A (2:33)

Retcon. What do you got?

B (2:35)

I have two things. One is we got a note from Monica in Massachusetts who was just commenting on something that you said about the day that you retire being the richest you'll ever be and that in this day and age that that doesn't necessarily still hold, especially when capital returns to capital more than it returns to wages. If you've saved for your entire life, in fact, if you might continue to make more money than you're spending anyway

A (3:00)

after you retire, self serving. Sidebar. Should this befall you, Optimist economy is a qualified charitable distribution. Sidebar over. Yeah, I mean, you know, we think about wealth as the assets you hold, and then there's the value of those assets. So the life.

B (3:24)

The assets are different than the value of them?

A (3:27)

Well, you're, you're holding something in. Is the value increasing or decreasing?

B (3:31)

Okay.

A (3:32)

So in the life cycle model, the idea is that you are accumulating assets and building up wealth until you retire, and then you dis save, meaning you spend down your dis savings until you die. Sorry. So what she's pointing out is that the assets that people have now, they're not necessarily adding to those assets in retirement, but you can be holding assets that do increase in value. So you're not necessarily still saving for retirement once you retire, but you've built up so many appreciating assets that your wealth is actually getting higher even though you're not no longer contributing to it. And that's a really good point. I think that the notion of a life cycle model is really about the action that you are taking, right? You're earning and saving and then you're stopping earning and you're living off of those proceeds. And this really her point is just that in the real world, where economists don't always live, it can be even more complicated than that.

B (4:26)

Yeah, yeah, yeah, yeah. Okay, next chapter, Terms and conditions. Oh, you have a lot.

A (4:32)

I have a lot. I just wanted to go over. We're talking about, make it make sense. The economy in 2020, 26.

B (4:38)

Little glossary up there at the top.

A (4:40)

So I had a little bit of a lightning round. A recession is an economic downturn. It is determined by the National Bureau of Economic Research Business Cycle Dating Committee. There is no government official declaration of a recession. It's a group of economists that do it. And it is not 2/4 of negative growth. It is a overall decline in economic activity. And they gauge it in real time and they determine it after the fact. So if we are in a recession in May of 2026. They will tell us in like Christmas, July.

B (5:16)

Oh, Christmas.

A (5:16)

Oh, yeah. It's like, can be like a really long. So they didn't declare the. The recession that started in December 2007 until December of 2008.

B (5:25)

Wow. Okay.

A (5:27)

And it's mostly to hope that it breaks the right way.

B (5:31)

Yeah, you don't want to. You don't want to give a bad diagnosis and have people freak out.

A (5:35)

Exactly.

B (5:36)

Animal spirits go awry.

A (5:38)

Animal spirits go. Right. So the, the other term I wanted to bring up, which is how economists referred to the decline in economic activity, we often refer to that as slack. Like there's slack in the labor market

B (5:49)

and so slack is bad. I always think of getting slack as

A (5:52)

good, but slack is bad. And we think of the labor market as being tight versus loose. So tight is good, loose is bad. Loose has slack, tight has no slack.

B (6:03)

And a tight labor market is from the point of view of the employer. Right. That there's not a lot of employees to choose from.

A (6:10)

Yes. The hiring pool is quite tight. So they don't have. The pickings are slim for them. So for worker, you want it to

B (6:19)

be tight, you want it to be tight. You don't want there to be a lot of slack. Okay.

A (6:22)

Yeah, you want it to be tight. No slack. If it's loose and there's lots of

B (6:25)

slack, lot of competition.

A (6:27)

You are the slack labor. There's slack in labor. Yeah. So as we see the labor market become more loose, we are worried that we are dipping into a recession. But it's a very fuzzy line. We don't always see it happening real time that well, which is why it tends to be determined after the fact. The last thing I'll say is that we have something called the. The inflation target. After the stagflation debacle of the late 1970s, early 1980s, the Federal Reserve made a lot of improvements to their policy making, culminating in adding a target that they needed to be able to say, this is where we want inflation to be. And we will raise interest rates to pursue contractionary policy until inflation gets to this target. And it's. They adopted it in 2012. It's 2%.

B (7:18)

2%. Yeah.

A (7:19)

Yeah. So zero to infinity inflation is just inflation and below zero is deflation.

B (7:27)

Okay.

A (7:28)

If it's under target, we. I call it goodflation because you don't want prices to fall. That would mean the economy spiraling in freefall. So I think of under 2% as good flation and over 2% as bad inflation. Because they're both technically inflation.

B (7:43)

So that's just some Catherine terminology.

A (7:46)

Goodflation, badflation. You're only going to hear on optimist economy.

B (7:52)

I looked up the origins of 86.

A (7:55)

What are they? I love this phrase.

B (7:58)

So it's apparently in some dispute, but it mostly it comes from hospitality bars and restaurants. And of course it means in general, two things in a bar and restaurant. One is to 86 something from the menu, meaning you're out of it, or to 86 a customer, which means to throw somebody out or cut them off if they're, let's say, drinking too much. But the question is, like, how did that become the term for that? And there is some speculation that it's 86 rhymes with nicks, and that's essentially what it means.

A (8:30)

Oh, like a cockney thing where, like, they like to use rhymes for words.

B (8:34)

Yeah, I guess. But there was also a whole soda fountain soda jerk lingo, especially in New York in the 20s, 30s, into the 40s, where soda jerks were, you know, they worked in pharmacies serving ice cream and ice cream sodas and various soda drinks, and they had their own powder. And like, there's books written about it. It's so complicated. Like, you would say, pull a long one and spit on it, you know, and that meant something. And so 86 is. Is also supposed to be one of those terms.

A (9:09)

I would have, like, assumed if it was a number. I had no idea the origin. I would assume that if it was a number, it was like a police code or like a security code.

B (9:17)

Yeah.

A (9:18)

Can you use 86 in a sentence like a human would today and not a soda jerk in the 1930s?

B (9:23)

Yeah, 86. The guy in the booth, he's cut off. Right.

A (9:27)

All right, so let's see if I can work 86 into the transition. I think our economy right now would be a lot better if we 86 all of the policy that the President was pursuing.

B (9:38)

Excellent. We're going to take a break. We'll be right back. We're recording this on April 30th, which is the day that the first quarter GDP figures came out, and those said that the US economy grew 2% in

A (9:56)

the first quarter, grew at an annualized pace of 2%. When you measure growth from one quarter to the next, that's quarterly growth. What economists want to know is if we grew at this rate for a year, what would the growth be? Because the actual quarterly growth is so small. And so we get a quarterly number and we put it into an Annualized rate. So the economy grew at a 2% annualized rate, meaning if it grew at this pace, it would have grown 2% for the year. That was below expectations. It was supposed to come in a little higher. The forecast was that it was going to be 2.2. It came in at 2.0. So like many things over the past two years, not panic, not great.

B (10:39)

Yeah. I was like. It was, it was. I mean, don't get me wrong, I don't want us to be in a recession, but I was sort of like, oh, that's just kind of meh.

A (10:46)

Yeah.

B (10:46)

Like it didn't have any drama. 2% didn't have any drama to it.

A (10:49)

I feel like the tagline for the economy right now is like, don't panic, don't not panic.

B (10:57)

Worry, but not too much.

A (10:59)

Don't, don't panic, panic, but don't not panic. Do you know what I mean? That's the economy.

B (11:04)

I feel like. I feel like I'm living it every day.

A (11:06)

Now. This, this was a relatively high stakes GDP report because the last quarter's growth was nearly zero. It was just 0.5% at an annualized rate.

B (11:18)

So that was the fourth quarter of 2025. This is the government shutdown, right?

A (11:23)

Longest shutdown in U.S. history.

B (11:25)

Yeah. Which, which is basically what got the blame for the. Really, the lack of growth.

A (11:30)

Yes. So we were coming off of a quarter in which the economy. I mean, this is the thing about going into a recession and what makes growth stronger, weak is what is driving the data that we're seeing right. In the fourth quarter. If everything was normal and the economy grew at a near 0% annualized rate, we would think that we were in a recession. But we had a causal. We had something to point to as the culprit. It was a really long government shutdown. Government spending is a part of gdp. So it wasn't that we needed to panic because the economy didn't grow because we know where it came from and it wasn't a slowdown in economic activity. You know, we did an episode on GDP last season and this was. Kuznets goal was to break down the economy in a way that we could point to what was causing overall changes. So that's good. But we don't want that slowdown to have a contagion effect so that the lack of spending from the government then creates a broader slowdown in economic activity, which is what might have shown up in this quarter now. So it's the end of April. The data point we just got for GDP covers January through the end of March, so it takes a month to produce the estimate, and it will be revised twice at the end of May and at the end of June. In the last two quarters, almost all the revisions have been downward. So now some of the don't panic, but don't not panic comes from, if it's 2% now, it's going to get revised downward. Is it going to get revised down to like 1.9or 1.8?

B (13:13)

So you can still be growing just slowly, but you could be in a recession because other things are happening in the economy. They're slowing down enough. Okay. Interesting. Interesting.

A (13:24)

It's not one thing, but it's not. Not one thing.

B (13:27)

Yeah. Yeah.

A (13:28)

I have a PhD. Yeah.

B (13:32)

I feel like I need like a, you know, one of those TED Talk balloon charts where it's like, it's trade. No, it's government spending, and they grow and shrink. You know, like, that would help me understand what's going on in real time. What's really interesting to me is that even though the economy is, like you say, still above water by these measures, as far as we know, that consumer confidence is, like, just tanking. So Gallup does this poll, it's actually called the Economic Confidence Poll. They basically ask people, like, do you think the economy's getting better or worse? And 73% think it's getting worse, and 23% think it's getting better.

A (14:13)

Yeah, it's. We actually have multiple measures of confidence. So Gallup does one and the conference board does another one. They do consumer confidence, right? Yeah. And that becomes the Consumer Confidence Index. And then the University of Michigan has what's called the Survey of Consumers. And that one is the Consumer Sentiment Index. And that is the one that. I think that's the one that economists follow the most.

B (14:42)

Oh, and what's it saying?

A (14:46)

Bad. More bad is like, what am I.

B (14:51)

What's.

A (14:51)

What's the term? Real bad. Yeah, it's just showing a cratering of consumer confidence that basically started at the start of last year and has been considering to fall. So it's in one of the lowest rates we've ever seen outside of a recession. So here's going to be a theme for this episode. The economy keeps hitting marks that it never hits outside of recessions. And that is the problem, is that it's not. And it doesn't hit them all at the same time, because if they hit them all at the same time, we'd be in a recession. But we're hitting marks that you typically see in a Recession in, like, random places at inconsistent times, huh?

B (15:30)

Like buckshot. Yeah.

A (15:32)

Like, the economy is. Is weak. We know that. But is it actually contracting? It's not contracting, but 0.5% growth annualized over a quarter is pretty low growth to hit outside of a recession.

B (15:46)

Right.

A (15:46)

Like, is the economy adding jobs? Yes, technically it is. But the total number of jobs that we added in 2025 was the lowest we've ever added outside of a recession.

B (15:57)

Right.

A (15:58)

And in fact, for all of calendar year 2025, we only added 180,000 jobs for reference, over the past three years. Or say the three years before that, we were adding 150 to 350,000 in. And then for a year, we added 180.

B (16:15)

Wow. So it's like less than 10% of what we would normally be adding in a year.

A (16:20)

Yes, but again, the problem is, is that all of these tend to have.

B (16:25)

There's reasons, right?

A (16:26)

There's reasons. Yeah, there's reasons. So we just did gdp. The economy isn't. It's slow and growing. If I wanted to be confident that the economy was not going to tip into a recession, that number wasn't going to do it, and it didn't do it. I'm still not confident. We can still. So here's a thought that's, like, really hard. Get your brain around. We could actually be in a recession. It just hasn't been declared yet.

B (16:50)

Sure, sure.

A (16:52)

And if that were the case, I would peg it of starting of Q4 of last year. Fun.

B (17:00)

All right, so you're not calling, but you're not calling it.

A (17:03)

I mean,

B (17:05)

it's not your job. There's a. There's a board of academic economists on the East Coast.

A (17:11)

Dr. McSparty Pants from Boston. Senior panel. They meet and they look at all this and they, they.

B (17:21)

How often do they meet? Like, is it. Is it just, like, monthly?

A (17:24)

I'm pretty sure they put up the

B (17:25)

bat signal and they all get together, like.

A (17:27)

Yeah, yeah, but it's just actually just a. It's a. It's a graph with a line going down. And then they gather on a pier right outside the docks of Boston, and the workers are, like, throwing things into panels, and they're just like, all right, it's time. Oh, please. It's Cambridge. Andy. Yeah, they, they. They publicize their methods, like, how they look at things, and then the. You know, who's on the board, and they're not an official government. I mean, the reason why the nber, the National Bureau of Economic Research, does this is to make it easier to do economic research into downturns. And it's just, it's notionally a way for the economics profession to like, harmonize their research about recessions. Like, we can't study a recession if we don't agree when one started or stopped. So we all follow this definition. And it just so happens that that becomes like the de facto official indicator of a recession. How about this? I'm gonna put my money on it. If they declare a recession while Trump is president, he's gonna say they're not real and come up with a government agency to say that it's not a recession. And the US Government has never officially declared a downturn. And there's no arm which is of the government that is tasked with doing it. But when this group of nerd geeks in Boston decide that we're in a recession, he will say that they are not legitimate and that they're not official, and he'll come up with something else because they're not. They're not legitimate or official. It's a private research group coming up with their own method.

B (18:52)

Yeah, but so is the consumer sentiment and, and frankly also consumer confidence. The conference board isn't a government agency.

A (18:59)

Yeah. So consumer, consumer sentiment and consumer confidence is

B (19:05)

just survey. Survey data.

A (19:07)

Yeah, they survey people and they ask them a whole host of things and then they put it together into an index to, to portray confidence.

B (19:14)

So it's not like, it's not like the BLS does it. It's not like the Census Bureau does it. These are, these are private. Also private.

A (19:20)

These are private surveys. The sentiment index.

B (19:24)

Okay.

A (19:25)

Why do we care about it? Is it a real thing if people feel bad, does it actually mean the economy is worse or that people are in a mood? And certainly consumer sentiment varies with. So if you're a Republican and Obama is president, everything is awful. Same with Biden.

B (19:42)

Right.

A (19:42)

We tend to have a big sentiment switch based on our party affiliation. But the other, the reason why we care about it is that most economic decisions we make tend to be pretty long term. Like, if I decide I'm going to buy a car, it is not like going to buy chapstick. Like, I will go buy Chapstick and I will be fine. But if I need to go purchase a massive vehicle, I'm, I'm not going to do it overnight. I'm going to look at the market for a while. I'm going to gauge how much things cost. I'm going to look at the price of borrowing. I'm going to test out My options because it's a major purchase. Well, the U.S. economy runs a lot on major purchases. When people buy cars, when people buy homes. The reason why people look at consumer sentiment is that it has to some degree a prediction of how people will be spending in a few months.

B (20:29)

Oh, right.

A (20:30)

Like if I don't, how I feel

B (20:31)

now is going to. Yeah, yeah. Shade. My, my.

A (20:35)

You get it. No, you get it, you get it. If I bought a car today, I decided to buy a car probably six months ago and I started really the process in earnest three months ago. So if I don't feel good about the economy today, that means that car is not being purchased in six months. It's a real like you got to bend your mind around the time of what confidence means. Well, here's another thing that the economy is doing right now that it doesn't normally do. We are seeing dips in consumer sentiment that are not predicting consumption.

B (21:04)

So people feel bad, is still pretty high.

A (21:06)

Consumption is still pretty high. And people feel bad about the economy. Yeah, but they're not, they're not pulling back on spending necessarily broadly.

B (21:16)

Is this the K shaped economy situation?

A (21:18)

Yeah. So definitely one narrative here is rich people are spending, poor people are not,

B (21:24)

or poor people just aren't spending anymore. They're already spending. Or that the probably already everything they had to spend.

A (21:30)

Yeah, well, that the. Or that consumption is being fueled by spending at the top and they, they buy 50% of everything anyway. That is incredibly hard to measure. How much of spending goes to what percentage and how you define the percentage in terms of the K shape. Like we live in a K economy. So to say that K shapeness is causing one thing or the other. Like we've been in an increasingly unequal economy for decades. So for me the attention on it right now is like, I'm like, okay, I'm glad that the Wall Street Journal is picking up on the idea that inequality might be bad. Been at this party all night. You just got here. The things that we're seeing that are probably more tangible is one big increase in consumer debt.

B (22:18)

Yeah, credit card debt mostly, but also,

A (22:21)

yes, lots of credit card debt. And we're starting to see steady increases in 90 day delinquencies.

B (22:28)

I was going to say missed payments. Yeah. And you see that on cars too. And you're seeing it on health insurance policies.

A (22:35)

Seeing it on credit cards, student loans, cars. Really everything but mortgages and home equity lines of credit. So what's interesting about the economy in like the run up to the Great Recession is that we had lots of credit. But the real explosion in credit miscredit payments was all on Mortgages and HELOC's Home Equity Line of credit. Those are now tightly regulated and that market is pulled back. So if you look at credit today, mortgages and home equity lines of credit, like they're in a different world. They don't really look like everything else. They haven't seen an explosion in credit. Like they're quite tame. And it's everything else that is just seeing massive run up in numbers about the total amount of credit as well as the 90 day delinquencies. It's coming from not the housing sector, it's coming from everything else.

B (23:23)

Interesting.

A (23:25)

So we are, we are. Our economy is still trucking along, but I mean that is massive cracks beneath the surface.

B (23:31)

Yeah.

A (23:32)

Coming from consumer debt.

B (23:35)

While we're on consumers, can we talk for a second about what's happening with prices? So the Consumer Price index was up 3.3%. Is that also an annualized figure? No.

A (23:47)

Yes, that's annual. They do monthly and annual and for that one, so glad we're talking about the method of statistical indices, the Consumer Price Index. It's a month over month and a year over year.

B (24:01)

Right.

A (24:03)

So it's the monthly change from February to March and then it's going to be the change from March of last year to March of this year, which is not the way GDP calculates it. GDP is the annualized rate of the quarter's growth. Oh, is this, is this confusing? Is almost like we don't, don't want you to understand the economy we're living in. Don't panic. Don't not panic.

B (24:26)

I can, no, I can understand why these things are useful. So CPI was up 3.3% in March of this year compared to March of the year before, but also up 0.9% from February to March. And a lot of that was oil prices. Because of the war.

A (24:45)

Because of the war.

B (24:47)

And the feeling is that that's, I mean, obviously the war is not over, but that it's continuing to drive up oil prices, but by extension then all sorts of other prices for goods.

A (24:56)

Yeah. So inflation started to pick up in 2021.

B (25:01)

2021.

A (25:03)

And then in the spring of 2022 it was getting higher and higher. I mean these rates were coming in. It's at 4 or 5.

B (25:10)

Yeah.

A (25:10)

You know, if target is 2, these were getting really high. The Fed starts raising rates in March of 2022. In the summer of 2022, we were seeing inflation at 8% annual growth. From the summer before that, inflation had a very clear cause, which was supply chain issues, meaning a run up of consumer demand and consumer savings coming out of the pandemic.

B (25:33)

Right.

A (25:33)

So you had people who were trapped inside their house for a year, did some stimulus money. Yeah, got some stimulus money, saved some money, saved a ton of money because they weren't doing anything or going anywhere or spending on anything. So you had this massive pent up demand, hit supply chains in a real way. And that is, I mean the supply chain story is really the story of that inflation. And because it was demand driven, right? It was just whatever they're charging, I will pay for it. Because I have not seen a human at a concert in two years. People were willing to shell out and because they had the money to spend and they were willing to spend it, demand drove infl until it peaked and interest rates did their job. It made that inflation painful and your demand decreased, you started to cut back on things and the price spikes started to decline. That gets us to the end of 2024 when inflation is in the mid twos and falling and we hold on everything because then we have a new president. And when it comes to the economy, this guy categorically sucks. I don't know how else to say it. He is like two terrible econom under his belt, one from each term. And he got the golden gift. He is one of like, I think I, I looked this up, was like one of like four presidents who came to office when the economy wasn't bad. Really like he was actually gifted a strong economy. Like 2017. It is a strong economy. Now some people will say the economy at the end of 2024 wasn't actually that strong, but it was moving in the right direction. I mean, inflation was falling precipitously towards the back half of the year. The Federal Reserve was lowering interest rates to ease the labor market. All came to a screeching halt. So when I say this guy is categorically a bad economic president, I mean it because of, he both squandered what he had in a, in a unique way.

B (27:27)

I always felt like the story was that presidents like take credit or get a lot of blame for the economy, but that, but that usually presidents don't actually have that much control over the economy. I kind of wonder if this is the, not the case now because this has been such dramatic, like, let's just say choices.

A (27:47)

Okay, so I'll put it this way. There's lots of presidential turnovers that are simultaneous with really hard economic times. And it's rare that you would be given an economy that's just strong. I don't attribute that much economic policy to the sitting president because policy takes a long time to accumulate and have consequences and they have long antecedents. I don't know if I can really fault him through the COVID pandemic. I think.

B (28:16)

Yeah, I was gonna say the pandemic.

A (28:17)

He just, he took so much credit for a strong economy that was in existence when he was elected anyway. So what is happening with tariffs and prices, to go back to our cpi, oil prices and oil prices is that there's this real question as to why consumer spending is being maintained even though prices are increasing.

B (28:42)

Yeah. And sentiment is so bad.

A (28:44)

And sentiment is so bad. There's kind of like emerging data that what's happening is that people are shifting their consumption around non tariff affected goods. So the goods that have the highest tariff effect, they have the highest price increase and people are just spending less on that and shifting their spending to other things.

B (29:07)

Like what?

A (29:07)

They're like responding to the tariffs without being penalized too harshly from the price increase because they're gonna consume of whatever is more expensive, but they're still consuming more of other goods.

B (29:18)

And it's goods. There's not like they're moving to services or something else like that.

A (29:22)

I should say goods and services. So like there's a set of goods that are more expensive because of tariffs and the bigger the price increase due to tariffs, the less people are consuming of it. Which is explained why you would be both like kind of okay, but really pissed off because you, it's not like you don't see the price increases. You're reacting to the price increases and you're, you're, you're shifting your consumption to other things. So it's, it's like pain that you're trying to minimize, which you could still be really pissed off about.

B (29:49)

Yeah. Did you read that story in the Wall Street Journal last week about, you know, basically people who had enough money but who were just like, no, I am not going to pay that for. Yes, there was a couple who bought the whole side of beef and they had it in there. So.

A (30:03)

Whole side of beef.

B (30:04)

Like that's how they adapt. Yeah. So they were just like, we're eating tons of steak, but you know, it's because we bought a whole cow.

A (30:11)

Yeah, they bought a whole side of beef. But then they wouldn't be like, but I'm not going to buy that coffee out. Like, it was just really remarkable because it wasn't the price point relative to their income, it was price point relative to what they were spending. Of like if I make $200,000 a year, that doesn't mean I think it's okay that coffee costs $10. Like I will not buy that coffee. It's not that I can't afford ten dollar coffee, that I'm opposed to $10 coffee on principle. So I refuse to buy ten dollars coffee. And they were talking about how like fascinating this was that it should be, if money is no object, you would just keep your consumption bundle the same.

B (30:46)

No, the people are mad.

A (30:47)

Yeah, I mean I, I think I can say for all of us, I don't know anyone who likes living through special economic times and how much we're learning right now is it's like a painful lesson because this sucks. So, so the, the, I think following tariffs can be really hard. And actually shout out to my compatriots at Bloomberg who have a flowchart of every tariff announcement on every country. It's a tariff tracker. Like I've got a 30 inch monitor thing doesn't fit. It's a tariff tracker of every announced tariff. What happened if it's in court filings, if it was revoked, if they had an agreement reached, if it was announced at 40 but actually never implemented at 40, like it was just, just, it's, it's absolute mess. The result, about a year after we embark on this tariff dance, is that we now have the highest tariffs in the world. Lower than what is often announced, but still the highest in the world and the highest we've had since the 30s. Wow. And that hurts. Yeah, it, it hurts. And it's pushing up prices.

B (31:59)

And he's going to keep pushing up prices.

A (32:01)

Yes. And now we just added fuel to that fire. Literally because of Iran.

B (32:08)

Yeah, yeah.

A (32:10)

So the other thing that happened this week, and I guess for people listening last week, is that the last, we had the last meeting of, of the Powell, the Federal Reserve with Jerome Powell as chairman.

B (32:23)

Yeah, yeah.

A (32:24)

Now we talked about this in our Fed episode. He is still on the board and he can go back and finish out the last two years of his 14 year board term.

B (32:37)

And he announced that he was going to do so.

A (32:39)

Yes, he was going to do so. He, he felt like he wanted to make sure all of the various prosecutorial

B (32:47)

threats against the, himself and the Fed in general.

A (32:51)

We're, we're wrapped up. And then he kind of made a vague suggestion to steadiness. So for the last few meetings when the Fed has met and there had yet to be announced, a new nominee for Fed chair. The Fed has voted to hold interest rates steady, meaning that they weren't going to increase them to fight inflation or decrease them to try and stimulate the economy. And most of the dissenting opinions were on the decrease rate side. And these were a lot of people thought were almost like tryouts for being appointed chair. That these Fed board governors were trying to signal to Trump that they were amenable to having rates being dropped because Trump has said that the rates need to be lower. And Trump's MAN ON the Fed. And I say that because this man was appointed to the board of governors and kept his job in the White House for many months. Trump's MAN ON the Fed has voted to decrease them. Every time this last meeting, the Fed met, and once again, the Fed, the Trump man voted to decrease interest rates to juice the economy. Three other people dissented. This is so confusing. They dissented with the statement, not the action.

B (34:08)

It's really. That was totally crazy. What I understand that they thought that the statement should signal that the Fed was just as likely to raise rates as lower them in the future.

A (34:19)

The projection of the statement was we're gonna lower rates soon once we feel like prices are under control. And what they, they thought that that was not correct, that the statement should have said, if prices keep going up, we will raise them again. Because remember, the reputation of the Fed in fighting inflation is paramount. The fastest way to increase inflation in the US Economy is for people to not believe the Fed cares about it. But in fact, really good historical evidence. When a politician interferes with a central bank, it results in higher inflation for two reasons. One, they tolerate more inflation and they lose credibility that they care about inflation.

B (34:55)

Right.

A (34:55)

So Powell has said he's going to stay on the board. You've got three open market committee members who said, you need to make sure people know that we can raise rates again and not just lower them when we feel like it's okay.

B (35:07)

Yeah.

A (35:08)

The official kind of policy, when it comes to something like a price spike that comes from oil that's really easy to see cause and effect, is that the Fed should, quote, unquote, look through it.

B (35:18)

Yeah. Wait it out.

A (35:19)

Wait it out.

B (35:20)

Yeah.

A (35:21)

Right. And it's the same thing with, like, the bad GDP report. Like, this is a price spike that we know came from oil. Like, we, we know what is causing these problems. It's just, again, it's too many.

B (35:30)

We think it's permanent. We think that it'll go away.

A (35:32)

Yeah. It's the same Thing of, like, we're taking these hits, but we think that because we can see the cause, it's not necessarily reflecting weakness in the economy, but for all of these things, it could mean that the economy will be weak soon if the effect holds. I mean, this is one of the most extended periods of economic uncertainty that I could possibly.

B (35:51)

Yeah, it's just. It's been, what, a year and a half of this? Of just like, what?

A (35:56)

What? Oh, man, I need to shout out. My brother, when he was learning how to drive, he would follow too closely the car in front of him, and at points my dad would say, like, just hit him. The suspense is killing me. Just hit him and then we can move on. So I feel like a lot of us are in this point of the economy of like, you either need to stop the car or hit him. Like, I know, like, we're just. We've been right at the edge. Just hit him or stop. Pull over something. And you know what? We're. We haven't even gotten.

B (36:26)

That's true. It's like, we're. We're like in a car where somebody doesn't know how to drive yet, and they're just like.

A (36:30)

Yeah. And you're just grubbing.

B (36:31)

Like, it's just like getting car sick.

A (36:33)

Getting car sick and holding onto. I don't know what it's actually called, because in my family, we just refer to it as the oh, handle. Where you grab the handle at the top of the door and go, oh, yeah, yeah. We're just white knuckled grabbing onto that.

B (36:46)

We are. We are. God.

A (36:49)

So we go. We still haven't talked about immigration.

B (36:52)

Yeah, we haven't even talked about immigration. I was reading that Dallas Fed report. Did you read that? About the new kind of baseline for how many jobs we need to add? And they were estimating way more people have left that our net. Our net immigration is even lower than the government has been estimating. So, you know, it turns out that if 500 to 600,000 people leave either voluntarily or because they've been terrorized or because they've actually been deported, that you don't have to add as many jobs to stay sort of even with your workforce needs, and that also the labor force participation has been going down anyway. Yeah.

A (37:34)

So just to sum up where we've been so far, because we're gonna stay on theme, GDP was low, and we knew why. Same thing with consumer sentiment. We know why consumer sentiment is bad because people are seeing price increases. They are upset about it, but we're still not seeing consumption actually fall, in part because people are shifting their bundle and in part because people are relying on credit and debt in prices. We know why prices are going up, up. We instituted tariffs and we waited for them to take effect and now we have an oil price crisis. So we again, it's not good, but we know the cause and there's a non economic reason. We are not adding jobs. Part of the reason why we're not adding jobs is because the working age population in the US this century has only grown because of immigration.

B (38:26)

Right.

A (38:28)

So if like tomorrow we were able to effectively stop another immigrant from coming to the US ever again, our population would immediately decline. And I not decline in a few years. I mean it would decline. The hour that we closed our our borders, our population would start to decline. And had we not had immigration this century, our population in particular our working age population would be in decline. So if you target immigrants through deportation and through fear tactics that are meant to make people afraid to be here or not comfortable to be here, you are going reduce the size of the labor force, which means you don't need to add as many jobs. So this really weak year of only adding 180,000 jobs, again, we have the cause in front of us. We're deporting and scaring off working age people. So the typical number, how many jobs does the US need to add a month? That is a function of the growth of the working age population. For a long time it's been north of 200, right?

B (39:29)

200. 200,000 jobs.

A (39:31)

200,000. You're supposed to add 200,000 jobs a month in the US to keep up,

B (39:35)

to keep up population growth. New people coming in, people coming out of school looking for jobs.

A (39:40)

And if we don't add enough, we would see it in the unemployment rate.

B (39:44)

Right.

A (39:44)

What's happened this year is that we are not adding jobs, but the unemployment rate is not going up. And what the report that Robin brought up from the Dallas Fed is we now think the number that we need to add each month might be as low as, I mean I've seen low as like 20,000, maybe 50,000.

B (40:01)

Yeah, I mean it's practically zero. It's weird because it sounds on the surface like things are in balance. Oh, we are not creating a lot of jobs, but we don't have a lot of workers. So unemployment is low and it all seems good, but it seems actually not to be good.

A (40:16)

No, it's like imbalance on the aggregate. So the example I gave, I was actually just on a podcast recently, and I gave this example and had someone write in to say they found it to be particularly powerful of an explanation was if you were worried about men and how men need jobs and men don't have a place to work and that men's economic status is falling in the US And I told you, okay, easy solution. I'm gonna fire a million nurses, so now men can take those jobs. You would be like, come on, men and women don't work the same jobs. Men don't wanna be nurses. You can't just fire a million women who are nurses and expect men to take those jobs. That is essentially replace women with immigrant. If I were to fire a million immigrants and say, well, now native workers can take those jobs, it does not match. They don't work the same jobs. So you're seeing this, like Powell called it a quote, unquote curious kind of balance that the labor market isn't growing, but it isn't receding. It's been steady in terms of the number of jobs and unemployment we have. And yet we have clear evidence of mismatch between who wants a job, the jobs that are available.

B (41:30)

Right.

A (41:31)

So it's in balance on aggregate, but it's not matched. And we know why.

B (41:37)

And that's hurting both job seekers and the industries that have lost all those workers.

A (41:42)

Yes. Now, worth it to remember that many industries begged for exceptions to any of the deportation practices because they rely on unauthorized workers. And a lot of them were very quietly successful at making sure that their workers weren't targeted. So, you know, instead you have these very visible, hateful influxes of ICE into cities. And it's not all for show, but it's a facade. The real people who win off of our current broken immigration system and tacit acceptance of unauthorized immigrants as workers that hold up our economy are the employers. They are the winners here. It's a facade because it makes it seem like we're taking enforcement to another level when really we're just taking it. Like it's just a roadshow. I suppose at some point I start to sound crazy, unhelpful of like, well, everything. All these things have bad things. And we know just because we know, we know why. Just because we know why. It's okay a little bit, but.

B (42:50)

Well, we know why, but that doesn't mean we're going to change course. It doesn't mean we're going to fix it. And I think this is the reason that I think people who pay attention to the economy are so anxious about it, is that whether or not you just see prices go up at your gas station or you actually read the Wall Street Journal every day. The signals are all there and they're all, like you said, they're flashing yellow, if not red. Right.

A (43:19)

I think there's a certain desperation to not enter another recession that is carrying the momentum to not be in one.

B (43:26)

Hmm.

A (43:28)

And the fear of what a recession could look like if we actually declare it, you know, they have a, they have a real kind of own momentum. And there's a general fear that we, we had so much suffering in the economy from the pandemic that to enter a recession so quickly would just leave households so battered. But now the question is, do we even need a recession if there's this much pain outside of it?

B (43:53)

Right. Does it feel unprecedented? I mean, I think sometimes, I think we use, we throw that word around. But this kind of combination of things, it just really does seem like nothing that I have experienced in this combination before.

A (44:08)

So the way that I think about it is that recessions tend to hit, hit certain beats. Whenever the economy enters a downturn, they hit the marks. They don't hit them in the same way. They're not always wearing the same outfit, the tempo changes. But like they hit marks, you know, as they move across the stage. I think what makes the current period so difficult is that they're hitting a mark. We don't hit. It doesn't ever slow down like this, you know, it doesn't, it doesn't. We don't stop, we, we fall, we get back up. We don't actually hold in place. But I mean, I think one of the visible aspects of this is the total number of jobs in the US you can look at it over a 90 year period and I mean, it is just an upward line. And you can see the last year and a half is just flat. And we've never been flat. The US Economy, job growth, has never been flat. We are not an economy that holds steady.

B (45:03)

I know, and why it's so steady just feels so uncomfortable.

A (45:06)

It's so uncomfortable to be holding.

B (45:07)

But it's also like, I don't know that it is steady.

A (45:09)

Like it's averaging out, it's averaging out. It's not, it's not steady. What's that joke about statistics? You've got one foot in fire and one foot in ice and you say on average I'm fine. It's like on average, we're fine. Not a good average. Not a good. You don't want to look at the averages here. Averages here are not good. I guess one way to think about it is like, this is the economy now. What would actually happen for it to break? Break Good or bad?

B (45:37)

Sure.

A (45:38)

Like what needs to happen next. One path forward is prices stop rising.

B (45:45)

Yeah. The Supreme Court could again rule on tariffs. The Congress could change and they could overrule tariffs. The war could end. Oil prices could stabilize and drop again.

A (45:55)

Yeah. It all hinges on prices. Because once prices are again steadily and predictably declining, the Fed feels free to lower interest rates to ease up lending and spending in the economy. That signals to businesses that things have returned to normal. And they start making decisions differently once they see leadership from the Fed that we're actually on a sustainable path. You know, they use those lower interest rates to expand, to borrow, whatever, and they start hiring and expanding in earnest. And that kicks us off on like breaking good.

B (46:28)

Yeah.

A (46:29)

Next path out of here is that those prices don't fall. And the kind of contagion effect of higher gas prices into goods and services, where gas isn't just something you consume, it's an input into the production of other goods and the delivery of services. Prices go up enough that the Fed has to raise interest rates. And this time, people, they're not gonna wait. Like, this is the writing on the wall and they pull back. You see mass layoffs and we're in recession. That could take.

B (46:58)

When you say people, you mean business leaders, you mean individuals, consumers.

A (47:02)

Businesses and individual consumers. Like, the Fed raises rates again and there's like a, there's a that's it aspect to the economy of like, I've been holding on and that's it.

B (47:11)

Yeah.

A (47:12)

Another path out of here is that the prices go up enough and consumers get spooked enough that they pull back consumption. We have a bad GDP report and that's enough to convince people that there's no going back consumer back on the economy. We're going to be in a recession. And then you have like mass layoffs. Businesses get spooked and they start to prepare for a recession. I think those are probably the three most likely paths. All of them kind of contagion through prices.

B (47:43)

Interesting.

A (47:45)

The other thing that could happen is that you have some type of AI bubble reckoning where the, the incredible valuation of AI gets reconsidered by the stock market. And the stock market goes into what we call correction, where it declines by a certain percentage. Once it goes into correction, there's pressure on publicly owned companies to downsize. Those are the paths out of here. Our most hopeful path is that we are able to Turn off tariffs and get to lower interest rates. Trump's preferred path out is to pack the Federal Reserve Board of Governors to lower interest rates.

B (48:28)

Lower interest rates.

A (48:29)

What's kind of funny about that is that he like, well, first off, he's not his best messenger because he always talks about how amazing the economy is. Which if the economy was amazing, you wouldn't need to lower interest rates. But also it won't work.

B (48:43)

Lower interest rates, it won't lower prices.

A (48:45)

No, if you lower interest rates to juice the economy because borrowing is cheaper. This is animal spirits. Part of it comes from borrowing being cheaper, but part of it comes from people believing that we are in a place to lower interest rates soundly because the Fed is making good decisions. You lose faith in the Federal Reserve and think they're going to lower interest rates now, it's just going to lead to higher prices in the future.

B (49:08)

Right.

A (49:08)

Like the, the lack of credibility from the Fed is as important as the actual move in interest rates when it counts. So I don't think he realizes that that's not a path forward. Like he convinces the board to lower or like gets enough people fired, interferes with the Fed, gets interest rates lowered with out kind of the conditions to have interest rates lowered. He might get something from it. But the actual like, good stuff will only come when like, there's still faith in the Federal Reserve. And I, I say this so like, you might be listening, being like, hey man, I don't really give a about the Federal Reserve. I don't know anything about them. Their confidence or their credibility doesn't matter to me at all. Yeah, I just want to have cheaper things and lower interest rates would help me. Yeah, you're great. And I want you to keep doing you and to make decisions that are right for you and your family and the economy and not listen to me at all. Like, shoot your shot, do your best, make it work. That is you people who are highly influenced by interest rates and the perspective of interest rates going forward. The Fed's credibility with them matters a lot. Yeah, you see interest rates as it filters down through consumer prices for certain long term purchases. But there are businesses in entities that will live and die by interest rates. And that credibility matters a ton. I don't know, I mean, there's probably like 20% of Americans who think the Fed should be ended anyway. Like that's, it's not like broader consumer credibility. It's the credibility with the financial institutions and financial sector.

B (50:40)

Right. All right, do you have an optimistic note here at the end at all.

A (50:46)

Yeah. I mean, this isn't the most uplifting episode knowing that the reason why we are not in recession so far is because we've been able to reason and explain away the really bad things we've seen. I think I didn't dwell on this enough. It is also not as bad. Like, I understand it's not 2007, 2008, it's not 2000. Yeah. We are not in the Great Recession. Like, we are not in a financial crisis. There is weakness in the economy that is accumulating and hardening. But like, you might think that right now feels bad, but if unemployment rate were 10%, I promise you, it would feel worse. Like, we, we shouldn't lose sight of the strength that we have. Like, yes, weakness is coming from a lot of directions, but we still have an incredible strength. And I am of the mind that no individual can be expected to see the forest for the trees of the broader economy strength when they are suffering. And so I would never ask you to do that. We didn't talk about how, like, strong the US Is. And in fact, I've, I've talked to a lot of economists who have said, like, I cannot believe we have not tipped into a recession already. It is testimony to how strong this economy is that we haven't. And if it doesn't feel strong for you, I'm not saying you're wrong.

B (52:04)

Yeah. But it is. I feel like, like those, those toys that you punch and it just kind of keeps popping back up. And I felt that way pretty much since the pandemic. I mean, I know we did a lot to try to, to bounce back from the recession in the spring of 2020, but the tariffs especially, and the uncertainty and just kind of the ongoing uncertainty, and yet we're bobbing and weaving and we're like, as an economy, just still, you know, these players adjusting how they can. It's a big, big, big dynamic economy.

A (52:38)

It is. And it is not on you to have to diagnose the source of your economic frustration. It's like the economy is weak. There's lots of uncertainty. There's lots of things we don't know. Don't lose sight of what we do know, which is it is not the fault of prices in April of 2026 that health insurance is so expensive or that the economy is so unequal, or that the labor market is so stacked against workers, or that workers have lost power. That is not an April 2026 process problem. That is a 21st century problem. And I think that, like these moments, these acute moments in the macro economy, they make us feel all these pain points that are not of the moment. Y', all, we're going to be okay. We're going to be okay. Even if the economy enters a recession, we can get to the other side of it.

B (53:34)

Yeah.

A (53:35)

I mean, we don't have a lot of experience with economic declines not being cataclysmic, but that's how they normally are. And if we go into one, it will be bad, especially for the people in it. But we can help people. We know how to identify people who are hurt, and we can get to the other side of it. And the long solution does not change. The long solution is we need better economic policy, we need better economic structures, and no recession will change what we need in our economy long term.

B (54:03)

We're going to take a little break and we'll be back with executive orders and spiritual sponsors answers.

A (54:13)

I'm going through our outline. I'm like, economy bad, economy bad. Another bad thing. Bad, bad, bad, bad, bad, bad, bad, bad, bad, bad. Executive orders.

B (54:23)

I'm sharing an executive order this week from Brian Field in Redding, California. Brian suggests that everyone in elected office should be forced to do their own until the tax code is properly simplified.

A (54:36)

Brian Hero,

B (54:42)

do you have an executive order?

A (54:43)

My executive order for the week is that places of employment should not be allowed to charge you for parking.

B (54:50)

Not sure if I endorse that or not. Okay. I mean, as a place that's just overrun with traffic, I'm sort of like, meh, I don't know.

A (54:57)

I mean, but like, doctors work at hospitals and they have to pay to park there.

B (55:01)

There. Yeah. I worked in downtown la. I had to pay to park there.

A (55:04)

It seems like it's a wage cut to make people pay for parking, but to have parking be the only way to access their job. So I feel like it should fall under a wage an hour. Like, okay, if in order to get to your place of employment, they have to park a car there, you cannot charge them for parking the car. And otherwise you just have to, well, tax you and spend it on public transit. And you have to run a very complex shuttle system. So don't charge for parking just feels like a wage cut.

B (55:33)

Okay, okay. Spiritual sponsors.

A (55:37)

My spiritual sponsor for the week is genre specific independent bookstores. So you probably have, or maybe you have a murder bookstore or like a mystery bookstore, crime bookstore, romance bookstores. I recently went on West 42nd street in New York City to a drama bookstore, and almost everything on offer was placed. It was lovely. It was Such a lovely setup. They had, like, books about kind of the film industry and theater and history and things like that, but they had just more plays than you've ever seen in one location. But the real showstopper was they had a sculpture called the Bookworm. And it was hundreds of books elevated above the store that was like, you know, curling around like a worm that eventually hit into the wall. Turns out people who do set design. Design can do all kinds of fun.

B (56:34)

Yeah, they can. Yeah, they can.

A (56:36)

So crazy. Specific independent bookstores that are taking advantage of capitalism to do something real niche and real awesome. I love you.

B (56:44)

Excellent. Yeah, just yesterday we went to Barnes and Noble, where we almost never go, but Barnes and Noble has a fantastic newsstand and they have. I mean, it must be 150 linear feet of magazine shelves and magazines you didn't know existed. For instance, I saw the Guardian. The newspaper does a magazine called the Guardian long form, and the COVID is neon orange and Nordic Home Magazine, Country Cottage and Southern Coastal Living. It's just great newsstand. And they're just hard to find anywhere. But there's so much fun.

A (57:24)

For environmental reasons, I try to only subscribe online to magazines, but, like, there's really nothing like getting Southern living in your hand.

B (57:33)

Yeah. Yeah. All right. That's another episode of Optimist Economy.

A (57:43)

We hope this made sense. I hope this made sense.

B (57:47)

Didn't. Didn't make you more. We hope we're leaving you at least informed, if not optimistic.

A (57:53)

Sometimes there's comfort in gut, in, like, clarity. Right?

B (57:56)

Comfort in knowing. Sure.

A (57:57)

Yeah. Okay. Well, in that case, the Optimistic Economy podcast is edited by Sophie Lalonde and our video production for social media is by Andy Robinson, who is live in Houston. Who is live in Houston. He's actually here. Video clips from the show for you to share are available on tick tock, Instagram, YouTube, YouTube and now Facebook. And we have a chat room on substack for anyone who subscribes, paid or unpaid, to Optimist Economy.

B (58:22)

T shirts, hats, tote bags, those are all available on our website. But if you don't need any of that, that's okay. We'll still take your donor advised fund money, your cash money, your old fashioned check, or your bag of gold coins, or you can just Click donate@optimisteconomy.com.