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- [00:00]
A
Hello everyone. This is JVL here with my very close friend Katherine Rampel, author of the Receipts newsletter at the Bulwark. We're here for Receipts Live to talk about all the fantastic things happening in America's new golden age. For the audiophiles listening who complain about the lip smacking sounds. I am sorry, I still have a lingering cough and I am sucking on halls here so that I don't go hacking into the microphone. Pick your poison. I know people. There were people who complained on the Reddit and on the YouTube comments. I like. Oh, GVL sounds like it's. I'm sorry, I am professional. I know about these things. I know it's not ideal, but we're doing it live.
- [00:45]
B
You know, the show must go on. The show.
- [00:48]
A
The show must go on. The show must go flash. Well, I'll save that for the end, but I have a little, little, little Broadway talk for you.
- [00:57]
B
Oh, very excited for that. Although I'm a little behind on my Broadway stuff lately, but that's okay. Looking forward to it.
- [01:03]
A
That's o. Okay. It's more theater kid stuff than Broadway stuff. All right, my friends, great news, great news this week. A lot of very strong things, beginning with the consumer confidence numbers which just came out, I think it was this morning. Chris, can we look at the. Look at consumer. No, that's not it. There it is. So, Katherine, I assume that this is like golf. Low score wins and so we are finally getting the consumer confidence numbers down to where we want them to be, is that right?
- [01:39]
B
That is not traditionally how this works. No. You want that it looks very low to express. You want the confidence numbers to express confidence. Right. You want Americans to be happy with the economy that they are engaging with and instead they look pretty depressed, pretty dyspeptic right here. And it's like every month recently anyway, we seem to be hitting a new all time low. Now, as you and I have discussed many times over, just because Americans say this is the suckiest economy on record, or at least their, their feelings suggest that they believe that does not mean it is actually true. In objective terms like this is, we, we still have relatively low unemployment. It's been ticking up, but it's still relatively low. In historical terms. We do not nearly have the worst inflation on record. It's irritatingly persistent, it's sticky, people are mad about it, but it's like nowhere near as bad as it was in the late 70s, early 80s yet.
- [02:50]
A
Sorry, Catherine, you forgot to say yet because we are still in the opening couple months of the oil crisis so entirely possible that the entirely possible upticks we're seeing are going to accelerate.
- [03:06]
B
Like, yes, so. But so things are kind of lousy and they feel lousy. And I think they felt lousy for a while. And I think that that frustration with, with persistently icky inflation and stagnation in the job market, all of those things, I think are weighing on people, and maybe they've lost faith that things are going to turn around. I saw somebody post earlier today in response to this headline about the worst consumer sentiment on record, something like, donald Trump promised everyone a pony, and instead we got pony turds. Which is maybe partly what's going on here, that people are disillusioned with the promises that they've gotten from Trump, among others, about the ability of government to solve all of these economic issues that do still exist. Instead, this administration seems to be making many of them quite a bit worse, including on inflation. So there's some disillusionment with those promises not being delivered. Some of this, of course, is partisanship. It's been the case for a long time that Democrats are more likely to say the economy sucks when a Republican is in the White House and vice versa. So some of it is that partisanship, you know, mediating these trends. But that's been around for the while. For a while it seems to have gotten worse. And, you know, and I do wonder how much of this is also kind of like referred pain. People are upset about a lot of things in this country today. Plenty of other survey data we could look at about, you know, country on the right track, wrong track, those kinds of measures, people are really unhappy with the state of the country. And so maybe they're just going to say, like, whatever they're asked about, including questions about the job market, questions about their finances, questions about things that seem pretty far afield from that, like general disillusionment. They, it still may weigh on their, their answers to those kinds of questions. So, you know, I think it's a few different things going on. What do you, how do you interpret these data?
- [05:18]
A
Well, I mean, far be it from me to ever question the wisdom of the great and good American people and their ability to make rational observations about the world around them.
- [05:30]
B
I have never heard you do such a thing.
- [05:32]
A
People have spoken. I would say that there is one thing about this which I largely agree with you. There's one very idiosyncratic aspect of this moment, though, which is the AI bubble, sorry, the growth of the AI, the growth of the AI industry, the AI boom, boom. The AI boom. Right. This time it's different. And so you and I were looking at a couple pieces from this week about just capital expenditures by AI companies in the extent to which AI Capex, which is like data center chips, stuff like that, is propping up a huge portion of the economy. But that AI Capex is really walled off from the broader economy. I mean, you're building data centers by buying chips. The chips are largely made in Asia. They're not coming out of U.S. factories. You're building these big data centers, often in the middle of nowhere. They, they're not really generating jobs. You don't need like a whole ton of people. Right. You need some construction. But yeah, they have, they're cheap to build, right?
- [06:50]
B
I mean, yeah, I mean, yeah, I was gonna say they generate job growth on the front end when the stuff gets built, but then a little bit of it. But less than just a bunch of computers beeping and booping.
- [07:01]
A
Yeah, right. And I mean, it is, it is less than like building infrastructure in terms, you know, and, and then once the, those things are there, they're not really contributing to the, certainly not to the local economy, really. And it's not clear that they're even really contributing to the macro economy. It's not, not clear that the, the, the gains for AI are being spread around the macro economy in the same way that, say, gains in, I don't know, the farming sector might be. Right. Or pick, pick another sector, the hospitality sector.
- [07:41]
B
To be fair, I think the jury is still out on some of this. We don't know to what extent and how AI is going to transform large portions of the economy. Probably a lot of people will get hurt. You know, it's, it's easy to see, I think, some of the jobs that, that will be displaced. Right?
- [07:56]
A
Yes.
- [07:57]
B
By, you know, jobs getting automated away. But historically, when we've had these big kinds of disruptive technological revolutions, technological change.
- [08:07]
A
Right.
- [08:08]
B
It's easier to see what jobs get displaced than what jobs get newly created. And so, you know, I don't want to be too Pollyanna. Pollyanna ish about it, but I think we just don't know. And there will be, There will be new opportunities, right? Sure. To be clear, I'm not talking about
- [08:26]
A
AI as an industry. I'm talking about like the Capex. Right. And so when you spend money on that, you pump that money into the economy. If you're pumping that money into other types of capital expenditures in other sectors, they create a whole bunch of jobs which then sort of flows out and creates other activity. The data center boom is really taking a bunch of dollars and like putting it into a safe, you know, not even like safe that depreciates really fast. Because these data centers, I mean, you know, the processors and chips don't last for forever. They become obsolete, they get tired, they get worn out, they overhe. Um, I'm just saying that in terms of the type of economic ability, type of economic activity that spurs additional activity, capex on data centers seems idiosyncratically limiting in ways that, that are unlike other things like building railroads. Right. Or, or building bridges or. Right. Creating transit hubs. Yeah, you see what I'm saying?
- [09:33]
B
Certainly from infrastructure, it's certainly different from like transportation infrastructure. Total agree with that. You know, I, I do think that we haven't necessarily thought through. Again, I don't want to be Pollyanna ish, but I do think that there are benefits to some of this construction that has not been fully captured yet. Including for example, like there's a huge hub of data centers in Virginia in you know, sort of the D.C. suburbs and those produce a lot of tax revenue which defrays the tax bills of the people and the other businesses who live there. And so in they set up that those projects smartly, you know, in a way that actually benefited the local community. That hasn't necessarily happened in a lot of other places around this country, but it doesn't mean it won't happen. And I think you're. I hope we will see some policymakers try to figure out how to ensure that these kinds of construction projects, these, these, you know, this new data infrastructure actually benefits both fiscally in terms of producing more revenue and you know, maybe putting more of the burden of upgrading the grid and things like that on these construction projects. The thing that I'm more worried about than like, oh, is this just like a safe. Where all of the money is going is if this boom is in fact a bubble and a lot of companies end up pulling out their investment sometime in the near future because you know, somebody's going to win this, this arms race presumably, or a few somebody's will win, but there will probably be a lot of losers. And what happens to all of that kind of maybe abandoned architecture, maybe half built projects? That's what I'm a little more worried about than like the actual construction itself. Like are you going to end up with a bunch of zombie data center sites around the country or other projects like that? And suddenly that rush of capital investment that has been keeping the economy Afloat gets peters out. It's no longer a rush, it's a trickle and maybe a drought. And you end up with a lot of knock on effects throughout the rest of the economy because we have been so reliant on this one industry. So it's less like, oh, this industry, the construction itself sucks and it's not helping us at all. It's more like, well, what if it goes away? Are we getting a little too reliant on it also?
- [12:12]
A
I mean, the economy is clearly over reliant on it right now. You strip these numbers out and the growth looks much, much more anemic. All right, Other good things that are happening in the world. We should talk about oil. Gas prices at 456 nationally. That, that's awesome. Look at that. I'd love to see it. This is Memorial Day weekend, a weekend in which one of the heaviest travel weekends of the year for Americans. I hope they enjoy seeing what they did when they go to flip their cars. They chose this freely. No one made them do it.
- [12:54]
B
And hey, they voted for a guy who promised no more wars. It's not their fault that he lies about literally everything.
- [13:03]
A
How could they possibly have known that he lies about everything, Catherine?
- [13:07]
B
Exactly.
- [13:09]
A
And, and, and Chris, can I, can I have the Strategic Petroleum Reserve? It's a slightly out of order, but we, we also had this week, I think the single largest like one week or one day drawdown ever.
- [13:24]
B
One week.
- [13:25]
A
One week. That's a, Is that a new golden age thing? Is it, is it that we broke this long. Look, you know, this record on drawing down from the street is it stood for, for decades and decades and we showed that we could beat it. Is that what this means, Catherine?
- [13:44]
B
I don't think so. You may recall that when Biden was president, he also drew on the Strategic Petroleum Reserve back in whatever it was. 20, 20, 2023, basically in the aftermath of Russia's invasion of Ukraine. And he took a lot of heat for it from Republicans who said no, no, of course from Republicans. They were, there was legislation that was introduced. I don't remember what happened with it.
- [14:07]
A
They said it was bad.
- [14:09]
B
They said it was very bad. They said that the Strategic Petroleum Reserve was only supposed to be used for strategic purposes, not for political purposes such as shielding consumers from the politically painful blow of, or shielding polit, I guess, from the politically painful blow of high gas prices. That's not why you should draw on the Strategic Petroleum Reserve. So they tried to limit Biden's ability to do that. I guess they did not succeed. Biden did not ever replenish, or at least did not sufficiently replenish those reserves even as prices started to come down. Trump also did not sufficiently replenish those reserves as prices started to come down. And when I say replenish, what I mean is they drew out a bunch of oil when oil prices were high, so that, that would depress prices in the, in, in the rest of the market. Then when prices started to normalize, they could have like, in, you know, could have refilled basically that reserve, and they did not.
- [15:10]
A
So, and the reason they did not do that, to be clear, is because when you start refilling the reserve, you raise demand, which will drive up the price a little bit.
- [15:18]
B
This is.
- [15:20]
A
So this is, it isn't just that they were lazy. It's that they didn't want to, you
- [15:24]
B
know, I mean, maybe both.
- [15:25]
A
Any pain?
- [15:25]
B
Yeah, I mean, it's, it's in. To me, it's like a little bit similar to the arguments about fiscal responsibility and fiscal discipline in that we, we end up spending a lot of money when there's a crisis, an economic crisis or some other kind of crisis like the pandemic that forces an economic crisis. We spend a ton of money, we cut taxes. And, and the idea is that that's supposed to be, in a Keynesian sense. That's supposed to be something that you do it when the economy needs it, you know, when you want to get back in this virtuous cycle of like, you know, demand normalizing and pushing the rest of the economy along so you no longer need to rely on that government support. But then when the economy recovers, you're supposed to like, sock away more, fund, you know, sock away more, more tax resource, you know, raise taxes or cut social safety, you know, social services, things like that. The idea being that, like, it'll sort of equalize you, that you, the money is there. When American democracy, you know, it's like you, you repair the roof when the sun is shining is the expression that I think I've heard people at the IMF use. And of course, we don't do that anymore. A lot of countries don't do that. We are more able to get harder than anyone else. Exactly. Well, because we have the global reserve currency, so we don't really bear the
- [16:54]
A
full
- [16:57]
B
costs, I guess, of not behaving particularly fiscally responsibly. And the same thing that, that, that same bad habit of like drawing down resources when you need them and then not replenishing them when you can greater afford to do. So we've transferred that to basically how we use the Strategic Petroleum Reserve. And it's not an, an inexhaustible resource. Right. It is a finite amount of oil that we have. So it's not like we can continue using this forever. Which is not really how Donald Trump seems to think about things because he never thinks about the day ahead or the, you know, that the half hour for that matter.
- [17:40]
A
It's actually a little worse than you say, because it is not the case that Trump was unwilling to rebalance the, you know, rebalance the government's role in the economy a little bit when times were good, because he did get to come into office twice with times being good and things anyway. Instead, he cut taxes both times. The, the only real legislative accomplishment of the first term was a tax cut in the midst of a recovery which had been ongoing for like six years at that point. And then he, he did a tax cut again. His only real legislative accomplishment of the first termism. So he chose to run the, the already healthy economies hotter.
- [18:30]
B
Yep.
- [18:31]
A
Like, so it's the opposite of what it isn't that he just didn't take the pain. Right. He actually made the problem worse both times.
- [18:38]
B
So absolutely fair.
- [18:40]
A
That's great.
- [18:42]
B
I mean, again, this is not a, a sin that is unique to Donald Trump. He's just taken it to new, new levels. Like we have been a fiscally irres nation that has never socked away money when needed basically for the last whatever couple of decades at least. It's just Donald Trump has decided to completely ignore whatever, you know, the, the deficit schools have said and say like, no, let's just spend more money, let's cut taxes further.
- [19:09]
A
And while running as the guy who's going to eliminate the deficit, I don't know if you remember that, but that was also a big first term promise that after 18 months there would be no deficit because he, oh, he.
- [19:20]
B
Not just a first term thing. He said it last year. He said it, you know, he said that that's what the tariffs were going to do. We were going to collect so much tariff money that it was going to be used to eliminate the income tax, pay down the deficit, send out stimulus checks. I forget what else it was supposed to pay. Like, you know, he had like quadruply accounted for how he was going to spend this tariff money, which now of course he no longer has. He's having to give back because of the Supreme Court. Nobody has updated any of their promises or forecasts as a result.
- [19:57]
A
Yeah, that's great. And the, the other part of this then, is the Fed, which is independent of the President. Kevin Marsh was just sworn in. He chose to have Clarence Thomas, the most corrupt Supreme Court justice in living memory, administer his oath of office. Interesting choice, I'm sure. It doesn't really mean anything. And the markets are now expecting rate hikes, is that right?
- [20:29]
B
Yeah.
- [20:31]
A
Tell me a little more.
- [20:32]
B
Yeah, well, last year, I'm trying to remember until about when, but last year markets were pricing in a couple more rate cuts. Now, if you look at sort of the implied probabilities of rate changes going forward, no rate cuts on the table at all, if anything, possibly rate hikes, certainly for the next few months, probably no changes at all, which in Donald Trump's book is just as bad. Right. He gave Kevin Warsh this job precisely because Kevin Wash had promised cutting rates. He cannot deliver on that. If anything, it's going to be much tighter financial conditions going forward. And, you know, Kevin Warsh also, even if he wanted to deliver on that promise, which I don't think he really does, like he's known as a, an inflation hawk, he generally errs more on the side of higher rates and tighter financial conditions. But like, let's say he threw out that lifelong commitment to inflation hawkery and wanted to deliver on his promise to Donald Trump, he couldn't because he has 11 other members of the committee that sets interest rates to contend with and they don't want to cut rates. So, you know, he can try to twist their arms, but ain't going to work. And so he really has a difficult job ahead of him. And markets are suggesting that they do not think he will succeed. Right. They think that because the inflation outlook has gotten a lot worse in recent months because of this war, the Fed will not be able to cut rates.
- [22:15]
A
So I have this vision in my mind's eye and it just, it takes me to such a happy place. I want to, I want to, I want to just sort of build in theater of the mind here style for you, Catherine. It is the afternoon after the Fed has announced that there will be no rate cut and sort of flirted a little bit with the idea of the possibility of rate hikes in the future. And I like to imagine Kevin Hassett walking into Donald Trump's office.
- [22:57]
B
Kevin Hassett, not Kevin Ward.
- [22:59]
A
All right, sir. I told you so, sir. If only you had made me share the Fed. Does that give you any happy or. No,
- [23:14]
B
not really. Because you're such a good person. Well, I am concerned that, you know, everyone has coddled Donald Trump from really helping him understand the consequences of his actions. Right. And when bad things happen, he denies that they're happening, or he scapegoats someone else, and he never learns his lesson. And in one of the circumstances, which in which this is very true, is his attempts to politicize the Federal Reserve. So I am very concerned that if you do have Kevin Hassett, it, go in to the Oval Office and say, hey, if you had put me in that job, I would have delivered rate cuts. Donald Trump will say, you know, you're right. I'm going to fire Kevin Warsh. And if he does that, mayhem would happen. I mean, we potentially would have a global financial crisis if the President tried, actually did try to fire the chair of the Federal Reserve, which Trump obviously threatened to do multiple times over with his previous Federal Reserve chair pick, Jerome Powell, but was ultimately talked out of it in his first term by Steve Mnuchin, who was then the Treasury Secretary in his second term. I think people told Donald Trump, look, we know you want to fire the guy, but don't worry, his term is going to end anyway. Just hold off a little bit longer and you'll get your guy in. And so rather than like trying to explain to Donald Trump why it was, it was important for economic conditions and therefore political perceptions of his presidency to have an independent Federal Reserve, which is a, like a very abstract notion and not something he is constitutionally inclined to accept or understand because he thinks things are better when he just has control over everything. And he can, like, you know, press a button or pull a lever and.
- [25:19]
A
Sure.
- [25:19]
B
And have a. Have ownership of a company or change interest rates or whatever else, you know, command and control type authoritarian leader would do. He, you know, he, again, he's been coddled. And so the people who should be advising and people like Kevin Hassett should be telling him the best thing you can do for the economy is keep your hands off the Federal Reserve. You want the markets to believe that the Fed is politically independent, because if they don't believe the Fed is politically independent, they are more likely to assume we will have inflation, higher inflation.
- [25:59]
A
Does that so sound to you like something Kevin Hassett would do?
- [26:04]
B
No, no, but that's why I'm saying, this is why I'm concerned. I am not rooting for the outcome where Kevin Hassett goes into the White House and says, see, you should have put me in the job, because Donald Trump will hear that and say, huh, you know, you're right.
- [26:18]
A
I have good news.
- [26:19]
B
Get out of there. Kevin Warsh and All hell will break loose. What?
- [26:23]
A
It doesn't matter what you root for or don't root for. Your rooting interest has no impact on how this will unfold. And so you could just sit back and say, well, you know, we could just enjoy it if it does happen.
- [26:37]
B
No, no.
- [26:38]
A
That's all I'm saying.
- [26:39]
B
I'm not. I'm not rooting for a financial crisis. I would not enjoy another financial crisis.
- [26:43]
A
Even if you. Even if you did root for that, which I know you wouldn't, because you're a good person, and only a bad person would root for that. Your rooting would not make it more likely. It's. These events are independent. Okay, but you.
- [26:58]
B
I would enjoy that outcome, and I'm saying I would not. How's that?
- [27:01]
A
Look, you know what? I like to think that we should enjoy every outcome that life gives us. This is a very Zen thing in the financial. The Buddha says life is suffering, and so one must find the joy even there. And. And that's. That's me. All. That's all I'm saying, Captain. You know, whatever outcome we're provided, I can't control it, and so I'm going to learn to enjoy it.
- [27:28]
B
Okay, That's a. That's one attitude.
- [27:31]
A
Certainly, we are going to talk about the unbelievable scale of presidential economic corruption in a moment, because this was a week in which Donald Trump had, like, six or seven things, each of which would have probably ended a presidency. And it was just like four days. All right, Catherine, so you and I have our little econ nerd Slack channel.