← Pitchfork Economics with Nick Hanauer
Pitchfork Economics with Nick Hanauer
The Boomcession: Booming on Paper. Brutal in Real Life. (with Matt Stoller)
00:45:13
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A
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
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The last five decades of trickle down economics haven't worked. But what's the alternative?
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Middle out economics is the answer because
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the middle class is the source of growth, not its consequence.
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A
That's right.
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C
This is Pitchfork Economics with Nick Hanauer,
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a podcast about how to build the
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A
economy from the middle out.
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C
Welcome to the show.
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B
How you doing, Nick? You feeling good about the economy? Things going well for you or are you struggling?
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A
Things are fine. Things are fine, yeah, it's.
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B
Your consumer sentiment is up, wouldn't you say?
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A
It's up, it's not down.
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B
Uh huh. Are you? I'm joking, of course, because you're pretty much totally insulated from the economy at this point in your life.
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A
Correct. Right.
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B
It's not gonna change your standard of living one way or another. And you know, somewhat thanks to you, Nick, I'm relatively insulated, certainly much more insulated than I used to be, especially now that I have a heat pump and an electric car and my electricity is provided municipally owned socialist Seattle City Light, which is not out there trying to ream every cent out of us and instead is providing some of the cheapest, greenest energy in the country. So I'm not feeling the oil shock these days, but you can't say the same thing apparently about a majority of Americans out there.
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A
Yeah. And you know, one of the really interesting things that's happening and you know, the subject that we want to talk about on the podcast is the disconnect between what the statistics say about the economy and what's actually happening in the lives of the majority of citizens. And our old friend Matt Stoller wrote a very smart piece entitled the Boom Session.
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B
Right.
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A
Which is his way of describing an economy which is a boom for some and a recession for others.
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B
And this has long been true. It's not just this first year of the Trump administration. It was something that the Biden administration struggled through. And I remember us talking to people in the administration as they were struggling, how to talk about the fact that in fact inflation was coming down and dramatically and wages were going up and unemployment was at near record low levels, and yet there was all this dissatisfaction with the economy that ultimately led to Kamala Harris losing and Trump winning.
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A
Yep, absolutely. And you know, I think our, our old friend Matt Stoller has deconstructed this in a pretty fantastic way. He's very analytical guy and as the research director at the American Liberties Project, he's A lot to say about these dynamics Today. Matt's going to take us through the data and his arguments from this recent Substack newsletter. And I think it'll be really interesting, as he always is.
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B
Yeah. So let's talk to Matt about the Boom Session.
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C
My name is Matt Stoler. I am a writer. I write for, for a newsletter called the Big Newsletter About Monopoly Power. I also host a podcast called Organized Money and I work for a think tank called the American Economic Liberties Project. We study antitrust law and regulatory policy and basically why it is that Americans feel less free in our economy. And we trace that to big corporations being coercive.
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A
Well, Matt, mostly today we wanted to talk to you about this really fantastic piece you wrote called the Boom Session.
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C
Right.
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Why Americans Hate what Looks like an Economic Boom I thought was incredibly well written and really interesting and pointed to some things which are non obvious, but probably should be.
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B
Those things that become obvious after they're pointed out, like, so just, just sort
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A
of briefly take us through your argument and the evidence that you marshaled to substantiate it.
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C
So there's this dilemma that I think a lot of people have today in elite circles where the economy looks like it's doing fine. Okay? Or at least it was. Let's put the Iran thing aside for a second. Since the COVID crisis, the economy, like GDP growth, which is the way that policymakers measure how the economy is doing, it's an aggregate of all transactions in the economy. When that goes up, typically people are happy. It means there's more economic activity going on, people are richer, they have more stuff, houses, cars, whatever. This weird thing happened really in 2021 where the economic growth, GDP growth and consumer sentiment diverged. So people were less and less happy even though the economy was doing well. Typically, people are unhappy when there's a recession, which is like the economy is the amount of stuff that we're creating is going down, but they're happy when we're in a growth period. And the weird thing is we've been in a growth period, but people are unhappy. And so this was a dilemma for Biden because Biden was like trying to figure out, what do I do? All of the buttons I'm pushing to improve the economy are working. You know, yes, inflation was high in 2022 according to this other index called the Consumer Price Index. But it's coming down, right? 2023, 2024, it's returning to normal and GDP growth is up and wage growth is up. And why are people so mad? And the Political consultants were saying, well, you got to tell people that they're actually getting a bad impression from the media, or so you have to tell them that things are good or you have to sympathize with them, or all of these sort of pieces of advice that were resting on this fundamental thing we haven't seen since, you know, before we started measuring economic statistics, which is that the economic statistics and the public sentiment are just have diverged. And that did not change when Trump came into office. So in the first term, in Trump's first term, people were happy with the economy. They didn't necessarily like him. They thought he told dirty jokes, but they're like, whatever, everything's funny when I'm making money. Right. That was the general vibe. But that they reelected him because they thought, well, at least I was richer when this guy was in office. But in his second term, not only did he not, quote, unquote, improve the economy, consumer sentiment is actually lower than it was under Biden. It is actually at a. I think, probably. Let's see here. I have a chart. Public satisfaction with the economy by president was on since we started measuring it. It was the lowest ever under Biden, and Trump in his first term was the third highest ever. You can go back to jfk. He was the third highest ever in his second term. He's actually lower than Biden. Right. So this is this phenomenon I call a boom session, which is traditional stats look like they're doing well, but people are really unhappy. They feel like it's a recession. There we go. That's the argument.
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A
It's interesting, but decompose it a little bit more. I mean, you said a couple of really interesting things in that piece. They're related, but separate. One of them in 1934, when we cooked up the idea of GDP.
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C
Right.
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A
It's just worth noting, parenthetically, that the people who did cook it up, Kuznets and others, insisted that we not use this as a measure of welfare. At the time, just to be clear, they said, this is not a measure of welfare. Never use it as a measure of welfare. We ignored their pleas, and now we use it as a measure of welfare. But in 1934, it was almost certainly true that when the economy produced more, the majority of that was useful to people, ordinary people. There was a connection between GDP going up and your lives getting better. And that connection has become more and more tenuous for a variety of reasons. And the second point you made, which I think is really important, is that consumer spending may be going up for Middle and working class people, but all of it is devoted to shit they don't want to buy in the first place. Right. Paying more interest, paying higher health care, whatever it is. Right. So they may be spending more, but their lives are getting crappier at the same time. So I mean, to me, those were kind of two things that you said in that essay. I thought that were pretty, pretty cool.
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C
I mean, there's a number of reasons that explain the sort of sentiment that people don't like what's going on. And the first one that you pointed at is the idea that just kind of the production of more transactions, the more stock goods and services that are sold in the US Is that necessarily something that people like? Right, it. More. More of the GDP in 2025. Is that translating into what makes people happy? Well, sort of. To give you a sense of the kinds of things we were making in the 1930s and 40s and 50s, it was things like toilets. Like a lot of people didn't have toilets and then they got toilets. That's pretty awesome.
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A
Yeah, that's a big change.
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It's a big deal, you know, and like electricity, that's pretty solid. You don't have electricity and then you have electricity. A. Okay. Right. I mean, I was sort of struck by this stat, which I can't totally remember now, but it was like know in Mississippi in the 1930s, like very few people had toilets. And by 1960, like most of them did. And it's just like a huge change for people's welfare. Things like washing machines and refrigerators and stuff that like, that's a really big deal. And a dollar spent on that is a really high return just in terms of people's welfare. But it wasn't just that, like there was more kind of basic stuff that people didn't have that we could create. It was also that, you know, we banned things gambling and we regulated markets in a much more aggressive way. So we just like the financial sector was not a significant part of the economy. It's only 2% of the economy today. It's 9% of the economy. I don't think that having more options for credit cards makes people happier, but it might increase the amount of gdp. That's a reg. Like what we've done is we've essentially said we're going to stop trying to regulate for a moral economy. A moral economy being the kinds of things that people want more of or
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A
even a useful economy.
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C
A useful economy might be one way to put it. Moral economy, however you want to characterize it. But the second largest segment, the second fastest growing segment in the economy from 2019 to 2024 is actually gambling. So GDP growth in gambling is going up. And some part of that 2.3% or whatever the GDP growth last year in the US economy is a result more people clicking on like DraftKings and Kalshee. Right. Which doesn't. Which makes their lives worse. It's not like introducing a toilet, it's introducing a guy that steals their time and money and attention. Right. So on a broad macro level, and this doesn't explain the post Covid thing, but on a broad macro level, we do have this problem where in the 1930s, even though Simon Kuznets didn't, he said, don't use this as a measure of welfare, you could use it as a measure of welfare. And it was not unreasonable to do that.
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It wasn't terrible.
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C
No, no. Because we regulated on a micro level to make sure that products got better and were more useful over time. Right?
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Yeah.
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First it was cars, then it was better cars, then it was cars with seat belts and so on and so forth. So now it's just sort of like, whatever, man.
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If you can make money doing it, if you could make it, it's by definition good and righteous.
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C
Right.
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Kalshi and polymarket being canonical examples.
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C
Yeah, that's right. And so like Live Nation, Ticketmaster sells a ticket for more. It's like a higher gdp. Is that really like making your life better? Is that better? Right.
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A
So yeah, you used to, you used to meet your boyfriend or girlfriend at church. Now you have to pay an app to.
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C
Right, right, right.
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A
Yeah.
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C
It's a macro trend. It's an important trend. It's easy to talk about and understand and it has important implications. But on a sort of a more micro level, just to distinguish first Trump term and the second Trump term, you also have what what happened was a little bit was, was your point. People are spending on things that don't make their lives better more directly. So in 2019 and 2025, I think per hourly wage increases were 1.1%. It was the same wage increase. Right. And that consumer spending was, which is by the personal consumption expenditure metric, was roughly the same amount, except that in the first Trump term, people were spending more on things like boats and recreational stuff, things they wanted. Right. But in the second Trump term, in 2025, they were spending more consumer spending on health care. Right. And this one particular category, financial services furnished without payment. Right. Which went from. Which was about $600 billion this year or about 2 or from 2025 or about $2,000 per person. Now what is financial services furnished without payment? Well, it's your bank account and your app, which you probably get for a low cost or free. If you keep a certain amount of money or if you keep less than that, maybe it's a, It's a fee, 5, 10 bucks a month, something like that. People don't think they spend $2,000 a year on it, but they do because that money that they keep in their bank account, you know, they get a small interest rate on it, if anything. And, but the bank that keeps it there gets 4 or 5% correct fed. And that differential is about, in aggregate is about $2,000 per person. And that's what pays for the free banking app and the, the services whatnot. And then when the people in the government, the bls look at this, they say, oh look, there's more consumer spending on better banking apps based on financial services furnished without payment. And it's this huge change from the first Trump term to the second Trump term. But no one is saying, oh my God, have you seen the latest banking app? That is just awesome. That's exactly like what happened when my grandfather got a toilet, right? It's just like. So there's just been this sharp shift in kind of things, non discretionary things you have to pay for. Healthcare is another one. People don't want to pay more for health care. It's not like you're getting more awesome stuff when you're paying more for health care. You're just paying more for, you know, to be able to see the same doctor or get the same medicine or whatnot. So I mean, there's a, there's a little bit of shifts there, you know, here and there, like, you know, the fat shot as, as Trump calls it, like there are advances, but it's not, you know, these are largely non discretionary things that people are paying for. So that's one of the other reasons is like consumer spending doesn't tell you much about consumers anymore. So the other thing, and this is important for progressives and I didn't really understand this until the Michael Tomaski event that you, I think were a part of. And I was thinking about how do I explain the dynamic of really dramatic changes in pricing which we've seen over the last 10 years, what some people call surveillance pricing or dynamic pricing. It started en masse with Uber. When you would look at your, you'd look at your Uber app and it would say, oh, it's Raining. So we're going to have surge pricing, like pricing changes based on the circumstances around which you're buying that good or service. And now we've seen more and more and more dynamic pricing or even personalized pricing based on kind of who you are and what that means. You know, when we measure the economy, like these statistics, the inflation statistics, they are assuming that we all effectively pay the same price for the same good. But that is no longer the case. And there is some evidence that the less power you have, the poorer you are, the more you pay for things. I mean, we've seen, I think the Atlanta Fed did a study showing that in poorer areas, there is less competition for grocery stores. There's just fewer grocery stores. And in richer areas, there are more grocery stores. And so prices for food are cheaper in richer areas. And over the course of 2006 to 2020, it was a 0.46% difference in food inflation, which works out to roughly 9% over that period of time. Now, 2020 is exactly when Covid hits. So starting in 2021 onward, you're going to see. You'd probably see a lot more food inflation in poorer areas. So it's probably much more than that now. But one way to understand the problem is you're actually looking at several countries. You're looking at it because. Because a dollar that you earn buys more or less depending on whether you're poor, middle class, or rich. And that was not the case even, you know, 20 years ago, 30 years ago. So we're actually living in kind of three different countries depending on who you are. Now, the way that I kind of figured out, I think, how to explain to progressives is it's just. It's just the analog of income inequality. You know, progressives don't like dramatic income and wealth inequality, but that's kind of the. The asset income side. The other side of the ledger is spending, and spending inequality is the same thing. It's just that it happens to take place through businesses and through pricing games, and we just don't pay as much attention to that side of the ledger. And because we don't pay as much attention to that side of the ledger, we're not measuring it and studying it and understanding it. And that's probably why it's a much bigger deal than we really, than we realize.
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B
But if the market's able to extract this type of discretionary pricing, charging poor people more than rich people, that's just the invisible hand finding efficiencies, right?
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C
That's right. It's it's good, right? I mean like, it's just, we got to be more like, let's just be more nuanced and everything's really complex and nuanced. Let's, let's go rob the poor. Right? That's the, that's the, that's the deal.
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B
I'm curious just briefly going back, you know, we've talked a lot about what a shit measure GDP is. Do you have an idea how much of GDP over the past year or so is basically AI and data centers in terms of counting up those transactions?
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C
You know, I don't know the answer to that. I've seen that all of it, all of GDP growth is, is related to AI investment, but I've also seen that virtually none of it is. And I think the reason I don't know is because a lot of the data center, obviously the data center installation is actual gdp, but then a lot of the stuff that we're installing is imported, which doesn't add to GDP because it adds to Taiwan's gdp. And if you look at Taiwan's trade surplus, it's just like, it's insane, it's massive. So clearly a lot of the AI investment that our companies are putting into this new technology is actually not generating GDP here. But you build a data center the size of Manhattan, clearly that's going to have some impact. So the answer is I don't really
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B
know, but it clearly does not reflect welfare. I mean, my satisfaction with the economy is not increased by the number of data centers being built.
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C
Well, so here, this is the interesting thing about AI and I agree with that. Obviously AI is a general purpose technology and there's all sorts of ways to kind of understand how general purpose technologies work and whether they're good or not. Fundamentally, general purpose technologies get developed and deployed in the context of the political rules that exist at the time. And so right now they are kind of deploying AI in a very top down manner in the US to try to engage in forms of extraction and price fixing and replacing people's jobs. That's what people on Wall Street, I mean, you guys know this, this is why they're investing in AI. In other countries they're investing in AI for different reasons. Like you could invest in AI and say, okay, well we don't want, we want to build models that are more efficient, that don't use copyrighted material or that license copyrighted material. We want to use AI to, instead of laying people off, we would like to reduce prices. That's going to be the Main focus of how we're going to deploy this technology, whatever it is. There's lots of that. You can take this technology and deploy it. But. And I think if it genuinely were curing cancer, everyone would be like, fuck, man, build more data centers. Right. But the, the point is that the way that these technologies are being deployed are predatory and extractive. So even though they might be adding to gdp, again, you have this phenomenon of the boom session where people are like, whoa, this is either an extractive technology or it's just even worse. Not, maybe not even worse, but it's just a, a mechanism for financiers to sort of blow another bubble around what could otherwise be a useful technology.
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A
How do you think this emerging fact, which is that most of the consumption in the economy now is the top 20%, that's also playing into, into the way in which these statistics are not connected to what's happening on the, on the ground.
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C
Right. I mean, traditionally, when we looked at is consumer spending going up, we would say, well, let's take all the consumer spending in the economy, and if it's going up, then that generally means that consumers are getting more. But what if it's the case that only a small percentage of consumers are getting more, but they just happen to consume so much more than everyone else that it overwhelms the aggregate, AKA inequality on the consumption side? That's what's happening and it is screwing up our ability to even understand the economy. I don't know.
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A
I mean, as recently as the late 90s, early 2000s, the top 20% consumed about the same amount as the bottom 80%, which was still ridiculous and crazy, but now the top 20% is consuming close to 60%, and the bottom percent is 80% is consuming 40. I mean, that delta is huge. Again, GDP does not pick this up. Right?
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C
Yeah. And there's another piece that I wrote about how wages are the wrong way to understand what's going on in the economy, because the people that 20%. Right. And I'm guessing it's kind of fractal. So if you go to the top 1%, they're probably over consuming Visa. And then it's a power law. Yeah, Right.
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A
Yeah.
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C
And in 1980, if you went back and you look at the national balance sheet, what you would find is stocks were like a pretty small part of that balance sheet. It was mostly some housing, real estate. Estate, and then small businesses that people owned. Right. And it was primarily assets were held by the wealthy back then. They're held by the wealthy today. But today it's mostly stocks, right? It's mostly equities and financial instruments. And if you go back to when in the late 90s, 20% of population had 20% or had as much spending as the bottom 80%, but not more than that, you know, wage growth really mattered, right? Wage growth was the way that you'd have more spending. But today it's actually the increase in equities. It's the stock market that gives people, the important people, quote, unquote, in the economy, raises. So if the, if the stock market does well, then the people who consume in the economy, that is the top 20%, they consume more versus if the stock market goes down, then if effectively you have only a certain percentage of people get wages, get raises, and that's the super rich or that's the rich. And this is how financialization fits into it, right? Which is just that the stock market is now the way that we determine whether you get a raise or not effectively. So it's like a, it's really bad to do that. It's really bad to have a stock, you know, to have the whole economy dependent on the value of consumer spending, dependent on the value of a stock market. I mean, you can see right now that Trump is doing everything he can to keep the stock market from falling. And that is a very, very bad way to run a society.
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B
I don't know, worked out well in the early aughts when we relied on housing wealth to drive consumer spending.
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A
And then there's the whole element of monopoly driven inflation too, right? Which is. That's your specialty.
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C
I mean, I think that that's just a way. Yeah, I mean, I think that's just a way to understand that pricing is not, is, is just extractive these days. Right. So what I was talking about before, which is, you know, your banking app, right, and the, and how that's gone from $1,000 to $2,000 in the last, I don't know, five, 10 years. It's not that the apps have gotten better, it's just that there's no competition. Banks don't have any competition because it's a pain in the ass to move your bank account to a different bank. And you know, I did that. I moved my bank account to a different bank to get a higher interest rate. And then a few years later I noticed, oh, they're not giving me a higher interest rate. It turns out like they were just cheating me. It was Capital One. And then they got investigated by the CFPB for doing it. And then of course, the Trump administration dropped the charge. But the. But the point is that because there's a lack of competition, it makes it hard to actually reduce that most of that $2,000, which is going to profits. And there was actually something called the open banking rule, which was the CFPB was trying to, you know, as Dodd Frank said, you have to have an open banking rule that lets you easily transfer your bank account to a different institution. The Consumer Protection Bureau was the entity that was supposed to put out that rule. And, you know, that rule's gotten delayed and blocked. And so bank accounts, you know, since Dodd Frank, which is, I guess in 2010, looks crazy. It's 16 years later. So, you know, the net effect of this lack of competition is that, you know, there's more consumer spending on awesome banking apps. Right. There we go. And because we didn't used to allow that kind of thing, we didn't used to allow all of this monopolization. I mean, if banking is one area, 75% of industries have gotten more concentrated. We can go just take it on faith, for the purposes of this thought experiment, there's a lot more monopolization in the economy than there used to be. And so the consumer spending, you're buying your dollar, you're still maybe spending more, but you're not getting more, you're getting less. Yeah.
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B
So again, we talk a lot about how GDP is a terrible metric, and now you're telling me that consumer spending is a terrible metric because it's not actually making a distinction between discretionary spending and things which essentially behave like a tax, something you have to pay whether you want to or not. What should we be measuring?
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C
I think we should start with consumer sentiment. I actually really like. There's this whole weird thing where for years people have said, well, the public is unhappy, but. But we need real hard data, not soft data. And soft data being consumer sentiment numbers. And I think we should start with the soft data. So if people are unhappy, we should try to figure out why they're unhappy instead of starting with harder data, which is just pricing and stuff like that, because the pricing can be gamed. But if you just ask people, how are you feeling? Obviously it's feelings and that's all soft, but if they're mad, they're mad. Right. So that's where I think we should start. And, and I don't think that consumer spending is a. Is a terrible metric or GDP is a terrible metric. I just think it's limited. And the interpretation that we're using doesn't work anymore. So you know, I wouldn't necessarily stop collecting that data, but I might, I might start trying to understand how do we measure consumer spending that for things that people want to get. Like how do we start to measure things that don't increase people's happiness? Like you know, I don't know exactly how you would do that, but you could presumably find, take things like gambling and you know, figure out what people value and what they don't value and create different metrics based on what they value, what they don't value. I think just studying, you know, changing the way we collect pricing information could be really useful. I know that the BLS sends, Bureau of Labor Statistics sends people out to just go and look at price tags. And it's like a lot of companies now they will show you one price in the aisle. They'll say oh, this drink is a dollar. And then you go to check out and it turns out it's $1.20. And a lot of people don't notice. Well if the BLS person is. And that's fraud. But a lot of companies do it shockingly. But the BLS looks at it and says oh, it's a dollar. And then they, they say it's a dollar. But then the actual thing that people pay is A$20. There's also all sorts of reward programs and you know, pricing games and rebates and all this other stuff that it's hard to put in there. So I would, I think I would just try to understand like try to collect pricing data differently and then try to divide up consumer pricing into things that people, that make people happy and things that, that are at our non discretionary that are sort of tax. Like we don't include taxes in cpi.
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A
Yeah. Like health care and.
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C
Right.
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A
Yeah, right.
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B
So do you know in. I would also just ban other countries,
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C
I would ban price discrimination. I would just say yeah, it was better in the 30s when people paid the same thing for the same item. Right.
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B
I'm curious Matt, do you know in other countries where, you know a lot of the things that we talk about that are essentially like taxes like health care.
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C
Right.
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B
College education.
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C
Yeah.
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B
Child care, daycare. You have to pay it whether you want to you want it or not. In a lot of other countries those are provide provided by the state. So in those countries those things are not counted as part of consumer spending?
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C
You know, I don't know the answer to that.
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A
You know, if you look at the OECD's AIC index, which is actual income consumption or something like that, which nets out public goods. You know, how, how the US Ranks changes, for example, changes radically because, well, you know, USA is, I don't know, top three or four in GDP per capita. If you, if you normalize for all the things that other societies provide for free, that don't go, that therefore don't go into gdp, the picture changes dramatically. Dramatically. And, you know, I think that's a big part of the problem in the United States is that, you know, they're. Yeah. I mean, people earn higher wages and stuff like that, but it all goes to pay for this stuff that is escalating in price faster than the wages are going up. Because those are private markets where the objective is to make the prices go up. Right. Where the whole point is to charge people more money every year.
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B
Right. I mean, I just, I told, you know, Nick, I just had surgery two hours, less than two hours in the operating room, one night in the hospital, they billed my insurance company $82,000. There is no way that if I was in Germany or France or any European country without insurance and I went and did the same thing, that my bill would be $82,000. It would be a fraction of that. Just to somebody who was uninsured.
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A
Yeah, it would have been $3,000 or something like that.
- [33:12]
C
And just to be clear, the US does have a lot of public goods. We high school, you know, we have public schools. Right. Which we didn't used to have public schools. People, we pay taxes and you can, you know, there's a lot of, you know, there's roads and there's lots of stuff that we, that we do that where we, we don't think about election infrastructure. You know, we talk about, oh, my gosh, there's so much money in politics. That's terrible. Right. Which, yes, it is terrible. But, like, we don't expect donors to pay for, like, voting machines. Right. So there's all sorts of infrastructure that we just don't think about that is public and paid for with taxes. That is not the case in a bunch of other countries. It's just a matter of how we choose to characterize these things as taxes or not. And it has significant political impacts because there are a lot of Democrats and Republicans who just absolutely would never raise taxes, but they don't think it's a tax when your healthcare premium goes up by 7% or 8% or 9%. They just think that's sad and it's crazy to think about the world that way. But it does feel like our economic statistics Point us to that framework.
- [34:19]
A
When that price goes up, 7% GDP goes up, which is good.
- [34:23]
C
Yeah. Versus when your taxes go up. Like there's all sorts of deadweight loss. I mean, it's bad by definition. Yeah, no, it's bad. So the other thing that I think I wanted to sort of. I'll put in here about the consumer price index. This is the one time Larry Summers has quoted me, which is kind of funny.
- [34:41]
A
Not sure if it's good or bad, but go on.
- [34:43]
C
Well, it's only one, since it's virtuous to me. I'll say this, that he, at the, at that five minute period when he decided to quote me, he was brilliant. Other than that. Monster, right? No, the consumer Price Index. Right. Reagan made a couple of changes to the consumer price index. They effectively said that the price of money, the interest rate has nothing to do, is not included in the inflation rate. Right. So what that means is if you buy a car. I remember seeing 2023, I was like, why is this? Why are people so mad about inflation inflation when the CPI is low? And I saw people striking, the UAW had a strike about the auto industry went on strike, you remember that? And there were people saying, I can't buy the cars that I make. And I was like, huh, that's interesting. And I looked at the price of cars and the price of cars was flat from 2022 to 2023. They had increased dramatically in 2022, but it was flat. And I thought that's interesting. It didn't actually get more expensive. But then I realized, oh, people don't buy a car sticker price, they lease it or they pay with auto financing. And financing costs increased dramatically. The Fed raised rates from whatever it was to 0% to 4% that year or 3%. And that increased the cash amount that people pay massively. So people, the CPI looks at it and says, oh, cars did not increase in price. But actual normal people, the amount they have to shell out for cars is much higher from 2022 to 2023. And that's true for somewhat similar for housing. And so if you look at it and you're like, wait, the cost of credit cards, student debt, housing and cars are not included in the cpi. That's kind of weird. They always do CPI and they call it like core inflation, which is like the inflation without food and energy. So if you don't have a car or a home or eat anything or use energy, then the CPI is perfect. Right. But other than that, it doesn't actually reflect the lived experience of normal people. And I think there's kind of a moment for Congress and the Bureau of Labor Statistics to go in and start to say, okay, how are we going to actually create an inflation metric that reflects the lived experience of normal people? You could do it in a lot of different ways. You could just get rid of price discrimination and then measure. You could also just measure what it's like to be, you know, for different baskets of people. They. They do have urban consumers. They do have a CPI for elderly people. You could look at a CPI for poor, CPI for rural if you wanted.
- [37:25]
B
That.
- [37:26]
C
That gets kind of complicated. But there are ways to go in and look at this. Basic things, though, like the price of money that should be in there, food and energy, like, that should be these things. We need to stop with these games. It's. It's kind of absurd.
- [37:38]
A
Yeah. Matt, why do you do this work?
- [37:41]
C
You know, I just find it. I find it really fun, and I think it's really interesting to look at business and justice and the intersection. It just kind of, you know, I could say, oh, I'm very virtuous and whatnot, but I just find it interesting and fun and meaningful. So that's why I do it. And people find different things fun and meaningful, and I encourage everybody to pursue their own, you know, what they love.
- [38:09]
A
Well, thank you so much for being with us, as always. Amazing.
- [38:12]
C
Thanks a lot, guys.
- [38:18]
A
That conversation leads me to so many thoughts. There's so much that we talked about there, and it's daunting and a little depressing to think about how far away we are from. Forget good economic policy. Just a perspective that might naturally lead to good economic policy.
- [38:43]
B
Right? Like just trying to understand what's going on with the economy using the current tools that are available to us. And I think, you know, Matt made this comment about focusing on soft data rather than hard data. And that must just be anathema to most trained economists, because this is what they do. They collect hard data as best they can, and they plug it into their models, making, well, what they think are the best assumptions they can. But we can argue about the assumptions, and then you try to get a picture of the economy based on that. And what they're trying to do is get this objective measure of the economy. But here's the thing. We as human beings don't experience the economy objectively. No, we experience it subjectively. And that is something that economics has long discounted. Our subjective experience of the economy. If it can't be measured objectively, empirically it's not really that important. And so you get things like that consumer sentiment index, which people have long rolled their eyes at because what the hell that just people tell it's vibes, it's a vibe economy that's just. And this was part of the problem during the Biden administration, they didn't know how to deal with these vibes that the data was telling. The hard data was telling them one thing and the soft data, the vibes was telling them something else. And I think Matt is right, that is that what we should be focused on is the soft data, this objective experience of the economy.
- [40:28]
A
And I think that that argument is made stronger by a context within which the hard data is getting shittier and more and more opaque and more. What's the word? It's just not telling as honest a story as it once did. And because I do think Matt's point is that 60, 80 years ago, GDP was probably in many ways a better measure of economy.
- [41:04]
B
It was a different economy, manufacturing economy, where you could measure these inputs and outputs in a more accurate and objective measure. It was more useful in that context. I'll say one other thing about GDP though, as a proxy for general welfare is that, and I've read a bunch of economists on this, including Amartshen, who makes this argument that it is a reasonable proxy in a developing economy, that if you look at developing economies where
- [41:38]
A
they are going from no toilet to toilet.
- [41:41]
B
Right. That GDP growth is a reasonable. Even if inequality is increasing. And there's all the other problems that generally living standards are improving with gdp, if not lockstep, they are improving. So you can look at increasing the GDP per capita of a developing country and get a rough estimate for how well the economy is doing, but once you're developed, it's just not clear that GDP is all that useful anymore.
- [42:11]
A
Yeah.
- [42:11]
B
And so yeah, anyway, for a lot of reasons.
- [42:16]
A
That's right.
- [42:17]
B
Including. And it's things I hadn't thought of before, this idea of how fractured the economy is that we now have not just income inequality, but spending inequality.
- [42:27]
A
That's right.
- [42:28]
B
As Matt said that what you spend for basic things like groceries and gasoline at the pump depends on the income level of the neighborhood in which you live.
- [42:40]
A
That's right. That's right.
- [42:42]
B
And so when you have this kind of fractured economy, the standard way that orthodox economics builds its models are these representative agent models. They assume that you can create this fictional representative agent that somewhat reflects everybody's experience in the economy. And there's an argument to make that while that was never true and never a good way of modeling the economy. It's even less true today, correct than it was 60 years ago, because your representative agent cannot accurately represent what it's like to be poor or middle class or rich or urban or rural or black or white or college educated or non college educated or male or female, etc. Because everybody's subjective experience is so different from each other in a way that it probably wasn't for sure.
- [43:44]
A
Absolutely. Matt's piece on the Boom Session. It's a great decomposition of these problems and just reminds us how much work we have to do. And I would say a concluding thought that it is possible to create hard data that would reflect these things. You could do a much better job. We just aren't. And that makes the soft data all the more important to take a look at, right?
- [44:11]
B
If you want to read more from Matt, there are links in the show. Note to his piece the Boom Session why Americans Hate what Looks like an Economic Boom. And of course we always recommend his book the 100 Year War Between Monopoly Power and Democracy.
- [44:36]
D
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to follow, rate and review us wherever you get your podcasts. Find us on other platforms like Twitter, Facebook, Instagram and Threads itchforceconomics Nick's on Twitter and Facebook as well. Ickhanauer for more content from us, you can subscribe to our weekly newsletter, the Pitch over on Substack, and for links to everything we just mentioned, plus transcripts and more, visit our website@pitchfork economics.com as always, from our team at Civic Ventures. Thanks for listening. See you next week.