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- [00:00]
A
Hey there listeners. I'm coming to you today from the snow globe that is currently New York City. To anyone who lives in the Northeast, I hope you're you're managing all right. A couple things before we get started today. First, we have a live show coming up at the Comedy Cellar in New York City on March 4th. We've got a few tickets left, so make sure to snag them. I'll drop a link in the show notes. Nate Silver and Claire Malone are joining me the day after the Texas primaries, so we're going to have plenty to talk about when it comes to that race. Also, a heads up that Tuesday of this week is the State of the Union address, so our second episode this week is going to be a reaction to that with some dear friends of the podcast. All right, here's today's episode. Hello and welcome to the GD Politics Podcast. I'm Galen Dwick. Today's conversation is somewhat similar serendipitous. We're recording this podcast in the afternoon on Friday, February 20th. And I'd be planning to speak today with Harvard economist and former chair of President Obama's Council of Economic Advisors, Jason Furman about all the economic data we've gotten recently. And we've gotten a lot jobs reports as well as revisions for the past year, inflation data, GDP growth, trade balances, consumer sentiment and more. However, there was one piece of data I did not necessarily expect expect we'd be getting. That was the Supreme Court's decision on President Trump's emergency tariffs. This morning. The court struck them down in a 6, 3 decision, concluding that the power to enact such broad tariffs lies with Congress. So today we're going to begin with the latest tariff news and then broaden out our conversation to more aspects of the economy, including Furman's recent suggestion that we may have achieved the first indisputable quote, unquote soft landing, bringing down inflation without triggering a recession and in post war American history. Jason Furman is here with me now. Welcome to the podcast, Jason.
- [01:59]
B
Great to be with you and so much exciting stuff to talk about today. I have to say, I used to wake up, you know, Every morning at 10am Start refreshing SCOTUS blog to see the tariff decision. And then I'd sort of given up and forgotten about it. So I was a little surprised when I saw the breaking news alerts today.
- [02:16]
A
Yeah, I think even the folks on Skoda's blog themselves were caught flat footed on this one. But certainly no lack of news for us to discuss today. On top of Basically the economic data dump that we've gotten over the past two weeks. But on the topic of tariffs, you know, the Supreme Court striking down those emergency tariffs, it's really big news. At the same time, for people who have been paying attention to both the oral arguments in the case and how the courts have treated Trump's broad claims to emergency powers thus far, it's not entirely surprising. So I'm curious what your reaction to it is before we get into the economic implications.
- [02:59]
B
Yeah, the market didn't react very much and that's because probability markets were putting about an 80% chance on this happening. I was hoping and expecting it would happen. I was glad to see that it was six to three, that the language was very stark and very uncompromising, that they weren't giving any hope of using the statute, this one statute, the International Emergency Economic Powers Act, I eapa that they weren't giving any latitude for using that for tariffs in the future, and that there was a little bit of a sign that they might be tough on President Trump if he tries to come back and do things in different ways. So it surprised a little bit on the upside for me. Plus, even when you expect something, if it's sort of something you're happy and excited about, it's still good to unwrap that present and look at it in the face.
- [03:57]
A
There's still plenty that is unsettled here. Will the federal government have to refund roughly $200 billion that it collected under these emergency tariffs? How much of these emergency tariffs can be replaced with industry specific tariffs or the like? You know, if you have legal opinions, feel free to share it. But from an economic perspective, how much do those details matter?
- [04:17]
B
At this point, the refund question actually matters relatively little. It matters for corporate profits, but the multiplier on refunds to corporations is probably pretty small. Businesses are largely making investment decisions based on do they have a good project to invest in, not do they have a lot of spare cash that they could use for that investment. That's not 100% true. That's just mostly true. And just in general, if you have a tax cut for businesses, a demand side multiplier is, is really quite low. So for most economic things, the refunds are an interesting, dramatic, exciting story. They matter a lot for those businesses. For the macro economy, it doesn't matter as much. What does matter quite a lot is what the President ends up doing. He's already done one thing, which is a 10% across the board tariff on every country in the world that has 150 day time limit on it. So in mid July, those tariffs will have to come off unless Congress has taken an affirmative vote vote to continue them. They're going to start a process to try to add some other tariffs in too. We'll see where that goes. But, you know, it's also possible that the administration maybe wants to take a little bit of an out here and a little bit of an off ramp and use this as an excuse to eventually scale back some of the tariffs.
- [05:42]
A
Yeah. If you watched the President's remarks today, that was not the tone that he set. It was, it was a pretty fiery tone out there today.
- [05:50]
B
Oh, that is absolutely true. I have, you know, I don't want to be predicting Donald Trump because no one does a very good job of it. Anything could happen with that man. But it is also totally possible to have a fiery tone one day and then a couple months from now, a little bit more quietly, a bunch of things expire, a bunch of things get exceptions, a bunch of deals get struck. And without ever having admitted error, you end up in a different place than where it sounded like you wanted to be today. So that to me is a distinct possibility. But, but I'm not going to make any predictions about Donald Trump.
- [06:27]
A
Needless to say, we're in a moment of uncertainty as we oftentimes find ourselves. And I mentioned to listeners that I was going to be speaking with you this afternoon and we got some questions. And so Arthur asked the following question. How have markets and or consumers tended to price in tariff uncertainty so far? Which is to say we have more uncertainty now. Uncertainty isn't new. If consumers and companies are going to act now as they have in the past with past uncertainty, what should we expect?
- [06:58]
B
Yeah. So first of all, there's a bit less uncertainty now than there was before the Supreme Court decision because even though the President has other tariff tools and has already started using them, the other tools are more limited. They're limited in terms of how long you can keep the tariffs on, how much of a process you need to do before placing them, how quickly you can change the tariffs. Something President Trump has loved to do, is raise and lower them on a whim. A conversation with the leader of Switzerland doesn't like the tone of their voice. All of a sudden they get new tariffs. So this, even though it doesn't stop him from tariffing, it reduces the persistence and large swings. That'd be the first thing I'd say. The second thing I'd say, though, is over the last year, it's not obvious. That uncertainty has had a huge impact on the economy. It has a negative impact. It delays business investment decisions. Why not wait to see how the uncertainty is resolved before you do something? So it's definitely a negative. I don't think it's been a very large negative, which is in part why I think the economy is basically doing fine. I think it would have been doing a little bit better than fine absent the tariffs. But the tariffs have not had some type of catastrophic effect. And the main set of catastrophic stories were less about trade and more about uncertainty. And I just don't think those have fully materialized.
- [08:21]
A
Chris asks, I remember hearing that the inflation was slow to materialize. So when the tariffs were in place, what factors were preventing them from directly raising prices or causing inflation? Was it consumer habits, importers eating the tax, etc. So maybe you can quibble with the premise of Chris's question or not, but it didn't seem like the excessive inflation that was predicted by some did materialize when they were in place.
- [08:48]
B
Yeah. So there's two separate things. One is how much of these tariffs are paid by the United States versus foreigners? On that question, there is a range of estimates, and they range from Americans are paying 90% of the tariffs to Americans are paying 95% of the tariffs. Okay, so almost all of them are America. A tiny sliver of them are being paid by foreigners. Then within America, how much of it is American businesses are eating the tariffs. They didn't raise prices, but they're eating it in the form of lower profits versus passing it on to consumers. There. There's, first of all, a bit more uncertainty and debate about that. And second of all, you know, something like 50, 50 isn't a crazy view to have about that allocation. I think that if the tariffs are allowed to stay for a while, the consumer share would very likely go up. And that businesses were afraid of the attention they'd get from Donald Trump if they raised prices, thinking maybe the Supreme Court would get rid of the tariff. They could just tough it out for a couple months until that happened, wanting to be more part of a pack and whatever else. And so if we continue to have tariffs, I think it'll continue to be Americans paying between 90 and 95%. I think the lion's share of that will end up on consumers, because just look at the auto companies, for example. They've been selling cars at a loss. They're not going to do that forever. At some point, they're going to raise the price of those cars. If we continue to have the tariffs.
- [10:22]
A
Okay, our final listener question, and then I want to talk about some broader trends in the economy. Mikey asks what happens to the frameworks of all the trade deals that included tariffs? Do they need to be negotiated again with other countries? What happens next?
- [10:35]
B
We don't know. But the initial signals out of other countries are that they are going to continue to do what they had already said they were going to do. In part, that's because the so called concessions we've gotten from other countries were relatively small and many of them were in their interest already. And they don't want to upset Donald Trump. Where there's a big change though, is the leverage going forward. You have President Trump going to China in April and his ability to go there sort of wielding both carrots and sticks is smaller than it would have been absent this. So I think little impact on deals that were already struck, but potentially more impact on what might have or might not have been future deals.
- [11:24]
A
So before this decision ever even came down from the Supreme Court, I had started putting together some of the data I wanted to talk to you about. And analysts were abuzz this morning because the new GDP data showed growth dropping to 1.4% in the final quarter of 2025, compared with 4 1/2% the quarter prior. Is that drop a cause for concern?
- [11:49]
B
No. The GDP data for the fourth quarter was very distorted by the fact that there was a government shutdown for, you know, almost a month and a half of that quarter. And the government statisticians do a sort of weird, but when you think about it totally correct thing that the government was spending money. They gave back pay to all those workers that were furloughed, but they weren't actually doing any work during that period of time. And so even though the government didn't save a lot of dollars with the shutdown, it ended up getting a lot less for its dollars because of that. That meant the real inflation adjusted government part fell quite a lot in the quarter that took about 1.1 percentage point off the growth rate. So absent the shutdown, the growth rate would have been probably 2.5%, maybe even a little bit higher when you do some indirect effects. And we're actually going to get that percentage point back in the first quarter of this year. So when you bring another guest on 3 months from now to talk about the growth rate in the first quarter might be that we grew at 3%. And the actual truth will be, no, no, it's not as good as it looks. You want to subtract a Percentage point. So add 1 percentage point to the number we just saw. But the next growth number you see, subtract a percentage point from I mentioned
- [13:07]
A
in the intro that you've suggested we may have achieved the first indisputable soft landing in post war US history, which means controlled inflation without a recession. What makes you feel comfortable saying that right now?
- [13:23]
B
Well, first of all, I feel comfortable I said may. So I still had a little bit of a head. I'm not, I'm not 100% there. But first of all, the unemployment rate had been rising very slowly but very steadily, but it's now been the same for about three quarters of a year, about nine months and it stabilized in the low fours or low to mid fours, which would be definitely, I think anyone's definition of at least half of what you need for a self landing, the non recession, half of it. Going forward. As always, anything could happen. But with the economy, your best forecast is that whatever you've seen in the past is going to continue in the future. In this particular case, I think there's some additional growth and unemployment reduction coming from the data center buildout, from this tariff case in the Supreme Court, from continued effects of the high stock market on consumer spending and the like. The more uncertain part of the soft lending for me is inflation. The measure that the Fed focuses on was 3%, the latest version of it, the Personal Consumption Expenditure PCE Price Index. But they're really, and I, I was never part of trim. Transitory is quite hostile to trim Transitory. I hate to use the word. There are a few things in there that are transitory right now. Tariffs have raised prices, but they don't permanently raise the inflation rate. There's some weirdness in how things are measured with imputations for things like when the stock market goes up that weirdly shows up as higher inflation, but it probably shouldn't. And the labor market is a little bit on the loose end of the spectrum, especially not a lot of job openings right now, which is a very good predictor of where inflation is going. So all told, I think we'll end the year with an inflation rate of 2.5%, more likely less than that than above that. And if that's the case, then yeah, I would call it a self lending.
- [15:31]
A
So I think this might be the first time I've ever had an economist on the podcast who has said everything seems just about fine right now. Is that your assessment of the economy? Are there cracks that you're watching? I mean, I want to dig into the Inflation bit, a little bit more. But before we get into the weeds, I just want to take a moment to note that this is a relatively rare occurrence that you hear an economist on the news saying, or, you know, in some form of news saying, actually, everything's fine right now, no need to worry.
- [16:03]
B
Yeah. So, first of all, there's always risks. The question is, are those risks higher than average or lower than average? I'd be happy to say they're about average. So recession is about a 15% chance in any given year. So I'll make my recession probability for the next 12 months 15%, because I don't have a really great reason why it should be higher, why it should be lower. But stepping back, your best way to forecast is to think things continue. The amazing thing about the year 2025 is it just looks an awful lot like the year 2024. The GDP growth rate one year was 2.4, the next year was 2.2. But with the quirks of the government shutdown, et cetera, those are the same. The inflation rate was basically the same. The 10 year interest rate was basically the same. The growth rate of real wages was about 1.2%. I believe in both years it was almost exactly the same. And so you had this enormous change with President Trump, an enormous change in policies, and yet the supertanker that is the US Economy continued on almost exactly the same track it had been on prior to President Trump. Now I say almost exactly. I think we would have had maybe half a point more growth and half a point less inflation were it not for the tariffs. So I think these things matter. But when you're talking about 2.5% growth rate, you're not talking about the difference between recession and boom, you're talking about gradations within that. Now, what will 2026 be? There's no reason it has to be the same as 2025. It probably won't be. But, you know, people are, I think, too simplistic if they think they know exactly which direction something the supertanker is turning in and exactly what will make it turn. And I think people spend more time, frankly, thinking about downside scenarios than they do upside. That makes sense for people whose job it is to manage risk, like the Federal Reserve. But that type of Debbie Downer approach will not lead you, at least on average, to have correct forecasts.
- [18:10]
A
Yeah, I mean, I think there is a lot of anxiety amongst analysts right now about different trends underneath the hood. So you see an erosion of the white collar labor market anxieties about the impact of artificial intelligence, this idea that a lot of the job creation is happening in the healthcare sector and that in other parts of the economy we're seeing stagnation or worse. And so to your point, when analysts or critics look underneath the hood, there's a lot that you can start to point to to say the future may not be so rosy. How do you assess those risks?
- [18:50]
B
Yeah, so I mean, those aren't actually risks. A lot of those are sort of things that may that have already happened. So how do we assess those things that have already happened and think of them going forward? I think some of those legitimate sources of concern. So things are definitely not perfect. And by the way, people feel horrible and I'm not totally sure why that is.
- [19:09]
A
But don't worry, we'll talk about that. That consumer sentiment data that came out from the University of Michigan this morning in a second.
- [19:15]
B
Got it. Okay, so we're getting there. So. So first of all, I think some of those things are legitimate, but I do think there are two broad biases that are coming to bear that color the way people think about them. One is just in general a bad news bias that people news, etc. Travels faster when it's about bad news. And the second is I think more of the analytical numerically literate ecosystem, for better or for worse, is coming from an anti Trump side, either because they're progressive or maybe they're more of a free market Republican and they're invested in finding ways in which even though the headline unemployment rate is 4.3%, actually if you look deeper, it's a big problem right now and they're more invested in that exercise now than they were two years ago when Biden was president. So that doesn't mean every problem they identify is wrong, but it means some of them are. So one problem people have identified that I am positive is wrong is this idea that all of the jobs are just in the health sector. That is factually correct, by the way, that all of the jobs are in the health sector. But I went and did the analysis about job growth in different sectors and it turns out the good sectors are doing about 1 percentage point faster job growth than the bad sectors. Historically, the good sectors generally do about 4 percentage points faster growth than the bad sectors. What's unusual right now is the underlying break even job growth rate that the economy needs is close to zero. And so right now the good ones are positive and the bad ones are negative. Whereas in the past the bad ones were small positive and the good ones were large, positive. And so there actually had been more dispersion of job growth in the past. It just looks different now where we don't need as many jobs. We don't need as many jobs because people are aging, because we're at a late stage of the business cycle, and because President Trump, and I think this is a huge mistake, has dramatically restricted immigration. So the health thing I don't think is a problem. The white collar I am more worried about. You're seeing it for young people, you're seeing it for white collar. It's not huge right now, and I think it predates ChatGPT 3.5. I don't think most of it's AI, but maybe a little bit is AI. I'm not sure what's coming. I get why people would be anxious about that. So I think the qualms that people have under the surface are a mixture of imagined and real.
- [21:50]
A
We've talked on this podcast before about how the increase in interest rates arrives at the same time as ChatGPT. And so it's hard to differentiate signals there. But nonetheless, the evolution of AI is happening quickly. And so people have a lot of theories about how it might impact the world. And when we talk about the economy, it seems like there are two options, both of which seem potentially catastrophic, which is that the markets are right about AI and there is massive job displacement, or the markets are wrong about AI and the bubble bursts, causing a financial market meltdown. Obviously, neither of those seems particularly appealing. Are those really our only two options for the economics of artificial intelligence?
- [22:37]
B
With everything at the future, anything could happen with AI, like really, really anything could happen. But if I had to pick one scenario, it's that AI will work out for productivity growth and the economy, but won't be profitable enough to justify the current valuations. So, for example, you could have the most amazing AI in the world, but if three companies are all producing the same amazing AI, they can't charge very much for it and they can't build moats, and as a result, they can't profit from it. So for me, that's like my modal scenario. That's a scenario also in which we're seeing something we've seen, you know, in everything from, you know, railroads through, you know, the dot com telecom build out, where there was a genuinely amazing technology, but we were sort of more amazed by it than was financially justified, built more of it, and ended up going through a bust before we got the real gains. If we get policy right, and that is a huge, huge if there's a certain amount of hedge here, if AI takes all the jobs, it took all the jobs because it's a technology in which we can all be super rich without working very much. So then as long as you can get redistribution right, we'll be fine as a country. And if AI doesn't work out and take all the jobs, well, then people will work for their money. And that's what they've been doing for millennia. And that's fine too. I worry a about whether or a lot of it, about whether policy would actually activate and do that hedge that you need. And I worry a little bit about what just rapid change means. The steady state I'm not so worried about. But the period where people trained for a certain type of life and end up with a different type of life is harder to imagine.
- [24:33]
A
Yeah, we got new consumer sentiment data today as I mentioned. Potentially this is related, potentially not. But we're talking about how Americans feel about something regardless of what the economic data suggests. And this is a theme that we've talked about probably since the pandemic. I want to read from the University of Michigan report. They write consumer sentiment stagnated this month with very little change. They go on to say sentiment is about 13% below a year ago and more than 20% below January 2025. And I just want to sort of refer back to the fact that you said 2025 was very similar to 2024. So economic circumstances not changing dramatically, sentiment changing significantly and then staying quite low. They continue to say beneath the surface. However, there is substantial variation across the population in how consumers see the economy. An increase in sentiment in February for the largest stockholders was fully offset by a decline amongst consumers without stock holdings, leaving the national index unchanged from last month. So I have to say, as a relatively data literate person, I find the consumer sentiment data hard to make a ton of sense of. So I have some questions sort of based on the trends that they describe. But first off, what should we make of the latest report?
- [25:56]
B
I don't entirely know what to make of it. So the first thing to understand is people answer these surveys in one way and then they spend their money in a totally different way when they've been super pessimistic both lately and a couple years ago. It just didn't show up in consumer spending. So there just seemed to be something different about what you tell a pollster and how you behave in the economy is the first thing. Second is a bunch of this has been political Democrats loved the economy in 2024. And Republicans thought it was terrible. And right after the election, that reversed. So these are not people telling you something about the economy. They're telling you something about politics. Now this latest one where you saw households go in different directions with whether you own stock or not, that's less irrational than, like, you like Donald Trump or you like Kamala Harris. And I need to find like a word for this. I haven't coined one. So if you want to help me out, I'd appreciate it. I don't think we're a K shaped recovery is the idea. Some people are going down, other people are going up. Most everyone, at least broad groups are going up right now. It's just some are going up much faster than others. So we have rising living standards, real wages are growing, but they're growing at like 1% a year. And then you have the stock market growing, you know, 20% a year. And so I don't know if that's causing people on the slower rising part of it to be concerned when they eye the people on the higher rising part of it. I wouldn't be surprised if that's part of the story. But I think part of the story, too is that prices are never going back down to what they were in 2019, and people would love it to pay what they paid for things in 2019. And by the way, wage growth has been unusually fast since 2019. Nominal wage growth. At the same time, price growth has been unusually fast. And as an economist, I understand those two are very closely related. We would not have had all the wage gains we had if we hadn't had all the price increases we had. But for a lot of people, they feel they deserve the raise. And the price increase was something that Joe Biden or Powell or Trump or someone they don't like did to them, and they're grumpy about it.
- [28:15]
A
It's interesting to me because we talk a lot about politics on the show, but good politics isn't always the same as good policy. Which gets us to something that I wanted to ask you about, which is, you know, Democrats are in the wilderness right now. They're trying to figure out different messages to find the right out of the wilderness. One of those is about the oligarchy. Basically, elites are hoarding America's resources and political power to the detriment of the little guy. This is related to what you were just talking about. You get the sense that the party's ready to move in a more populist direction, and that's probably good politics. You Know, I'm not positive we're going to see how that plays out. But I think in general, when you look at the polling on populist economic messages, those tend to do better than other appeals that Democratic, you know, groups might try to make. Have you heard a lot of good economic policy accompanying that, that shift?
- [29:13]
B
I've heard very little good economic policy accompanying that shift. In fact, a lot of the policy is, I think, bad. But even more than bad, it's just small. Maybe it's a small good, it's more likely a small bad. But it's shockingly incommensurate to the problem that people have identified. So first of all, let me just say what I think is the good policy is to have higher tax rates on high income people. You can then debate is it better to do, you know, a wealth tax or capital gains tax or accrual or, you know, whatever, or an income, et cetera. There's a lot of different ways that gets technical, but broadly I'm in favor of higher taxes. I should say as an aside, there's a limit to how much you can do. The easier it is for people to move out of the place you're in. So New York City is very constrained because people can move to New Jersey or Connecticut. California is reasonably constrained and very constrained when it comes to billionaires because billionaires can move. The United States is constrained, but it's not that constrained. So at least at the federal level, higher taxes to me is the right answer here. Let's talk about some of the other ones. Tim Wu recently wrote something about capping costs in airports and in stadiums. That's probably a bad idea. It might be a good idea. There's just no chance. It's a very meaningful and important idea. I don't know what the average American spends. I meant to figure it out, but I'd be surprised if it was $200 a year at those places. Maybe this plan will lower those prices by 10% and they'll save people $20. By the way, a lot of those are upper middle, disproportionately upper middle class people. In the case of airports, it'll come at the expense of of the funding that airports need. So they'll have to either make it up from someplace else or reduce their quality. So you look at a lot of the different anti monopoly ideas and they just aren't that large. They just don't affect that many prices, that many things. And that to me is a difference between tax and transfer policies, which are super hard to Do. I don't want to minimize that. But they can operate at almost any scale you want and these so called pre distribution market shaping type of stuff, much of which the closer you look, the more you start to think it's a sort of nothing burger and possibly a bad tasting nothing burger.
- [31:47]
A
So are you saying that for people who are concerned about inequality in American life, the economy, politics, et cetera, the answer is higher taxes.
- [31:56]
B
That's broadly what I think and for me, just to understand where I'm coming from, I think Jeff Bezos has made the world a better place with his innovation. Virtually every American family shops on it. They get a better selection, they get things faster, they get things cheaper as a result of it. So I don't begrudge Jeff Bezos in the slightest. I also don't think he would miss a bunch of money that he's currently getting and that his behavior would change very much, et cetera. So it's not done out of anger, it's done out of he got all this in part because of what society did for him, but more utilitarian, he won't miss it very much and some other person could benefit quite a lot from it. So for me that's where the majority of my enthusiasm about this is. But by the way, the second thing though is I would not fool myself into thinking that will change political power. If Jeff Bezos had only $100 billion, he would still have way more than enough money to influence the political system. If you did the entire Lina Khan tech agenda, I actually asked her what would it do to the stock price of Amazon. She wouldn't really sort of offer a prediction that it would lower the stock price and said it might not even lower the stock price. But let's say Amazon stock price went down 20% because of antitrust enforcement. That's not going to change the amount of power he has or the political system has. In fact, if anything, it's surprising how little money these people spend on politics relative to the impact that it has.
- [33:38]
A
As somebody who's more focused on policy than politics, you have a sense of what you think is good policy. I've taken a look at, as I mentioned, plenty of polling that suggest more pre distribution ideas are popular, like strengthening unions and putting a thumb on the scale when it comes to industrial policy or even targeted tariffs and things like that. These things are popular because people have a sense of I just want to make a living for myself, you know, increasing taxes. That seems like, you know, you're taking from somebody and giving to somebody. But people just want to work for what they have. And so on one hand, you may think that's good policy. Increasing taxes. How do you make that appealing politics?
- [34:23]
B
When I've worked in government, I've worked in collaboration with other people. I don't think I was totally politically naive or ignorant or unable to be a part of the conversation. But I thought better answers emerged in a conversation where I was doing more of the policy part of that. I get that frustration that people have. But, but labor unions, that's a good example. I'm actually fine with expanding union protections, expanding their bargaining power. I think there's some good arguments for that. But we currently have 6% of workers in private sector unions. So, you know, take that all the way up to 8%. You've just changed wages for a small number of people. Biden was the most pro union president we've had in a very long time. And the unionization rate fell throughout his presidency. So it's another thing that I think in that case, maybe it's a small positive. Somebody else might think it was a small negative. It just isn't that large. And we do have a tool to raise wages. We have two tools. One is education. The higher, more educational attainment you have, the higher your wages are. And the second tool is productivity growth, which doesn't instantly and immediately translate into wage growth, but they're very, very correlated with each other. The problem with both of these policies is they're pretty long run policies and they don't have a sort of biblical righteous justice way of thinking about them. But instead the thing they do have going for them is that they actually work.
- [35:56]
A
Housing affordability has burst onto the political scene in a way that kind of feels long overdue. And depending on who you talk to, you get a different answer for what exactly. The problem is, is I think there's a convergence on supply shortage. But then is that a symptom of a deeper problem? How much of it is about interest rates, insurance, red tape, et cetera? From your perspective, what's wrong with the housing market?
- [36:20]
B
There's a set of no brainer changes that should be made on the supply side. They're not easy. We did them Here in Cambridge, Massachusetts, where I live, I'm excited and expecting to see more building. But not everyone in Cambridge is thrilled about it. I'm not even sure it was a political winner to have done it for the current people that vote in Cambridge as opposed to the future people that will be able to live here because we have more housing so I'm wildly enthusiastic about the abundance agenda, supply side stuff. I've been pushing that for over a decade now. I'd love to have lower mortgage rates. The way to have lower mortgage rates is to have a lower budget deficit and have the government draining less capital from the economy. Price controls, rent control, I think is a disaster, that it will end up with less rentals, with less building, will hurt people over the longer run, by the way, is pretty arbitrary in terms of who gets helped and who doesn't in a way that taxes, for example, or benefits, you can target a lot better. And then some of the other red tapey stuff with title insurance, you know, whatever else, I'm not immersed in the weeds of that, but my guess is I'm in favor of all of that. But again, this is the same type of thing I said with wages. I said wages are about education and productivity. That takes a while and is sort of indirect to the degree you think the main solution to housing affordability is supply. That takes a while and it's indirect. And so if anything, I'm pleasantly surprised about how popular it's become with some politicians that people actually sort of care about economic ideas. They are having an influence. And maybe we can do that with some other long run and indirect ideas
- [38:04]
A
too when it comes to interest rates. President Trump nominated Kevin Warsh as Fed Chair when Jerome Powell's term expires in May. You've said Walsh is a good pick if he's willing to stand up to Trump. That's of course an important caveat. How would you assess that ahead of his confirmation? And maybe perhaps you can judge that also against what you think the Fed ought to be doing at a time like this.
- [38:31]
B
Yeah. So look, I'd like to say I'm certain, but I'm not. What makes me feel somewhat reassured is several different things. One is he is a person of integrity. He did more politicking for the job than I would like to have seen happen. But no one was going to get that job without politicking. And I'd rather he did some politicking than some much worse person ended up with the job. Second is the Fed makes decisions based on the majority of a 12 person vote. And the crazier the chair is, the harder it will be for them to win those votes. And you don't want to sit there and be powerless and be overruled by others. So you're going to have to be rational and speak their language and be reasonable. Third thing is markets provide a certain amount of Discipline and feedback. And then finally, I think with Kevin Warsh in particular, yes, he gets along well with Donald Trump. He has a lot of other things he cares about, what the press thinks, what history will think, what his peer group thinks, what Wall street thinks to some degree, what the wonks at the Hoover Institution think, et cetera. And so I think his incentives are a little bit more aligned with doing a good job than just with pleasing Donald Trump.
- [39:52]
A
You've pretty much said that the economy is at a good place right now. Of course, things could change by May when he comes into office. But as a benchmark, would you say that an independent chair of the Federal Reserve right now would be arguing for holding steady?
- [40:07]
B
Probably so, first of all, but I want to be completely clear, I think the economy's in a perfectly good place. I think it would be in a somewhat better place if we hadn't had some of the bad policies over the last year. So I think Trump has made it worse. It just was a pretty good economy that still probably rounds to pretty good, even after the worsening. Yeah, I don't see any reason for the Fed to be moving rates right now. And the Fed, by the way, doesn't see any reason for the Fed to be moving rates right now. We still have inflation too high. I have all the reasons why I think it'll come down, but I'm not sure about that. And the Fed needs to really, really worry about that risk. And at the same time, the labor market, whatever you think about it, you have to feel better about it than you felt two months ago, based on the data we've gotten. And so I don't think there's any pressing problem the Fed needs to solve by cutting rates either.
- [40:57]
A
There's another, I guess, piece of data that we got recently, which were projections for government debt and deficit from the Congressional Budget Office. It projected that the annual deficit will grow from about 2 trillion today to about 3 trillion 10 years from now in 2036, and that during that time, the total debt will rise from about 100% of GDP today to 120% of GDP in 2036, surpassing its previous high of 106% of GDP in 1936. Now, I have to be thinking, based on those projections, that if Republicans were out of power today, they would be tearing the walls down. Democrats, of course, have a different relationship with the debt and deficit than Republicans do historically. You know, I'm speaking in terms of politics. What the two parties have done while they're in power, it's a different thing how much of a cause for concern is it? And is there a Democratic, quote, you know, big D, Democratic approach to the debt and deficit?
- [42:04]
B
First of all, the debt is high, and then the deficit, which is the amount we're adding to the debt, is also very high. I would have expected more people to be worried about it. They're not, in part because of politics and partisan polarization and different preferences in the political parties, which is, I think, implicit in your question, your way of phrasing it, Galen. But part of it is also that interest rates just aren't super high. And so it's not like the market itself is signaling that this is a really big worry in a way that the market did, for example, in the 1980s and 1990s did seem to be signaling that it was much more worried about it then than it is now. President Trump has actually been shockingly sort of neutral on the deficit and the debt. Now, when I say neutral, it's locking in and accepting a very, very high trajectory for it. But that's because he did tax cuts, but he also did tariff increases, spending cuts on Medicaid and food stamps and other things, and then eliminated a lot of energy tax breaks. And all of that roughly netted out to zero. What it has done, though, is introduced an asymmetric political risk. So now we're seeing tariffs potentially being scaled back. The Medicaid cuts, I hope, get scaled back. Maybe some of the clean energy incentives will come back. And so some of the ways in which he cut taxes, I think are very durable and likely to last. Some of the ways President Trump has raised money or cut spending are much less durable and are much more politically vulnerable. So while he hasn't increased the deficit and debt, he's locked in the high amount we had and added this asymmetric political risk that makes it more likely to add to it than subtract from it. It's on an unsustainable course. At some point, something will have to change. But there's no reason we can't stay on this course for a couple more years without anything big and dramatic happening. The sooner we deal with it, the better. But I don't know, my hair isn't on fire. It's just sort of getting uncomfortably warm.
- [44:19]
A
One of the approaches that more sort of left wing parties take in Europe to this question is talking about generational inequality, basically saying, you know, if you're spending money today, that's money that young people won't have in the future. And so it's sort of creating a dynamic that maybe benefits a left wing coalition or something like that, or an argument that benefits a left wing coalition. Is there a palatable democratic capital D democratic, not liberal democracy argument for debt and deficit reduction?
- [44:55]
B
I'm not big on the generational equity argument for the same reason that I like redistribution. I want to take money from rich people and give it to poor people. And when you think in terms of generations, the poor people is everyone alive today, and the rich people is everyone alive in the future? And so if our great grandchildren have somewhat less good electric car, you know, flying cars, you know, and we all live a little bit better today, I don't think that's so bad. So I actually don't mind the intergenerational equity. What I mind is that you may end up incurring just a much, much larger cost than you need to. I don't want to wait an extra five years and have the problem be twice as costly to solve because you had an economic crisis in the interim than doing it now. So I think it's more of a sort of risk cost and something that might actually hurt people in the next 10 or 15 or 20 years and less that I care about people 50 or 100 years from now. I do care about them. I just care about us even more.
- [45:57]
A
All right, well, we're going to leave things there for today. Jason Furman, thank you so much for joining me.
- [46:01]
B
Thanks for having me.
- [46:02]
A
My name is Galen Druke. Remember to become a subscriber to this podcast@gdpolitics.com and wherever you listen to podcasts. Paid subscribers get about twice the number of episodes and can join in our paid subscriber chats and pass along questions for us to discuss discuss on the show. Most importantly, you ensure that we can keep making a podcast that prioritizes curiosity, rigor and a sense of humor. Also, be a friend of the POD and go give us a five star rating wherever you listen to podcasts, maybe even tell a friend about us. Thanks for listening and we will see you soon.