The Animating Factor. Lanhee Chen Talks to A&G

a couple of different polls right direction, wrong direction. Somewhere between eight or nine out of ten Americans think we're headed in the wrong direction. You Lon e Chen, you're walking down the street. Guy at the clipboard stoption says, is America head in the right direction of the wrong direction? Which box do you choose? Oh? I mean I think it's certainly in the wrong direction, and I think the primary reason for that is because of the state of

the economy. Okay, so that's a you're you're a wrong direction guy. I just wanted to a dator you right or wrong? We're wrong direction? You're a wrong direction guy. That that's perfect. Okay, Well, let's get into the economy. It's it struck me as Jack was talking about getting ready for Memorial Day. The hot dogs, burgers and a couple of condiments will probably cost you about uh so lani U. We are obviously facing rampant inflation. Uh stock market that's down more well eight weeks in a row,

which is the most since nineteen thirty two. Folks, Um, We're looking at a number of financial headwinds public policy wise, because that is your field of study. What are the probable policy prescriptions going to be and what will they look like as they play out trying to control an overheated economy? Yeah, I mean the problem is this is one of those things that once it gets going, it is a lot harder to reverse it than it would have been to try and slow it down, if that

makes any sense. So the primary way that we would deal with this would be the Federal Reserve Bank can calibrate the said funds right essentially the primary rate at which money is lent uh and and and that can affect essentially how hot the economy is going. And so the Fed has two missions right, one is to ensure full employment and economy and the other is to watch out for for inflation, and so how do you draw the balance between the two. Unfortunately, for the last couple

of years, we've had what people call easy money. Essentially, you were able to borrow money for very cheaply and you had a massive expansion and the money supply because policymakers in Washington, in Congress, and also both President Trump and President Biden put a lot of stimulus into the economy. So when you combine all those factors together, you end

up with a very, very hot economy. You also have a tight labor market, right there's pretty much people everybody who wants to work is working now, and so the combination of that with historically low rates has brought us to where we are now. Now, why is the stock market doing what it's doing. Why are we feeling all this pressure now the as they're having to raise interest rates very quickly and quite dramatically in order to combat

the inflationary pressure we're seeing in the economy. So the short answer to your question is, there aren't a ton of things that the policy makers in Washington, I mean, the President and Congress can do. There are things they can do to make it worse, don't get me wrong, but in terms of making it better. There aren't a ton of things and tools available to them to address the challenge. It really is a question of what the FED can do and what the FED is doing now

to try and deal with inflation. Yeah, I'm attempted to live in the past. I like the idea of living in the now and the future is Joe's asking the question what we do. But the living in the past part is why did we have to spend another however many trillion dollars to make it this much worse? Why? God,

I wish we hadn't done that. And you know, and and Joe Biden taking credit for the how good the economy is in recent weeks, You tried as hard as you could to spend another five trillion dollars, only got stopped by one senator for spending five more trillion dollars. God, what would inflation be to day if they if Joe Manchin wasn't alive. Oh my god, Well, that that's exactly

the right question. I mean, it's amazing if you think about how much worse even this problem would have been if they've gotten their way and they passed that massive You know, I forgot whether they called it the Green New Deal. They kept changing the name of it, right, and and at the end of the day, whatever it was that they wanted to do. And here's the problem, guys. There are policy makers in Washington and in state capitals across the country, Sacramento being primary monkst them who were

talking about spending more. Still who're talking about while the way that we do this is by putting even more stimulus into the economy, as if they haven't learned the lesson from what we're seeing now with gas prices and prices for milk and everything else. Uh, it's tremendously irresponsible. But unfortunately that is where the conversation is. And instead of actually helping things that they had the potential to

actually make things worse. You know, I'm familiar with quotations about politics, Uh, going way way back in the history of the Republican there has always been cynicism in politics, uh, probably starting with like the second presidential election, and there's

always been pandering. But there seems to me now in an almost complete divorce between what you will promise people to get to the to the polls and what you're willing to actually do knowing it will harm the country, because I guess my question is do the politicians who are pushing continuing to spend money wildly in an inflationary time do they not understand what they're doing or are they doing it cynically? Um? You know, I think it's

the combination of a couple of them. Factors. Number one is I think there are some people who have argued over the last couple of years, Um, there's been an alternate strain. To use the language of our time, there's there's an alternate strain of thinking about monetary policy, which is that actually, it doesn't matter how much you borrow. It doesn't matter essentially how large your debt load is. It just it doesn't matter, right at the end of the day, because it's so cheap to borrow. Why does

it matter. It's it's something called modern monetary theory, And there are some on the left, particularly on the far left, who have espoused this, this notion that it really doesn't matter. And so if you buy into that, and you really are a true believer, then it doesn't matter how much you spent. Right, So I will give some of these guys the benefit of the doubt and say some of them genuinely do not believe they cause the inflationary pressure

we're saying today. Some of them genuinely do not believe they are responsible for the economic calamity that is impacting so many families across our country right now. So that's some percentage of them. Some percentage of them will just say whatever it takes to get elected and and and then when they get there, they'll deal with the consequences later.

They'll figure out how to distract and deflect, and they don't really care about what it is they do or don't do, because at the end of the day, politics is about the most recent outrage or the most recent way you can take a topic that has absolutely nothing to do with something else and try to turn it into the animating factor to get people out to vote because they're so angry. Um. So yes, it's the combination

I think of idiocy and cynicism. Uh, and and and and and that is that is why we are where we are today. I mean it is it is galling to me, guys. It is galling to me that you have uh, for example, Gavin Newsom standing up there talking about, Hey, let's go out and spend the entirety of this supposed hundred billion dollars surplus we am in California. Instead of investing long run in oh I don't know things we

might need like water storage and roads. Instead of actually doing that, we're gonna do some one time political giveaways that make him and his colleagues feel better. But at the end of the day, don't do a single thing to address the price of milk, the price of gas, the price of anything else uh in in our state

or nationally. So this is the kind of politics we end up in now, where people are so focused on what can I do to advance my political interests as opposed to saying, can we put the state in the country first? Wow, that is what you just heard. Is one of the primary reasons the major newspapers of California, including the liberal ones, have endorsed Lon he for a

California state Controller, which keeps an eye on the purse strings. Yes, so is the way that would work if you were controller and Gavin Newsom was governor and he was proposing doling out more money when we got this high inflation, would you be going to the press and saying, I think this is a bad idea. Well, I think the first thing we got to do that I'd be doing is I'd be saying, how about we get some accountability

for what we've already spent money on? And And because this is the primary challenge, right, is that if you don't have any sense of what the impact of your spending has been, I think it's very difficult to then go out and make the argument, hey, let's go spend more. We don't have any idea what the first twenty billion did, but gosh, the next twenty billion could be even better.

And and the point that I'm making is I'm saying, hey, slow down a second, guys, why don't you figure out what the first twenty billion did and where that first twenty billion win? And then let's have a conversation about what you want to do with this, because in my mind, we have a couple of different ways of doing this. In California, right, we actually have a rainy day fund, which is supposed to be there to say for when

times aren't as good. We have a mechanism that actually requires some of that surplus to be returned to taxpayers. Is a novel concept, right, a tax rebate when you have a massive surplus, So there are there are a lot of different things that you could do with the money. And my basic point is California is the one state where we actually don't have accountability and transparency into how we spend money, and so it's very hard to have

a truly rational and thoughtful debate. I know it's a crazy concept, but it's you can't have that if you don't have the basic information. So what I would say is, as if I were a controller, is you know, governor, you want to spend all this money, how about we take a look at the efficacy of the spending you've you've already passed. You just you're talking crazy talk lon here? You want accountability for government programs? Holy? Who is this guy?

I got? I got one more question. And I don't want to be, you know, a what blanket on a Friday and everything like that. But um, I remember hearing George Will saying one time one of the essence, essence, the essence of being a conservative is recognizing what is. And I just lay out for people what's coming this summer. I mean, is it reasonable to expect prices are going to continue to go up? Gas is going to be more expensive, Groceries are going to be even more expensive

for the near future. Is that just a reality? Yeah, I do think you're gonna see um prices continue to be elevated. I think the question is how what the trend is gonna look like. Is it going to be as fast and as rapid as we've seen. Probably not. I think some of this does start to level out, but it's leveling out now at a pretty high it's pretty high point. And I'll tell you the next thing

on the horizons, and guys is the r word. It is recession because invariably what happens is once you reach this point where prices become so high, you're gonna start to see people begin to say, do I want to spend a thousand dollars to fly to New York for vacations? Do I want to buy? Discretionary spending is going to go first, right, and because at some point people are gonna say, hey, it cost me two dollars to fill up my truck with gas. I can't afford to do

this other stuff. That's why that's why you begin to have recessionary pressure, because the economy slows, economic activity slows, and and that is the next thing on the horizon. So if you look at the economic forecast, a lot of major banks, for example of putting out now they are talking about this country being in recession when we get to early And the reason why they say that is because all of the signs we're seeing are beginning to flash yellow or red and and and they forecast

they slow down. That unfortunately, has been several years in the making. Well yikes. Lan he Chan, candidate for California State Controller with the Hoover Institution, Stanford University, Director of Domestic Policy Studies. There, Lani, it's always enlightening. Perhaps not as cheery as usual today, but again facing up the reality is you know what adults do, right And with that, had a good weekend. Thank you, Thank you very much,

you two. I was listening to a podcast yesterday with a bunch of really smart people talking about how the way experts look at things. How did we end up in a situation where the market got rattled this week when Target and Walmart said something that should have been obvious to everybody. Prices are high, so people are buying a lot less stuff, So we're gonna make a lot less money than we have in the past. How is

that a shock? To America and the markets. The markets got rattled by the realization that people are really feeling the pinch of these high prices and are gonna spend less money at Target and Walmart. Isn't that a wild that it took their actual report to come in before the markets got so shocked. I mean, it's just I'll

obviasily that was going to happen. Yeah, it does kind of have the feel of the Palace elite are there in their grand gowns, sipping their champagne, and it takes a very long time for them to hear that the uh, you know, the villagers are really angry, and in fact, one just burnt down and things are not going well out there. They're insulated in the palace, I think, and I know we're out of time. But one of the other things that somehow everybody missed was the so called

good news that consumer spending was up. You know why it was up because prices were up. I bought the same amount of milk and gas, but I spent more money. That didn't mean I was optimistic. It costs more, And somehow the experts missed that. Apparently extra large