Can you just help me understand this, Ben? Because it just, it doesn't on its face make sense, actually, that consumer spending would be so strong, even though, as you already told us, prices have continued to go up.

You are not the only one who is confused by this.

I feel like I have been talking to economists for years now where they keep saying, well, the consumer's got to crack eventually.

And the consumer keeps not cracking.

So to some extent, I think that there is a real mystery here and we don't fully know.

But I would point to two things.

The first is what we were just talking about, the labor market.

If people are going to go vote on the economy, on this issue, hoping for change in these midterms, and if the polls are right that a blue wave is coming, would that do anything to change things? Can it?

You are loaning.

You are lending, you are lending them that money, and they are promising to give it back to you in some period of time, in a few months, a few years, 10 years, 20 years, 30 years.

So I go and I buy a 10-year bond for $1,000.

The seller of that bond is promising to give me back my $1,000 in 10 years.

But I'm not just gonna give them my money and walk away, right? And so they're going to pay me interest.

We're going to agree at the time that the bond is sold to a fixed rate of interest, and they're gonna pay me interest every year until that bond matures and they give me back my $1,000.

That interest rate functionally is what we call a yield.

Continuing with our very brief Econ 101 lesson, tell us how a treasury works.

Talk about all of those things going to this, like, toxic brew that's causing rates to go up.

Yeah, look, it, it's a lot of different things at once here, like you said.

It is inflation, concerns about inflation, concerns specifically about the Fed's commitment to fighting inflation and, and the new Fed chairman's commitment to it.

It is about, uh, AI and these sort of massive, uh, debts that are being run, run up now by these AI companies that's kind of flooding the market with debt right now.

There's some optimistic stories in this too, right? That, that if AI leads to faster growth, uh, that tends to lead to higher long-term interest rates, but for positive reasons, right? That's a much better story.

But then it's about the federal debt, right? And, and I mean, if you go back to even 2007 just before the global financial crisis, uh, debt was about a third of GDP.

It's now 100%, more than 100% of GDP, and that creates doubts in the minds of investors about the sort of long-run, uh, fiscal direction of the US.

I don't see how it's affecting my life." So in practical terms, can you talk about how an exploding debt, and that's what it is at this point, more than 100% of GDP, as you said, of $40 trillion, affects now and could affect later people's everyday lives?

Why does that happen?

I mean, so I think these revisions have been a really big problem over the last couple of years.

And I think sometimes people downplay them.

They say sort of, oh, this is part of the process.

And it is part of the process, but it's a really big issue because it undermines faith.

And also, if what we're trying to do is understand the economy, then if it turns out that our numbers are wrong, that's a big problem.

Right.

And I wonder if you think there is room to improve the way we collect jobs data, other data, Or if it's a question of communicating that better? Or if there will always be some gap between lived experience and official numbers?

Why does that happen?

I mean, so I think these revisions have been a really big problem over the last couple of years.

And I think sometimes people downplay them.

They say sort of, oh, this is part of the process.

And it is part of the process, but it's a really big issue because it undermines faith.

And also, if what we're trying to do is understand the economy, then if it turns out that our numbers are wrong, that's a big problem.

Right.

Sure,

Feels very sci-fi movie, right.

And when I talk to economists, they, they have a tendency to kind of roll their eyes about this.

That's never the way this has worked out in reality, right? If you go all the way back to the Industrial Revolution, right, we had people talking about like, "Aha, nobody's gonna have to work anymore," and, like, guess what? We're all still working.

The concern that I hear from economists is much more about this nearer term, these incredible disruptions.

And so if this plays out gradually, and if we have time for sort of new industries to be created, new jobs to be created, for us to figure it out and, you know, younger people to start to pivot, older people to wrap up their careers the way we did in the '90s period, right, then this transition no doubt will be painful for some individuals, but could be, you know, pretty good for the economy as a whole.

If it happens in a way that looks more like that China shock example, where we see whole categories of jobs wiped out more or less overnight, where it's not clear what direction you should go in because all the other careers you can imagine are also getting wiped out, that is the kind of disruption that could be really painful, not just for some individual workers, but for the economy as a whole, with all of the kind of social and political implications that we were just talking about.

Mm-hmm.

Right? But it was also a, a fundamentally pretty broken system in a lot of ways.

Right.

We've seen this before.

We saw it during the pandemic.

There's no reason to think that those sort of economic laws don't apply now.

So yeah, I think it's very possible that if that plays out in the way that the administration is hoping, that we could see a lift to economic sentiment and a lift to real economic activity.

At the same time, to the extent that a lot of the things that are bothering people about the economy right now are these longer run challenges, right? Housing and childcare and healthcare, right? Those are not things that this solves.

And if we see the Affordable Care Act subsidies go away at the end of this year as expected, and a lot of people see their healthcare premiums rise-

Yep

Mm-hmm.

And this is sort of the, the early days, right, of the sort of Republican pushback against DEI and wokeism, uh, that we've seen, of course, continue and, and gain strength under President Trump.

Uh, now, I should say most of the economists I talk to push back against that very strongly, say that she had a record that, you know, was, uh, equivalent to many folks who have been, uh, nominated successfully for the Fed in the past.

Not probably the strongest academic credentials that we've seen on the Fed, but, uh, notably, uh, Jerome Powell doesn't have a PhD in economics at all, so.

But she faced a lot of opposition, and, and the vote ultimately came down to a 50/50 tie.

One fairly indisputable fact in this moment is that people who work for the United States government don't feel safe and secure in their work, and I wonder what Professor Cook would say about the implications of that.

Yeah, I mean, a couple of people have made the point to me that there is an irony here, that in some ways, the person who has the most insight into this moment in the US economy, at least at the Fed, is Dr. Lisa Cook.

[pensive music] Not only when it comes to maybe the fear that government employees are feeling, but the fear that people living in the US in some cases are feeling right now, that, that people in immigrant communities, that people who feel threatened in different ways, right, may be feeling right now.

But just to be clear, is there anything to suggest that these numbers themselves are wrong?

It depends what you mean by wrong.

If what you mean is that these numbers are not a perfect reflection of the actual number of jobs in this country, then yes, because all of these numbers are wrong when they first come out.

They're estimates, but they are the best estimates using the best methods that we have available to us.

But remember, the president didn't just say wrong.

He said rigged.

[pensive music] He said these numbers were rigged out of political bias against him.

But is that happening here? Like, is that what we're headed for?

Great piece, um, and not great examples, uh, for Trump to be following.

Yeah, I mean look, there are historical parallels, not many of them in the US, but around the world, and none of those are examples that you would want to emulate, right? You mention Argentina, where we ended up, where, where they, they fired the people responsible for producing inflation data when inflation was looking bad.

That sounds pretty familiar right now.

That didn't stop inflation, right? If anything, it allowed inflation to spiral further out of control without the evidence to, you know, set policy.

And it really undermined-...

the country's credibility internationally, drove up its borrowing costs, added to a debt crisis.

The Greek example, I think, is really striking because they didn't just fire, uh, the head of their statistical agency.

How does this play into the general environment of uncertainty for companies that are struggling with making those kind of CapEx decisions at the moment?

But over the past decade or so, there seems to have been a kind of backlash.

Right, it used to be economists sort of helped shape healthcare policy and climate policy and, of course, things like tax policy, and they're sort of being pushed in some ways to the side in a lot of these policy discussions, a- and certainly with the Trump administration, but you hear the same from the, the Biden administration, too.

Everybody won't mind.Now, putting together this episode with all of the apologizing, the soul-searching, the revisiting of past mistakes, some of this is warranted and worthwhile, but economics and data are also under attack right now, and sometimes there is nothing to apologize for.

I think economics as a field is the most credible that it's ever been.

It is more data-driven.

It is more nuanced.

It is more willing to consider the ways in which the world is more complicated than a simple economic model suggests.

And there's a lot of research that I think is incredibly valuable to understanding the world.

Why didn't they come to the table? I mean, w- what's going on there?

Yeah, I mean, I, I think on one level it's not surprising, right? The idea of 90 deals in 90 days was never plausible, right? Trade deals take years to negotiate.

But I think that for a lot of these countries, you know, one, their, their leaders have their own domestic concerns.

They don't wanna be seen as caving to Trump.

And look, you know, Maggie made the point a moment ago about, you know, Trump having a history of pushing out deadlines and backing down on some things.

I think that has been noticed by foreign leaders, and there's a, there's a recognition that, you know, "Hey, if we, you know, string this out for a while, like, maybe we can, you know, get out of some of this.

Maybe some of this doesn't actually end up hitting us as hard, at least as being threatened."

Do you think that the market's gonna react to this new chapter of the trade war the way that it did last time? Do we have any early signs of that? And, and if not, why?

When might that start to show up, and what will it look like?

Well, I mean, so it's funny.

You reference the piece I wrote last week.

The w- the world has, as it has been doing a lot recently, changed significantly since the piece I wrote last week, in that we've now put a, a partial pause on a bunch of these China tariffs.

Instead of going to the, the 145%, which you might as well sort of think of as an embargo.

Now they're at 30%, which is high.

It's higher than anybody would've expected, I think, coming into this year, but it's a little bit more manageable.

(laughs)

If the tariffs were to settle into a more permanent seeming dynamic, would that uncertainty start to dissolve and could hiring start to go up? Or is the reality that a settled tariff situation is probably gonna lead to higher costs for businesses and therefore that won't be the case?

So it depends a little bit on what we're talking about when we talk about tariffs, right? If we talk about 145% tariffs on everybody, that's [laughs] gonna be a very bad situation for a lot of companies.

But yeah, the uncertainty is a really big issue here.

On some level, businesses can navigate a difficult environment if they know what it is that they're gonna be facing, and they can make appropriate decisions.

But when you don't know, when, you know, one day the tariffs are on, the next they're off, one day they're on, you know, China, but not on Europe, the next day maybe that flips.

And it's not just tariffs, right? It's everything we're hearing around federal job cuts and DOGE.

It's everything, the uncertainty around immigration policy.

But how, broadly speaking, do you think about the choice facing some of these listeners about whether to try to potentially profit from the market's swings right now or sitting tight and waiting out these swings in the market?

There is-

Yet he, he has notably refused to rule out the possibility of a recession, as have members of his administration.

And look, economists would say you should never rule out the possibility of a recession, so that's not inherently unreasonable.

But the tone has really shifted here from one of things will turn around on day one to there may be this period of pain, but it will pay off in the long run.

And it's worth highlighting here, if this recession happened, it would be specifically because of his policies, right? It'd be his tariffs-

Mm-hmm.

Again, complicated subject, but I think the thing that there's pretty broad-based agreement about is we can't just turn the clock back.

We're not gonna make T-shirts in this country again.