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- [00:00]
Jill Schlesinger
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Jill Schlesinger
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Mark Tulare
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Jill Schlesinger
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- [02:15]
Mark Tulare
Welcome to the Jill on Money Show. It's Friday, March 21st and we are here trying to help you make sense of this gushing flow of news that you are trying to absorb.
- [02:26]
Jill Schlesinger
It's very difficult.
- [02:27]
Mark Tulare
I get it. So when I feel somewhat overwhelmed I go to people who are much smarter than I am. That is why I am delighted for this broadcast to bring you Diane Swonk. She is the Chief Economist at KPMG us. She absolutely always makes sense of short term and long term trends and when I interviewed her last week it had just Been like kind of that grueling week in the market. But also we had gotten two data releases around consumer confidence that she was very, she had really was able to help me understand, understand how our feelings can translate into different behavior. So with that said, if you have any questions about this or what's going on in the economy or does this raise an issue for you, then just go to jillonmoney.com, click the contact us button, write us a note, and of course, please let us know if you want to join us on the air live. We love having you right now. Totally enjoy this because I love her. Diane Swonk, Chief Economist at kpmg One time a million years ago, you told me something. I actually went back and looked at some old notes and you said, you know, one of the reasons I went into economics is that, like, it really can help change public policy. And now it feels like public policy is really changing the economy. So can you paint.
- [03:53]
Jill Schlesinger
First, let's do this.
- [03:54]
Mark Tulare
Paint a picture of where the US economy stood on January 2nd of this year.
- [04:01]
Diane Swonk
What was going on on January 2nd? We were in a period where we had just seen a bump in consumer attitudes, a bump in CEO attitudes. There was an election bump, and we saw the economy entering the year with a lot of momentum. Consumer spending in December accelerated, and, you know, we had this compressed holiday season, but it was on running on all engines. We, you know, I spent a lot of time last year talking about something I call mind the gap. And that was the gap between how consumers said they felt about the economy versus the overall aggregate economic numbers. And that's because inequalities were worsening. And we know from work done by Moody's research that in 2024, about half of all consumer spending was done by the top 10% of households. So that sort of gets to some of that dissonance that we were hearing out there. And I started to talk about the dissonance and the undercurrents where we were feel. But we entered the year with some momentum. Even the employment numbers came in better than expected on December. And so we're sort of looking at things going, wow, this is looking like we're entering the year on strong footing.
- [05:14]
Mark Tulare
Okay, so that seems okay and even seems okay that we would have a pullback in spending by some part of the, by some consumers. Not every single consumer. I mean, people got pretty tapped out in 23, 22, 23, 24. They spent a lot of money. Right. One thing that strikes me as kind of interesting at this moment is we have these on again, off again tariffs. You know, people are concerned. Obviously consumers are already feeling like a little bit, as you said, say that let's say the bottom even, not half, let's say the bottom two thirds of consumers are already feeling a little bit pressure. Now we put this fear of tariffs on and before they were even enacted, people were starting to get spooked. So how important is it for us to watch consumer sentiment and confidence indicators? How often does that actually translate to something really like a change in behavior among those consumers?
- [06:11]
Diane Swonk
Well, it's a really good point. And what we're watching right now, I think we should be watching it. I do think that what we're seeing in those indicators, which are very stagflationary, people are concerned about their jobs at the same time that we've seen actually inflation expectations both one year out and five years out spike. And in fact, the movement in the five year out expectation that just came out today was the largest one month move up since 1993.
- [06:41]
Mark Tulare
Wow.
- [06:42]
Diane Swonk
Yes. And we've seen a 22% deterioration in consumer attitudes from the sentiment index alone. The consumer confidence by the conference board, that one, has also deteriorated. Both inflation expectations picking up and job security eroding. That is something that is worrisome because it's got a stagflationary feel. It's also a bit of an IQ test. Anyone who's been watching TV and seeing high profile layoffs announcements picking up, but also the federal layoffs and the talk about tariffs has to be worried. But one thing that's really important that we're looking at right now is what happened in this most recent survey was how broad based the move was. And that was, it was on every age, every income, every wealth, every geography and across political affiliation. And that's not something we usually see. There's usually differentiators there. Also, consumers noted how uncertain they were about the policy outlook. And we know that measures of economic policy uncertainty because we know this is something that affects consumer behavior, but also affects firm behavior. Measures of economic policy uncertainty at the global level as of the end of January had already lapsed. The pandemic as the highest record. Not kidding, the highest.
- [08:06]
Mark Tulare
Wait a second. Okay, and so let me just go back in time for one second. So stagflation is stagnating economy, but still inflation. But if the economy is stagnating, won't the inflation rate come down naturally? What keeps it high besides these tariffs? Like, is it just the tariffs? That's the deflationary part.
- [08:26]
Diane Swonk
So first of all there's the spectrum and scope of the tariffs and many have already been enacted. And the ones that are coming the next tranche that the last executive order on Inauguration Day that was signed open the door and greased the wheels for the most more permanent tariffs in a record short period of time, usually takes a year. And by April 2nd, 2nd, April 20th, they're going to be announcing these new tranches of tariffs as well. These are important because the tariffs that have come out so far, they stack on top of each other. So like, you know, if there's a 25% tariff on steel, a 10% tariff on a China, another 10% tariff on China, bringing the effective tariff rate on China to 38, 30.8% because it was 10.8% before those two increases. Then you add another 25% that's, you know, on top of that added on to steel coming in from China alone. And then there's another 25% that could be added on that. You could have a 70% tariff on steel from China alone. Now, China isn't the only place we import these things from. But you know, literally they're talking about the tranche of tariffs that just went in on March 12 that included everything, including the kitchen sink, because stainless steel sinks, we're included in it. And so what's important to understand is the size and magnitude is nothing like 2018, 2019.
- [09:45]
Mark Tulare
Is it three and a half times bigger? Is that what I read?
- [09:48]
Diane Swonk
It's easily that we're going from an effective tariff rate on our baseline and looking at different scenarios of what we think is coming and what's been proposed and not taking everything at face value, we can go from less than 3% tariff and back in 2018 it went less than 3%, bumped up to about 3 1/4% effective tariff rate on everything in the US economy to 16.5% by mid year.
- [10:16]
Mark Tulare
Wow.
- [10:16]
Diane Swonk
Wow, that is huge. The downside scenario is 24. Now that magnitude, some of that's going to show up in margin compression and.
- [10:25]
Mark Tulare
Layoffs, meaning companies are going to make less money.
- [10:27]
Diane Swonk
Exactly. The other side of it has to be passed on in some way to consumer and prices. So that's that stagflationary nature of it. And that's why the Fed Federal Reserve is sort of in this, caught in this sort of wait and see mode, because they don't want to. The embers of inflation are still smoldering and in fact their measures that they watch the closest of inflation, although we got some good news on the CPI Consumer Price Index and some inflation numbers, their actual measure of inflation they watch closes. We've already made the calculations and with the data we have, and they're making the same one as they go into this meeting. And it shows inflation actually accelerating because.
- [11:08]
Mark Tulare
They use just so everyone understands this, we often will talk about the Consumer Price Index or you know, even whatever the wholesale price they're looking at that very easy roll right off your tongue, the Personal Consumption Expenditure Index. And you can't even say it fast. They use that as their inflation measure because they believe that's more, more in line with the lived experience on the ground. Is that right?
- [11:31]
Diane Swonk
Exactly. And it's, it's weighted by how we spend things. And so you see trade offs when people make a trade off of buying something that's less expensive instead of something that's more expensive to try to manage their household finances. So that number is actually accelerating.
- [11:46]
Mark Tulare
What do you think that the Fed is going to put out there? Because this is one of those meetings where you get economic projections, not that they're so good at it, by the way, they're not so good at projecting, but what do you think they're going to say?
- [11:58]
Diane Swonk
So what we've got is an increasingly split Federal Reserve. There are some that are like can we look through this inflation and will it come down on its own because it will destroy so much demand later on, or do we need to hold the line a little longer? Now, Jay Powell has been pretty clear that they're in no hurry to cut rates and financial markets have been focusing on the weakness we could see and not the stagflationary effects. And I don't think it's any coincidence that Jay Powell, chairman of the Fed, when asked who is most admired Fed chairman was, he said Paul Volcker, the man who famously broke the back of the stagflation of the 1970s in the early 1980s very brutally. The other thing, as we've heard a lot of Fed Presidents evoking the 1970s as a cautionary tale, and the reason that's so important right now is that the embers of inflation are still smoldering. They could easily be reignited at the same time that we've got these tariff induced inflation and we've got supply chains that are much longer than they were in the past and counterparts on the other side of the world that want to retaliate pretty quickly, they're not going to hold back and they will want to inflict the most political and economic pain and something most people don't realize is supply chains in order to avoid the tariffs with China, which were continued from one administration to the other, they got longer, not shorter for US Producers.
- [13:25]
Mark Tulare
Funny that you should say it. I was just talking to somebody I know who's in the jewelry business, the costume jewelry business. She said that, you know, they had many, many, they have many imports from China. So all they've done is they're building new factory in Vietnam, which I guess is like the China hideaway intermediary.
- [13:46]
Diane Swonk
It takes time and you can't just turn it on overnight. But also, countries like Vietnam has been used as connector countries to sort of escape the tariffs and ship things from China. Here we've also seen a lot come on what's called the de minimis, under $800 in shipments directly from China on online. All those online marketplaces that are very, very inexpensive, those are directly from China and they come in without tariffs. And that's something that is very hard to collect because it comes to the postal service. All of that together gets to how much longer supply chains have gotten. And many times people don't even realize that as they were getting a cheaper producer that somehow missed this tariff, that they were then going on this longer supply chain. And that means more pinch points to disrupt, much like we saw during the pandemic than we had pre pandemic.
- [14:42]
Mark Tulare
So if we look at a longer supply chain, we look at these tariffs, we look at the fact. I mean, I do think there's something to be said about how we are human beings and within the last five years, we all, 100% of U.S. citizens and probably world citizens, experienced this big inflationary surge. Right. Do you see a scenario where we could get to those levels? Or is the scenario that we're looking at more like 3, 4, 4% inflation?
- [15:09]
Diane Swonk
Ours is more like 3, 4%. And you know, that's. That's still too high in a world where we're only just below that, you know, depending on the measure. And that's something that is very worrisome because as it is, the level of prices for too many consumers are still out of reach. And so you put it all together, and that is very worrisome. The other thing that I think is important is the. That uncertainty plays and it's showing up in. I said it mentioned it in the sentiment numbers as well. But the measures of uncertainty, let's just put that into context of what it means in terms of the economy in addition to what's going on, just the actual effects of tariffs and retaliation. And that is Uncertainty, It's a base human emotion we tend to seize up. And I liken it to a broken stoplight at a busy intersection. Traffic backs up and no one knows who's tow first. They all inch into it. Some people do a U turn and opt out entirely and wait for the traffic to clear or the stoplight to be fixed. But it causes that hesitation. And as a young driver, I had a very bad accident and violated my father's trust as well. And that is something that trust in an uncertain environment. You want more trust. And we've seen an erosion in trust for decades in our political institutions and in large companies, most notably since the pandemic. That erosion in trust amidst that uncertainty makes it even harder because it's harder to move forward. But I think back to my own experience and my own experience in that exact situation where the stoplight was broken and I was more skittish and tentative driver because I just had a bad accident and I had violated my father's trust who. Who had his beloved auto industry. And this was his thing. This is what I spent. I've been walking factory plants since I was 2 years old. And I remember looking to my side and a driver in an adjacent corner gave me one of those reassuring nods. And that nod, in that small act, I had the trust to go forward and cross the intersection with without incident. And trust allows us to go beyond our doubts and move forward.
- [17:30]
Mark Tulare
It's trust in institutions, trust in each other. You know, I don't know how the vast majority of people think about Jay Powell. Like, I think he's done a good job. Good enough. You know, he's. They made mistakes on the way in. I think I talked to you right in the beginning when you were. You were clearly like, hey, they gotta move. They gotta actually, like, they waited six months, but they finally got there. But it's also very difficult to live in an uncertain time when your whole operating. It's like your operating system is used to operating in much different, slower ways. Not only is it just the actual announcements, it's the speed of the announcements, it's all the things that are happening. And when you talk about seizing up, it doesn't surprise me that very wealthy people are finally saying, well, maybe I will. Maybe I'll make a take a different idea trip, or maybe I won't do that. You know, I spoke to someone who runs a big travel services company, and she said, guess what? We're not selling out those river cruises in Europe in the way we did just six months ago.
- [18:33]
Diane Swonk
Yes.
- [18:33]
Mark Tulare
So Things are changing pretty rapidly. So now when you look at where we are mid March, you know, we were sort of came in and now we have government jobs that are being lost. We had decent job creation those in the past. I mean, what do you sense is going to be the path forward if the first quarter is weak anyway? Like we're going to get a weak reading on growth.
- [18:57]
Diane Swonk
Absolutely.
- [18:58]
Mark Tulare
If all of these tariffs that are contemplated stay in place for the next quarter in the second quarter, could that tip us into a recession?
- [19:07]
Diane Swonk
It's not clear it could tip us fully into a recession, but we could see red ink unemployment as soon as March really certainly in April. For every one job in government that's lost, usually it's two for contractors. But this has actually got a bigger effect because there's been seizing up of the National Institute of Health grants which affect hospitals, research institutions, higher education funding to higher education has been cut. Some very high profile. They're also going to be cutting funds to to individual states that tend to be more blue than red. All of those things together start if you look at the three pillars of what has 70% of all employment gains since June 2023 on the margin on those payrolls we see every month have been dominated by three legs, I.e. state and local government. And state and local government revenues fell short in the last fiscal year. So we've been surprised at how long they've been sustained. But state and local government, a lot of it in education also we've had it in leisure and hospitality. Two months in a row we had declines and we expected to see a rebound in February in leisure and hospitality and we saw an accelerated decline. And January number was affected by those fires in California which was horrible. And we expect to see a rebound. And it fell by 21,000 after falling by 8,000 in January. So that was sort of surprising to see that now some of that's people just not showing up because in food services was the largest and that is where there are a lot of immigrant workers. And the chilling effect of ICE raids have had an impact on people showing up as well. And about a million people who were assigned as asylum seekers from Haiti and Venezuela are no longer legal. So that's important too. So all of these things together are coming together. And you know, the last one was healthcare and social assistance. Now healthcare and social assistance still added a lot of jobs, but we know that healthcare is being hit in research institutions by some of these NIH grants as well. So all of a sudden you're starting to undo the Three legs that held us up in employment and the spillover effects of what's happening. And this all happens, by the way, when we hit a record deficit in the month of February of all time, a trillion by February, despite the cuts they've made.
- [21:37]
Mark Tulare
Paint me a picture of how this is not turning into a more pronounced slowdown. So let's look at a few different scenarios. Let's say that we get a nasty print for March or April on the job situation. Now they cut in May. Do you think that that could be some relief to the economy or they won't be able to cut enough?
- [22:05]
Diane Swonk
I don't think they can cut in May. If we've seen the, I mean, just given the inflation numbers we already have, it's a stretch and you don't want to. The lessons of the 1970s and they don't want to repeat it. And that's why we don't have the kinds of inflation that we even saw during the pandemic from this sort of mild bout of stagflation is because you don't want to cut too soon because anything you gain in terms of employment is quickly lost and eroded by higher inflation. And so that's a very hard balancing act. And all of a sudden, remember a large part of the Fed's soft landing narrative was that we had a influx of immigration that filled job openings often native born wouldn't fill. And job openings, you know, went way above where they were and they still are above where they were in 2019. But that those workers are not going to be filling those job openings anymore undoes some of the balance in the labor market. And you get these weird things where you get layoffs in one sector, but then you have other sectors that have acute shortages like in agriculture, construction, leisure and hospitality. And so, you know, you see these sort of mismatches out there. And that's just a very hard world for the Fed and a challenge to navigate. And that's why you've seen them sort of shift into wait and see mode. Jay Powell using words like we're trying to find the signal through the noise, which I think is a very good way to think about it. They're going to wait it out. And they, you know, it's interesting as to see also spreads on corporate bonds, which is a measure of credit tightness that's widened recently relative to the treasury bond. And that reflects this concern about the economy, margins, profit margins getting hit and you know, how safe is it really out there?
- [24:00]
Mark Tulare
It's been interesting to just to, to listen to you, you know, about like sort of the erosion. And then you, you know, you look at big numbers, right? We have a, an economy that employs 159 million people, right. So it's hard to make sense of like, well, how could it be that 250,000 government employees get cut? And you said, you know, for every one, maybe there's two or three more. So let's say that there are a million government workers. Slash government adjacent folks. Yeah, we lose that. It's only a million jobs, but it's an economy where there's so much churn always. So how do we, so how can we make sense of that? Like if you lose a million jobs.
- [24:43]
Jill Schlesinger
I guess it's also the period of.
- [24:44]
Mark Tulare
Time that you do it. Because when we talk about the churn in the economy, like, oh, there's a bunch of kids who are graduating and now they come into the labor market and some people retire. But if everything's happening at warp speed, it becomes much more difficult for the economy to absorb that.
- [24:58]
Jill Schlesinger
Is that right?
- [24:59]
Diane Swonk
Exactly. And the other part is, I mean, you hold the unemployment rate down through all this because you have less participation by foreign born workers who participate at a higher rate than native born workers. And so that holds the unemployment rate down even if you do see some red numbers. So again, that's sort of a, again mixed signals for the Fed. Right. But as we look at it, I think one of the things that's really important is that there's a lot of the policies that were sort of more contractionary and inflationary at the same time are being implemented. First the sequencing of policies matters and then the things that were meant to stimulate investment, extensions and expansions to tax cuts, all of that is happening later. But that could also have its own inflationary bump if you sweeten things up too much. It's a very difficult landscape all of a sudden. Could we see a course correction given how fast things are going? We could, and I would welcome that with open arms. And a lot of, you know, a lot of people, I think, I mean, you're seeing it in consumer, from consumers to firms to the nonprofits, a lot of people would like things to move a little slower, more predictably. And actually, you know, all the research on uncertainty suggests, and even the President's NEC chair, Kevin Hassett has written about this and done the research and that is rapid changes in the policy tend to be destabilizing and they tend to be, have this weird impact on and causing sort of this hesitation, hunkering down that we're seeing out there at the same time you're laying over it a policy on tariffs which we know historically has never delivered in terms of the pain it causes the economy for protected industries. It's never delivered enough jobs to offset the overall pain in the economy. Even the steel tariffs in 2018, 2019, that helped create 10,000 steelworker jobs. But the higher input costs into manufacturing more than wiped out all of that and then some and caused a manufacturing recession in 2019, which is one of the reasons the Federal Reserve had to cut rates in 2019.
- [27:12]
Mark Tulare
So you bring up a couple of things that I want to touch on. First, is I just want to get back to that Fed dual mandate for a second. So the Fed's got two jobs, essentially three jobs. You know, they have to supervise all the big banks. So that's one big part. Okay. But their job of the policymakers is to kind of keep in balance prices, price stability, and the employment market. It's a weird thing in some respects. You're saying they're tilting towards making sure that inflation, inflation doesn't come back. And, you know, I kind of get that. I mean, even politically, I would get that because inflation impacts 100% of the people.
- [27:48]
Diane Swonk
Absolutely right, you got it.
- [27:50]
Mark Tulare
So that is like, if you look at just like that, that impact is massive. So if you let prices rise, then everyone hurts. And if you keep interest rates high longer, and that does contribute to some of the labor market deterioration.
- [28:08]
Jill Schlesinger
Yes, it is true.
- [28:09]
Mark Tulare
We could see the unemployment rate go from four to five, which would suck. Like, if you're the person who's part of the 4 to 5 jump, it sucks. Okay. But it's still only 5% of the workforce. Should there be a dual mandate? Should it be that we should always. Should price stability always come first?
- [28:26]
Diane Swonk
Well, when it comes to situations like this, it does by default. And that's the important thing to remember. And that's what the Fed is basically trying to. Some people on the Fed are. This is where the Fed split a bit. But some people on the Fed are more loud about that than others. Jay Powell sort of walking the line in the middle and trying to balance, you know, corral the cats. And there should be divisions at times when we just don't know which effect's going to dominate. But at the end of the day, there is, you know, the worst Fed chairman in history was Arthur Burns, the 1970s, and, and he gave a seminal speech that was repeated several times. And an important person was in the audience in 1980, 1979, and the speech was called Anguish of Central Banking. And in it it became the bible of what not to do because he laid out all the what his mistakes were, including being influenced to stimulate the economy for President Nixon's reelection campaign in 1972. After a decade of inflation in the 1960s, that just made for ripe. When OPEC had an embargo of oil in 1973 for stagflation, our first bout of it, what he argued in that is that you can never, if you do short term cut to be able to lower the pain in the labor market, it's going to come back and whiplash anyways because the inflation will cause more layoffs down the road that it causes. And so that is ingrained into the institution of the Federal Reserve and into their mindset and Jay Powell's old enough to have remembered the 1970s as well. And I think these are important things to sort of, you know, yes, they have a dual mandate. Do they want to reopen the mandate right now? No. And, you know, the risk of there's an attack on the Fed's independence and there is some executive orders on that out there already. And that is not where the Fed wants to go or, you know, deal with that right now. At the end of the day, we all know how scarring the level of prices are. As economists, we talk about inflation, but most people don't think about how fast prices are going up. It's just the level of prices are high. Right. And inflation as a construct is an economic way of thinking of things, but it's not how people experience it. And you need to understand how people experience it. And it's also, like I said, the aggregate numbers often mask the inequality and in the underlying numbers. And for me, it's about getting to those underlying numbers and understanding why people feel the way they do. But the idea that you laid out, 100% of everyone feels inflation. And it's why as we were experiencing inflation and the economy was booming, labor markets were booming, that people thought we were in a recession because they were literally losing ground. And I think of those frontline workers that had been in the shadows, almost ignored, and then all of a sudden the pandemic hit and they became essential workers and they moved from the shadows of the economy into the sun only to be burned by inflation. And all of a sudden they got set back by inflation and their inflation in particular for necessities, everything from food to shelter is particularly high.
- [31:56]
Mark Tulare
So when we look back now, at what point did wages start rising faster than the inflation rate? When did we turn on that?
- [32:05]
Diane Swonk
So we're over two years into that now. So that's the good news is for better part of two years we've seen wages outpace inflation that still for many people has not regained the ground lost for them. And we had an extended period of subdued real wage gains that we've not seen in a period for a very long time. And that's, you know, wages adjusting for inflation. Inflation. So even though economists will sit there and you know, in the aggregate say, well the bet, you know, families on average are this much better off or this and that there is no average, individual experiences in an unequal economy are very different. And I think we need to listen to that. And you know, the consumer sentiment surveys are being amplified by, you know, you'd have to be brain dead not to see some kind of news on tariffs causing inflation and on, you know, layoffs in Washington and some big layoff announcements recently. So that fits into their psyche. And so some of it is just an overreaction to that. But the fact that it's been going on for three months and then it's getting worse, that's notable. And the fact that it's across of the board and every way you cut it, that is what's more startling. This is not just a partisan thing. This is not just. This is everyone saying we just need a little calm here. Which who knows, maybe things like that will force a course correction. But right now the course we're on has some consequences that are already starting to be felt in the economy.
- [33:42]
Mark Tulare
So I want to get back to this question around manufacturing because so much of the tariff touters, the people who are like, yeah, tariffs are great, they're going to bring manufacturing jobs back to the U.S. you know, I went down a rabbit hole one morning just to look at, like, well, where are we with this? So 13 million manufacturing jobs out of 150 million, 59 million jobs. And then I looked, I found this fun thing which I just thought was kind of nifty, which was the St. Louis Federal Reserve bank, which has like the percentage of the total US economy that is attributed to manufacturing, which is somewhere between 10 and 12% for the last 15 years. In what universe should we be spending this much time focusing on manufacturing? Because it seems to me that 88 to 90% seems to be more important than 10 or 12%.
- [34:36]
Diane Swonk
That's exactly right. But the other issue is the thought of what kind of manufacturing jobs will come back. I was just talking to someone who wrote an article, a reporter who wrote an article about a factory in Cincinnati where they make plastic gloves because, remember, there was all of a sudden we couldn't get some plastic gloves. And to do it in the United States, relative to, say, a cheaper economy in Asia, it was one worker versus five. And in order to do that, they had to do a highly automated, very technical kind of manufacturing process. And the person then that had to work in that plant, the fewer people that worked in that plant had to be much more higher educated to be able to work the automation. And much of manufacturing has not automated as much as we think. It's really slowed down, actually. And productivity gains have not been what we had hoped. And what most people don't realize is even like the UAW wages that just got a big bump up with that recent settlement, by the end of their contract, their wages will be back to 2007 levels. So, you know, this idea of bringing back, I mean, I talk to a lot of manufacturers that can't compete with retailers because, which is, you know, one, wages have gone up in retail, but it's also a less risky job. And that whole phenomena really speaks to the jobs that, you know, from the 1950s, manufacturing and the 1960s, those don't exist anymore. And even the, you know, when we did see foreign direct investment and investment in the United States pick up or reshoring, that was due to the poorly named Inflation Reduction act, because it actually stimulated inflation. But it did bring, you know, a lot of production into United States. And we saw a big surge in foreign direct investment in the United States. But again, those were very highly paid jobs that are now at risk because they want to use what's not been allocated in that. And it's mostly in. It was almost 80%, over 83% of the battery plants are in Republican districts. And it was. A lot of the renewables are in Republican states as well. And so, you know, it's kind of an interesting issue that they're dealing with. And it's part of the reason why many within the House of Representatives said, you know, we don't want to fully repeal everything in the IRA because there's some good jobs in rural areas that are boom towns because of it. But those are different than, you know, it's not recreating. We can't go. We can't turn back the hands of time. And that's the part that gets lost in translation. Moreover, the economic research is unequivocal unless the government is going to do something like we've seen China do, where they were willing to subsidize en masse these industries, not just tariff, but subsidize in a big, huge way and put a lot of money behind it. You're not going to see the manufacturing infrastructure built out. And again, then where are you going to get the workers? And you know, we're talking about by 2033. CBO has moved up the date from 2040. If we don't have immigration, that's when the population starts to decline.
- [38:00]
Mark Tulare
Why is a population decline bad for the economy? Why don't you explain that like if, if so, let's just pretend everything is as is. It's 2033 and God willing, you and I are not working anymore. We should be doing something fun now. Old farts like us, we're retiring and there's not enough new workers coming in. Why is that bad for an economy?
- [38:21]
Diane Swonk
So potential growth in the economy is the rate at which the labor force can grow. And 67% of the labor force now is born 1982 or beyond. So the first inflation they've ever seen in their lives was the one we just had, plus productivity growth. And you have to have labor force growing and productivity growing to have your potential growth going. So the less labor force you have growing, especially of working age, prime age individuals, I'm no longer my prime. This is how the government defines it. Between, I understand, 25 to 54, that's prime age working population. And if that is not growing and that has been helped out dramatically, low birth rates are hurting it. But that has been helped up dramatically by an influx of immigration, which now we're talking about reversing. We can all debate what is good immigration policy. Nobody's talking about immigration policy per se. It's just on or off instead of what is the right thing for the United States or anyone else. But I think these are important things to think of. So you need to have a lot of productivity growth to compensate for that. Which gets me back to, you know, how do you have a plant in the United States, one that's highly automated? And even the chip plants that are being built here, they're worried that they won't have access to the number of people that they need that are so highly skilled to work in those chip plants? Because there may not be enough people in STEM to be able to do the jobs that they need them to do in those plants. And then you overlay that with curbs on legal immigration and just the opting out that happens when you have this sort of chilling backlash and trade wars around the world. With our closest trading partners, the best and the brightest all of a sudden aren't going to be here showing up to fill those jobs either.
- [40:10]
Mark Tulare
And productivity growth can't increase enough just with like technology or AI that like every, you know, AI believer says, you know, we don't need you, Schlesinger. We'll have someone to write scripts and.
- [40:24]
Diane Swonk
Replace your Persona and your voice with your own voice. Yes, I know.
- [40:28]
Mark Tulare
Yeah. So is that a game changer or not necessarily or how do you see that?
- [40:34]
Diane Swonk
So, you know, the adoption of AI, every innovation has been, you know, that we've seen out there has been precipitated by a bubble a bit. So and that helps to get the infrastructure up and going. What's unique about generative AI is the extraordinary. First of all, we, you know, data is a premium, it's going up in cost, but also the extraordinary energy demands that it places and it requires a lot more energy than we have. I mean, one major tech behemoth alone is take is reopening a plant from my childhood that went down Three Mile island, you know, just out just to have the one nuclear part that side of it and put 1.9 billion in it to redo it so they can have that source just for themselves to run these models. That is stunning. And then you think of the data centers and how much energy they require and they're stressing energy grids and they require not just renewable energy, they require 24, 7 energy so that they don't go down. That means, you know, something nuclear or something that's not as clean as renewable energy because we've not yet figured out how to store the batteries, although Silicon Valley was working on that. All of that really gets to. This is the first time that we've had a technological innovation where the scaling of it and Deep Seek, you know, probably learned a lot on our own on a lot of our stuff as well. The, you know, the less expensive version. But at the end of the day, the scaling of it, it costs the more, the more you use it. It has incredible applications. I mean, the thought to me of all the cancers I had, that one could have been detected years in advance and not in the middle of a pandemic.
- [42:15]
Mark Tulare
Wow.
- [42:16]
Diane Swonk
You know, I mean, what I would have done for that and that's, you know, and you think about even the ability in elder care for someone to have AI to check on a patient and that person that's working with them to know what do they need to intervene and do they really need to go to the hospital right now or is it something that they can handle via AI? And you know, these kinds of things are mind blowing and it's great. But getting from here to there is a big place. And when you've got headwinds of uncertainty and people not wanting to make those big investments, it slows down that process as well.
- [42:54]
Mark Tulare
Thanks so much to Diane Swonk. She is fantastic. We will link to her information in the show notes. If you've got a question about what's going on in the economy, it's something that we spoke about started to agitate you a little. I just said to Mark, like, oh my gosh, she was a little bit more downbeat than I thought she'd be. You know, it doesn't necessarily mean it's going to be true, but it can certainly evoke emotions. Get in touch with us. Don't live with that anxiety. Help us help you. So go to our website, jillonmoney.com, click the contact Us button. Come join us. We'll talk through whatever is on your mind. Okay, while you're on the website, don't forget to sign up for the free weekly newsletter and check out our subscription service. It's called Jill on Money Live. That is where you have access to quarterly live webinars, bonus audio and video content and our entire back catalog, all for 45 bucks. For the next 12 months, you can subscribe to us on the Odyssey app or wherever you find your favorite shows. And also, by the way, you can always subscribe to our sister broadcast called Money Watch that airs on Saturdays and Sundays. Again, everything is on the Odyssey app if you need it, or wherever you find your podcast. Our music is composed by Joel Goodman, Mark Tulare Series, our executive producer and king of all things web. And we are distributed by the aforementioned Odyssey. Try to put your hands, metaphorically on someone's back. Change your work, change your wealth, change your life. Thanks for listening. We'll either talk to you tomorrow on Money WATCH or next week on this show.
- [44:24]
Jill Schlesinger
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Mark Tulare
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Jill Schlesinger
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Mark Tulare
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Jill Schlesinger
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Mark Tulare
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Jill Schlesinger
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