Marketplace Podcast Summary: "Divide the Company and Conquer"
Release Date: December 26, 2024
Host: Kimberly Adams
Host Organization: Marketplace

1. Understanding the Money Supply: M2 and Its Implications

Timestamp: 01:26 – 04:33

In the episode's opening segment, host Kimberly Adams delves into the Federal Reserve's measurement of the nation's money supply, specifically focusing on the M2 metric. The Federal Reserve recently reported the M2 money supply at $21.5 trillion. Marketplace reporter Justin Ho explains the components of M2, distinguishing it from M1 (which includes highly liquid forms like checking accounts and cash) by adding less liquid assets such as savings accounts.

Ernie Tedeschi from Yale's Budget Lab highlights the significance of tracking M2, noting, “Money supply can be a tool to steer the economy” (03:11). Justin Ho further elaborates on how the Federal Reserve influences the money supply, referencing actions taken during the pandemic, such as purchasing over a trillion dollars in bonds. This influx of money into the banking system, as noted by Nationwide's Chief Economist Kathy Bostjancik, played a role in driving inflation higher by increasing the available funds for loans and consumer spending (04:03).

2. The 2025 Tax Policy Landscape: Balancing Growth and Deficit

Timestamp: 05:27 – 09:51

As the discussion transitions to federal tax policy, Kimberly Adams introduces economist Ernie Tedeschi from Yale to unpack the upcoming debates. Tedeschi explains that 2025 is pivotal because many provisions from the 2017 Tax Cuts and Jobs Act are set to expire, potentially leading to significant tax increases by 2026 if no new legislation is enacted. He states, “If the administration and Congress doesn't do anything, a lot of us will have tax increases starting in 2026” (05:34).

The episode highlights the ideological split within Congress, despite the Republican majority, between those prioritizing deficit reduction and those advocating for tax cuts and expansions. Tedeschi describes the latter as treating tax reform like “it's Christmas,” emphasizing the high cost of extending existing tax cuts and introducing new measures, with projections ranging from $4 trillion to $10 trillion in expenditures (06:21).

Addressing the deficit, Tedeschi warns of the long-term economic risks posed by large deficits, including higher interest rates that could stifle private sector investment. He emphasizes the need for tax reforms that promote broad economic growth and equitable distribution of benefits, stating, “We want economic growth and we want it to be broadly shared” (09:03).

3. Corporate Spinoffs: Strategic Divisions for Enhanced Efficiency

Timestamp: 15:27 – 20:05

The podcast shifts focus to a growing trend in the corporate world: the spinoff of business units into separate entities. Kimberly Adams reports on recent examples such as FedEx's plan to spin off its trucking business and Honeywell's exploration of separating its aerospace division. According to Owen Zadar, a professor of economics at Princeton, these spinoffs are often driven by activist investors rather than the companies' C-suite executives (17:50).

Jared Harford from the University of Washington notes that spinoffs can unlock value by allowing each business unit to focus more effectively on its core operations. For instance, General Electric's recent spinoff, GE Vernova, has already seen positive investor reactions, including dividends and stock buybacks, demonstrating potential success (19:15).

Jay Brown of the University of Denver adds that spinoffs are particularly prevalent in industries undergoing rapid change, such as cable TV and package delivery, where separating business units can help companies remain competitive in evolving markets (19:05). As interest rates remain high, spinoffs also offer a strategy to offload debt, improving the parent company's balance sheet and financial health (19:35).

4. The Rise of Agentic AI: Transforming Business Operations

Timestamp: 20:05 – 23:04

Artificial Intelligence continues to reshape the business landscape, with Marketplace's Matt Levin exploring the concept of agentic AI. This form of AI can perform complex, multi-step tasks autonomously, such as planning trips or conducting detailed business analyses. Owen Zadar illustrates this by describing how AI agents can handle tasks traditionally performed by junior analysts, including drafting professional emails and compiling research from SEC filings (20:46).

Douglas Clinton of Intelligent Alpha shares his firsthand experience, noting, “These agents have been pretty good. Often, I would say they look like reports that I would expect to see from a human analyst” (21:35). The integration of agentic AI promises increased efficiency and accuracy in business operations, potentially reducing human error and freeing up employees to focus on more strategic tasks.

However, Ruchir Puri of IBM cautions that the adoption of AI agents will heavily depend on employee trust. “It's about the trust of the system. Until I come to trust the system,” assures Tina Singh, founder of Bold Helmets, reflecting the broader concern of workforce adaptation to AI technologies (22:23). Ensuring reliability and maintaining human oversight are critical for successful AI integration (22:29).

5. Property Tax Hikes in Chicago’s South Suburbs: A Strain on Communities

Timestamp: 23:04 – 27:29

In a poignant segment, Marketplace reporter Adora Namigadde examines the significant rise in property taxes in Chicago's south suburbs, where median homeowners have faced nearly 20% increases—the largest in three decades. Glynis James Watson, a recent mover to Harvey, Illinois, shares her shock: “I was flabbergasted” (24:36), after receiving a property tax bill skyrocketing to over $8,000, a sevenfold increase from her initial installment.

Cook County Treasurer Maria Pappez explains that the spike is due to various factors, including recent property reassessments and economic trends such as population decline and reduced commercial investment. Chris Berry from the University of Chicago’s Mansuetto Institute for Urban Innovation highlights the unsustainable nature of rising levies against a shrinking tax base, stating, “The tax base is shrinking, the spending is going up” (25:49).

The burden disproportionately affects black residents, as identified by Berry, with many of the hardest-hit suburbs being predominantly black communities. Beau Kemp of the Southland Development Authority emphasizes the need for balanced growth that supports both legacy residents and newcomers, advocating for strategic commercial investments to stabilize property values and tax revenues (26:56).

6. IRS Pandemic Recovery Payments: Anticipated Refunds for Eligible Taxpayers

Timestamp: 27:29 – 29:11

Wrapping up the episode, Kimberly Adams informs listeners about the IRS's upcoming disbursement of pandemic-era recovery rebate credits to eligible individuals who did not claim them in 2021. These automatic payments, which could reach up to $1,400 per person, aim to provide financial relief as the year concludes. This effort underscores the ongoing impact of the pandemic on U.S. households and the government's role in facilitating economic recovery.

Notable Quotes:

• Ernie Tedeschi (Yale's Budget Lab): “Money supply can be a tool to steer the economy.” (03:11)
• Ernie Tedeschi: “If the administration and Congress doesn't do anything, a lot of us will have tax increases starting in 2026.” (05:34)
• Ernie Tedeschi: “We want economic growth and we want it to be broadly shared.” (09:03)
• Glynis James Watson: “I was flabbergasted.” (24:36)
• Douglas Clinton (Intelligent Alpha): “These agents have been pretty good. Often, I would say they look like reports that I would expect to see from a human analyst.” (21:35)
• Chris Berry (Mansuetto Institute for Urban Innovation): “The tax base is shrinking, the spending is going up.” (25:49)

Conclusion

In this episode of Marketplace, host Kimberly Adams navigates through critical economic issues—from understanding the nuances of the money supply and impending tax policy changes to analyzing corporate spinoffs and the transformative potential of agentic AI. Additionally, the podcast sheds light on the pressing challenges faced by communities due to soaring property taxes. By weaving expert insights and real-life stories, Marketplace provides listeners with a comprehensive overview of the multifaceted economic landscape shaping the United States in 2024.