OE Lightning Round: Kathryn Edwards Takes Your Economy Questions

Summary

Optimist Economy Podcast: OE Lightning Round – Kathryn Edwards Takes Your Economy Questions

Release Date: May 27, 2025

In this engaging episode of the Optimist Economy podcast, hosts economist Kathryn Anne Edwards and co-host Robin Rauzi dive into a rapid-fire Q&A session, addressing a variety of economic concerns and curiosities submitted by their listeners. Straying from their usual in-depth discussions, this lightning round offers concise yet insightful responses to pressing economic questions, making complex topics accessible to a broad audience.

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1. Integrity of Government-Produced Economic Data

Questioner: Mark from Lincoln, Nebraska
Timestamp: [03:04] – [07:08]

Kathryn addresses Mark's concerns about potential government cuts impacting the integrity of economic data. She acknowledges the "terrible concern about the integrity of statistical data that the US Produces" due to the firing of experienced civil servants at agencies like the Bureau of Labor Statistics (BLS). Kathryn highlights the historical context, citing former President Nixon's attempts to undermine the BLS, and draws parallels to contemporary issues, including political interference under President Trump. She emphasizes that while new, less experienced personnel (referred to colloquially as "Doge kids") are being introduced, the systemic risk lies in the loss of seasoned experts who ensure data accuracy and reliability.

Notable Quote:
"The biggest concern is that career civil servants who are experts on the databases will be replaced by political loyalists in a permanent way." – Kathryn Anne Edwards [03:17]

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2. Rising College Tuition and Student Debt

Questioner: Tegan from Seal Cove, Maine
Timestamp: [07:24] – [11:02]

Kathryn explores the escalating costs of college tuition and the burden of student debt. She frames higher education as a "risk versus reward" scenario, where the potential economic benefits of a degree must justify the financial and opportunity costs. Kathryn criticizes the inequitable burden placed on individuals from lower-income backgrounds, who often shoulder the financial risks alone, unlike their wealthier counterparts who have parental support. She forecasts significant changes in the higher education landscape due to declining birth rates, predicting that many colleges will face closures or need to drastically reduce tuition fees to remain viable.

Notable Quote:
"It's incredibly high risk if you're taking it all on your own... the government's like, nope, yeah, it's on you. You made bad choices." – Kathryn Anne Edwards [08:10]

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3. Addressing the "All Taxes Are Theft" Argument

Questioner: Ashley from Arlington, Virginia
Timestamp: [11:02] – [15:42]

Responding to Ashley's query about countering the notion that "all taxes are theft," Kathryn employs a Socratic approach, challenging the premise by highlighting the tangible benefits derived from taxes. She questions whether public goods like roads and education could exist without taxation, leading to the conclusion that taxes are a fundamental component of societal infrastructure. Kathryn points out the regressive nature of shifting from a progressive income tax to tariffs, arguing that such a move would disproportionately affect lower-income individuals who spend a higher percentage of their income on necessities.

Notable Quote:
"Then, are roads theft? Did you steal your doctor's education?... you're part of a society." – Kathryn Anne Edwards [12:00]

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4. The Linearity of Capitalist Economies and Degrowth

Questioner: Sudha from Atlanta, Georgia
Timestamp: [16:33] – [21:26]

Kathryn delves into the sustainability of capitalist economies, addressing concerns about perpetual growth and their ability to handle degrowth. She defends capitalism's role in generating unprecedented wealth and income through firm structures that foster innovation and productivity. However, she acknowledges the system's shortcomings in wealth distribution, attributing current issues to inadequate government intervention in addressing market failures. On degrowth, Kathryn distinguishes between overall economic contraction and shifts in consumption patterns, suggesting that economies can adapt by transitioning towards service-oriented industries without necessarily shrinking in size.

Notable Quote:
"The problem with capitalism is that it does not distribute that income and wealth. Well, that is what a government is for." – Kathryn Anne Edwards [17:00]

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5. Portable Mortgages and the Housing Market

Questioner: Max from Philadelphia
Timestamp: [21:32] – [26:27]

Max introduces a proposal for portable mortgages to alleviate the frozen housing market, allowing homeowners to transfer their low-interest mortgages to new properties with a penalty. Kathryn explains that while portable mortgages exist in countries like Canada, their adoption in the U.S. faces regulatory challenges. She outlines the current mortgage system's reliance on federally-backed loans and the competitive dynamics between the bond and mortgage markets that influence mortgage rates. Ultimately, Kathryn views portable mortgages as a viable idea that could enhance housing market fluidity, provided lenders find them economically feasible.

Notable Quote:
"Portable mortgages exist in a lot of countries in the world. You can port a mortgage in Canada and it's exactly as he described." – Kathryn Anne Edwards [23:16]

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6. Relationship Between the Bond Market, Mortgage Rates, and Savings Instruments

Questioner: Jay from Soldotna, Alaska
Timestamp: [26:27] – [31:39]

Addressing Jay's question, Kathryn demystifies the intricate relationships between the bond market, mortgage rates, and financial instruments like money market accounts and CDs. She simplifies bonds as loans to the U.S. government, considered safe investments, whose prices inversely affect interest rates. Kathryn explains that mortgage rates are influenced by the bond market because both are seen as low-risk investments. When demand for bonds increases, their prices drop, leading to lower mortgage rates, and vice versa. This interaction underscores the interconnectedness of financial markets and their impact on everyday economic decisions.

Notable Quote:
"Mortgage markets tend to trend with the bond market because both are considered safe assets." – Kathryn Anne Edwards [29:52]

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7. Trump's Tariff Policies and Wealth Inequality

Questioner: Jessica from Waukesha, Wisconsin
Timestamp: [32:08] – [37:19]

Jessica seeks clarity on President Trump's tariff policies and their implications for income equality. Kathryn critiques the shift from a progressive income tax system to regressive tariffs, explaining that such a move would disproportionately burden lower-income individuals who spend a larger portion of their income on taxed goods. She also highlights the logistical challenges of generating equivalent federal revenue through tariffs, noting the exorbitant rates that would be required and the potential negative impact on the import and export markets. Kathryn firmly asserts that replacing progressive taxes with tariffs would exacerbate income inequality and destabilize economic structures.

Notable Quote:
"He is proposing we move from a progressive tax to a regressive tax... bad for income inequality." – Kathryn Anne Edwards [35:37]

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8. Wealth Concentration and Ideal Wealth Distribution

Questioner: Tom from Minneapolis, Minnesota
Timestamp: [37:19] – [43:05]

Tom raises concerns about the growing concentration of wealth among a diminishing number of individuals and inquires about the tipping point and ideal distribution. Kathryn responds by acknowledging the absence of a universally accepted ideal wealth distribution, emphasizing the importance of examining the "processes" that lead to wealth accumulation. She differentiates between wealth derived from genuine market success and inherited or manipulative methods that perpetuate inequality. Kathryn underscores systemic issues like corporate stock buybacks and discriminatory financial practices that hinder equitable wealth distribution, advocating for policies that ensure broader access to financial tools and opportunities for wealth building.

Notable Quote:
"The wealth accumulation that doesn't come from saving, that doesn't come from very direct labor market and market business success... is more problematic." – Kathryn Anne Edwards [40:00]

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9. The Impact of Deception on Economic Policy and the Future

Questioner: Joshua from Lincoln, Nebraska
Timestamp: [43:21] – [47:53]

In his final question, Joshua reflects on Kathryn's powerful quote: "the more lies you tell, the less of the future you get to be a part of." Kathryn elaborates on this philosophy by critiquing economic policies driven by misinformation or political agendas rather than honest problem-solving. She uses Trump's tariff policies as an example of deceptive promises that aim to resurrect outdated economic structures without addressing the evolving realities of the modern economy. Kathryn contends that such deceitful approaches hinder meaningful progress and long-term economic stability, advocating for transparent and solution-oriented policy-making that builds a sustainable future.

Notable Quote:
"The more lies you tell, the less of the future you get to be a part of." – Kathryn Anne Edwards [43:28]

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Community Engagement and Final Thoughts

As the episode wraps up, Kathryn and Robin emphasize the importance of community interaction and encourage listeners to continue submitting questions and engaging with their content through various platforms, including Substack and social media. They highlight the value of building a two-way street in fostering an optimistic and informed economic discourse.

Closing Remark:
"Our goal is to build a community of optimists wherever we can find them... it's just a way of making this community more than one direction." – Kathryn Anne Edwards [49:10]

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This lightning round episode exemplifies Optimist Economy's commitment to demystifying economic issues and fostering an informed, optimistic community. By addressing a diverse range of topics—from data integrity and education costs to taxation and wealth distribution—Kathryn and Robin provide listeners with clear, actionable insights that empower them to navigate and influence the economic landscape effectively.

Transcript

[A]

Hello, and welcome to Optimist Economy. I'm Katherine.

[B]

And I'm Robin.

[A]

On this show, we believe the US Economy can be better. And we talk about how to get there one problem and solution at a time. But actually, kind of not this actual show, because we wanted to do an episode where we just answer questions that we got at our email address. Optimist economymail.com so this is a question and answer episode, and it remains to be seen if y' all suggested either problems or solutions. So I just don't want. I don't want people to think that we're gonna do something constructive here. Like, I don't.

[B]

I don't. Yeah, we're gonna see how this goes. Actually, this is also, for me, it's a game show. I'm gonna turn on my stopwatch to see how much time it takes Catherine to go through the entire backstory of every answer she wants to give.

[A]

Oh, God, that's rough, Robin.

[B]

I forgot about that.

[A]

So you need to tell me right now. Did my sister tell you to do this?

[B]

She did not.

[A]

Was it my brother? Don't say Mom. Damn it.

[B]

Anyway, we have, like, about an hour to record this. Okay. And I'm not nervous, and so I think we're gonna try to do that. So I did want to just say optimist. Economymail.com I read all your letters. Kathryn reads a lot of your letters, and we read your reviews. I'm going to share this one that we got on Apple Podcasts. It says, economists on economics. Now, I'm just going to say I'm an editor, so I'm going to tell you there's only one economist on this show. I am not an economist. Otherwise, this is a fantastic review. It says that for the past couple of decades of pop economics, where economists have gained large platforms for, quote, applying economic principles to fields they know nothing about, that's left a bad taste in my mouth. This podcast is a brain breath of fresh air.

[A]

Aww.

[B]

Anyway, that's really all about you, because, again, not an economist.

[A]

Okay. But, I mean, I think there's another lesson here, which is that if you do leave a review, like, get your grammar right, because it is. We could call this Optimist Editor. Robert, check your shit.

[B]

Optimist, Economist and Bitchy editor.

[A]

Speaking of merch, that would be incredible. Bitchy Editor, Optimist Economy, and Bitchy editor. So you could do a mug where it says optimist Economy, and then when you turn it over, it says bitchy editor. On the other, it says Bitchy Editor.

[B]

On the bottom of the mug once you finish all your coffee. Yeah. Excellent. All right, so we're going to hit Catherine with your letters. I will say I have edited these, but I did ask people if I could use them and use their name and their location. Okay, so first up, from Mark in Lincoln, Nebraska. Have you been tracking whether government cuts have made it more difficult to track economic data? Do you think slash have any concern that this kind of data that is published by the government is at risk?

[A]

Did you just hit go on the timer?

[B]

I did.

[A]

Okay, so the Bureau of Labor Statistics was started over 100 years ago. It was.

[B]

Yeah, I see you doing that. I see what you're doing.

[A]

Okay, so let's do bottom line up front. Yes, there is terrible concern about the integrity of statistical data that the US Produces right now for a couple of reasons. The main being that the people who work on the data are being fired. The head of the Social Security Administration, who himself is a Trump acolyte and was only elevated to the interim head of the Social Security Administration because he posted on LinkedIn about how great Elon Musk and Doge is. He himself was caught on a recording referring to the Doge staff that showed up to the Social Security Administration headquarters as the Doge Kids. And he was like, yeah, the Doge kids, like, they don't know what they're doing, but they're trying to learn. That's not great. That's your data that they're learning with or your Social Security payment. But I think that there's this concern of the Doge kids going into the data and messing with it. That is less of a concern because they're just not that sophisticated. Like, they might be like a 20 year old programmer who had an internship at Tesla, but like, working with administrative government data is not something that you could just walk off the street and do. So them going in in and manipulating data that the US Produces would be much harder probably than you think. And what they think bigger concern is that the people who actually know how to use the data, both for internal and external publication services, those are the people who are being fired or they're being asked to do something and they say no, so they are forced to resign. That is the bigger concern. The other thing you should know is that the US has multiple watchdogs for statistical agencies that determine the integrity of the statistical agencies and all the data that's produced. A lot of those people have been let go and fired or the committees have been dissolved. The biggest concern is that career civil Servants who are experts on the databases will be replaced by political loyalists in a permanent way. Not just a Doge kid way, but in a permanent way. Okay, I'm done.

[B]

Nice job. 3 minutes, 15 seconds. Okay, are there alternative sources of data? Like, are there ways that non government, I don't know, universities or nonprofits are also reproducing this kind of data?

[A]

No. No one's as good as the federal government in producing this type of data. And frankly, the US has, with its storied Bureau of Labor Statistics. I mean, it has the best kind of public statistics in the world. Right. I would never trust too deeply statistics coming out of, say, the Chinese or Russian government. The US has really high statistical integrity. I mean, we've had scary moments before. So a lot of people don't know that, that Nixon, much like Trump, really hated it when public data didn't go his way and attacked the people who produced it. Just like Trump did at the end of the Biden administration to say, like, the BLS was producing fake jobs numbers because they showed the economy was good. Nixon did that during his presidency and he actually made one of his White House staffers go to the Bureau of Labor Statistics and fire anyone who had a Jewish sounding last name because he thought that they were in a cabal, a Jewish conspiracy to undermine Nixon from the Bureau of Labor Statistics. Like, people absolutely lost their job jobs, people were demoted, people were pushed into early retirement. And afterwards there were more walls built between the BLS and politics and the way that the commissioner is appointed and so on. We put a lot of barriers and protections in place. And so what's going on now is that they're trying to get through those barriers and protections. But you can read all about this. There's a great slate write up of this. But of course it's not conjecture, y' all. He said this all and recorded himself. And then it was added to historical archives. So you can hear Nixon asking, like, very pointedly, like, but the bls, how many Jews are there? So, yeah, I mean, this is. I don't know if that's comforting or not.

[B]

No, it's okay. All right, on to question number two.

[A]

Got it.

[B]

Ready?

[A]

Okay. Are you ready?

[B]

Okay.

[A]

A statistics one first. I feel like you were, like, trying to see how, like, warming.

[B]

I'm warming you up, actually.

[A]

Oh, my God. Spinning top. I have so much more to say about the bls, but.

[B]

But we have more questions to get to. Are you ready?

[A]

Yes.

[B]

Okay. Question from Tegan in Seal Cove, Maine. Do you have a hot take on college Tuition increases and student debt. Go, go.

[A]

Okay. I will say the way that I think about it, that might be different than the way that a lot of people think about it is that from your perspective as an individual who's contemplating going to college, it's really a matter of risk versus reward. Will I make enough money extra from having a college degree to justify any expenses I have to take on, like not earning wages for four years and foregoing a full time job plus the cost of going to college? I think what a lot of people notice and really just recoil at is just how unfair it is that that calculus varies so much by how much money your parents make.

[B]

Right.

[A]

There's no risk if your dad pays and your mom and dad pays for everything. It's incredibly high risk if you're taking it all on your own. And that this upward mobility vehicle that we have, it's both a way to become upwardly mobile, but it's almost like pulling up the ladder behind the people who are already upwardly mobile. I think the way that I think about it that's different is the idea of what does the government get from college? If you think of the government as being a steward of the US economy, it needs college because it's a massive human capital investment. It pulls up the relative skill distribution and distribution meaning like the variety of skills that workers in the US have and which ones are associated with high levels of innovation, high levels of kind of productivity changes in the economy. We need people with a college degree in our economy. And I think that I don't like that all of the risk is on the person, even though the benefit can be so large to the federal government. So like sending people who couldn't pay off their college loan, probably because they didn't make enough money into debt collection is kind of the federal government saying, well, we mostly benefit from people going to college, but if it ever doesn't work out, it's entirely on them and it's their fault. And I don't like how they're in this like incredible position to gain. But even like the small risk that can be awful to a person, the government's like, nope, yeah, it's on you. You made bad choices. You know, it's a very kind of like one way street, selfish endeavor. Especially because Pell grants are like laughably.

[B]

Too low and poker's just not kept up with the cost of tuition. Is that what's happened?

[A]

Yeah, because tuition is spiking. And the cause for tuition spiking is really multifaceted. I don't think I can give it quickly in an answer. What I will say is that something is going to change drastically for colleges in the US and over the next 15 years. Because if you've read about the baby bust and fertility declines in the US the college going population in terms of age or the age.

[B]

It's going to shrink.

[A]

It's going to shrink. Just imagine the number of colleges in the country that are charging a fortune to a dwindling population. I just think that we're either going to have a lot of colleges go out of business. Go out of business, go business and close or consolidate. And then you're also going to have some business model changes where colleges are going to have to say, okay, we can't charge people $60,000 a year. No one will come and we'll go out of business. So I think the elite colleges won't change much. But I think when you think of college, the broader institution that has hundreds and hundreds of different types of colleges, I think you're going to see changes on tuition to meet the reality of the moment, which is one, the middle class paychecks don't last forever and neither do the kids that are going to go.

[B]

Yeah, yeah. Three minutes, 55 seconds.

[A]

Oh, my God, look at that.

[B]

See if I can just focus your mind. Can you imagine? Can you imagine? All of our episodes would be 20 minutes long. It would make that other guy really sad.

[A]

It would make the guy really sad.

[B]

Okay, next up from Ashley in Arlington, Virginia. I have not yet found a successfully disarming way to get around the, quote, all taxes are theft argument. I'm talking about responses to people who say, quote, tax cuts aren't a benefit because it's just the government giving me back my money. Or I want to choose the community projects, charities, et cetera that I want to support. Have you found any way to get your toe in the door with anyone who is fully aboard that train? Hmm.

[A]

And. Okay, start. Okay, all taxes are theft. I think there's a couple tacs you could take here. One approach would be to say, wait, tac. Is tac the right word?

[B]

It's tac. Tac. Tac from sailing. Okay, we'll talk later.

[A]

Okay. There are a couple tacks that I've taken. One is then, are you stealing roads? Like, if there, if taxes are theft, then are roads theft? Like, are you stealing a road from driving down it and kind of bringing up all of the public goods that people enjoy? And you know, did you steal your doctor's education? They went through public School. So did you know, are you stealing that by benefiting from it or are you just kind of part of a society? And so I try to kind of bring up that they benefit from taxes and that they would get really upset if they called it, if I said that they were trespassing, if they went down a public road and that this ownership over taxes can be a little incongruous with how they consume services in our society. Of like, all right, well, you know, did you benefit from a medical breakthrough? Did you get a vaccine or a new drug? Like, it's always crazy when people say this and they're on Medicare, but, you know, I mean, just you couldn't give back everything that you've gotten from the government and you couldn't count it. So are you just trespassing here? The other thing I'd point out is that they don't want to move. Like, if they want to move to a low tax country that doesn't have roads or public education, they are welcome to do so. If you want to go live in a place where the government doesn't support research, doesn't support science, doesn't support education, doesn't support public infrastructure, doesn't have pipes, you know, they don't move through your city, they don't collect your trash, they don't do anything. Like, you are welcome to go. It sounds like you're going to live in a desert and die, but you're welcome to go there. Like, if people are robbing from you, like, go protect yourself and go to a place that doesn't have public services.

[B]

Can I, can I, Can I? I'm just going to back you up one sec.

[A]

Yeah.

[B]

Which is that I think people feel differently a little bit about the, the road and school and the local tax issue because it is concrete to them. I think the federal income tax maybe feels far more removed.

[A]

Okay, well then, like, where are your principles? If all taxes are theft except for the ones I like? Like, okay, like it's not, I don't know, it sounds, I mean, it's not.

[B]

Like we all live in a city state. Here in the city state of Spokane, we have roads. But over in Idaho, I don't care if they have roads. Of course I care if they have roads.

[A]

Yeah. You benefit from an economy, Right? The US Economy is the largest economy in the world and it's constantly growing. And it would not be the largest economy in the world that is constantly growing if it did not have basic infrastructure, intellectual, medical, health, educational, or just the true, like, you know, roads on the ground that have benefited from income taxes. So what I have said once to someone, and this was, I, sometimes I can be kind of mean. Just because we're optimist doesn't mean we're nice. I was like, oh, well, like have your cake and eat it too. I live in the like the largest and richest economy in the history of the world. But like, if I have to contribute to it, it's theft, but if I benefit from it, it's because of me. And so I, I said to this one person of like, that sounds like something clever you would say at a dinner party, but it really just means you don't have anything clever to say. And I did feel bad about it afterwards. I'm like, I'm sure that that sounds good. I was like, you could put that on a T shirt and someone would high five you, but like, no one would give you a job. And I don't know, I think I was meaner than I meant to be just because I think that it's very short sighted. I don't know if that helps. Ashley in Arlington. So just be like a real loudmouth bitch at a party. That's the answer. But no, I think the answer that is probably the best answer is, you know, those taxes have supported economy that have give you probably untold riches relative to a low income country that doesn't have a tax base and doesn't have the economy that we have. So if you want to go somewhere else, you know, nothing's stopping you.

[B]

Okay, four minutes, 35 seconds.

[A]

I talked about that one for like a long time. Okay, keep going.

[B]

Okay.

[A]

Okay. And then we'll have to do an episode of me continuing to talk afterwards. Of like. Okay, don't go back to the first one.

[B]

Yeah, I wasn't sure if it was good. Like I thought, well, maybe I should tell her that the questions are in advance and then maybe she'll, you know, have kind of a little processing time. But it's more fun to see you, you know, sweat just a little bit. I think when you told me that you were a natural, you went to nationals and debate is when I was like, oh yeah, I know exactly how we're gonna do this.

[A]

Oh yeah. You know what, I think that that's all entirely fair.

[B]

Okay, next question is from Sudha in Atlanta, Georgia. Okay, can you please speak to the linearity of the capitalist economy where the only way for it to survive is that it needs more growth and it doesn't handle de growth well.

[A]

Oh, it doesn't handle degrowth Well, I would say no economy handles de growth. Well, I don't know if that's necessarily a function purely of capitalism. So I'm going to do a capitalism talk and I'm going to do a degrowth talk.

[B]

Okay.

[A]

Okay. Clock is running. So capitalism is far from perfect. But there is one thing that capitalism did that no other system of organizing an economy has done, and that is it creates an incredible amount of income and wealth. And the origins of capitalism kind of in the industrial revolution, we think of capitalism as being not making and consuming things and not selling things, but organizing into a firm. And the real distinguishing feature of capitalism is having a firm structure where you aren't just like you make shoes and you sell shoes and that's it. And everybody else has kind of one task related to their income. You work for somebody else. And that firm employs people as well as capital and innovates and absorbs technology and that produces goods. And that this kind of evolution from we're all subsistence farmers to we have small kind of like market economies without firms, to having firms generated more income and wealth than we can really possibly imagine. It follows the world going from everybody is poor to almost no one is poor. The problem with capitalism is that it does not distribute that income and wealth. Well, that is what a government is for. And I think that the problems that a lot of people have with capitalism right now are for the things that they can see as failures, but they're really failures of the government to not step in when there are market failures, when there are kind of of market disadvantages, when people should not be as low income or low resourced as they are. And we have not had a government manage the capitalist economy and the wealth and income it distributes is different from, I want a non capitalist world. Now maybe we're at a point where we transition beyond capitalism because now we have all the income and wealth, we don't need to keep generating it. I don't know how to answer that question. I could just say that I think a lot of the issues people take with capitalism are with capitalism not regulated the way that it could be. Okay, okay, so that's capitalism.

[B]

Okay, good. You're half time. Keep going.

[A]

Okay. Oh my God. Okay, so degrowth. This is a question that almost every economy in the world has to answer because you know, most western economies and post industrialized economies have seen a falling birth rate, but so have a lot of middle income countries and low income countries. I mean, fertility is falling everywhere. So we are going to have in the world Smaller economies, probably. I think there's two things to keep in mind. One is that the population can get smaller even as the number of workers stays constant. And it's the number of workers who predict the size of the economy more than the number of people.

[B]

Okay.

[A]

So your economy is basically the number of workers you have times average productivity equals size of economy. So when the US population starts to decline in about 15 years, that's not like a red flag moment, because it shouldn't lead to a decline in the number of workers.

[B]

And we can increase productivity.

[A]

And we can increase productivity. The other thing about degrowth is that there's degrowth that comes from an actually smaller economy, and then there's de growth that happens to portions of the economy. So I think one way I get this question a lot is like, we don't need to consume as much stuff, but if we had less stuff, we'd have a smaller economy. That's not necessarily true. If you consider the consumption of services, like maybe. And we've seen this happen in American consumption patterns. We used to be almost entirely consuming goods. And like going to the movies, going to a concert, going on vacation. And the idea of consuming experiences and services was less a part of our bundle. That shift can keep occurring so that we have these changes.

[B]

I guess my grandfather used to say the perfect economy is where everyone makes a living cutting one another's hair.

[A]

Yeah, that seems a really good job. Yeah. I mean, I think that the actual economy getting smaller, reflecting that the population is decreasing, is coming probably not as soon as people are saying. And then it's just a matter of managing expectations. I mean, the real risk is that if the economy is getting smaller, it sends you into like a price spiral where like, you go into deflation. And that basically cripples the economy because you kind of like limp from like one crisis to another of people waiting for stability in prices to start consuming again. And so it's. It can be manage and it is completely possible. We don't have a ton of experience with it because we haven't had to, but that doesn't mean that it necessarily spells doom.

[B]

Five minutes, 15 seconds.

[A]

Oh, my God. Thank God.

[B]

And I interjected. So I think that that's a win. I think that's a win. Okay, I'm gonna try.

[A]

Would you say, like, Katherine, I think that's a bad answer. You should try again if it was bad.

[B]

I guess maybe if I had really had no idea what you were saying, but if it was a real train wreck, I don't know. Maybe I just watch you go off the rails. I think I would enjoy that, actually, if I'm being honest. Okay, our next question. Our next question. We got an audio recording. Max in Philadelphia sent this as a voice Memo to optimist EconomyMail.com hey there.

[C]

Keds and team love your podcast. I have a question for you. I don't know if you do this, but I'll give it a shot. So this is a proposal that was put forth by Clark Howard, who's a personal finance podcaster guy, and it was suggested as a way of ameliorating the frozen housing market. So setting aside that we're short millions of units, we also have all these people with homes that have really good, you know, 3 or 4% mortgages, but they'd love to move for one reason or another, and they can't because they'd have to get a much more expensive mortgage. So the proposal is this. What if lenders were allowed to make mortgages portable, but at a penalty of, say, 2 percentage points or something like that? So if I have a 3% mortgage, I could take my mortgage with me to a new property at 5%. That advantages the lender because then they have more interest coming in. It advantages me because then I can move. And it would create a little bit more velocity in the housing market so we wouldn't have all these people stuck where they are. I don't know about the legality or the regulations around this, and I don't think this would solve the housing market. Again, we need more housing units for that. But I thought it was an interesting idea and I was curious about your thoughts on it. Anyways, thanks. Keep doing what you're doing.

[A]

Okay. This is called portable mortgages. If you do move your mortgage to a house, this is called porting a mortgage. So you port a mortgage like. Yeah, portable mortgages exist in a lot of countries in the world. You can port a mortgage in Canada and it's exactly as he described. So just like a quick primer on mortgages, if you don't have one. A mortgage is just a house loan, and it is the loan you get from a bank to purchase a house. So if your house cost $500,000 and you had $50,000 in savings, you take out a $450,000 loan from the bank, the bank pays the seller, and then you pay back the bank for what is typically a 30 year loan. Mortgages in the US are heavily regulated for lots of reasons. And the fixed rate 30 year mortgage is where the market has kind of landed of being the gold standard of loans in the US and what affects which mortgages exist in the US Is a matter of which mortgages are backstopped by the federal government. So if a loan meets certain standards, the federal government, it's kind of hard to describe exactly how this works, but they basically approve it for resale. So the bank doesn't hold on to the 30 year mortgage, they can sell it to somebody else. So you probably don't even get a mortgage from a bank. You get a mortgage from a mortgage broker, and the mortgage broker then sells your loan to the bank after you buy the house. So it's not surprising as a homeowner that you go to some lending broker in your city, they help you get the loan, and then like six months later they're like, hey, you were sold to Wells Fargo. And then six months later it's like, well, actually you were sold back to Chase and your mortgage is sold from bank to bank if it meets these requirements.

[B]

Okay.

[A]

Okay. So that's the debt. Now you have $450,000 on your home that you're paying down. A portable mortgage means you move physical locations and you keep the loan with you. So if you have another $50,000 in cash, you basically take that loan and buy another house that costs $500,000.

[B]

Yeah, but I mean, I just feel like so many of the loans here, they're very specific to that property. Right. Like that's the.

[A]

Yeah, because they get appraised, they make sure that the property is worth that money. But I will say it's not like.

[B]

Just a loan to me, based on the fact that, you know, whatever, I have good credit and a good history of paying my loans back or whatever.

[A]

Yes. Now they have. The FHA has been looking at portable mortgages in the US and whether or not banks would be interested in them, because it really comes down to the lenders. And there's been some studies that have found, like, as long as you put a fee on it that they can make money from, they'll do it. Yeah. That it's, there's not like a really an added risk, like the borrower's worthiness doesn't change. You might have to do like a refinance kind of penalty, but like you put some kind of reassessment, reappraisal and fee on it. You know, banks would go for it.

[B]

Yeah.

[A]

Because the mortgage market is not necessarily drying up, but it's, it's certainly slowing with mortgage rates, what they are.

[B]

Yeah. Okay.

[A]

Portable mortgages, Great idea. From Canada.

[B]

Okay. 3 minutes, 29 seconds.

[A]

Okay.

[B]

1 of the things, by the way, I just want to say that I loved about putting these letters together. So we get these emails and, you know, they're just from a person with a name. And then I reached out to them to say, hey, can we use your letter on the podcast and can you tell me where you're writing from? People are writing from all over, including this person who is writing from. Oh, damn it. I know how to say this. It's Soldotna, Alaska. This is from Jay. Could you do a brief explainer on the relationship, if there is one, between the bond market, mortgage rates and things like money market accounts and CDs. We get a lot of questions about the, about bonds and I just sort of picked this one because I thought it seemed also close to the mortgage question as I'm building a flow here for you. Are you ready to go?

[A]

Okay. I think so. Okay, go go. The bond market. So what is a bond?

[B]

What is a bond?

[A]

What is a. Whom amongst us have not wondered? So I heard this best explained by Stacey Vanek Smith where she said in like an explainer video on TikTok that a US government bond is a tiny loan that you make the U.S. government.

[B]

Sure.

[A]

That's the way to think about it from the buyer's perspective is that you're basically lending the US Government money and in exchange they're going to pay you back later. And this tiny little loan that you make them ends up being really valuable as an asset when other assets seem more risky because these tiny little loans that you make to the US Government tend to be considered, or are broadly considered very, very safe.

[B]

So you're talking about like, you know, like a 10 year savings bond. The 10 year T note.

[A]

10 year T note is it's just a tiny loan that you make the government of like in 10 years you're going to pay me back this money. And you're the U.S. government, so you're good for it. And the price of the bonds really tend to vary with what else is going on in the economy. And if I'm scared about the stock market, I'm going to go buy some bonds if I'm scared about something. Right. Bonds are considered a safe place to put things. And so I'll go put things in the bond market now. If there's more demand for the bond market, the price goes down. And if there's less demand for a bond, the price goes up. So typically when shit hits the fan and the economy doesn't look good. You see people kind of rush towards bonds and this pushes their price down.

[B]

You should explain why when there's high demand for bonds, the price goes down. I think that that's confusing.

[A]

Yeah. So that's you. You're making a little loan to the federal government of the United States, and you're doing so because it's a safe place to put your money and you think they're good for it. So it's if a safe place to put your money. Sounds good. Well, now you're the US Federal government, and you're trying to sell these little loans to people. The more people who are demanding the.

[B]

Bonds, the less interest you have to pay.

[A]

Yeah. The less interest. Yeah, because the price from the federal government's perspective is what they have to pay in interest. So, like, I've got to make this bond worth your while. So if the bond is 100 bucks with 2% interest versus 100 bucks with like 10% interest. Yeah. I mean, it's more expensive for the federal government to pay you a higher return. So if a bunch of people are rushing for bonds, it's like super cheap for the US to borrow because we're basically taking all this money from the bond market that is lower priced.

[B]

Okay. How does that relate to the mortgage markets?

[A]

Mortgage markets. Okay. So the U.S. bond, federal government bond is widely considered the safest investment that you can make. One of the next safest investments is into mortgage securities. Because the US Mortgage market is so heavily regulated, you know, that you've got, you know, homeowners on 30 years of payments at a fixed rate that have been through just a very gutting, appraisal and underwriting process. These loans are considered very safe. So the mortgage market is basically competing for buyers with the bond market.

[B]

Oh, for re. For the resale of the mortgage securities.

[A]

For the resale of the mortgage securities. So the interest that you pay on your mortgage is in part a function of its resale value on the market. The mortgage market tends to trend with the bond market because one, they're both considered safe assets, but it's always going to be like a little bit above or a lot above the bond market because the bond market is safer. I think that's the, like, the. Maybe the simplest version is that they're too, like. Yeah, for you, they're wildly different things. Right. Like, this is your mortgage. It's the largest loan any of us will take out in our entire lives. But it's also a financial instrument. And that sounds scary, but it's also what creates Such a clear market for mortgages that are relatively cheap in the U.S. i mean, yeah, 7% is not great for a mortgage, but there were, I mean, there were decades where you couldn't get one below 10. So we have benefited from financial underpinnings of an investment market behind the mortgages we have. It is what helps makes them so cheap. But it is also on a market that does fluctuate, that does have investors that come in and out and is competing with other investment vehicles. And so all of that changes the rate. Okay, okay, next question.

[B]

Next question.

[A]

Bonds. God, talking about bonds is terrifying on some level because I'm like, doesn't anyone want to talk about unemployment? Wage patterns are killing me.

[B]

I'm sorry. A lot of, you know, because a lot of these questions, first of all, I thought they were good to do now because they, you know, they're closer to the news, but not so specific to the news, and there may be things that we're not necessarily going to get to for a whole episode. So, anyway, are you ready for your next one? This is from Jessica in Waukesha, Wisconsin.

[A]

Waukesha. I will say I was mercilessly teased in showing up to Wisconsin and referring to it as Waukesha.

[B]

I would. I think this is almost what I just said. Right?

[A]

Yeah, well, Yeah. I mean, Ke$ha was really big at the time, and I was like, oh, wakesh$my. My husband, who was then, like, guy I was dating, was like, there's not a dollar sign in its name. He burned me bad about Waukesha. I now know and not Waukesha. Anyway, that's just a little treat for our listener from Waukesha.

[B]

Now. I don't even know how to say it. Okay, Trump seems to be returning us to the Gilded Age tax structure. Could you explain what this means and how a driven tax system could be bad for income equality or income inequality?

[A]

Sure. So a tariff is a tax. Your federal income tax is a tax. The estate tax is a tax, and they're collected by the federal government. And Trump is seemingly under the notion that if we raised enough money from tariffs, we wouldn't have to have an income tax anymore. So let's take this question on two levels. One, tariffs to the income tax. Which one is better if you're not a rich person? It's absolutely the income tax. We have a progressive federal income tax. Progressive is like, in the name. The more you make, the more you pay. And even though the rich get all kinds of tax breaks, and even though they're incredibly savvy and they do everything they can to reduce their tax bill. If you look at the average share of income paid in taxes, it is perfectly linear. The top pays the most, the bottom pays the least. Is there squishy bad shit that happens in the middle? Absolutely. Because there is a lot of tax manipulation. But on average economic terms, squishy bad.

[B]

Shit in the middle?

[A]

Yeah, I mean, people cheat on their taxes. They did. Like they, they have weird tax structures. But the, the income tax is progressive. Tariffs are regressive because it's a sales tax for the most part. So the first thing wrong with moving to a tariff system over the only explicitly progressive tax that we have in the United States is that you're basically relieving the tax from people who pay a lot under the progressive system and moving it into the tariff system. Now what they would say is like, but rich people consume more, so they'll pay more of the tax. It's not a dollar amount comparison. It's a share of your income, a sales tax, your share of income would be a function of how much of your income you consume. So if you live hand to mouth and you don't have any money in savings and basically every dollar you have will go right back out the door for some type of necessity, you would functionally be paying taxes on 100% of your income. Now if you make a lot of money and you save about 10% and then you invest another like 15% and you use another 5% for kind of like real estate investments. And you know that means you only consume half your income and you invest and save the other half. You're only taxed on half your income through the consumption side. Rich people have more money, they save more, they consume a lower share of their total income. So even though they are consuming more.

[B]

In dollars, the tax is only hitting.

[A]

Yeah, the tax is only hitting what they consume. So sales tax are regressive because poor will pay a higher share of their income, which is what matters for the thinking about progressivity and regressivity. So in effect, he is proposing we move from a progressive tax to a regressive tax.

[B]

Right?

[A]

And fuck that.

[B]

And that would be bad for income.

[A]

And it would be bad for income inequality and it would be, it would be bad for income inequality to make the poor pay more.

[B]

Yeah, full stop.

[A]

Full stop bad for income inequality. Now the real question is really quickly, in any given year, the US imports around $4 trillion worth of goods and services. Right now in terms of federal revenue, federal revenue is around 4 trillion. And the biggest portion of federal revenue is individual income taxes, which in, say, a good year where the economy is not falling, I mean, it can be $2.5 trillion. So if you have 2.5 trillion in federal income taxes, 4 trillion in imports. So we'd have to raise enough taxes on those imports to cover 2.5 trillion, which would be close to. I mean, we're close to 65% on every good that's brought into the United States. And we wouldn't see a reduction in those goods.

[B]

Which of course we would.

[A]

Which of course we would.

[B]

You raise the price by that much and consumption will go down.

[A]

Yeah, if you raise the price. And we have retaliatory tariffs and all these things. So you wouldn't want it one, because it's a regressive tax, and you wouldn't want it now, two, because it's never going to raise as much money as the federal income tax. And if it did, it would be. I mean, the amount of money that we would. There's no way to raise $2.5 trillion a year from tariffs and not have dramatic repercussions on our export market.

[B]

Yeah, yeah. 625.

[A]

Okay. All right.

[B]

But no, I thought that was a good answer. Next question. Northern Midwest coming in strong. Tom from Minneapolis, Minnesota, wants to know at what point does the concentration of wealth into the hands of fewer and fewer people become a critical. And what is an ideal wealth distribution?

[A]

I don't think we know what an ideal wealth distribution is or people wouldn't agree. I don't think economists have. Like, this is the one. We have ways of measuring wealth inequality, but I don't know if we have, like, the. And this is the distribution you're aiming for, because it's not static. I mean, you think of the distribution of wealth right now in the U.S. yes, it reflects gross inequalities in our labor market and lack of opportunity. But, you know, most people consume all the wealth they accrue in their lifetime, and their peak wealth is the day they retire, and then they just fall from there. So to say here's the ideal distribution of wealth doesn't really take into account that you want wealth to change over people's lifetime to prepare for retirement. And so kind of like, you know, making a static distribution on a really dynamic process can be really hard.

[B]

Right.

[A]

And then the economic problems with wealth and wealth distribution, I think, are twofold. One, who gets to have it. Like, it's one thing if we have wealth inequality, but it's another thing if, like, no one else has ever had it except for like 100 families. Right. Like is it a true aristocracy or do we have a lot of self made wealth that is then like reborn every generation? How much wealth is dynastic versus how much wealth is a product of say, market success? So that's one problem is that wealth doesn't come from the same place. I think inherited wealth can be really distortionary to economies. But I don't necessarily love Jeff Bezos and he definitely had some upper hands, but that guy made himself into one of the wealthiest people. So did Bill Gates. And I think that process of being able to make wealth is generally considered to be good. I'm glad they could do it. Now do we have corporate pay and tax structures that tend to basically lead to wealth kind of concentration? Yeah, I think that's the problem. I think most economists would tell you, like, it's really good that anyone could get wealthy and we want that to happen. And it's also really good that people can accumulate wealth and the distribution could look off. But distribution is off right now because we have a lot of old people and they're at their peak of asset holding because they're at the start of retirement. And they did really well in the asset market. They all bought houses for like $50,000 in 1980. And they, they'll tell you anytime you give them the chance that they paid 15% on their mortgage on their first house and then interest rates went down and the house is worth a million and a half dollars. And they're like, I did it. They've had some true tailwinds when it comes to asset accumulation. They also got opened up to 401s, like through some stock market booms. So they've done well. We wouldn't want to dismantle wealth that supports retirement. And being able to accumulate wealth for retirement is good. I think the problem is the wealth accumulation that doesn't come from saving, that doesn't come from very acutely labor market and market business success. The wealth that ends up being protected by the tax system or hidden from the tax system or kind of like corporate pay structures that reward wealth over wages. Those are more of the problems. It's not necessarily the level or the distribution, but the process. And I have a problem with corporate stock buybacks I think is a big wealth problem. And then of course, how we tax wealth at death is also a huge problem. And that has less to do with the amount or distribution of wealth, but kind of two parts.

[B]

The protection of it.

[A]

Yeah, the protection of it. That's like the first part with the current wealth distribution. And then there's the whole people who have no wealth. And that's a whole separate problem of who has access to savings, who has access to retirement accounts, who gets easier financing for home loans. And I think that this is kind of the. This is the part of the US Economy that can make rich people really uncomfortable, because I don't think anyone wants to admit that they've benefited from a world that discriminates against other people. And when you're wealthy, there's, like, nothing better than talking about how you earned it and how you made it and how you saved it and you invested it, and it all comes back to you. And to point out, like. Like, you know, half of Americans have never had access to a 401k. And they'll be like, well, they can go get an ira. Like, not the same thing. Or to say, if you were to look at credit applications of Americans who have equal income but different race, the financial system and the credit rating system is able to distinguish black people from white people because black people are rejected more even if they have the similar income to white people. And we have legacy inequalities that hold down wealth and asset accumulation at the bottom, whether that legacy inequality comes from how we pay workers, who we give access to benefits, how the financial system kind of carries on the legal segregation and discrimination of the past and how it kind of lives on through their systems and what that means. And so I think the two wealth questions are, we want to live in an economy where people can earn wealth, but we need to look very carefully at who has the door shut in their face and for what reason, who doesn't have the door open at all, and who basically closes the door behind them and hides it. And that's much more problematic. Those processes are much more problematic to me than any one distribution.

[B]

Okay, that did take you six minutes, but I thought that was a good answer.

[A]

Oh, okay, great. I would really like it if there was one answer that you were like, nah.

[B]

Yeah. Okay, I'm gonna call this our last question. Are you ready?

[A]

I'm ready.

[B]

Okay. This one is also from Lincoln, Nebraska. Coming in strong from Nebraska, from Joshua.

[A]

Love it.

[D]

This has been one of my favorite quotes ever since you said it. But you said the more lies you tell, the less of the future you get to be a part of. And I effing love that. I'd love to hear you deep dive on this topic. Where does this idea generate? Did you build this through your education and your. And Your exploration and research? Or is this something like in intuitive more with like your moral philosophy of the world.

[A]

Wow, what a banger. The more lies you tell, the less of the future you get to be a part of. I'm trying to remember what video this was in.

[B]

Yeah, maybe we can find it.

[A]

Not to say that I generate a lot of content and then forget about it, but. So I think this in some ways is an outgrowth of a basic belief that I have about economic policy and was in part the inspiration for making the show Optimist Economy is that there are so many things that the government does that politicians propose that becomes policy. And some of them are solutions in search of a problem. Like, I want a tax cut. And so, like, let's go figure out what that'll solve. Maybe it solves lack of savings. Maybe it solves lack of investment. Maybe it solves lack of economic growth. Maybe it solves economic insecurity. And over the course of 45 years, we've watched this evolution of what tax cuts are supposed to do. And here's the thing, they don't do anything like that. And they're relatively ineffectual and therefore they're ephemeral to our actual economic history. The legacy they will have is that they've increased the debt debt and they've reduced federal revenues. That's the only thing a tax cut will always do, is reduce federal revenue. And every other miracle cure that a tax cut that you say a tax cut will do for our economy, if it doesn't work, it doesn't work. And then you'll go look for the next cure and say it'll do that. In order to actually change the economy, you have to work backward from a problem and find the solution. It's not picking a policy you like and saying, here's what it'll solve. It is looking at the problem and going backward of how you're going to solve it. And so what I the more lies you tell, the more you're just out there searching for a problem to promote your solution, the less effectual you'll be. The future is built off of what we can meaningfully change for the better. That has to come from actually solving the problem, which comes from being honest about what needs to happen. And so that's why I think that's one way that I think about the tariff. It's like, same with tariffs of like, they're going to do this and they're.

[B]

Going to do this.

[A]

They're not. They're not going to lead to A golden age of US Manufacturing. And if they did, those factories will not have people in it, because in the future, factories won't have that many people in it. And so we can bend our economy any which way we want and manipulate currency markets, and manipulate bond markets and risk, all of these pillars of US Economic security in the domestic and global setting in order to bring manufacturing back to the US but it won't lead to 35% of Americans being in manufacturing. And that's the lie.

[B]

You're not building that future.

[A]

You're not building that future because that future won't exist because you've premised it all on a lie that you know isn't true. And so if you sell the lie, you give up the future. I think that that, to me, is Trump's economic policy in a nutshell. And I kind of take a lot of gratification in knowing that, like, this guy is going to cause a lot of damage, but, like, his legacy will be erased, like, he won't leave anything meaningful in our economy. I look to the future and I'm like, okay, 2050. Is there something that Trump is going to do through two terms of office that will have affected the economy in 2050? Nothing comes to mind. I just don't think anything is there. Whereas, hey, man, you have paid family leave. Paid family leave will do more in a week than these tariffs will do in a year or in a term. Actually, solving the problems leaves such a bigger impact than these.

[B]

Like, in a compounding impact.

[A]

In a compounding impact, yeah. An absolutely compounding impact. So, Josh, what I was trying to tell you is that it is really hard to live through the destruction, but you can rest in some type of positivity. That that destruction, as horrible and painful as it is, it's not the future, because the future will eat it for breakfast.

[B]

4 minutes and 30 seconds. That's it.

[A]

That's it. Oh, my God.

[B]

That's it.

[A]

I feel like. I feel like this kind of feels like an exam of, like, how it.

[B]

Was, like, Optimist Economy, Jeopardy. Edition. Do we need to say anything else before we leave? I think. Oh, you can continue to send us questions. Optimist EconomyMail.com we have a newsletter. It's hosted on Substack, but you'll find [e-mail] we are running letters from you. So if you have some actually kind of complete responses to something you hear on the podcast, you can send a letter to us or you can actually also message us. I think on the substack platform and.

[A]

I have been getting some DMs on TikTok and Instagram of TimistEconomy where you'll find us and some highlights of these videos. But I think one thing that made us really look forward to this episode is that we have always held the goal that this is not just about us talking and producing a podcast, but building a community of optimists wherever we can find them. And so reading your letters and answering them and putting them on the website and sending you articles that we think are funny or Robin, putting up gifs on our substack notes is just a way of making this community more than one direction. It's not just us flowing down to you. We do want it to be a two way street.

[B]

I just will only add that it is always really great for me to get to call people and say, hey, we want to use your letter. They're thrilled to be part of it.

[A]

We are thrilled to have them here. We are thrilled to be building Optimist.

[B]

Sophie, we're done.

[A]

Yeah. And Sophie, that's a wrap. And cut.