Smoke Filled Rooms

Summary

Podcast Summary: Slate Money – "Smoke Filled Rooms" (July 13, 2019)

Episode Overview

In this macroeconomics-heavy episode, host Felix Salmon (in Washington, D.C. for an Axios retreat) is joined by regulars Emily Peck (Huffington Post) and Anna Szymanski, with special guest Neil Irwin (The New York Times and author of How to Win in a Winner Take All World). The episode explores three major threads:

• The Jeffrey Epstein scandal and the broader impunity of powerful men
• The significance of Christine Lagarde becoming president of the European Central Bank (ECB)
• Central bank policy, deficits, and why economic orthodoxy keeps failing to predict reality

The tone is conversational, spirited, and strives for both clarity and depth, punctuated with moments of dry wit and thought-provoking insights.

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Key Discussion Points & Insights

1. Jeffrey Epstein: Wealth, Crime, and Systemic Impunity

[02:18–10:36]

• Epstein’s Dubious Wealth

  • Neil Irwin questions Epstein’s claim to billionaire status, noting the absence of Wall Street connections or typical hedge fund infrastructure.

    "The fact that nobody on Wall Street has memories of doing business with this guy... This is not a hedge fund. Something weird is going on." (Neil Irwin, 02:18)

• Explaining Epstein’s Influence

  • Anna proposes the Les Wexner connection (Victoria's Secret/L Brands founder) as plausible for Epstein's money—possibly tax evasion or money laundering.
  • Emily recaps Epstein’s 2008 plea deal, negotiated by Alexander Acosta (who later became U.S. Labor Secretary)—highlighting sweetheart deals with law enforcement and lack of consequences for Epstein’s crimes against minors.

• Systemic Enabling of the Powerful

  • The hosts reflect on how extreme wealth and connections afford legal and social impunity for figures like Epstein, drawing comparisons to Harvey Weinstein, Bill Clinton, Donald Trump, and the broader #MeToo reckoning.
  • Emily:

  “We live in a society that values rich men over young, poor girls… His behavior is like to the extreme, but I don’t think it’s actually that unusual of behavior.” (Emily Peck, 08:53)

• Cultural Tolerance and Elite Blindness

  • Neil observes that Epstein's predatory behavior “was just kind of hiding in plain sight long before the 2008 charges.” (Neil Irwin, 06:59)
  • Discussion about the prevalence of questionable behavior at elite gatherings and the persistent global culture of enabling the wealthy.

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2. Christine Lagarde and the Changing Face of Central Banking

[10:43–23:44]

• A Woman Succeeds Two Scandal-Plagued Men

  • Lagarde’s path to the ECB presidency is contextualized after the scandals of Dominique Strauss-Kahn (DSK) and Jeffrey Epstein, both of whom benefited for years from elite protection.

• The ECB as a Political Institution

  • Neil Irwin explains that picking a “politician” over an economist is a deliberate choice for the ECB’s top job:

    “The real tricky part is trying to get European governments to do the things they need to do… If Christine Lagarde is more savvy about navigating European politics than some economist off the street, she'll be a far better ECB president.” (Neil Irwin, 13:44)

• Authoritative Leadership Without Economics Chops?

  • Comparison to Jay Powell at the U.S. Fed and discussion of whether political skill now trumps academic economics in top central bank roles.
  • Anna highlights Lagarde’s communication skills and market credibility, suggesting these qualities are “almost more important than just simply being able to do the modeling.” (Anna Szymanski, 14:17)

• Can ECB Lead Through European Fragmentation?

  • Looming issues: a less fraught Eurozone than Draghi inherited, but Brexit and political fragmentation are unresolved.
  • Felix: “Is she the most powerful person in Europe?” (19:51) – Neil: “I think there’s a very strong case.” (19:58)

• European Leadership, Legitimacy, and “Smoke Filled Rooms”

  • The process of picking EU leadership via backroom deals is questioned as undemocratic but perhaps necessary for keeping the bloc together. Anna warns, however:

    “The political trends in Europe right now are not positive in terms of stability or greater integration.” (Anna Szymanski, 23:18)

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3. Deficits, Broken Orthodoxy, and What Central Banks Should Do Next

[23:52–34:31]

• Macroeconomic Model Failures

  • Neil Irwin explains that rising deficits and ultra-low interest rates should, per received economic wisdom, have caused inflation and higher rates—but haven’t.
  • Classic macroeconomic relationships (“deficits crowd out investment”) haven’t held true.
  • Notable quote:

    “Key elements of macroeconomic orthodoxy…are just turning out not to be so. And I think it’s the deepest challenge to how we understand the way the economy works in my lifetime.” (Neil Irwin, 25:29)

• What Should Policymakers Do?

  • Irwin argues for “new economics” that fits observed reality, and for using persistent low rates as an opportunity to address underinvestment.
  • Northern Europe (especially Germany) is held up as a region stifling aggregate demand due to misplaced deficit fears—when cheap borrowing represents an opportunity, not a threat.

• Inequality as an Explanatory Driver

  • Emily asks if rising inequality helps explain weak inflation and low demand. Anna and Neil agree loose monetary policy has contributed to wealth concentration, and that high savings by the rich may be suppressing demand and inflation.
  • Neil:

    “The shortage of aggregate demand might be a reflection of how much wealth inequality has developed.” (Neil Irwin, 28:39)

• Why Wages Aren’t Rising

  • Emily observes that unemployment is low, but wage growth is muted—implying something’s “broken.”
  • Neil suggests:

    "The longer we have a hot job market… the more that will break down… [employers will have] to compete to get workers. And that means paying more, better benefits, more flexibility, all those good things." (Neil Irwin, 31:11)

• Time for a Policy Shift?

  • Anna and Felix argue for letting the labor market run hot—keeping rates low and not snuffing out gains for marginalized communities who have only recently begun to benefit from the recovery.

• Need for New Indicators

  • Emily raises the idea that old indicators (unemployment, inflation) may be missing the signal—Irwin champions the employment-to-population ratio as a better measure of progress, but notes men’s labor force participation especially remains depressed.

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Notable Quotes & Memorable Moments

• On Epstein and Power:
  “We live in a society that values rich men over young, poor girls. So… these men could get away with this in plain sight because… it’s not unusual.”
  — Emily Peck ([08:53])

• On Macro Orthodoxy Failing:
  “Key elements of macroeconomic orthodoxy… are just turning out not to be so. And I think it’s the deepest challenge to how we understand the way the economy works in my lifetime.”
  — Neil Irwin ([25:29])

• On Central Banking as Political Work:
  “The real tricky part is trying to get European governments to do the things they need to do… If Christine Lagarde is more savvy about navigating European politics than some economist off the street, she’ll be a far better ECB president.”
  — Neil Irwin ([13:44])

• On Wage Growth and Inflation:
  “[Jay Powell] used a line I think might be on his tombstone: You can’t say something’s hot if you don’t see evidence of any heat.”
  — Neil Irwin ([31:11])

• Lighter Moment—Ed Sheeran’s Success:
  “[Ed Sheeran] is a win for goofy looking white guys everywhere.”
  — Neil Irwin ([35:37])

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Timestamps for Major Segments

• [00:10] – Show introductions, Neil Irwin’s new book
• [02:18] – Opening discussion on Jeffrey Epstein’s finances and impunity
• [03:56] – Recap/litany of law enforcement’s leniency toward Epstein
• [06:49] – Powerful connections, the culture of elite impunity
• [10:43] – Transition to Christine Lagarde and high-level finance/politics
• [12:52] – What Lagarde’s appointment means for the ECB and Europe
• [13:44] – Neil Irwin on political vs. economic leadership at central banks
• [19:32] – Is Lagarde now the most powerful woman in the world?
• [20:41] – Brexit’s impact on the EU and ECB
• [22:37] – Europe’s “smoke filled rooms” politics and risks of fragmentation
• [23:52] – Explaining why economists and models keep getting things wrong
• [25:29] – Neil Irwin on the unraveling of macroeconomic orthodoxy
• [28:39] – Discussion of inequality, demand, and policy implications
• [29:52] – Why isn’t inflation rising with low unemployment?
• [31:11] – Neil Irwin on the future of wage growth and inflation
• [33:44] – Rethinking macroeconomic indicators for today’s labor force
• [34:37] – Numbers round (Ed Sheeran tour, France’s “GAFA tax,” U.S. deficit, Manhattan curb cut scam)

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Numbers Round Highlights

• Ed Sheeran’s ‘Divide Tour’: $750 million—highest-grossing concert tour ever ([34:37])
• France’s “Big Tech” Tax: 3% of French revenues from large digital firms ([36:08])
• U.S. Federal Deficit: $747.1 billion, already 23% higher than previous year ([37:20])
• NYC Fake Garage ‘Curb Cut’ Scandal: House number 777, ingenious (and entitled) effort to claim a public parking spot ([38:05])

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Closing Thoughts

This episode thoughtfully links news of personal impunity and scandal (Epstein) to systemic failures of accountability—whether among the economic elite or central policy institutions. It makes the case that our economic models, much like our systems for policing the rich, may be woefully out of date for twenty-first-century realities. The cheerful banter leavens the heavy topics, with frequent returns to the necessity of rethinking who holds power, and how—whether in a smoke-filled room or a central bank boardroom.

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Recommended for listeners interested in: Economic policy, central banking, inequality, European politics, the real-world disconnect between macro theory and observed data, and the pervasive patterns of privilege among the rich and powerful.

Transcript

[A]

Hello and welcome to the Smoke Filled Rooms edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios and I am in Washington this week for a big Axios retreat. I am joined, as ever in New York, however, by Emily Peck of the Huffington Post.

[B]

Hello.

[A]

And by Anna Shymansky. Hello. But most excitingly, because I am in Washington, I decided to phone up the one and only Neil Irwin.

[C]

Hi, Felix.

[A]

Neil is here in the studio in Washington with me and he is going to explain basically everything. This is going to be like the Neil Irwin Explains the World to US edition of Slate Money. We are going to talk about Christine Lagarde and her new job running the European Central Bank. We are going to talk about central banks more broadly and governments more broadly, and what they should do in terms of economic policy. This is going to be a macro heavy edition, but we are also going to talk about the impunity of rich and powerful men in general and of Jeffrey Epstein in particular. There's a lot to to cover in this show, but first of all, we need to announce to the world that Neil has a new book out.

[C]

I do.

[A]

Neil, what is your new book and why should we read it?

[C]

The book is called how to Win in a Winner Take All World. It is a guide to navigating a career in the fast changing global economy of the 21st century. Trying to apply some of these lessons from economics to how to have a good thriving career.

[A]

So if you want to make lots of money in your job, read Neil's book and he will tell you how to do that. If you just want to try and understand what is going on in the economy, then that you're in luck is all coming up on this episode of Slate Money. So let's start with Jeffrey Epstein. Neal, as the resident billionaire ologist around here, we know that he is a pedophile and we don't know whether or not he's a billionaire, but probably he isn't.

[C]

Look, the thing is, you can't be as wealthy as he seems to be, as he appears to be without creating ripples in the financial world, without creating some kinds of public records. You know, the fact that nobody on Wall street has memories of doing business with this guy, that he doesn't have a big staff of analysts trying to figure out what investments to make. This is not a hedge fund. This is not a kind of standard. Something weird is going on. And figuring out exactly what that is. You wonder if these new charges on the, on the sex stuff lead to unraveling what the hell is going on with this business that allegedly exists.

[A]

Anna, do you have a theory?

[D]

My theory is that it's probably related to Les Wexner, because clearly, like, he's been involved with him for so many years. His house.

[A]

So Les Wexner is the founder of Victoria's Secret and what's it called? L Brand.

[D]

Yeah, that's kind of parent company.

[A]

And he became very close to Jeffrey Epstein. And Jeffrey Epstein's house in New York was originally bought by Wexner. So, yeah, that's a connection. So what's your theory about the Wexner connection?

[D]

Well, I mean, Wexner is actually a billionaire, so I wonder if this is something, a way to either tax evasion, money laundering, who knows? You know, maybe we'll go into some of the other theories people have, but to me, this seems like the most plausible.

[B]

Well, first, should we back up and just briefly, can we do some back.

[A]

Yeah.

[B]

What? Jeffrey Epstein is why we're talking about Jeffrey Epstein now.

[A]

Yes, please. This is why we need Emily Peck on the show. Because while all the rest of us just dive into stuff, Emily's like, wait, can we just explain what the hell we're talking about?

[B]

Recap a little bit.

[A]

So explain.

[B]

So Jeffrey Epstein, a decade ago, was. He signed a plea deal in Florida copying to, like, a prostitution charge and was sentenced to, like, a very mild 13 months in county jail. And he basically didn't have to really even spend time in jail. And the charges involved him getting these massages that turned into something worse from, you know, from girls and asking those girls, then recruit more girls. And that was all kind of like dead and buried a decade ago. And then the Miami Heralds, a reporter named Julie K. Brown, went back and looked at that plea deal after the man who negotiated it, Alexander Acosta, was nominated to be the labor secretary. And what she investigated and her stories really got us to this day this week when Epstein was charged again in New York for. For sex trafficking, essentially. And now.

[A]

And Acosta has now resigned.

[B]

Acosta has now resigned because he negotiated this, really, the sweetheart deal. He didn't even tell the victims. He kept the victims basically in the dark about the deal, which was illegal. Which was illegal. And a federal judge, after Julie K. Brown's story came out and the case went back to court, a federal judge found it to be illegal. So there was, like, finally, with the indictment this week, people were finally like, acosta should probably resign, even though the news about the deal came out, you know, at the end of it came out last year for some reason. No one was that upset last year. But now, finally, they're upset enough to get this guy to resign. So that is why we're talking about Epstein. And he's. People call him a financier in all the stories, and they call him a billionaire in all the stories, but turns out there's, like, almost, as Neil was saying, zero evidence that he is either of those things.

[D]

Yeah.

[A]

So.

[B]

Yeah, so that's why he gets a.

[A]

That's why we're talking about it. And Jeffrey Epstein gets this very sweetheart deal from Acosta. He also gets a very sweetheart deal from the nypd, where he's meant to check in to the courthouse every 90 days in New York, and otherwise, he's in violation of his parole terms, basically. And he never does that in the nypd. It's like, yeah, that's fine. You don't need to. The Cy Vance, the Attorney General in New York tries to get him downgraded from, like, a level three sex offender to a level one sex offender for, again, reasons which are very mysterious. And generally, whenever he comes into contact with any kind of law enforcement, they seem to be bending over backwards to be incredibly nice to him, and no one knows why. Except this one, like, weird rumor about him being some kind of an intelligence asset.

[B]

I mean, I think more broadly, the way Epstein was able to maneuver the legal system sort of just reveals how powerful men just get away with stuff by virtue of having lots of money, influence, and power. I mean, his friends are Bill Clinton. Alan Dershowitz, of course, is his lawyer.

[A]

Donald Trump.

[B]

Donald Trump was his friend. I mean, Woody Allen. Woody Allen, all the best. Only the best people. He.

[D]

He ran with a great crew.

[B]

Yeah, he's really good guy.

[C]

And so much of this was just kind of hiding in plain sight long before the 2008 charges. If you read magazine profiles going back 20 years, there are references to these, you know, very young women and girls kind of around all the time. People in elite circles who were in his orbit knew that something bad was going on, and it just persisted for years and years and years.

[A]

So this is my question for Anna, is we know that this, as Neil was saying, was hiding in plain sight. We know that he had effective impunity until he didn't. My question is, is this something that all rich and powerful men can expect, or is this something which was uniquely weird and impunity? Ish. For Epstein?

[D]

Well, on the one hand, I would say it's sadly unsurprising, even just thinking of the comparison to something like Harvey Weinstein, this is outside of finance. But the idea that something was hiding in plain sight, people knew about it forever and nobody really seemed to care that much because the person did have a tremendous amount of money and power.

[A]

Harvey Weinstein, just to be clear, is still free and out in the world and not in jail right now.

[D]

It would surprise me to find out that you had another person leading like a very well regarded, very familiar fund that was engaging in this type of criminality of this level. Now a private fund, though, that's a separate issue. Now granted, I also don't even think he has a fund. I think this is all bs, But I mean, I'm still, I'm frankly more on the line of what I said the first time, which I don't think this is overly surprising. Although the level of what has actually come out publicly and for this person to in theory still be able to be operating like that surprises me.

[B]

I don't think this is surprising at all. I mean, we have the Weinstein example. Donald Trump is the president. We know that. We live in a society that values rich men over young, poor girls. So I mean, it doesn't surprise me that people could get away, that these men could get away with this in plain sight because that's, it's not unusual. I mean, he is, his behavior is like to the extreme, but I don't think it's actually that unusual of behavior. There's so many examples now that we have since, you know, since MeToo happened of.

[D]

Well, I do think running an underage prostitution ring is like a little, I mean, like, don't get me wrong, like there's a lot of horrible behavior. But like, this is, this is particularly awful.

[B]

Right. Although we don't yet have actual evidence that he ran up.

[D]

Yeah, I guess I actually, I should take that back a second because I do think something.

[A]

Well, we do.

[D]

I mean, the prosecution is problematic.

[B]

Oh yeah. We shouldn't call them prostitutes.

[D]

They're actually, we really shouldn't call the prostitutes because they're children who are victims. But so basically running a sex trafficking ring. We call it that.

[B]

Yeah.

[C]

And look, I think if these girls were a little bit older where, if they were legally of the age of consent and there was not the coercive aspect that might be much more commonplace in high finance than we like to talk about.

[A]

It's definitely something which you hear in the chalet parties in Davos. There's definitely no shortage of non underage girls floating around in various parties. It's A really kind of gross and disgusting aspect of capitalism is the way that these rich and powerful men, one of the first things they seem to want to do, try to do with their wealth and their power is to accumulate sex objects. I guess maybe it isn't surprising, but it's weird how often it happens and how predictably it happens.

[D]

Right.

[B]

And we'll talk about Christine Lagarde in the next, in the next segment.

[D]

But I mean, let's segue there.

[A]

Okay?

[C]

All right.

[A]

Emily, can you please, can you please like, draw those dots?

[D]

Yeah.

[B]

Who did she take over from?

[D]

Oh, that's true.

[B]

Another one of these, you know, these, these dudes, Dominique Strauss Kahn, you know, and he. What did he do again? He raped a woman.

[D]

Allegedly.

[B]

Allegedly, to be fair, I mean, in.

[A]

The Sofitel in New York and then a whole bunch of, a whole bunch of stories started coming out about him, you know, being part of these, like, sordid sex parties in France, right? And there were, there were various, like, pimping charges and stuff, which started getting brought up. But again, you know, the minute he gets arrested, suddenly he's living in luxurious house arrest in soho, New York, wasn't it, with his wife, who's also a gazillionaire. I mean, this is the other thing. The women like Ghislaine Maxwell, who was Jeffrey Epstein's companion through all of this and was apparently like even more of a pimp than he was. Like, she is a little bit like DSK's wife in that she came from lots of money. Her dad was Robert Maxwell, the billionaire who became, I think, the world's first ever negative billionaire. There's a lot of just scandal floating around. But yes, let's segue beautifully from Dominique Strauss Kahn or the latter day of Dominique Strauss Kahn, Jeffrey Epstein, to his successor, Christine Lagarde.

[D]

Christine Lagarde, who we're now Christine Lagarde.

[B]

Because she is going to start running the ECB in November.

[A]

So what happened is that Dominique Strauss Kahn was head of the imf and then he ran into all of this legal trouble and scandal and so he needed to step down as head of the imf. And he was replaced as head of the IMF by Christine Lagarde. And she has been at the head of the IMF ever since, up until last Tuesday when she resigned her duties as head of the imf because she has now been nominated to take over the European Central Bank. Neil, what does this mean?

[C]

This means that we have a experienced statesperson leading the most important institution in Europe right now, replacing Mario Draghi, who's really guided the Eurozone through this horrible crisis and helped them stay together and avoid a breakup of the entire European experiment. And Draghi is now being replaced with this really accomplished woman who is not an economist, but does have a political skill that very few people can match, can go toe to toe with Europe leaders on their own terms and try and get the European economy back on track.

[A]

So this is my big question about Lagarde, or rather the ecb. They have chosen a politician rather than an economist. Is it true to say that her job as head of the ECB or the head of the ECB's job is actually as much political or possibly even more political than it is economic?

[C]

Look, an institution like the ecb, they have hundreds, maybe thousands of economists running around building models, trying to figure out what their options are. The real tricky part is trying to get European governments to do the things they need to do. The central problem in Europe for the last decade has been a shortage of aggregate demand. Germany, other northern European countries, don't want to spend money, don't want to engage in any kind of deficit spending that has held those economies back. If Christine Lagarde is more savvy about navigating the intricacies of European politics than some economist off the street, she'll be a far better ECB president than that random economist would be.

[D]

I think that's exactly right. I mean, I think like a. She clearly understands how to communicate well both to other government heads as well as to market participants. She has a lot of credibility in the market, and she's been working with a lot of these players for. For many years. And I think that at this point, because of how powerful, probably too powerful, central banks have become, those skills are almost more important than just simply being able to do the modeling. That said, they had. It's not like they have a dearth of economists there.

[B]

So why was everyone. When you look at Jay Powell in the United States, I mean, there was a lot of criticism for him because he's not an economist.

[D]

Right.

[B]

And there was like, outcry about it. Why doesn't Lagarde get the same kind of outcry or upset?

[D]

I would say they're just. Despite what I just said and although just contradict myself, I do think Lagarde's a good choice. But one issue, when you bring in people who aren't economists and don't have a record of also their kind of a published record of their theory of monetary policy, it can potentially make them a little bit Harder to predict. Like if you have somebody who coming in who's an economist, they've probably written quite a bit about like what, what they perceive the role of monetary policy to be. If you bring in someone who's a bit outside of that, that's going to make it harder for people.

[B]

But the flexibility that someone like that.

[D]

That's also true.

[B]

Exactly. Kind of what you want at this time when economists are often right anymore.

[A]

Well, I mean, I think one of the main criticisms, if not the main criticism, of Jay Powell, was just that he's not Janet Yellen. And Janet Yellen is like not only an extremely good economist, but she's one of the very few economists who turns out to have actually been right most of the time. And when you have an extremely good economist who turns out to have been right most of the time and is doing an extremely good job at the central bank, it just doesn't make any sense to replace her as Fed chair. And it kind of doesn't matter who she was replaced by. If you replaced her with anyone, he'd be like, what are you doing? We have a very good central bank chair already. The ECB situation, of course, is not like that. Draghi's term was coming to an end. He needed to be replaced by someone. And then the question becomes, do you want to replace him with a monetary policy expert or do you want to replace him with a politician and the Fed chair? The that comes to mind for me is not Powell so much as Bernanke. And Neil knows this better than anyone. Ben Bernanke, in the aftermath of the financial crisis, basically spent his entire life giving testimony to Congress and loosening monetary policy and basically begging the government to spend more and do more on the fiscal side, as they say, to give more fiscal stimulus because he couldn't do it all on the monetary side. Monetary stimulus wasn't enough. We needed more fiscal stimulus. And what he wanted to do was have political influence over the government and get the government to spend more. My question for Neil is, is that also Lagarde's job? It's her job to be politically influential and to be able to give sort of ground cover to any governments in Europe who want to spend more on.

[C]

I think that's an important part of it. Look, I think this idea of a divide between economists and non economists leading a central bank, really a mistake to think of it that way. Paul Volcker did not have a PhD in economics, but he wasn't economist. Alan Greenspan didn't have a real PhD. He actually got A his dissertation was for previously published work when he was already well along in his career.

[B]

Another argument against Alan Greenspan, though.

[C]

Right. But you know, look, this is a very political role. And look, they are technocrats. They do have to understand the economics and make good decisions and understand what's going on in the world. But they are inherently political actors. And just because they don't behave in partisan ways, they shouldn't be partisan. But they are making political judgments around what is plausible, what levers can they pull and are they using them effectively? I think Christine Lagarde is the kind of person who knows enough economics to have sound judgment while having a much more adept sense of that. You know, she can go to Macron or Merkel or Merkel's successor as an equal, not as the technocrat off to the side.

[A]

Would it be fair to say that Draghi's predecessor, Jean Claude Trichet, was a better politician than Draghi was?

[C]

I wouldn't say that because Trichet, whatever you think of his political skills, and he was a very skilled bureaucratic infighter, he could run a meeting better than anybody. But he wasn't able to combine that ability with the economic insight to realize the ECB needed to be the lender of last resort. When he handed the reins over to Draghi at the end of 2011, things were in a dire state. And so that's why it takes both good economic judgment. I mean, Trochet was raising interest rates in early 2011.

[A]

Good to remember that. Yeah.

[C]

You need to combine this adept political skill with good economic judgment. If you have one without the other, you're in bad shape.

[D]

Right. Especially at a moment when it's we're likely going to be seeing more of a slowdown in Europe. You're seeing more fragmentation in Europe. And right now the tools that they've been using just simply aren't working that well. So I mean, you're going to need someone who's in there who is perhaps a tad unorthodox.

[B]

Is Christine Lagarde now officially like the most powerful woman in the world? Would we argue that Angela Merkel on.

[A]

The grounds that Merkel is like on the way out?

[B]

Yeah, yeah. Lagarde is the most powerful. She's running the second largest economy sort of in the world. I can't think of anyone else more powerful.

[A]

Is there anyone? I mean, nevermind women. Is she the most powerful person in Europe?

[C]

I think there's a very strong case.

[B]

Yeah, yeah, yeah. It's on her shoulders now. Basically. She's got her glass cliff Moment. Right. Everything's kind of on edge.

[D]

Well, that's always the case in Europe though, let's be fair. It's always the case.

[B]

Draghi came in the same situation.

[A]

Yeah, but I mean, but she also manages to inherit a slightly less fraught Europe than Draghi did. Right. The Italians seem to vaguely have got their fiscal act together. Greek, Greek 10 year bond yields are at 2.5%. You know, there's, there's, it's that there might be a storm coming, but if there is a storm coming, we're kind of in the calm before the storm right now.

[B]

It's probably Brexit, the storm that's coming or no.

[A]

Well, that's. And that's the place where I wanted to end because of course, you know, any excuse to talk about Brexit. This is.

[B]

Neil Cousins are nodding.

[A]

This is certainly going to happen on October 31st. And assuming that it does, what does that mean for, I mean, we'll talk ad nauseam on Slate Money about what it means for the uk, but what does it mean for the rest of the eu and what does that mean for Lagarde?

[C]

Look, I think as a. This might sound paradoxical, losing Britain, which has always been kind of a thorn in the side of the rest of Europe and a troublemaker in European Parliament. All these places could leave the rest of Europe with one less distraction and the ability to be a more coherent, cohesive political institution. Maybe that's wishful thinking, but it seems like a very plausible path forward.

[A]

Oh my God. I think I detected a tiny, tiny sliver of optimism about Brexit, which is.

[C]

I mean, that's not optimistic for Britain.

[A]

Britain is, you know, we kind of know that Britain is doomed. There's nothing we can do about that.

[B]

The good riddance argument, like get them.

[A]

No, exactly. A lot of what Europe was doing for the past 30 years was managing British just, you know, intransigence. And now they don't need to manage that anymore. And that might be good for unity. And unity is definitely something which the EU could use right now.

[D]

Yeah. Although the only thing I would say, though, unfortunately to Saris, is that like Brexit is also a symptom of a larger problem of political fragmentation and the rise. I mean, just the kind of, the decline of these kind of centrist parties and that's happening throughout Europe. So I would say even, even if you ended up having a, you know, a Brexit that in some way, you know, didn't have enormous economic impact on Europe, you're still going to have those political trends.

[A]

So, okay, so the appointment of the ECB head, the new EC president, all of these important roles, was really done in a stitch up in a smoke filled room in Brussels somewhere by a bunch of centrist technocrats while completely ignoring the actual results of the European elections. It was deeply undemocratic and yet it's kind of the right thing to do in terms of trying to keep Europe together. But I guess, Anna, what you're saying is that if you behave, if you continue to behave in that kind of deeply undemocratic way, eventually that's going to come and bite you in the ass.

[D]

Well, I'm just more saying that the political trends in Europe right now are not positive in terms of stability or greater integration of the eu.

[C]

And you have Hungary, Poland, Austria, all making this shift toward more authoritarian kind of politics.

[A]

Yeah.

[D]

Also don't poo poo smoke filled rooms. I feel like. No, I'm sorry. Like, if you look at like the history of like a lot of politics, smoke filled rooms often kept a lot of crazy people from being elected.

[B]

I'm just saying smoke filled rooms is what enables people like Jeffrey Epstein to get away with.

[D]

That's a different type of smoke filled room.

[A]

It's the same smoke filled room.

[B]

They're all the same.

[A]

Let's move on from smoke filled rooms to how on earth did everyone manage to just get everything wrong? This is basically the theory of your New York Times piece, right, Neil? Is that if you look at CBO projections, if you look at everyone who knew anything about the correlation between fiscal policy and interest rates, they were all wrong, right?

[C]

Wrong.

[A]

So explain what they thought and why they thought it and, and can they be forgiven for being wrong?

[C]

Look, all right, so here's the central idea. Longer term interest rates are extraordinarily low. We're at 2% on the 10 year treasury yield. And this is coming at a time when budget deficits are rapidly increasing. We're heading to $1.1 trillion in the US federal budget deficit. The way I learned economics when I was in college was budget deficits crowd out other investment. They raise interest rates. That hasn't happened. Meanwhile, the central part of how the models of the Federal Reserve, the other central banks work is when you have low interest rates, when you have low unemployment, you have inflation that rises. When inflation rises, bond yields, interest rates should rise. That hasn't happened either. I think what we're seeing before our eyes is these key elements of macroeconomic orthodoxy, these things that are just in the water in how policymakers shape policy are just turning out not to be so. And I think it's the deepest challenge to how we understand the way the economy works in my lifetime. And I think we're still trying to make sense of the implications of these shifts.

[A]

So to stick with Lagarde just for a minute here, does that mean that Xi needs to have economic insight that all of the economists clearly lack because we need to understand how this new world works, or does it mean that we should basically give up on economics?

[C]

No, it means we need to come up with new economics that account for the way the world is actually working. And in the European context I was suggesting this earlier, it's persuading Germany and the other northern European, European countries that deficit spending is not a thing to be afraid of in this environment. You know, what the, what these interest rates are signaling is there's a global glut of capital we are underinvesting in the future. You got to take advantage of that while the getting's good.

[B]

Is there a way. I'm just kind of randomly thinking out loud to you, but is there a way to tie in rising inequality to what's going on with all this now? And you have economic growth that's only benefiting, you know, a small slice of, of the population. Is there something that economists aren't looking at in terms of inequality and rising inequality Guard has really focused on in her remaining years at the imf. Right.

[D]

Well, the very loose central bank policy has obviously been part of the reason we have some of the wealth inequality we have, just because it has propped up markets. I mean, that's, that is part of it has, you know, kind of inflated asset values to a certain. You can make that. I mean, there's definitely a very, very strong connection there. So. But I think one of the bigger questions here is when you're talking about social spending, when you're talking about what is possible, where you have the fiscal space for. There is an argument to be made and you don't have to go into like, MMT land. You know, people like Olivia Blanchard and Larry Summers have talked about, you know, this idea that deficits are always bad, that you, you know, especially, you know, deficit spending when it, when it's not like post recession, that. That's always bad like that we really. When you have forces like globalization and technology and weaker unions that are causing us not to have the same type of inflation pressures that we've seen in the past, that then suggests, well, you know, both, you know, obviously Germany, I mean, Germany should have been spending a lot of money and also just borrowing more because we need more boons, but in order to stimulate more aggregate demand.

[A]

Retreating a little bit from the economists. You know the economic jargon here, basically what we're saying is that deficits on their face are good. It's free money, the government gets to spend money and it doesn't need to raise it in taxes. But there are two reasons why people don't like deficits. There are two negative consequences to running deficits. One is higher interest rates and that hurts the economy because it costs more to borrow money. And then the other one is inflation, and that hurts the economy because everyone hates inflation. What we have seen in an era of historically high deficits in both Europe and even more so in the US is a complete lack of either higher interest rates or inflation. And if you can run deficits without higher interest rates, and if you can run deficits without higher inflation, there's literally no reason not to run deficits. Is that basically the, I mean, Germany.

[C]

Literally has negative interest rates. Literally, investors are flinging money at them saying please borrow from us, please. And they're not taking the opportun. I think this point about inequality, actually there's something to that. If you're a billionaire, if you're Jeff Bezos, you're not spending anything resembling the amount of resources you have available to you. If you're a middle class person, if you're a working class person, you might be spending every dime. I think the shortage of aggregate demand might be a reflection of how much wealth inequality has developed. And the wealthy are just going to save more than they spend. And that might be part of the underlying story here.

[A]

I feel like the one person who's spending money here is Jeffrey Epstein. He was never a billionaire, but he certainly spent like a billionaire. You had the private jets and the private islands and the 7,500 acre ranches in New Mexico. Basically the way that we have to boost this economy is for everyone to spend like billionaires, even if they're not billionaires.

[B]

I mean, isn't one of the reasons inflation isn't really moving? Like unemployment is low, but wages aren't really going up. And that in part has to do with inequality and it has to do with how there aren't as many employers as there kind of needs to be. And there's, there's, you know, you don't have a lot of choices in the job market. Even though unemployment is low, the quit.

[A]

Rate is pretty high. People are quitting voluntarily quitting their Jobs on almost unprecedented level precisely because there are lots of other jobs out there for them.

[D]

Also, one of the things we're also seeing a lot of people being pulled back into the labor force, and this is a good thing, is that you're seeing people who would not necessarily have had an opportunity to get back in the labor force, but are now being.

[B]

People, but they're not making enough money. You know, they're making more than they were making before. Wages are going up a little, but not as much as you would think given the low unemployment rate.

[D]

You're right.

[B]

That's something that seems to be broken, too. And maybe if wages did rise more, we would see the inflation that economists say we're supposed to be.

[A]

Well, let me ask Neil. Neil, if wages were to start really taking off, do you think that would be inflationary?

[C]

Not as much as in the past. I think this is another thing we heard from Jay Powell, the Fed chair, about this week. He was testifying on Capitol Hill, and he. He owned up to this dilemma. He was asked repeatedly, Alexandria Ocasio Cortez asked, is the Phillips curve real? Is there a breakdown in this relationship between unemployment and inflation? And he said, absolutely, it is. He used a line that I think might be on his tombstone. You can't say something's hot if you don't see evidence of any heat, referring to the labor market. And if you don't see wage increases, why would you say that the labor market is too hot? And I think, look, I think you might be able to find structural reasons for that. I think a whole generation of employers, managers, has gotten out of the habit of giving raises, of competing to keep workers. And I think the longer we have a hot job market, the longer we have 3.7% unemployment, the more that will break down. And we might find a world where employers have to get back to a world where they're really having to compete to get workers. And that means paying more, better benefits, more flexibility, all those good things.

[A]

But I guess my question is, if you have that, if you have higher wages, better benefits, more flexibility, all those good things, does that cause inflation?

[C]

Eventually, but we're a long way from that point.

[D]

It depends on whether the economy can absorb it or not. And we don't know that. But I do think the larger issue here is that if you're talking about actual policy and why things like in the US with power and Europe with a guard, why this is important is because there is this idea right now that, you know, because we're seeing unemployment at a Certain level. Well, then we should probably be more interested in raising rates. And then there's more of an argument now to say, well, maybe we should actually hold back on that because we want to let this ride out a little bit more, see if we can bring more people back into the labor force, see if we can start to actually have a little bit more wage pressure.

[A]

My colleague Courtney Brown wrote a great piece for Axios about how in especially like poorer black and brown communities in the United States, they're just now beginning to see the kind of competitive labor markets where people start, like, getting raises and that kind of thing, you know, 10 years into the recovery. And normally what happens 10 years after a recovery is that you get the Fed raising interest rates or you get another recession or something happens to really hurt that dynamic in these communities. And they're looking at this long recovery right now, and they're saying this is our one opportunity to really take advantage of this recovery. It's just really beginning to help right now. So give us all the help you can, because it's very rare for us to have this opportunity. And let's, you know, let's see these interest rate cuts because. Because, hell, there's no real downside to them.

[B]

And isn't there also a broader conversation that needs to be had? I think there was a New York Times piece, I don't think it was by Neil a little while back, about how we sort of are looking at the wrong economic indicators. Like if unemployment is low and we're not seeing inflation go up or interest rates rise, maybe there are other economic indicators we need to be looking at that aren't considered important anymore that we have to kind of take into account.

[C]

Yeah, I mean, the biggest one is the employment to population ratio, especially if you adjust for the demographics. So this is looking not just at the people who are actively looking for work, but how many people who aren't even looking for work. You know, what's the total ratio of adults to employment? And we're still way below those levels of 2000. So, you know, on the one hand, the unemployment rate's just as low as it was back during the peak of the 1990s boom. But on that measure, we're still a couple of percentage points away, especially among.

[A]

Men, Especially among men.

[C]

Women have mostly caught up to that era. Men have not, you know, millennial men. If you look at men in the kind of 25 to 30 to 35 to 45 range, participation rates are quite low. Why is that still the case? We don't Know the answers. But trying to solve that is part of kind of having a job market that works for everybody.

[A]

On which note, I think we will move on to a numbers round. Anna, do you have a number?

[D]

I do. My number is a very not me number. But I don't know, I thought it was funny. So. $750 million. So who do you think has the highest grossing concert tour of all time?

[A]

Bruce fans?

[D]

Ed Sheeran.

[A]

Taylor Swift. Ed Sheeran.

[D]

Ed Sheeran.

[A]

So apparently Ed Sheeran. Ed Sheeran. Okay, this is the end of days. Like Ed Sheeran.

[D]

Yes, apparently. So he's on this, his divide tour where he is in right now. Like nominally he will have like the highest grossing tour, but he's also on track to actually, even inflation adjusted terms, be able to beat you to having the highest grossing tour. And it's interesting because part of the way he does it is just he has way more shows than everybody else, but he actually often has a lower average ticket price because he wants to get more people to be able to come to his shows. But he just has like almost twice as many shows as like a Taylor Swift or a Beyonce.

[A]

So he plays like five shows where everyone else would play two. That kind of thing.

[D]

Exactly, yeah. Ed Sheeran.

[C]

Felix, I feel like this is a win for goofy looking white guys everywhere.

[A]

I'm absolutely. I don't get it. And I say this as a self admitted pop tart. You know, I love, you know, really cheap and cheesy pop music more than like anyone else I know. Wait, what?

[B]

For real, do people know this? I'm sorry. Go on, Felix.

[A]

I am, you know, what can I say? I love Selena Gomez and even Taylor Swift, but Ed Sheeran is beyond the pilot.

[B]

What is happening?

[A]

My number is three. I'm going to move on from this number because my number is 3%, which is the amount of revenue that big tech companies are going to have to pay in France to the French government as a tax. It's a big tech tax. You need to be a large global tech company. You need to be a Facebook or Google or Netflix, someone like that. And if you are very large globally and also very large in France, then you need to pay 3% of your French revenues in tax to the French every year. This was attempted on a pan European level and didn't work. But it's happening in France and once that happens in France, I have a feeling that it will start taking off and start appearing in other countries too. And this could be an interesting way of taxing these companies who Notoriously pay very low taxes a lot of the time because they don't have a lot of profit.

[D]

And it's particularly interesting because it's based on where you have your sales. Not your profits, but your sales.

[A]

You can't hide the profits in the Isle of Man or whatever.

[D]

Exactly.

[A]

They normally do.

[D]

And that's something you have had some Democratic candidates actually talking about in terms of corporate taxation based on where sales are.

[A]

Neil, you have a number?

[C]

I have a number. $747.1 billion.

[A]

That's almost exactly a thousand times more than the Ed Sheeran growth.

[C]

It is. And that is the U.S. federal budget deficit for the first nine months of this fiscal year. It's up 23% from the previous year. It's just remarkable to me that we have that kind of growth in the budget deficit in a time of 3.7% unemployment, a steady expansion. That's the kind of expansion you expect to see during a recession, during a crisis. That's not what we're in right now. To me, it's a remarkable testament back to where we were a minute ago on low long term interest rates. It's a remarkable indictment of the idea of how the economy works, that we keep spending a lot more than the government's taking in. And yet there's no apparent negative results.

[B]

Emily, I have another seven number. My number is 777. That is the address of a man who lives on Washington street in Manhattan named Noam Gottsman.

[A]

Oh, is this the curb cut story?

[B]

This is the curb cut story.

[A]

So, Gnome, I love this story so much.

[B]

He has a house in downtown Manhattan where parking is scarce. And he did what's called a curb cut. So he made like a little like rampy thing, you know, that cars drive up and pretended he had a parking space in front of his house.

[A]

He pretended he had a garage. He built a front door or a back door. Rather, he built a back door very, very large and made of glass in a way that if you kind of walked past it quickly with the curb cut in front of it, you would assume was a garage.

[B]

Yes. And he put up a sign and.

[A]

He put up a sign saying active driveway, even though it is not an active driveway because it is not a garage. No one can park in there. You open the door and all you see is a staircase. There's nowhere to park.

[B]

Yes. And he even had people out there patrolling to keep people from parking in front of his fake space that the New York Police Department says doesn't even exist and went so far as a cop actually ticketed and towed his neighbor's car. He has this very angry neighbor who features in the Daily News story where everyone learns about Noam Gosling.

[A]

It's an amazing story. But yeah, what happens is that he puts this sign up saying active driveway, and. And the police, they don't know that it's a fake driveway. And what happens is if someone parks in this space, which he uses as his own personal private parking space, basically, if someone else parks in this space, then all of his employees come running out saying, you're not allowed to park there. And if someone parks there anyway, then they run up to the nearest policeman and say, ticket this car. It's illegally parked and it gets ticketed. And the minute it gets ticketed, they then phone up the tow company and they say, say tow this guy because it's been ticketed. It's absolutely outrageous. It's so.

[B]

So Noam Gottsman, he has a hedge fund, of course, GLG Partners, that actually probably exists, I think.

[D]

Yes.

[B]

He once owned a European frozen food company and he's legitimately rich, unlike, I guess, Jeffrey Epstein. But I think this is like a very small scale example of the same thing we talked about at the beginning of the episode. It's just another rich guy thinking and do whatever the hell he wants because he has a lot of money and he can hire people to patrol his fake parking spot and actually do something that it's not criminal, criminal, like capital C criminal, but it's kind of like lowercase C wild kind of entitlement kind of criminal. That is just. They're both sides of the same coin. And that's all I'll say about that because Felix said most of it.

[A]

It's a great story. Read it on the New York Daily News. Bless him. Thank you, Neil Lohan, for coming in. It was awesome to have you. Many thanks not only to Jessamine, Molly, but also to Melissa Kaplan, who's here in D.C. and managed to produce this show on a sort of two city basis. Many thanks to all of you lot out there for listening. We really appreciate it. Keep the emails coming. Slatemoneylate.com and Emily, can you name all of the cousins who we're thanking this week?

[B]

So all my cousins who have been sitting in the studio listening and cheering us on, Jordana, Norman, David and Ami. And three of the four came in from Israel. So thank you for coming.

[A]

Thank you for coming all the way from Israel because that's a long way to come to listen to Slate Money. Yeah, I mean, seriously, like, they have the Internet in Israel. You don't need to come. But yes, we'll talk to you next week on Slate Money.