439 --> 00:14:35,908
I think that's very optimistic
377
00:14:35,908 --> 00:14:38,477
because inflation has continued
to run hotter
378
00:14:38,477 --> 00:14:39,812
and over
the last couple of months,
379
00:14:39,812 --> 00:14:43,182
the rate of inflation
annualized has been close to 7%.
380
00:14:43,582 --> 00:14:45,551
So I think we've got a lot
of other problems
381
00:14:45,551 --> 00:14:46,886
within this
inflationary picture,
382
00:14:46,886 --> 00:14:48,387
which is not reflected by
383
00:14:48,387 --> 00:14:51,390
the data, the statistics
that you put up on the screen.
384
00:14:51,457 --> 00:14:53,525
And one reason why
I still have a lot of concern
385
00:14:53,525 --> 00:14:55,661
for what's going
on, the future of the economy.
386
00:14:55,661 --> 00:14:56,896
If they can't cut
387
00:14:56,896 --> 00:14:59,298
interest rates as fast
or as much this year,
388
00:14:59,298 --> 00:15:01,066
what's that going to do
in the stock market?
389
00:15:01,066 --> 00:15:01,467
What's going to be
390
00:15:01,467 --> 00:15:03,602
that's a mortgage
mortgage market and other things
391
00:15:03,602 --> 00:15:05,371
that are going to be reflective
in a slower
392
00:15:05,371 --> 00:15:09,475
economy and less economic growth
and fewer jobs being provided?
393
00:15:10,442 --> 00:15:12,511
Well,
those are excellent points.
394
00:15:12,511 --> 00:15:16,582
And one other thing I'd add in
there is that we've seen a lot
395
00:15:16,582 --> 00:15:19,018
of inflation
in food and energy,
396
00:15:19,018 --> 00:15:20,586
especially over
the last three years.
397
00:15:20,586 --> 00:15:22,655
Those are a couple of the areas
that have been the highest.
398
00:15:22,655 --> 00:15:25,624
And the statistics, consumption
statistics show
399
00:15:25,624 --> 00:15:28,761
that lower income Americans
spend a higher percentage
400
00:15:28,761 --> 00:15:32,798
touch of their
budget on food and energy.
401
00:15:32,798 --> 00:15:34,099
So that's one thing.
402
00:15:34,099 --> 00:15:34,833
Yeah,
403
00:15:34,833 --> 00:15:36,735
there are some reasons
for excluding that
404
00:15:36,735 --> 00:15:40,539
for like the core inflation,
but for for many Americans,
405
00:15:40,539 --> 00:15:42,541
lower income Americans
especially,
406
00:15:42,541 --> 00:15:44,410
who probably don't have
the extra savings
407
00:15:44,410 --> 00:15:46,312
to afford somewhat
higher prices
408
00:15:46,312 --> 00:15:48,681
they're facing, if anything up
probably a little bit.
409
00:15:48,681 --> 00:15:51,517
They've faced a little bit
more inflation over the last
410
00:15:51,517 --> 00:15:55,287
three years than their 89.5%
run up as on.
411
00:15:56,221 --> 00:15:57,589
Yes, exactly right.
412
00:15:57,589 --> 00:15:59,425
And I think another thing, too,
Dan, that
413
00:15:59,425 --> 00:15:59,692
I know
414
00:15:59,692 --> 00:16:01,961
you looked at some of this
and I have as well, is
415
00:16:01,961 --> 00:16:03,062
of course, it's also different
416
00:16:03,062 --> 00:16:04,163
depending on which state
you're in.
417
00:16:04,163 --> 00:16:06,298
Yeah, I'm in Texas now.
418
00:16:06,298 --> 00:16:07,333
You're in Alabama.
419
00:16:07,333 --> 00:16:09,702
That's going to have slower
growth rates
420
00:16:09,702 --> 00:16:11,470
and the cost of living
this basket
421
00:16:11,470 --> 00:16:13,806
than places like California
and New York. Right.
422
00:16:13,806 --> 00:16:15,441
And then we wonder
why people are moving with
423
00:16:15,441 --> 00:16:19,278
their feet for those high tech,
high cost of living places
424
00:16:19,378 --> 00:16:20,813
to places that are cheaper
425
00:16:20,813 --> 00:16:23,949
and have lower income taxes
and other deregulation
426
00:16:23,949 --> 00:16:24,750
and things of that nature.
427
00:16:25,851 --> 00:16:26,185
We've
428
00:16:26,185 --> 00:16:29,421
already mentioned that once
we have inflation,
429
00:16:29,421 --> 00:16:31,457
especially
a good amount of inflation,
430
00:16:31,457 --> 00:16:33,525
you really have to look at
whether we call real
431
00:16:33,525 --> 00:16:37,796
or inflation adjusted income as
opposed to just nominal income.
432
00:16:37,896 --> 00:16:40,399
And here we can
see some numbers
433
00:16:40,399 --> 00:16:41,934
reflecting
what we've already talked about,
434
00:16:41,934 --> 00:16:44,937
how over the last
couple of years
435
00:16:45,237 --> 00:16:47,673
wages haven't been keeping up
with inflation.
436
00:16:47,673 --> 00:16:49,408
But one thing
I just want to add to this
437
00:16:49,408 --> 00:16:52,411
is that some research
from the Federal Reserve banks
438
00:16:52,778 --> 00:16:56,181
show that like in 2022,
there is about 10 to
439
00:16:56,181 --> 00:16:59,385
15% of Americans didn't
really get any raise at all.
440
00:16:59,785 --> 00:17:01,053
And with inflation,
441
00:17:01,053 --> 00:17:02,821
with the level
where it was that year,
442
00:17:02,821 --> 00:17:05,190
if you were one of the Americans
who didn't get any
443
00:17:05,190 --> 00:17:08,894
raise and inflation overall
was at least 7% for the year,
444
00:17:09,228 --> 00:17:12,364
and that's a really big cut
in your real income,
445
00:17:12,931 --> 00:17:15,934
then inflation means your real
incomes going down that much.
446
00:17:15,934 --> 00:17:16,935
And that's a pretty
447
00:17:16,935 --> 00:17:20,272
that's a pretty hefty
reduction for some folks.
448
00:17:21,874 --> 00:17:23,375
Yeah, it really is.
449
00:17:23,375 --> 00:17:25,310
And especially it hurts
the poorest
450
00:17:25,310 --> 00:17:28,313
among us
the most as their inflation
451
00:17:28,414 --> 00:17:31,517
goes up all around them
and then their pay is more fixed
452
00:17:31,517 --> 00:17:33,619
if they're getting
any pay increase at all.
453
00:17:33,619 --> 00:17:35,587
And so that really hurts them
even more.
454
00:17:35,587 --> 00:17:37,756
So as we're talking about
some of these averages,
455
00:17:37,756 --> 00:17:40,893
like even mine
earlier, of the 4.2% reduction
456
00:17:40,893 --> 00:17:44,263
in real average weekly earnings
since January of 2021,
457
00:17:44,430 --> 00:17:45,497
of course, that's an average
458
00:17:45,497 --> 00:17:47,633
that for the average person
that's out there.
459
00:17:47,633 --> 00:17:48,167
So there are many,
460
00:17:48,167 --> 00:17:51,937
many more that have been
that seeing their wages
461
00:17:52,438 --> 00:17:55,074
be deflated,
their purchasing power go down
462
00:17:55,074 --> 00:17:58,077
tremendously because their wages
are increasing at all.
463
00:17:58,243 --> 00:17:59,945
And so this is a major problem.
464
00:17:59,945 --> 00:18:02,081
It's another reason why, though,
Dan, that many people over
465
00:18:02,081 --> 00:18:05,384
the last few years have been
switching jobs so frequently.
466
00:18:05,451 --> 00:18:09,021
A number of one reason
why is inflation.
467
00:18:09,021 --> 00:18:10,222
Well,
they're not seeing an increase
468
00:18:10,222 --> 00:18:11,190
in the job that they're in,
469
00:18:11,190 --> 00:18:12,391
so they're going to go somewhere
else.
470
00:18:12,391 --> 00:18:12,591
Right.
471
00:18:12,591 --> 00:18:14,726
Well, that also has
a higher transaction cost
472
00:18:14,726 --> 00:18:16,295
for each one of those employers.
473
00:18:16,295 --> 00:18:18,397
They're now having to hire
additional worker
474
00:18:18,397 --> 00:18:20,365
and train them
and everything else.
475
00:18:20,365 --> 00:18:23,902
And then that raises the prices
that we pay at the same time.
476
00:18:24,069 --> 00:18:26,004
So there are many factors
at play.
477
00:18:26,004 --> 00:18:27,673
And then I don't know
where you were
478
00:18:27,673 --> 00:18:29,541
this about,
you know, four years ago,
479
00:18:29,541 --> 00:18:33,011
but we had the where we had
the pandemic and the lockdowns
480
00:18:33,011 --> 00:18:33,679
and everything else.
481
00:18:33,679 --> 00:18:35,547
There were a lot of economists
that were talking about a
482
00:18:35,547 --> 00:18:36,815
transitory inflation.
483
00:18:36,815 --> 00:18:39,485
I'm doing air quotes
here, but transitory inflation.
484
00:18:39,485 --> 00:18:41,553
And I think that made some sense
early
485
00:18:41,553 --> 00:18:43,755
on because of the supply chain
disruptions.
486
00:18:43,755 --> 00:18:46,925
The idea was once the supply
chains came back online
487
00:18:47,092 --> 00:18:48,861
that inflation would go down,
488
00:18:48,861 --> 00:18:50,462
maybe even have
some deflation, prices
489
00:18:50,462 --> 00:18:53,065
would go back
to some sort of price stability.
490
00:18:53,065 --> 00:18:55,300
But the problem was that
there were so many other factors
491
00:18:55,300 --> 00:18:58,170
at play with massive deficits
by Congress,
492
00:18:58,170 --> 00:19:00,072
by the Fed,
printing so much money,
493
00:19:00,072 --> 00:19:02,141
too much money, chasing too
few goods,
494
00:19:02,141 --> 00:19:04,042
you're going to have longer
term inflation.
495
00:19:04,042 --> 00:19:06,111
So I was always
in the persistent inflation
496
00:19:06,111 --> 00:19:08,580
camp, which I got a lot of bad
rap for a little while.
497
00:19:08,580 --> 00:19:11,283
But I think that it's important
for us to understand
498
00:19:11,283 --> 00:19:13,785
the dynamics of inflation
and the economy
499
00:19:13,785 --> 00:19:15,554
and not just look at one off
things
500
00:19:15,554 --> 00:19:18,056
like supply shocks
or something else.
501
00:19:18,056 --> 00:19:20,726
But you mentioned
the supply chain disruptions.
502
00:19:20,726 --> 00:19:23,428
And that's another reason
why we you know,
503
00:19:23,428 --> 00:19:27,232
the perhaps the CPI numbers,
they were at a 40 high, 40 year
504
00:19:27,232 --> 00:19:27,866
high,
505
00:19:27,866 --> 00:19:29,134
but they
they might not have been
506
00:19:29,134 --> 00:19:32,004
telling the whole story
because there is
507
00:19:32,004 --> 00:19:34,072
there are real costs
when goods aren't
508
00:19:34,072 --> 00:19:36,875
actually available,
even at a higher price. Right.
509
00:19:38,243 --> 00:19:39,011
Exactly right.
510
00:19:39,011 --> 00:19:42,614
And recently there was a
good paper out by Larry Summers,
511
00:19:42,781 --> 00:19:45,150
who was in the Clinton
administration.
512
00:19:45,150 --> 00:19:47,152
He also did some work
in the Obama administration.
513
00:19:47,152 --> 00:19:50,889
So more of a left of center,
if you will, in a lot of ways.
514
00:19:51,023 --> 00:19:52,558
And his research
515
00:19:52,558 --> 00:19:56,295
showed that if we use
the same sort of CPI basket,
516
00:19:56,295 --> 00:19:57,596
because they change it up
over time
517
00:19:57,596 --> 00:19:59,364
with different weights
and things of that nature,
518
00:19:59,364 --> 00:20:01,166
if it was the same as
what would they had been doing
519
00:20:01,166 --> 00:20:02,868
using back to the 1980s,
520
00:20:02,868 --> 00:20:03,702
inflation
521
00:20:03,702 --> 00:20:03,902
would have
522
00:20:03,902 --> 00:20:05,771
been higher than the 9%,
523
00:20:05,771 --> 00:20:08,240
it would have been closer to 12
or 13%.
524
00:20:08,240 --> 00:20:10,943
So that may better reflect
the cost that we're paying.
525
00:20:10,943 --> 00:20:11,944
And why is that?
526
00:20:11,944 --> 00:20:15,981
Well, it's because today CPI
doesn't include interest rates.
527
00:20:16,415 --> 00:20:18,684
It doesn't
include the other costs
528
00:20:18,684 --> 00:20:21,420
that we're seeing for credit
card debt, for mortgage debt.
529
00:20:21,420 --> 00:20:22,821
It just looks at the rate
530
00:20:22,821 --> 00:20:25,257
the imputed rent that you're
paying on your mortgage,
531
00:20:25,257 --> 00:20:27,826
not the higher interest rates
that are associated with that.
532
00:20:27,826 --> 00:20:30,262
So it keeps the inflation
rate lower
533
00:20:30,262 --> 00:20:31,964
than what it otherwise would be,
meaning
534
00:20:31,964 --> 00:20:33,899
the cost of that basket
is going to be lower
535
00:20:33,899 --> 00:20:35,334
than what it otherwise would be.
536
00:20:35,334 --> 00:20:37,302
And so I think this is also more
reflective
537
00:20:37,302 --> 00:20:39,371
of what people
are feeling on the ground.
538
00:20:39,371 --> 00:20:42,474
And yes, the supply
chain disruptions were costly
539
00:20:42,474 --> 00:20:45,544
and hit us pretty hard
and they came back online.
540
00:20:45,711 --> 00:20:49,881
But remember, many countries
didn't open up four years later.
541
00:20:49,881 --> 00:20:51,783
In fact, China shut down
542
00:20:51,783 --> 00:20:53,151
multiple times
543
00:20:53,151 --> 00:20:56,321
and that restricted the supply
chains across the country.
544
00:20:56,555 --> 00:20:58,824
What did America do?
We switched to other countries.
545
00:20:58,824 --> 00:21:01,927
We buy a lot more from Taiwan,
Vietnam, other places
546
00:21:01,927 --> 00:21:04,930
that were kept more in line
at a lower cost.
547
00:21:05,030 --> 00:21:06,932
And it's one reason
why I think it's so important
548
00:21:06,932 --> 00:21:09,434
for us to keep looking
at our corporate income tax.
549
00:21:09,434 --> 00:21:10,502
The Biden administration
550
00:21:10,502 --> 00:21:13,605
came out recently to say
to raise it from 21 to 28%,
551
00:21:13,739 --> 00:21:15,907
which would make us less
competitive in the world.
552
00:21:15,907 --> 00:21:18,243
Well, we had reduced it
in the Trump administration
553
00:21:18,243 --> 00:21:21,647
from 35%, which was the highest
in the developed world, to 21%,
554
00:21:21,647 --> 00:21:24,149
which is about the
developed world's average.
555
00:21:24,149 --> 00:21:25,851
So if we start raising
that again,
556
00:21:25,851 --> 00:21:27,219
we're going
to have even more incentive
557
00:21:27,219 --> 00:21:29,054
for businesses
to move elsewhere.
558
00:21:29,054 --> 00:21:31,023
Instead of having
more production here at home.
559
00:21:32,691 --> 00:21:33,425
Just why we
560
00:21:33,425 --> 00:21:36,495
mention one more thing here,
because the baby formula
561
00:21:36,495 --> 00:21:40,432
shortage
was really terrible for parents
562
00:21:40,432 --> 00:21:42,367
with young children
needing a formula.
563
00:21:42,367 --> 00:21:43,602
But I think it also story
564
00:21:43,602 --> 00:21:46,738
shows here
that when a good isn't available
565
00:21:47,506 --> 00:21:50,542
either, the price
that enters into the CPI
566
00:21:50,542 --> 00:21:51,843
becomes a little bit misleading
567
00:21:51,843 --> 00:21:52,411
because
568
00:21:52,411 --> 00:21:55,914
the CPI is sort of presuming
that the good is available there
569
00:21:55,914 --> 00:21:59,017
for a purchase at that price
and when it's not available at
570
00:21:59,017 --> 00:22:02,688
all, that's a that's pain
or real hardship
571
00:22:03,121 --> 00:22:05,991
that people face,
that they're simply being left
572
00:22:05,991 --> 00:22:07,726
out of of the CPI.
573
00:22:07,726 --> 00:22:11,496
So, you know, as things weren't
available in another way, I put
574
00:22:11,530 --> 00:22:13,899
you could think about it
is that how much would
575
00:22:13,899 --> 00:22:16,935
the price of baby formula or
other goods have to have gone up
576
00:22:17,202 --> 00:22:19,971
to keep some on the shelves,
to keep some available?
577
00:22:19,971 --> 00:22:20,672
And that would have been a
578
00:22:20,672 --> 00:22:23,842
higher
inflation would have been higher
579
00:22:23,842 --> 00:22:25,644
than was being measured
at that time.
580
00:22:25,644 --> 00:22:28,180
So, you know, something
581
00:22:28,180 --> 00:22:31,216
that hit us, too, Dan, because
we had a baby around that time.
582
00:22:31,416 --> 00:22:32,984
yeah,
we couldn't find baby formula.
583
00:22:32,984 --> 00:22:34,920
So it affected us directly
584
00:22:34,920 --> 00:22:36,755
and it was very difficult
for a little while
585
00:22:36,755 --> 00:22:38,423
of trying to find it
and everything else.
586
00:22:38,423 --> 00:22:40,359
And then you maybe
pay more online,
587
00:22:40,359 --> 00:22:41,293
but we were willing to pay it,
588
00:22:41,293 --> 00:22:43,228
willing
and able to pay that price.
589
00:22:43,228 --> 00:22:44,329
Many people were not.
590
00:22:44,329 --> 00:22:46,531
It's also a good economic lesson
of how
591
00:22:46,531 --> 00:22:48,500
we have to be cautious
about calling things
592
00:22:48,500 --> 00:22:50,402
price gouging and everything
else.
593
00:22:50,402 --> 00:22:52,404
Remember, the market is the best
at allocating
594
00:22:52,404 --> 00:22:54,973
resources through the prices
that are given.
595
00:22:54,973 --> 00:22:55,307
You're either
596
00:22:55,307 --> 00:22:56,842
going to have rationing
through the price system,
597
00:22:56,842 --> 00:22:59,177
which is well functioning
or through rationing.
598
00:22:59,177 --> 00:23:00,812
And in this case,
we found rationing
599
00:23:00,812 --> 00:23:02,781
to be the case
instead of the prices.
600
00:23:02,781 --> 00:23:04,449
So we've got to be careful
about talking about,
601
00:23:04,449 --> 00:23:06,051
you know, price
gouging or something
602
00:23:06,051 --> 00:23:08,787
where people who spent
an entire afternoon driving
603
00:23:08,787 --> 00:23:11,857
from store to store trying
to find baby formula, okay.
604
00:23:11,857 --> 00:23:13,358
Even if they were able to find
they didn't
605
00:23:13,358 --> 00:23:14,092
have to pay that much.
606
00:23:14,092 --> 00:23:16,161
But think of all the gas
they used up
607
00:23:16,161 --> 00:23:19,131
and their time that they spent
trying to get that.
608
00:23:19,297 --> 00:23:20,165
Now, you've
609
00:23:20,165 --> 00:23:23,168
mentioned the interest rates,
mortgage interest rates.
610
00:23:23,335 --> 00:23:26,405
And so let's come back to this
because as you said,
611
00:23:26,838 --> 00:23:28,073
interest rates in general,
612
00:23:28,073 --> 00:23:30,409
not just mortgage interest
rates, they have a slide here
613
00:23:30,409 --> 00:23:32,778
showing what's happened
with mortgage interest rates,
614
00:23:32,778 --> 00:23:34,413
but all interest rates
have gone up
615
00:23:34,413 --> 00:23:38,150
and that impacts households
as well as in a way, as you
616
00:23:38,150 --> 00:23:40,585
mentioned, there's the CPI is
and picking up.
617
00:23:40,585 --> 00:23:42,087
So tell
us a little bit about this.
618
00:23:43,321 --> 00:23:45,891
Yeah, these these
interest rates are influenced
619
00:23:45,891 --> 00:23:49,795
a lot by the debt that Congress
puts in place, right?
620
00:23:49,795 --> 00:23:51,730
So if they issue more Treasury
securities,
621
00:23:51,730 --> 00:23:55,801
that pushes supply to the right
and a raise it
622
00:23:55,867 --> 00:23:58,336
it reduces the price
and it raises interest rates.
623
00:23:58,336 --> 00:23:59,504
And and
624
00:23:59,504 --> 00:24:01,673
but that also influences
a lot of of the interest
625
00:24:01,673 --> 00:24:03,575
other interest rates
throughout the economy.
626
00:24:03,575 --> 00:24:06,578
It also as influenced
by the Federal Reserve,
627
00:24:06,578 --> 00:24:07,512
our central bank
628
00:24:07,512 --> 00:24:09,781
where they have a target
federal funds rate
629
00:24:09,781 --> 00:24:11,616
which is the overnight
lending rate between banks.
630
00:24:11,616 --> 00:24:12,551
That basically is telling you
631
00:24:12,551 --> 00:24:15,620
how much the cost of credit is
going to be across the country.
632
00:24:15,787 --> 00:24:17,355
And they had it at basically
633
00:24:17,355 --> 00:24:20,992
a zero, essentially zero
for a couple of years
634
00:24:21,193 --> 00:24:24,463
during COVID to really allow
for more liquidity
635
00:24:24,463 --> 00:24:25,430
into the marketplace.
636
00:24:25,430 --> 00:24:27,098
This is also
when they increase their balance
637
00:24:27,098 --> 00:24:29,434
sheet
from 4 trillion to 9 trillion.
638
00:24:29,434 --> 00:24:32,871
And then in July of 2022,
639
00:24:33,038 --> 00:24:36,908
they began to raise or around
that time in 2022,
640
00:24:36,908 --> 00:24:39,978
they began to raise that
federal funds rate up to where
641
00:24:39,978 --> 00:24:43,748
it got to 5.25 to 5.5%,
where it's at today.
642
00:24:43,748 --> 00:24:46,751
And they've been pausing now
for a while and not changing it.
643
00:24:46,785 --> 00:24:50,055
But during that time,
we saw very low mortgage rates,
644
00:24:50,055 --> 00:24:53,058
which are connected to the ten
year Treasury note rate that the
645
00:24:53,291 --> 00:24:55,927
the Treasury puts out there
with their debt and debt.
646
00:24:55,927 --> 00:24:57,662
It's also efforts
by the Federal Reserve.
647
00:24:57,662 --> 00:24:59,498
That's
why bringing this all together
648
00:24:59,498 --> 00:25:02,701
and that contributed
to higher mortgage rates,
649
00:25:02,834 --> 00:25:05,203
whatever those other rates
began to increase.
650
00:25:05,203 --> 00:25:08,306
And I think that they're going
to stay higher for longer,
651
00:25:08,473 --> 00:25:11,910
given that inflation is going to
be higher than longer as well.
652
00:25:12,077 --> 00:25:13,011
And what does that mean?
653
00:25:13,011 --> 00:25:15,747
That means just two years ago
you could have got a mortgage
654
00:25:15,747 --> 00:25:19,150
at an interest rate of about 3%
and now you're going to pay
655
00:25:19,184 --> 00:25:20,819
in 7%. That's double.
656
00:25:20,819 --> 00:25:22,854
If you happen to have
an adjustable rate mortgage,
657
00:25:22,854 --> 00:25:25,657
your mortgage payment
per month can double
658
00:25:25,657 --> 00:25:26,992
compared to what you were before
659
00:25:26,992 --> 00:25:28,960
that you can't afford it
and you lose your home.
660
00:25:28,960 --> 00:25:31,263
Or if you try to sell your home
and go buy another home,
661
00:25:31,263 --> 00:25:33,498
you probably can't afford it
because housing values are up
662
00:25:33,498 --> 00:25:34,900
and interest rates are up.
663
00:25:34,900 --> 00:25:37,903
So it's put people in a tough
situation in the housing market
664
00:25:38,003 --> 00:25:39,571
where I really think
that we're going to continue
665
00:25:39,571 --> 00:25:42,741
to see some depreciation
of housing across the country,
666
00:25:42,908 --> 00:25:46,144
especially in particular markets
like San Francisco, Austin,
667
00:25:46,144 --> 00:25:46,778
which is nearby
668
00:25:46,778 --> 00:25:47,445
where I'm at,
669
00:25:47,445 --> 00:25:49,114
you're already
seeing a lot of this happen,
670
00:25:49,114 --> 00:25:50,782
especially for new sales.
671
00:25:50,782 --> 00:25:53,852
New sales around
the Austin area are down 18%.
672
00:25:53,852 --> 00:25:56,454
The prices are just over
the last year.
673
00:25:56,454 --> 00:25:59,324
So that that process, just like
we saw during the great
674
00:25:59,324 --> 00:26:02,327
financial crisis of the 2000,
is happening again.
675
00:26:02,394 --> 00:26:05,096
Deflationary pressure
within the housing market
676
00:26:05,096 --> 00:26:06,631
because of those
higher interest rates
677
00:26:06,631 --> 00:26:08,767
and because
the housing prices are so high.
678
00:26:08,767 --> 00:26:10,435
So I think that's going
to continue for a while, Diane,
679
00:26:10,435 --> 00:26:11,937
which is going to have
a lot of influence
680
00:26:11,937 --> 00:26:14,940
on people's
livelihoods across the economy.
681
00:26:15,774 --> 00:26:17,609
And it's not just housing.
682
00:26:17,609 --> 00:26:20,312
Is there anything that consumers
buy on credit?
683
00:26:20,312 --> 00:26:23,381
Because many people are going
to buy a lot of things, Cars
684
00:26:23,481 --> 00:26:24,215
in particular.
685
00:26:24,215 --> 00:26:27,252
But also, I mean,
many people will buy appliances
686
00:26:27,319 --> 00:26:31,356
in other the home repairs
and have to put on credit.
687
00:26:31,356 --> 00:26:33,158
So all those interest rates
have gone up.
688
00:26:33,158 --> 00:26:34,426
So all of those things,
689
00:26:34,426 --> 00:26:35,427
people are getting squeezed
690
00:26:35,427 --> 00:26:38,229
on a lot of different margins
here, right?
691
00:26:38,229 --> 00:26:39,264
That's exactly right.
692
00:26:39,264 --> 00:26:42,767
A credit card debt rate
is reached $1,000,000,000,000.
693
00:26:43,001 --> 00:26:44,836
And doesn't interest
those Interest rates
694
00:26:44,836 --> 00:26:46,905
are now up to about 24%.
695
00:26:46,905 --> 00:26:47,572
They'll come down
696
00:26:47,572 --> 00:26:51,409
for a while, 16, 17%,
but now they're back to 24%.
697
00:26:51,543 --> 00:26:53,511
And if you were just real quick
for the audience,
698
00:26:53,511 --> 00:26:56,181
I mean, back in the seventies,
we had the great inflation,
699
00:26:56,181 --> 00:26:58,316
double digits, inflation
and everything else.
700
00:26:58,316 --> 00:27:02,320
In about 1980, the prime rate
or the rate for mortgages
701
00:27:02,320 --> 00:27:04,255
was close to 20%.
702
00:27:04,255 --> 00:27:07,092
So even at the 7%,
we're still getting a relatively
703
00:27:07,092 --> 00:27:08,860
good deal,
historically speaking,
704
00:27:08,860 --> 00:27:10,762
but it feels very expensive
today.
705
00:27:10,762 --> 00:27:12,497
This is one reason
why I've been so adamant
706
00:27:12,497 --> 00:27:14,366
about the Federal Reserve
cutting its balance
707
00:27:14,366 --> 00:27:15,834
sheet and Congress stop
708
00:27:15,834 --> 00:27:18,269
spending so much
and running a massive deficits
709
00:27:18,269 --> 00:27:19,571
because if we don't,
we're going to run
710
00:27:19,571 --> 00:27:22,107
into the same sort of problem
we did there in the 1970s,
711
00:27:22,107 --> 00:27:23,441
and then we're all going
to be facing higher
712
00:27:23,441 --> 00:27:26,578
interest rates, higher inflation
and less economic opportunity.
713
00:27:27,245 --> 00:27:28,913
Well, we're near
the end of our time.
714
00:27:28,913 --> 00:27:32,183
So anything you'd like
to add here to just sum up?
715
00:27:33,451 --> 00:27:35,387
Well, I appreciate
you having me on the show, Dan,
716
00:27:35,387 --> 00:27:37,822
and all these key,
key issues that are going on.
717
00:27:37,822 --> 00:27:38,723
I hope
718
00:27:38,723 --> 00:27:41,760
America takes a more pro-growth
policy approach moving forward.
719
00:27:41,860 --> 00:27:43,662
And I hope maybe some people
720
00:27:43,662 --> 00:27:45,964
check out my podcast
at at Advanced Income.
721
00:27:45,964 --> 00:27:47,499
You can check me out
or let people prosper.
722
00:27:47,499 --> 00:27:50,201
So wherever
they get their podcasts, well,
723
00:27:50,201 --> 00:27:51,302
I hope they do it.
724
00:27:51,302 --> 00:27:54,172
And thanks, Vance,
for coming on the show.
725
00:27:54,172 --> 00:27:56,241
And thank you all
for joining us.
726
00:27:56,241 --> 00:27:59,244
Join us again next time
for another E Conversations.
727
00:28:02,480 --> 00:28:04,649
This has been E Conversations,
728
00:28:04,649 --> 00:28:07,952
a joint production of Joy, Coach
Vision and Emmanuel H.
729
00:28:08,019 --> 00:28:11,089
Johnson Center for Political
Economy at four University.
