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- [00:00]
A
Hi, I'm Frances Frey.
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And I'm Ann Morris.
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And we are the hosts of a new TED podcast called Fixable.
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We've helped leaders at some of the world's most competitive companies solve all kinds of problems.
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On our show, we'll pull back the curtain and give you the type of honest, unfiltered advice we usually reserve for top executives.
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Maybe you have a co worker with boundary issues or you want to know how to inspire and motivate your team. No problem is too big or too small.
- [00:27]
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Give us a call and we'll help you solve the problems you're stuck on. Find Fixable.
- [00:31]
B
Wherever you listen to the podcast, it
- [00:35]
A
was me that hit the mic. Sophie. It's always me that hits the mic. I don't know why you asked. The chat. Who hit the mic?
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B
Yeah. Can I sit on my hands when we record? You know that.
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Hello and welcome to Optimist Economy. I'm economist Katherine Ann Edwards.
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I'm editor Robin Rousey.
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A
On this show, we believe the US Economy can be better, and we talk about how to get there. We one problem and solution at a time. Today on the show, we are going to talk about what I think might be the most harmful assertion made about the economy today.
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B
What's that?
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A
I'm wondering, should we just, like, not tell people so they have to get through all of our fun in the front? Like, you won't know. You'll have to keep listening. They do listen, though. I don't. We don't need to. Don't let the suspense kill you. It's about inflation. Did Biden cause inflation? Basically.
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B
Oh, okay. That's what we're going to talk about. Okay.
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A
It's what I said we were going to talk about, but that's the angle I'm taking. As you know, in journalism, angles are important. And my favorite one is Head on.
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B
Okay, all right.
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A
Announcements.
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B
Announcements, sure.
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I mean, I think we got to start with this. Some heroes sent us cash.
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B
I do love that. I do love that.
- [02:03]
A
Optimist Economy has a mailing address. It's a monitored mailbox. And I just got an alert that was like, you have been sent currency. And I was like, you sons of. You optimist. I love you. I was so touched. We've had two people send us cash, and one. One person wrote a very sweet note with it about how for the period of time that. Which she was a stay at home mom and wasn't working, she had her, like, mom money. Like, her secret stash of mom money for small things. And so I got money from the secret stash of mom money, which I was like, this is the most proud I've ever been to have earned income.
- [02:42]
B
That's great. That's fantastic. Speaking of money, I just wanted to thank the people who have donated to Optimist Economy through their DAF or their donor advised fund. I like to reach out to everyone who's made a substantial contribution. Contribution to Optimist Economy. I have not found the way yet for me to get sort of an itemized list of who you are, but I know you're there, and I want to thank you and I will find you later for a personal thank you also. And thank you to the people, because the show has been on the air for more than a year now. People are renewing their contributions from last year or renewing their membership on Substack. And thank you for that, too.
- [03:19]
A
We mean it as a compliment when we say robyn will find you.
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B
Right. Not in a stalkery way, in a, like, expressing gratitude way.
- [03:28]
A
In a great way. Oh, it gives. It just, like, absolutely lifts us both that people listen, that there's more than five of you, that there's dozens, thousands of you that listen, which is incredible. And that you support the show. It absolutely spurs me on.
- [03:44]
B
And that we're only going slightly into debt to produce it.
- [03:48]
A
Yeah. The show is almost out of debt, which, when that happens, there'll be signs. Okay, Retcon. Quick retcon for me. I mentioned in the Make It Make Sense Economy episode that the first quarter's GDP estimate came out, but that it was probably going to be revised down. And wouldn't you know, it was revised down. It came out at around 2%. It was just revised down to 1.6%. It has one more revision to go. So. And this is just a small note that these revisions are the, like, crowning achievement of statistical agencies in transparency and accuracy, as opposed to a mistake.
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B
That's our next T shirt. I heart statistical agencies. Do you want to do that?
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A
Because. Okay. Okay. We were thinking about expanding our T shirt line and we're trying to think of what is the best expansion. Is it like, I'd rather be consuming leisure. I think that one's a popular one. Worker bot. Not an economist.
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B
Not an economist, Just an optimist.
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A
Not an economist. Just an optimist. But maybe we need to add IR statistical agencies to the mix and we can make the heart out of like, a three and a less than equal sign.
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B
You're my kind of nerd. Yeah. Okay.
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A
Thank you.
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B
Okay.
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A
That was the Only Retcon. I had.
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B
Okay, I don't have any Retcon.
- [05:19]
A
Wow, we must be really good at this.
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B
Terms and conditions.
- [05:27]
A
Mine suck. You should do yours.
- [05:29]
B
I think yours are actually on point. I thought we were talking about recessions today.
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A
We're talking about recessions. We are talking about recessions.
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B
Talk about recessions. And so I was looking up something about recessions, and then I came across the term the long depression. We would think of it in the United States, I think, as the panic of 1873, but it was 65 months of recessionary economy and complicated international causes people disagree on. But a lot of things were happening, including no longer using silver as money in the US And Germany. There was a huge amount of railroad speculation that collapsed and then agricultural oversupply that caused some major disruption in those markets. And it basically ran from 1873 to 1879, though some people will say it went on much longer than that. Eighteen thousand businesses went bankrupt, including 89 railroads, and unemployment peaked at eight and a quarter percent. It struck me as really interesting just because, first of all, I'd never heard of it. Second, because it seemed really like a significant thing not to have heard of, but also that it, it just reminded me a little bit of the moment that we're in, of great technological change, potential bubbles related to those technological changes. And I think the moment of fear that we're in, that we enter just this really long period of stagnation or decline economically.
- [06:57]
A
Hey, I meant to tell you, the show is called Optimistic. Sorry, I don't know if I told you that I meant to tell you that. I meant to tell you that literally years ago. Years ago. Years ago now. Yeah, I mean, the 1873 comparison is not great because that, I mean, we learn it as the panic of 1873. It tanks Grant's second term as president and it is associated with a speculative overbuilding of capital. They're building railroads, they're building docks, they're building out infrastructure that doesn't have a return. The speculators go bust. It is good for the long run productivity of the economy. It lays a lot of groundwork, but it takes a really long time for that to come online. And that kind of sounds like AI kind of does. You're not, not wrong. No, it's, it's a. It's not limited to just 1873. And today though, when we develop new technology, when we move infrastructure forward, we often build things before they become productive in some ways. It's a really fascinating way to look at what's going on right now from the opposite of the jobs. Like the story is jobs. We're going to lose our jobs. It's going to take our jobs. When I think from like a pure economist standpoint, the bigger risk is that it's over.
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B
Overbuilding.
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A
Yeah, it's overbuilding. We're building out for a technology whose productive capacity we're not prepared to fully integrate into our economy. And we have put too many eggs in one basket. That is the classic risk. I've never heard it called the long depression either.
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B
Yeah, thank Wikipedia.
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A
Well, we are going to talk about recessions. I have two terms. They're related. The first one is called the output gap. So like a recession happens, the economy contracts, people spend less, businesses spend less, the economy gets smaller. The output gap is where we are in GDP and where we could be if we were being used to full capacity. So you could almost think of it as in your car, you have a 20 gallon tank, but you only have 18 gallons in the tank. The output gap is that 2 gallon difference of between what you could have and what you currently have. The other way to think about it, if it's intuitive at all, is the output gap is how big a stimulus package should be to get the economy back on track.
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B
You only have an output gap if you're in a recession. Or could we have an output gap right now even though we're not in a recession?
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A
It's associated with a drop in aggregate demand, which is almost always a recession.
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B
A recession.
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A
I mean you might have 1/4 drop in aggregate demand that like bounces back up. But typically you have an output gap when your economy is just not at capacity.
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B
But it couldn't be like affected by like tariffs. I guess tariffs would affect demand and it's all the same.
- [09:40]
A
Yeah, because the output gap can be as you're coming out of a recovery too. Like the economy is coming, but like the output gap is still positive because we kind of assume the economy is always growing and the economy for the most part is always growing. So it's not just that you went down, it's that you need to catch back up.
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B
Okay.
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A
The second term I have is called the Nairu, which is sometimes referred to as the natural unemployment rate, but it's actually this horrible term called the non accelerating inflation rate of unemployment.
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B
It reminds me of a Nehru, Nehru jacket. I'm like, what is that?
- [10:14]
A
So, so, so how productive could the US economy be? Like if the US was firing on all cylinders, if everything was great, how big should the US economy Be that's asking like if we were taking full advantage of our productive capacity, what would it be? Well, unemployment wouldn't be zero percent, because if unemployment were zero percent, that would mean that we would probably be entering a period of like rapidly spiking wages because there aren't enough workers, so few workers, in fact, that employers are going to have to throw money at people to get wages to go up and it would lead to inflation. So the, the nay route is the idea that it's the right level of employment isn't zero. It's some low number that keeps prices in check. There are lots of people who would tell you that this thing is absolutely. However, you need to have a Nehru in order to calculate the output gap.
- [11:05]
B
So what is the Nehru? Does it vary or is it.
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A
Oh, right now it's in the fours. This is the other thing that's kind of crazy. It changes almost every month. The Fed has a Nehru estimate, the CBO has Nehru estimate because it depends on where inflation is in the economy.
- [11:21]
B
Oh, so it's not like a natural rate. Like, like a permanent natural rate.
- [11:25]
A
People nickname at the natural rate of unemployment. And I'm like, y', all, this is the most unnatural unemploy rate that I can think of. But it's when something goes horrible and the economy enters recession, you have to come up with policy fast. What that policy should look like. That is a really high stakes game because you're talking about a massive economy. You misstep, people are unemployed for forever. You misstep, you spike on inflation. And the reason why I wanted to bring these two things up is because March of 2021, Congress passed the American Rescue Plan act. And several prominent economists took to the airwaves to say that if you look at the output gap based on the NAIRU that they suggested, the bill was too large and it would lead to inflation.
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B
Okay, should we pause there and take a break before we come back to the big. Before we just slide into the big Pilcrow?
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A
Yeah.
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B
Okay. And we're back for the big Pilcrow on recessions.
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A
On recessions.
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B
And did the American rescue plan cause inflation?
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If you've seen Project Hail Mary, I'm Rocky the little alien going recessions bad, bad, bad. Have you seen it?
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B
Yeah, I have.
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A
Are you going to sing me as Rocky? Recession bad, bad, bad, bad, bad. It's bad for me planet. Recession bad, bad, bad for me planet.
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B
From what you were saying before, it sounds like you're also worried about the response to recessions being bad. Is that it or this response particularly being maligned.
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A
The way that the US Policymakers respond to recessions is really fascinating. And I think it's probably lost on most people that we kind of have the toolbox that we dip into. But we don't always take all the tools out of the box. Sometimes we just empty out the box and shake it and do everything. And the way that you feel a recession is really the way that policymakers try to respond to it. And we don't do the same thing every time. We're not always consistent and we often learn wrong lessons like the generous recovery package passed in the early days of the Biden administration are the reason why we have inflation, which has become like just a de facto Republican talking point in my kind of hook. There is that that is by far the most dangerous assertion in the economy, that if you help people really well after a recession, you'll have inflation for five years. Like it's not true, but it's subtle. Like there's a real nuance to understanding what happened.
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B
Let me talk me through this. So what are you worried about? Where do you think our understanding of recessions has gone? Dangerously? Maybe dangerously, but off course, I am
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A
worried that policymakers of the future will be so sensitive to inflation fears that they won't actually respond to recessions.
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B
Got it.
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A
I think that is what I'm most afraid of is that policymakers writ large internalize this really, really wrong lesson because they're desperate for some one sentence takeaway.
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B
Okay, so what do you think the wrong lesson was? Where do you think it came from? I mean you mentioned it, things being politicized, but how did it get aside from the fact that things became political talking points, like there was some reason that it's taken root.
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A
Okay, so let's do a quick tick tock going from February of 2020. Let's all just like, let's relive, hang out inside and give each other hugs to basically the peak of inflation in June of 2022. So I, what I will argue is that these are like probably like the wildest 28 months in the US economy occurs over the pandemic in March and April of 2020. Over about a five week period, the US economy sheds 22 and a half million jobs. And Congress responds with a few pieces of legislation, but in particular the Coronavirus Aid Relief and Economic Security Act, AKA cares.
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B
Right.
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A
And amongst all the things that it does, it includes a $1200 stimulus check for each adult and $500 per child up to an income cap at this point in March and April, the US Economy risk of falling into deflation, which only happens, really during depressions.
- [15:32]
B
Yeah.
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And inflation is around 0%. So that's March.
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B
Right. Great times. Yeah.
- [15:39]
A
Fast forward to the end of the year in December, and we are 10 million jobs short of where we were at the start of the year. And Congress passes the Coronavirus Response and Relief Supplement act, which I always called curs. So scarce. And curse this is another stimulus check. This one is 600 per person. Inflation is at around, like, just over 1%. Prices are very, very low. And the first vaccines are coming out going to the very elderly, but no one is vaccinated. So In January of 2021, when the December jobs report comes out and it shows that we've shed jobs, people panic. And at the same time, there's a special election in Georgia. And both Democratic candidates, who end up being victorious, promise that when they come to office, they will vote for another relief package and more stimulus checks. So even though a lot of economists said we probably don't need another stimulus check, it is a campaign promise from the Georgia Trail. So in March, the American Rescue Plan act is passed and signed into law, and it includes $1,400 of relief per adult. Most of the American Rescue Plan act is a lot of other stuff, like all the childcare support, a ton of money for schools, a ton of money for state and local governments. But it gets like this third round of stimulus check gets added on, and it wasn't well targeted. It went to everybody, and it was pretty generous. So when ARPA American Rescue Plan act passes, the US is still about 10 million jobs short from where we were before the pandemic started. Inflation is just at 1.5%. And starting basically the month that the plan passed, inflation starts to tick up. So even though the economy is adding jobs at a rapid clip, prices start to rise at a rapid clip almost as soon as the act goes into effect. Over the course of the following nine months, we add jobs, but also see higher prices in almost every month. And by the end of the year, we are only 3 million jobs short of where we were at the start of the pandemic. But inflation is almost at 7%.
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B
Right.
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A
The preferred method of inflation that the Fed is using at the time is indicating that this is temporary.
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B
Right.
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A
And it won't go up much more. It's called the trimmed mean. So they are holding off on broader interest rate policy, but by the end of the year, we've gotten two rounds of the vaccine. A lot of stuff has opened back up.
- [18:08]
B
Yeah.
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A
Inflation is now at 7% and we are just 3 million jobs short.
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B
Right.
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A
Okay. So spring of 2022, Russia invades Ukraine.
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B
Yeah.
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A
One of the world's largest oil producers invades one of the world's largest food producers. They produce a lot of wheat.
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B
Yeah.
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A
And all hope of transitory inflation is lost. And now it looks like the Fed waited too long to respond. They raise interest rates in March of 2022, in June. All of the jobs lost in 2020 have been recovered. I mean, it's absolutely incredible how fast we did this, but it comes with this, like, dual prize of also being the peak of inflation at 8.9%. That is when inflation spikes and that is when the labor market peaks. And since then we have been coming back of both. Inflation is falling and the labor market has been getting we since June of 2022. So the assertion is we overshot. We overshot that. The. That like you can just look at a graph. It was March of 21 that month inflation went up and like, bam, bam, bam. We inflation took off. And so the reason why we had inflation coming out of the pandemic was because we overshot and helped people too much. And that is so many people have absorbed that talking point.
- [19:21]
B
And is it specifically the stimulus checks that went to households? Not the school stuff and the infrastructure stuff and the.
- [19:27]
A
No, it's really the stimulus checks that went to households that get I most of the blame.
- [19:31]
B
Right, right. Is this a correlation is not causation? I mean, we had two big stimulus checks in the months before that. So is it fair to say that this is what tipped us over into. Or is that just about trying to blame the Biden administration versus take the blame in the first Trump administration? Yeah.
- [19:50]
A
So I think what makes this hard is that it has to. It's like a very. It is a very nuanced conversation.
- [19:57]
B
Yeah.
- [19:59]
A
These stimulus checks have inflationary pressure, and the degree of inflationary pressure that a stimulus check would have would depend on the size of the output gap. Are you trying to put more into the economy than it needs? You've got the 20 gallon tank and you're adding four gallons, but really you already have 18. Right. Like you're overfilling the tank.
- [20:19]
B
Right.
- [20:20]
A
But at the same time, there are lots of other sources of inflationary pressure. And I mean, we can talk about this in a second. But like every other country saw industrialized country saw prices go up, There was also massive supply chain problems. Like, it can have inflationary pressure but not necessarily cause inflation it can have inflationary pressure and not necessarily cause 8% inflation. It could be pressure, it could be a contributing factor, it could be a cause. Those are three essentially different manifestations of the same effect. And I mean, that takes a lot of nuance to kind of internalize as a policymaker and as a person.
- [20:56]
B
Yeah.
- [20:57]
A
So people made the argument at the time, including Larry Summers, not one of my favorite people, wrote an editorial in the Washington Post saying ARPA was too big. He didn't say it was going to cause inflationary pressure. He said outright, this is going to cause inflation. And within like a year of it passing. Economists all over the country at various research department are trying to determine how much it adds to inflation because it definitely expands. It definitely is inflationary pressure. You're giving a lot of money to people. The summer's argument was it was bigger than the output gap. Like if you look at prices in the nairu, this was bigger than the output gap, so it was going to raise prices.
- [21:36]
B
Can I wait, Can I just ask a clarifying question? You said because he looked at where prices were or where GDP was. I mean, the output gap is gdp, right?
- [21:46]
A
Yes, but it's GDP as a function of the nairu. So it does depend on prices at the time. Okay, of course, of course it does.
- [21:53]
B
It's a function of the neighbor.
- [21:55]
A
Yeah, it's my output gap via my specific. My preferred. It's my preferred nairu, actually. Robin. Yeah, I mean, the problem with the output gap is it's really hard to determine, especially hang on, during recessions when it's big. So a lot of people were like, yeah, okay, Larry. Like we get it, like it's big, but we have a 2 stimulus with very little consequences in terms of inflation. People are still hurting. I mean, this thing goes out before most of the vaccines do.
- [22:22]
B
I'm sorry, the third stimulus check goes out before most of us got vaccines. Yeah, yeah.
- [22:27]
A
The other argument is inflation increased in every country. All the countries that look like us had inflation go up and the exact path was slightly different, but like everybody had inflation.
- [22:40]
B
So that would suggest that the causes were not necessarily this particular check, they were global supply chain shocks or something.
- [22:48]
A
Yeah. Because also going on in the background of all this is a global chip shortage. And also going around in the background is massive supply chain issues because so many ports have been closed for the pandemic and then they reopened and they've got a lot of like a huge backlog. And then the other part is that the supply chain didn't meet the shifting Consumer demand that people were stuck in their homes and so they wanted a lot of goods. And what had happened over the course of the first, basically 12 to 15 months of the pandemic is that you had prices spike. In particular, goods that were having a supply chain issue. Like, chips are up.
- [23:24]
B
Everybody wanted.
- [23:25]
A
Everybody wanted toilet paper.
- [23:26]
B
Actually, I was thinking everybody wanted, like, do you remember rogue weights?
- [23:30]
A
Oh, yeah.
- [23:30]
B
Everybody was building out their home gym and you could not get, like, lumber.
- [23:36]
A
Like, I need a deck.
- [23:37]
B
Yes.
- [23:38]
A
I need to score wood off of somebody. It was really like there were fires going on and, like, it was like, this is gonna sound bad. The lumber fire, the chip fire, the used car fire, the weights fire, the, like, outdoor patio furniture fire. Like, you could see these prices and they would go up and they would be isolated. And so, yeah, it's not clear, like,
- [23:56]
B
but they didn't come back down except maybe, like, lumber. Lumber came back down.
- [23:59]
A
Yeah. But it was like a contagion effect that, like, we had supply chain issues. We had so much evidence of this and that that had been a problem that had been happening over and over in the pandemic. And it happened again. Wait, do you remember when the ship got stuck?
- [24:10]
B
The one in the Suez Canal? Yeah, yeah, I do. I do.
- [24:14]
A
A massive cargo ship spending a third day stuck in Egypt. Suez Canal clogging one of the busiest shipping routes in the world. Rescue crews now say it might take weeks to set it free today. I just remember the first thing I saw after the ship got unstuck was put it back. Oh, man, the Internet. It was such. Those were such golden days of Internet. But like, yeah, like, y' all ships don't get stuck the Suez Canal. Like, that's not every day we have supply chain issues. So the. The kind of like, non output gap neu take would be. Yeah, there was just so much going on that also led to inflation. You know, the estimates of how much the Recovery act increased inflation range anywhere from like 0.5 points to 3 points.
- [25:03]
B
That's how much it added to inflation. The inflation which eventually reached whatever, would you say? 8.9%?
- [25:08]
A
8.9, yeah. Yeah. So. So even the most aggressive estimate was that it didn't even account for half of the inflation that we saw. It's like, really hard to parse out too, because, you know, the third round of stimulus checks went out to households with an income cap, but at the same time, those households did not hang onto it for that long. The people who saved the most were people who were comfortable.
- [25:30]
B
Yeah.
- [25:31]
A
And the bottom 25 to 50%. They saved for a little while, but then, like, that money was go. So if you send a stimulus check out to someone in March, who spends it in April, Are they. Can they really be held accountable for their spending is what caused inflation in June? I think that's why a lot of the Fed at the time thought it was going to be closer to a bump of like, well, we just gave people a lot of money. Evidence is that most of that money has been spent, so it's filtering its way through the economy, and instead it just went right up.
- [26:00]
B
So. Yeah. So it could have been a little bit of lighter fluid on a fire, but the fire was already burning.
- [26:05]
A
Mm. And also not clear how much lighter fluid actually made it onto the fire.
- [26:10]
B
Yeah. So why do you worry that the lesson that we take is really bad, that we don't wanna help people in a recession? If there doesn't seem to be broad agreement that there was a problem with the first two stimulus checks?
- [26:22]
A
I think that we are discussing the nuanced take. Like, the first two were necessary. This was a special circumstance. The third one might have overshot it. But, like, at the end of the day, it was the fastest labor market recovery the US has ever had in a recession following the worst job loss we've ever had. So, like, we actually did okay. I think what people hear is, don't do what Biden did. And it's not like, spread out of multiple pieces of legislation. And I think some listeners would probably say, like, no, but they would help the economy if it was bad. And, like, you shouldn't worry about this or I don't have a ton of faith in Congress, but, like, Congress always helps out in a recession. No, they don't. Yeah, no, they didn't for the last one. And I think what makes me so worried is that the Great Recession was such. Such an own goal. Yeah, it was such an own goal. That thing was terrible. It did not have to be as bad as it was if we were not so afraid to help people, which we were. And the result was catastrophic for communities, for people in foreclosure.
- [27:23]
B
Like, it was just for our politics.
- [27:25]
A
Yeah. The way that politics devolved. I mean, it was just such a horribly managed recession. And that was the last one. I mean, I feel like the. The lesson was like, okay, don't do that. And we just keep, like, bouncing back and forth without really learning. Like, you have to help.
- [27:43]
B
Well, I certainly feel like people felt like there were bailouts out of the Great during the Great Recession. Are you Just saying that they weren't for households that was like big bank. Yeah.
- [27:52]
A
Oh my God. Can I do a great recession? Tick tock.
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B
Sure. Okay.
- [27:56]
A
Sophie's like, I really challenge you to make this short. So I will make this one as short as humanly possible of 15 minutes. Okay.
- [28:03]
B
Because it was a long recession.
- [28:05]
A
It was a really long recession.
- [28:06]
B
So. So
- [28:10]
A
it's so hard for me to say without giving the full history of like over the counter derivatives or the subprime mortgage lending. Okay, let me just put it this way. Let me just put it this way. This is this way.
- [28:19]
B
Okay.
- [28:19]
A
The U.S. economy starts to slowly, slowly shed jobs, jobs at the start of 2008. And in the spring, Bear Stearns moves into the verge of collapse.
- [28:29]
B
Right?
- [28:30]
A
Because too much of their portfolio is tied up in basically over the counter derivatives that are invested in mortgage backed securities in which the mortgage backed securities are rated highly, but they are in fact contain numerous subprime loans. Those subprime loans were sold to low income buyers on a floating interest rate. So the past three years interest rate hikes that had been coming from the Fed were really starting to generate defaults than the subprime mortgage market. So you have these securities that are actually bad assets. Bear Stearns is the first to go. Happens in the spring and the Fed arranges for JP Morgan Chase to buy Bear Stearns. So through the summer it just keeps getting worse. Two places that you didn't want to have this happen to was Fannie Mae and Freddie Mac. They own half the mortgages in the US and they're about to collapse. And so as we come to September, Fannie Mae and Freddie Mac have to be bailed out by the federal government. So like the Housing Something something Act, it's the first week of September, right after Labor Day. Within the next two weeks, Lehman Brother fails. There's no buyer. AIG is rescued by the federal government. Washington Mutual is the largest bank failure on record. And they need a government rescue by the end of the month. John McCain and Barack Obama have suspended their presidential campaigns because they're both sitting senators. And they come back to D.C. because something has to be done to protect the financial sector from completely collapsing. And they passed the Troubled Asset Relief Program, AKA tarp. TARP takes them a couple times to do it, but it's $750 billion. It's shy of a trillion, but it gets added to a little bit. So the very first thing to come out of this recession is a massive bailout. Now that bailout fund for TARP eventually ends up going to some of the auto manufacturers as well.
- [30:17]
B
That's when they bailout gm.
- [30:18]
A
Yeah. So by the time Obama becomes president, the backlash to the bank bailouts is already in full effect. And he goes to Congress to ask for a recovery plan. He goes with the American Recovery and Reinvestment act ara and he makes it relatively small, so the output gap at the time is massive. And he just asked for this like relatively measly bill. It passes. But the backlash to the bank bailouts combined with the fact that they don't come up with a foreclosure bailout results in this like resurgence of far right wing Tea Party Republicans that sweep the 2010 midterms and they end the Recovery act spending before it's even done. And the entire time this is happening, the US is shedding jobs. It sheds jobs from February 2008 to February 2010. And every month we lose more jobs, we lose more jobs and we lose more jobs and we lose more jobs. And then they get into office, not only did they end the recovery spending, but they then have several fights about like sequestration and federal, like there's a budget standoff. They shut down the federal government and the US economy does not recover the jobs lost in that recession until April of 2014. Good Lord, it is more than four years later.
- [31:36]
B
Yeah, yeah. So that tracks. It's.
- [31:40]
A
Yeah, yeah.
- [31:41]
B
Tracks. Yeah.
- [31:42]
A
If you live through it, you're like, that is actually about what I remember of a, like of a horrible half decade and all of that was self inflicted. Like it was. Why did they bail out the banks but not have a foreclosure bank to keep people in their homes and take over bad mortgages? Why did they not make the rescue plan larger and have more spending dedicated to state and local governments? I mean, if you're wondering why teachers are paid so little, it kind of goes back to the 2010s and that this financial crisis crashed into state governments who run off of property taxes. Everything gets devalued. They run off of sales tax and property tax. I mean state government budgets are in fall. They get so little money from the federal government that they turn to massive spending cuts. And there are states for whom teacher employment and salary has never really recovered from the Great Recession because they had to bear so much of it. So like when I say I'm worried, I'm really just afraid that we would let another great recession happen and like let popular politics and one line phrases about like they bailed out them, but not me, you know, lead to incongruous policy where everybody is made worse off because you're trying to punish someone politically. That is what I think. That's my fear. And I don't think that's my fear. That is my fear. I just, it's absolutely my fear.
- [33:05]
B
I mean, what I remember about the Great Recession at the time was that it was, was it like bankruptcy? It happened slowly and then all at once. There was a year or more where I remember personally. Granted, I was in the news industry, so I was, I don't know, it was a little bit of a canary in the coal mine about economic stuff. Especially when companies are affected, the first thing they stop spending on is advertising. And if you're in the media, you're pretty sensitive to it. But I just remember like thinking it's getting bad, it's getting bad and taking steps like to prepare, like making sure I had enough sort of savings, you know, emergency savings and getting rid of some discretionary spending. But when the collapse happened, it felt like it happened all at once. But even then, and it was so hard to puzzle out what the hell was going on with the mortgage backed securities and the credit default swaps and the, it was like pulling a never ending thread trying to figure out what was causing all of this. And they had, at least to me, the response was happening before we understood what had just gone down. Where with the pandemic, it was pretty, it seemed pretty clear what was going down.
- [34:09]
A
I mean, if you think the AI doomers are right, we have a very complex thread that we don't know. Like this is another thing where it's like, okay, like you could be very distracted trying to understand how AI works and what it does, or you could just focus on what the economic pain could be and respond to that.
- [34:28]
B
And your overarching concern is that every time we do this, every time we respond to a recession, are we fighting the last war? Are we somehow we're doing it wrong or, you know, actually you don't think we did it wrong in the pandemic.
- [34:47]
A
I think the pandemic was like a pretty, it was a close to best case scenario considering just how much was wrong with the economy structurally. Like, it is very hard to bring economy back to full strength when you're relying on very broken institutions. Like you're getting the IRS to send out stimulus checks when you've cut their funding for a decade, decade, you're trying to get unemployed workers held through a program that is five decades past due for reform. You, you're sending out money through PPP loans Because you don't even know how many small non employer businesses you have or how many people they employ. They erred on the side of generous
- [35:22]
B
but in part because we didn't have the, the sharp tools to really be more secure.
- [35:25]
A
We didn't have the sharp tools like if we, we could have had a lot sharper tools and really like really sewn that up. I, I think the things that I look back on of being quite helpful, the penalty free forbearance of mortgages where like you could just say I can't pay and you won't be penalized for not making mortgage payments. I mean someone clever with money took advantage of that. But that kept people in their homes, like it kept people physically safe. And the penalty free student loan forbearance, I mean that, that was a windfall for a lot of people that they didn't have to pay that money and it was a way to increase the amount of cash you gave them because you were freeing up their budget. I don't think we ever really got the health stuff right. And I don't mean health stuff of like when should we have been allowed to go outside? I mean you would not expect people to lose health insurance during a pandemic. Yeah, I mean like we made it all the way through that pandemic and we still don't have paid sick days. Yeah, we made it all the way through that pandemic and we are kicking people off of Medicaid. There could have been a moment where there was like a sweeping takeover of Medicaid or Medicare of like, I mean there was kind of, we put a lot of people on Medicaid but I think it could have been more sweeping and more long lasting. I mean that was the problem with a lot of the things we did in the pandemic. We had experiments with very big liberal government that we just walked back. As a labor economist, you can't look at the fastest labor market recovery in history and have much to complain about of like yo, I can nitpick but like we got people jobs quickly, right? And I know inflation sucks, but I'm telling you, a seven year recession also sucks. Especially when and then it's proceeded with two full years of job loss and then another four and a half to recover. I mean it's nightmare.
- [37:06]
B
If we had, you've told me this before, if we'd recovered from the pandemic recession at the same pace, it would
- [37:11]
A
have taken almost 20 years.
- [37:12]
B
20 years.
- [37:13]
A
So you can look at the shape of recessions like on a Chart, it comes up, there's a recession, you'll see it again. But it's basically a chart that indexes like normalizes the start of the recession to month zero and then shows you what percentage of jobs were lost. Right. This is how we make comparisons across an economy that was very. So like what percentage of jobs lost in each month of the recession and how long it took to recover. This chart is somewhat interesting because everything that happens before the year 2000 is a really small. Like it's under two years. You lose some jobs, not that many. You gain them back and they're like these little. The smiles, these little divots. The 1990 recession took a while. 2001, we didn't lose that many jobs, but it took forever to get them back. Like for not having lost that many jobs in the recession. It was just one of the weakest business cycles we've ever had. Every other recession, the line stops and turns back up. The Great Recession, it's incredible. This line just keeps going down. Two years of job loss, we've never seen anything like it. In the 70s we'd lose jobs for like four months, maybe 10. And then the jobs would jump right back up. I mean we're shedding jobs for two years and then it is just this like painfully slow recovery. So if you just take the percentage of jobs added in every month and you put the shape of that line onto the nadir of job loss of the pandemic, I mean you're looking at 20 plus years to recover. I mean it's lost on people. The Great Recession wiped out all of the job growth we had seen from 2000. Like it wiped a decade off of the map.
- [38:45]
B
Wow.
- [38:46]
A
That was the jobs we lost. It took us another four years just to get those jobs back.
- [38:51]
B
Yeah, I mean we should just sake. We are not in a recession as far as we know. No, but this is on your mind. I kind of curious, like, I don't know, should we be, should we be preparing? I do feel a little bit like we're kind of a volunteer fire department. Every time one of these things happens and we're scramble to find the buckets and the hoses, maybe we could be less. Less like, like that.
- [39:15]
A
Well, I think there's two things. I mean, one, yeah, it would be a lot easier to manage recessions if we didn't have such a economies the rest of the time. Like if we had a good unemployment system, if we had like very good health care, like all of these things would be easier if we didn't have in some points the worst version of social programs.
- [39:36]
B
Right. Because you're just adding, you're just making every problem worse when a recession happens.
- [39:42]
A
Yeah. Or maybe this is the way to put it. It's harder to respond to a recession when you are standing on unstable ground. And the economic and social policy structure that we have is unst. Like our unemployment program. You think after the number of jobs we lost this century, it would be good? It's not good. It really needs to be reformed. That makes it harder to nail a recession's response because now you've got to build an unemployment response on the fly. I think that that in some ways happens with every aspect of like, who gets money in a stimulus check, who gets help through Medicaid, who gets housing forbearance, who gets student loan forbearance. Like, how do we do these things? Things, all of them. We basically have to be messy because we don't have a good system. And then that messiness is what people respond to. But if we had a better way of identifying people in need because we had really good social programs, like, we wouldn't miss so many people and we wouldn't have so much like helping people who don't need help just because we weren't able to like whittle down our aim. I think that's what I worry about is that this will keep happening. As long as these systems are not functioning on the level they should be, this will keep happening. That every recession will have some kind of mass casualty.
- [40:52]
B
Yeah.
- [40:52]
A
I was so overwhelmed by the policy response to the pandemic because I was like, oh, we're, we're doing this. Like I remember when someone told me on the phone, I was on this like policy call and they're like, hey, we're talking to people who are experts in UI. What do you think about a $600 weekly benefit? And I was like, for who? They're like, for everybody. I'm like, for everybody. I remember like my jaw dropped and I was like, you're going to be giving people more money on unemployment than they get from their low wage job. And they're like, yeah, where their low wage job doesn't exist anymore, so we're going to give everybody 600 bucks. And I remember thinking like, I don't live in the same world that, that we lived in, you know, 15 years ago. Like, this is just like, I want people to hold on to that feeling that like inflation has hurt so many people, but in some ways it's hurt the memory that we bounced back from the pandemic faster than we could have ever hoped for going into it because we were really bold with policy that cost a lot. But I think almost putting inflation in the pandemic recovery account isn't fair. The takeaway is really to think about, this is not what the economy presents us. It is the choices we make in response. And if you are worried about AI, you need to leave all those things, those CEOs alone, and go right to your member of Congress. Because, like, that is where the difference is going to be made, is in what policymakers do. And, like, truly, the next time you hear an AI CEO talk about, like, the economic response, you just need to be like, whatever the sound. Sophie made us to do the mic check. Like, really, like, just be like, okay, sounds good. And then, like, you go right back to Congress because what will make the difference for you is not what a company does, but what your government does. Because that's who manages the economy.
- [42:34]
B
Right?
- [42:35]
A
Yeah, that's optim. I think that's optimistic. That's.
- [42:38]
B
I. Well, depends on how much you trust Congress. But let's. Let's take a break and we'll come back for executive orders and spiritual sponsors. We're back, and we like to end our show with executive orders and spiritual sponsors, starting with our petty rules if we ran the world that we would implement. Katherine, what's your executive order?
- [43:02]
A
No, you go first. You go first.
- [43:05]
B
You know, I've been holding onto this one for a while, and I. I think that you should have to have a special driver's license to be allowed to parallel park. Have I said this before?
- [43:14]
A
I don't know, but I still agree with you.
- [43:17]
B
I think. I'm not quite sure how this will work, but honest to God, if you don't know how to parallel park, you should not be allowed to on any major bowl of our. Let's just say if it's got a parking meter, it's major enough that you shouldn't be allowed to parallel park on it. I cannot believe the stuff people.
- [43:32]
A
Oh, man, I told you that. There's a park down the street from my house, and people, like, they don't park. They just stop in the lane and they're like. I mean, they're solid, like two and a half feet from the curb, and they just stop and turn off their car. I'm like, you know, you're supposed to kind of like hug the curb. You're not even really parallel parking. You're just taking over a lane.
- [43:49]
B
Good Lord.
- [43:50]
A
I thought someone was in trouble. I was like, oh, my God, did your car die?
- [43:53]
B
No.
- [43:53]
A
This is just how you chose to park here. That's really interesting for you.
- [43:58]
B
What's your executive order for the Edwards Republic?
- [44:02]
A
My executive order for the Edwards Republic is that FIFA's not allowed to sell tickets here anymore. I'm just not allowed. Like, it's not that they need to be regulated. I just. I think they've lost sale privileges. The government needs to take it over and just start selling these tickets at a reasonable price, refunding people for the incredible amount of money that they sold. I. I got this horrible prompt from LinkedIn that was like, hey, Catherine, what's the mood on the ground for World cup in Houston? And I was like, I think we're all pissed. I think it's like an absolute swindle. And we're all pissed. And this is terrible. And they're like, tell us about the mood at Fan Fest. I was like, fan Fest is closing. My favorite brewery.
- [44:46]
B
Are they having games in Houston? Houston.
- [44:48]
A
Dallas and Houston both have games. Dallas has more. I think Dallas has the most games outside of New York because it has a semifinal. Houston has group matches. And then I want to say the first round of playoffs are here.
- [45:04]
B
I got an email because I'm a. Clearly, I'm a sucker because I'm a season ticket holder for the now incredibly losing Angel City Football Club. God, my poor team. Anyway, but they were still trying to sell tickets to the matches here in Los Angeles. The cheapest seat available in the rafters of SoFi Stadium. 400. Everything else was $2,500 or $1,200.
- [45:34]
A
Yeah, it was just absolutely preposterous. So, yeah, we just. If we could have, like, a takeover of FIFA ticketing refund people issue the tickets. They're not allowed to sell here. Oh, God, it's so gross. It is so gross. I heard there's an economist I follow on Blue sky who basically came out with a series of charts of the resale market of games. And he was like, this is all the evidence. We need to know that FIFA's colluding with the resale market. Because the way that tickets are becoming available in the resale market is not like chunks of two to three. We bought a pair of tickets and then we're selling them. It's like an entire section is going for sale. And he's like. So if you look at it, he's like. Like, this is what collusion looks like. If we had an FTC with a spine, we'd be going after these people. But I'll just. For now, it'll just live in our land of executive orders. Okay, let's go on to the better thing.
- [46:24]
B
Spiritual sponsor. Sponsors.
- [46:27]
A
Spiritual sponsors.
- [46:29]
B
So my spiritual sponsor is a local independent hardware store. I don't know how these hardware stores manage to employ the number of semi retired men that they do, but I love it that they do. And you walk in and you can't get halfway down an aisle before somebody's like, what are you looking for? What can I help you find? Unlike Lowe's or Home Depot or any of the other places you might go, I. I could just spend hours just wandering around a small local hardware store. Love it.
- [47:03]
A
Yeah. Oh, great sponsor. My spiritual sponsor for the week is at some one hand wrote us a letter and mailed it to us.
- [47:11]
B
Oh, my God, you actually have it.
- [47:12]
A
Yeah, I have the letter. I mean, my favorite part, they clearly ripped it out of a spiral notebook, which is like, even better. So the first time I read this letter, I sobbed, but I wanted to read a couple of highlights to you guys. And I think if I tell you I cry, that means I won't cry this time and I'm gonna keep it together.
- [47:30]
B
Good luck.
- [47:31]
A
I discovered Optimist Economy a month ago and have been fully enjoying every episode. I am not an economist myself, but I feel like I. I try to follow data with the same fervor as Katherine about the economy. Kind of goes on about his situation and ends with all that to say thank you for helping me believe in a possible future that works for more people. Your research explanation and down to earth humor have softened my heart and proves to me that someone is actually thinking instead of falsely hardlining ideas.
- [48:01]
B
Nice.
- [48:03]
A
Okay, and then I have to read the last line because it's so good. Your podcast is helping me find that light of believing in people again. But mother, do we have to have a long way until our elected officials act in favor of the people rather than themselves? Best. I appreciate it. Honestly, I feel like you got the whole vibe of the show. Like, we're into it, we're optimistic, but, like, we've got to do. I was like, thank you so much for this letter.
- [48:31]
B
Oh, my God. Katherine had a scan of this letter that she shared with all of us because we're all in different places. And so we all read it last weekend and loved it. It was just. It's terrific.
- [48:43]
A
So my spiritual sponsor is that guy who wrote us a letter. Who I don't have a. I need to mail him back to ask him for permission to use his name in the full letter on air. So that's why I only read highlights, because, you know, gotta go through the mail.
- [48:55]
B
Mm.
- [48:59]
A
Okay. Optimist Economy podcast is edited by Sophie Lalonde and video production for social media is by Andy Robinson. Thank you, Andy and Sophie.
- [49:06]
B
Thank you, Andy and Sophie.
- [49:08]
A
Video clips from the show for you to share are available on Tik Tok, Instagram, Facebook, YouTube, or LinkedIn. You can buy T shirts, hats, tote bags and stickers on our website optimisteconomy.com and of course, think carefully about what kind of T shirt.
- [49:23]
B
Baby Onesie bumper sticker.
- [49:25]
A
Baby onesie if you want Worker bot. I'd rather be consuming leisure, not an economist. Still an optimist. Tell us your T shirt ideas. I think we should expand the merch line, if for no other reason than I want a new shirt.
- [49:38]
B
You can email that those to us@optimist.eacreymail.com if you're on substack as a free or paid subscriber to Optimist Economy, you can join our group chat there. And if you have the means to contribute at whatever level is comfortable for you, we'll take your gifts@optimist economy.com just click donate there.
- [49:57]
A
Cash in a bag, though, baby. We'll take that too.
- [50:01]
B
Or cash.