Welcome to Out of Money. I'm Joel, I'm Matt.
Today we're talking tariffs, doge and your Money with No Opinion.
Yeah, Joel, So one of the benefits of hosting your own podcast is that you've got the opportunity to speak with some amazing folks who are much smarter than you.
That is definitely the case.
Today we're joined by economist Noah Smith, author of the sub stack No Opinion, where he takes these big, complex economic ideas and makes them easier.
To understand for folks like us. Joel.
I mean, we tend to focus more on micro econ factors. Right, we're a personal finance show, after all, it's still good to take a step back and to look at the big picture, to honestly to understand, like what's going on with the water that we're all swimming in. And given all that's been going on lately with tariffs, you know, this is a more timely episode. But we're also excited to get into some topics like declining birth rates, government spending,
the economy overall plenty more today. No he actually he even believes that rabbits are underrated pets. And I don't know if we'll actually see ia eye on that one. Who knows. Maybe Noah, you can convince us. But thank you for joining us today on the podcast.
Hey, great to be here. Thanks for having me on.
We're glad to have you.
Know.
A first question we ask everyone who comes on the show is what do you like to splur John? Because I'm sure you're being smart, you're saving, you're being thoughtful about money for your future.
What do you like to spour?
John? In the here and now? Though? Besides maybe rabbit food splurgeh, I don't really splurge anything. Psychotherapy, I guess.
Okay, yeah, all right, never heard of that one before, but I like that.
Just you know, I spend almost nothing. I have like a you know, over an eighty percent savings rate.
Holy cow.
Yeah.
Are you part of the fire movement?
Noah, No, no, no, I'm already retired. Like this is this is retire this is my hobby. I'm just you know, yes, I'm making much more than I made when I was a working person. But you know it's it's if I if I called myself retired tomorrow, I would be doing the exact same thing I am now, and so I am essentially retired. I was fascinating fired I don't have enough to do that, Like I was fascinating that you talk about my personal finance.
That you continue to do like what you've done before because you used to be over at Bloomberg. And just let's talk about media for a quick second, because you're over on substack writing. We've seen a lot of folks do this over time, where they're leaving some of these more legacy mainstream media outlets.
How does that work?
Can you talk to us about I guess quasi making a living writing content over on substack?
Sure? Absolutely well. So the key to substack is email distribution. People get your newsletter in their email inbox every day, and so you don't have to worry about promoting each post on social media or you know, like having people have you in their RSS feeds or however else people get distribution. Email turns out to be just the the distribution method for blogs. Some people click on the link and read it as a web browser, you know, in their web browser. Some people you know, just read it
in line in their emails, et cetera. And some people read it in the substack app. And there's all these ways to read it, but it turns out that email is just the killer app, and and so that's how blogs work now, and so substack is really bringing back the blogosphere. I pay weall one out of three posts, which means that two out of three are free to read. And so I only five percent of my audience is paid, which means that yeah, most of the people who are
only reading the two out of three free posts. I could pay Weall a lot more, and I could probably extract a lot more income in the short term from people who read my blog. However, I've chosen not to do this because A I care about reach, and B I care about long term growth for the unpaid audience.
And it's interesting.
I feel like some players from Legacy Media you used to write for Legacy Media are kind of moving over to substack. I don't know if if Paul Krugman is like retiring or if he's like I don't I think I can make more money on substack.
He's not he's not charging, and he doesn't plan to show.
Oh really, okay, yeah, I think that's fascinating. Waiting for fun me think about some of the personalities that have was it. Jennifer Rubinstein from The Washington post who left and immediately had hundreds of thousands of subscribers. Is that going to happen more and more? Were people who built up sort of a readership in in like the legacy media, they're gonna switch over and do their own thing.
Well, yes, absolutely, Basically legacy print media combined two things that didn't need to be combined. And this is a post I'm going to write soon because every year I write one sort of naval gazing post about the media industry or how to write a substack or something like that. That's I limit myself to one year basically, you know, how I write or something like that, sage gets made,
How this sausage gets made. Yeah, I don't want to write too much about that, too much naval gazing, but I do that once a year, and so one here is going to be how the basically mainstream or legacy print media combined news reporting and analysis, which we decided to call op ed writing. And so actually those are two different enough things where the process for producing them is very different. Process for producing them well is very different.
And unfortunately you talk to almost any person who edits op ed pieces, and they came from newsroom editing and they apply very similar techniques to editing op ed writers as they do to editing journalists and reporters, and the idea that many people even think of op ed writers as journalists, and in fact, many some op ed writers even were reporters before they switched to OpEd writing. So
but in actuality, there are two extremely different skills. Reporting requires you to go cultivate sources to you know, sift through primary information and to tell truth from falsehood in a very narrow category of the world, where analysis or op ed writing requires you to draw a whole bunch of threads and read very broadly and synthesize, using it as sort of an analytical base, such as you know, economics or you know, sociology or history or something to
kind of analyze these events. And so it's just two extremely different techniques. Also, OpEd writing employe's voice, which reporting should not. That's a stylistic thing. But when you know, for example, take Matt Levine. You know, he has this famous voice, this sort of this sort of like sort of droll sigh with which he talks about the finance world.
And it's wonderful. It's a wonderful voice, but it's not the same as reporting, and now OpEd writers who are actually just analysts they you know, similar to like a stock analyst or a CIA analyst. Op ed writers are realizing that they can be free of editorial constraints, use their own voice, also use their own form factors for analysis, because for analysis slash op ed writing, the appropriate form
factor is wildly divergent between topics and between people. And so you can have one person who writes seven thousand word posts with like a million, you know, references to scientific papers. You can have another person who writes like short, punchy, like very dramatically written essays, and you can have all
these different kinds of things. And yet at these legacy media places, all the editors are editing the op ed writers as if they're all just basically reporters who are allowed to express opinions, which is an incredibly stultifying, narrow, confining vision for what op ed writing can be. Substack.
The reason substack is succeeding is not just individualized email distribution, although I mean that's a little that's part of it, but mostly it is that it has freed op ed writers analysts to find their own voice and to use the to explore the full potential of the medium.
It makes so much sense.
Yeah, as opposed to an editor trying to edit down all these different writers to the cohesive voice as to what that location is trying to achieve.
Right, and that voice inevitably sounds like the voice of a reporter too.
Yeah, fascinating.
Well, I wasn't expecting for us to talk about media.
That'll be it, though, we'll keep it siloed. Man like.
I appreciate that you attempt to stay apolitical as much as possible while you are talking about the economic impacts of political choices. You like to stick to the facts. But how would you describe your overall perspective or your overall philosophy on economics, Like who have have you been influenced the most? When it comes to how you approach the different economic ideas that you write about.
So it's interesting because I'm pretty eclectic, I think, you know, politically, I'm a center left type. Politically, I'm like an Obama Clinton liberal, and I didn't shift strongly to the left and the twenty tens, and I'm not shifting very strongly to the right now. I'm just sort of where I was in two thousand and five, my basic politics have not shifted very much. But in terms of what economic approaches I endure, well, that's always evolving because I learned
so much more all the time. But I've never been sort of as as I guess, neoliberal, as the other people on the center left tend to be. So if you read Jason Furman's article in Foreign Affairs Today, the Post Neoliberal Delusion, he says, some things that I think are very wrong, but then some things that are very right. And so I think that overall, I describe myself as
an industrialist. I think that we need to intentionally build back up, you know, manufacturing in some other like high tech industries in America for strategic reasons, for you know, just good economic health in various ways. And I think this is a lot more possible to do than people believe. And so but at the same time I am I'm more in favor of trade with poor countries and you know, with with you know, other countries than most of the industrialists.
And I'm much less I'm much more skeptical of like NEPA permitting laws and unions too. You know, I've nuanced in skeptical views unions, which sometimes I like, but sometimes I don't like, and so I think that there's no easy way to pigeonhole my economic viewpoint, and until I just write a big book explaining it, I think that I'm going to always be keeping people guessing as to what I really support because there's no easy word or
name to put to my ideology. So so basically it's it's Noahism, which is a cobble together thing, and so I really just but before I do that, I'm going to write a book like Your Easy Guide to Macroeconomics, and that's my next book I'm going to write that I'll hopefully get done this year, and then maybe the next year I'll write a book like you know, Noah Smith's Total Philosophy of the Economy, and that book will completely destroy and eat my life because I'll be going
out on a limb in so many ways that I'll be a perfectionist about it and just do exhaustive research and just argue with the you know, all these different people who disagree with me in a million different ways, and I'll become, you know, super depressed and end up as like a hermit living in the call.
Well I mean it though, because yeah, read that, but I hope you survive mentally during that project.
I'll do what I can. Well.
I think that's actually part of what I love about what you write. I don't know what you're going to say before you say it. And there are a lot of people opinion writers in particularly the ed pages, and you're like, oh, it's that author. Well, I know what their opinion is going to be. And so yeah, the nuance I think is a part of your success on this podcast. No, we typically talk about personal finance, but
macroeconomics policy, they impact all of us as individuals. Like there's there are direct connections between some of the things that happen, let's say in Washington, d C. In our day to day lives and maybe less than some people assume. But how do you see the relationship between like big picture shifts that are happening macroeconomic stuff and then the individual reality that we all faces as Americans and as consumers.
That's a really good question because when you look at surveys, you see that people say that the macroeconomic environment is doing terrible, and then they say their personal finances are doing great and their city and state are doing pretty good, and the farther you get from you and your own circumstances.
The worst people say things are doing. I interpret this to mean that people's ideas about culture and the negativity they see in the media about American culture and politics and stuff like that is bleeding into their assessments of the economy and especially one data point in my favor,
is that you see huge partisan shifts here. So then as soon as you know, a Republican gets elected president, the democrats assessment of the economy just drops off a cliff in the Republican assessments of the economy sores into the stratosphere, and the overall numbers don't stay, that don't change much. And that's like literally overnight, literally overnight, literally overnight.
What indicators, Noah, are you paying attention to that you think actually will have an impact on individuals, savers or investors, just the typical person that's out there. I'm curious, like, which sort of numbers or metrics are you keeping an eye on.
Yeah, keep an eye on, first and foremost, the five year break even inflation expectations rate. That number has proven to it moves around less than actual inflation, which is good for a forecast. You don't want a forecast to move as much as the real thing. Like if you saw weather forecasters predict like, you know, frigid cold and searing heat one day after another, you'd be like, this
weather forecaster needs to do fewer drugs. So then you want a forecast that's a little mild in its predictions. You want, like, you know, when there's a heat wave or a cold snap, you always want the weather forecaster to be a little bit surprised. So inflation expectations have done a good job of forecasting inflation, So you want to pay attention to that five year break even because that gives a sense of people's expectations of inflation once
you include Fed policy. So when the five year break even rises, what that means is people expect inflationary pressures to rise and for the Fed to accommodate that instead of raising interest rates to force inflation back down. So then if people expect that, they're going to behave as if it's true, which turns into a self fulfilling prophecy because they want to raise prices ahead of everybody else, and so that you get a scramble to raise prices.
So when you saw inflation go to like eight percent for you know, half a year or a year or however long it did. The post pandemic inflation, which was
pretty severe. When you saw that happen, you did, you saw the five year break even rise to four percent three point five to four percent, and so it was a much lower swing, but it basically meant that people thought that the FED was losing control of inflation or were voluntarily giving up control, and that was what That rise in expectations is what actually aligned the FED into acting. And so that's the thing I would really if you want to see when inflation is going to return, keep
an eye on the five year break even. And then you know, the other thing I always keep an eye on is the prime age employment to population ratio. Basically, adult American adults age twenty five through fifty four, how many of them are working. So most employment numbers sort of depend on some statistical slide of hand in terms of who calls themselves in the labor force, who claims
that they're looking for work. So the unemployment rate and the labor force participation rate are both contaminated by this statistical weirdness of you know, do people say they're looking for work or not, whereas the employment rate, also called the employment to population ratio, those are the same thing.
The employment rate is not contaminated by this. So whether you have a job doesn't depend on whether you say you're looking for a job, right, It's just whether you have a job, and so do you have a job
or do you not have a job. And so you look at that, and then you know the of course there's like early retirements, which is affected by population aging, and then there's varying numbers that there's like rising and falling school enrollment and things like that, and so those things affect people under twenty five and over fifty four. But then if you look at twenty five through fifty four, you get a very clear picture of you know, sort
of the macroeconomic employment situation. Look at the employment rate of people of people age twenty five through fifty four. That's called the prime age employment rate or the prime age employment to population ratio. So between that and the five year break even inflation rate, I think those are the two if I'm just going to check how the macroeconomy is doing today, those are the first two I look at.
You just mentioned inflation for a second, I'm curious. Let's talk about terists for a second. How do you think, Well, it's like the teriffs that would have been that weren't that kind of were And it just feels like this seesaw kind of when it comes to will they or won't they? What's going to happen with tariffs, they get punted by a month and so I'm curious to hear what you think is going to happen there. But also,
how is that going to impact inflation? I feel like it's commonly been understood from an economic perspective that tariffs will lead to higher prices for the end user, for the end consumer, for all Americans.
But I don't know.
It feels like maybe some of that line of thinking has shifted recently to that's fair.
Yeah, So I think the actual tariffs we get will be much less than the tariffs that Trump initially announces almost every time. But that doesn't mean we're not going to get any tariffs. First of all, we are going to get some tariffs, and I don't know where they'll end up being. It. Basically, Trump, I think, is guided by this stock market, and whichever tariff's tank the stock market least or the tariffs Trump will keep. But I
think that. But also because Trump doesn't really have an idea of a counterfactual, it means that the more the stock market rises for unrelated reasons like optimism about AI, I don't know whatever, the more it rises for unrelated reasons, the more tariffs will get because that will make Trump think stuff's doing okay, stock market's doing okay. Therefore it's okay to just put some more terrafts.
Up because he thinks he influences.
Everything, right, or at least, you know, maybe he thinks that, or maybe he just thinks that a rising stock market will provide cover for the for the terraft. So so it's really you know, but I think that basically, you see that when the stock market falls, Trump backs off pretty consistently, even if it only falls one percent. You know, it's like, I know, stocks go up, stocks go down. But then if you've got a good run of stocks and Trump is like feeling good and you know, yeah,
So I think that that's my basic assessment. But I think that in it so, you're gonna get some teriffs. I don't know how much you got some during Trump's first term, and ultimately the effect was not very big because the United States dollar appreciated that Chinese yuan depreciated, China re routed some of its exports through Vietnam, and really the tariffs didn't do a lot, whereas so targeted
tariffs do a lot. You can block specific Chinese products, but changing trade deficits through tariffs is extremely hard to do, and you basically have to raise tariffs so high that it starts breaking something in the economy, which will also entail stock market crash. So I don't think Trump is going to actually change the trade balance through tariffs at all, because he's going to back off of anything severe enough to actually do that. You see what I mean.
Yeah, yeah, So do you think it's more just kind of I guess posturing and sort of the narrative of him being president of the United States that is also dictating how much he's sticking to his guns when it comes to some of these different tariffs.
Yes, and so. But I also think that the main effect of these tariff threats is going to be policy uncertainty, and policy uncertainty hurts investment, and I think it's going to slow down the economy a bit because factory owners are not going to know where to build their factories, so they're gonna hold off.
Uncertainty for businesses is typically the worst word, right, Like Trump is creating chaos, He's creating uncertainty.
It's bad for business. Uh, there's tailwinds for business, but then there's uh, you know, there's head Trump is creating headwinds for business, and the more he instantly backs off, the less the headwinds will be because the more businesses will conclude. Okay, this is all just blowing smoke. Right at the beginning of a president's term, you think that everything might change, but by two years in you kind of know that, like whether or not he's going to
break stuff, especially because Democrats will probably gain in the midterms. Yeah. So basically I think that if Trump keeps announcing tariffs and then canceling them the next day, that will create some reassurance that will mitigate the effect of policy uncertainty.
Yeah.
And also, at some point starts to feel like a bluff if you're another country, like, sure, oh the thing you said you were gonna do, you never and at some point you have to follow through to make other countries or you know, other peers feel like you're actually
gonna do something along lines with primarily powaposturing on it. Yeah, yeah, Well, I mean do you think, I mean, is the geopolitical positioning and posturing is it worth like in the long term, right, because it seems like what we're talking about right now, is I guess the pain that the US consumer might experience in the short term. Do you think that near term pain is worth the long term overall health of
the country. It's or protectionist instinct, right, yeah, that is that a healthy direction for us to go?
So, I mean, so I basically just what I think is that tariffs are helpful, can be helpful for that, but they won't get there on their own. What you need is industrial policy. Biden actually got it right. So targeted tariffs with targeted industrial policies is the way we reindustrialize and that does work. Simply throwing up tariffs on all imported goods does not work. It's just it is
not a thing that works economically. So you can say, is you know, if I like stick my face on this hot pan, is it worth the long term gains of you know, becoming a pegasus and you know, like unfortunately sticking your face on hot pan will not turn you into a Pegasus if it did, though, if it did, if it did, But so you're saying there's a chance. So that's that's the situation. We are here to blanket tariffs on a large number of goods from a large
number of countries. Will not reindustrialize America. Yeah, all right, it will in fact hurt American industry.
What's your take right now on I mean, let's maybe pivot talking about you know, government debt and doge the national debt. The national deficit has been growing like gangbusters and it hasn't mattered really who's in charge. Even the party for a while that talked about cutting government spending never seemed to get around actually doing it. But how much has government spending played a role in the inflation
that we've seen? I know it was a lot of supply chain induced issues from COVID, but yeah, do you think government spending also plays a role in that? And how much of an actual issue is our country's massive debt load.
It's a it's a big issue. In fact, it's a big problem. We need to cut spending and raise taxes. Unfortunately, the amount of spending that Trump will end up cutting is probably relatively modest, and the amount of tax cuts that Trump is planning is relatively large. So Trump is on track to raise the deficit, increase the deficit instead of decreasing it. That's an important thing to understand, and
that is inflationary. Elon Musk is right when he says that deficits are inflationary because deficits carry the implication that down the road, the Fed is going to have to keep interest rates lower in order to support that costs on the debt, and that lower interest rates are inflationary. So deficits are absolutely inflationary. And so Trump's planned tax cuts, which I'm sure congressional Republicans will support, are inflationary, and they will expand the debt and they will outweigh whatever
spending cuts DOGE can accomplish. If you look at the actual numbers of amount of spending that DOGE might be able to accomplish, even if it stretches the bounds of the law quite a bit, is actually relatively modest compared to the size of the tax cuts Trump as planned.
So what you're saying is that DOGE isn't really going to be able to do it like truly, what needs to be cut back on. Are the like the untouchable spending items that no politicians is really willing right to even this administration to tackle at all, Right, the entitlement spending, so like you don't foresee there being much progress being made.
I mean, are those are an issue? That's right, But we have two budget problems in America. The first budget problem is that our population growth has slowed so much that we're unable to support the Social Security and Medicare systems at the same level we've become accustomed to and are going to have to either cut benefits or massively
increase immigration. So that's that's the first problem. This problem actually hasn't started to bite much yet because aging hasn't hit us as hard as it's going to hit us. So that's a problem actually for the future. The current debt problem is that we have not raised taxes to support the size of the welfare state that we have, and so we can either cut welfare spending, which is called medicaid, or we can and other health programs. Our
welfare is mostly our welfare state. A lot of it is through health you know, healthcare, paying for often overpriced healthcare for Americans. So we can either cut welfare, we can raise taxes, but we can't just get away without doing either one of those. Military spending has been like
really cut to the bone a lot. There's not much more gains there, especially with the international military environment getting more dangerous every day, so we can So basically, we can either slash medicaid, or we can raise taxes, or we can do some and Medicaid plus you know other health programs that we do that are fundamentally redistributionary. So so for the Medicare and Medicaid have similar names, but
they're not similar programs. They both provide health insurance, you know, through the government, but they're very different kind of programs. Medicare is for old people. Medicaid is for poor people. So with medicare, you basically it's it's what's called social insurance. You pay into the system, and then if you happen to a person who gets more sick when you're old, you withdraw more than you paid in, whereas if you happen to be someone who didn't get sick, you put
in more than you withdraw. So that's called insurance. And when you force everyone in society to do it, it's called social insurance. Medicaid is a welfare program for poor people to give them healthcare, where we tax everybody, the middle class, the rich, et cetera, and we use that tax money to give healthcare specifically to poor people, and almost no one in the country, you know, most of the people in the country will never see any benefits
from medicaid. It's pure redistribution, essentially, and so it's redistribution in kind. I would favor abolishing Medicaid and replacing it with cash benefits, just mail checks to poor people. It would be much more efficient. We're probably not going to do it. The genius of medicaid was that they gave it a name similar to Medicare. People like social insurance.
They don't necessarily like welfare and redistribution. But we named our biggest welfare program something that sounded very similar, you know, sound wise to our biggest social insurance program. And so because people like medicare, it's very hard to cut Medicaid because people hear that and they think you're cutting medicare.
Tricky tricky naming conventions, very good trick there.
No all right, you mentioned some of the future problems that we might be or that we will be facing in the future, specifically about when it comes to funding social security, so we'll get to maybe ways around that and more.
Right after this our we're back to the break.
We're still talking with Noah Smith talking about macroeconomics and kind of what's happening around us, especially as there's a lot changing. No you literally just hit on this right before the break too. Then another economic problem that's coming down the pike is the declining birth rate, and I feel like this is getting more attention and we're seeing it more starkly in other countries too, countries like Japan. What impact is that having there? What impact is that
going to have here? And how do we combat something as kind of existential as not producing of humans.
Do you want bad news first?
Yeah? Yeah, start all right.
The bad news is we have absolutely no idea how to come about this, and it is a big economic problem for reasons I'll explain. But many countries have tried doing pronatal policies, they've tried doing policies to get people to have more kids. Absolutely none of those have moved the needle. You've seen a very small effect of very large cash paouts, like if you basically give everyone like free day care and a bunch of money to have kids.
You'll have like a little bit a few more kids in the margin, but it's not nearly of the size. So we're talking countries basically are at like one point five to one point six. They measure it in children per women. Sorry, maybe that's sexist, but that's how they
measure it. That's total fertility. You need about two to two point one to sustain population, you know, at a constant level, because if you think about it, every couple has to have two kids to replace themselves, right yeah, and then and so you need to have two to two point one to replace yourself over that's called the replacement rate. Most rich countries are converging on one point six one point five or even lower. Some countries have lower.
So we need policies that increase fertility by zero point five to zero point seven children per women per women. And when you do surveys that ask people how many children would you like to have, you see almost everyone says that they'd like to have it will so not almost everyone there, The average is a little is over to it's like you know, two point three two point four.
In other words, people at least notionally at least they say to surveys that they want to have about the number of kids that would lead the population stability or even a little higher. So really, so that has a lot of people think that if you just make it people able to have that many kids, and they will.
But it's possible people are just lying on the survey or just don't understand themselves very well and don't understand what they really want, et cetera, and don't really want that many kids, and so that's a possibility they just sort of say that because that's what their mom would like to hear them say. Anyway. But then, but then, so we need policies that will raise the fertility rate by point five to point seven children per woman, and
we don't have those. We have policies that will raise the fertility rate by point one children child per woman. And while that's not nothing, it's also quite expensive, involves a lot of welfare payments to poor people, and you know, higher taxes and stuff like that. It's pretty expensive, and it's you know, and the effect is very small. So no one has discovered a way to fight this problem. We do not know how to do it yet. So it's currently a giant unsolved problem. Now, the question is
why is it a problem. The first and most obvious reason is because when you have population aging, you have a whole bunch of retired people that you have to take care of. The old age dependency ratio just goes up and up and up. There's two ways to take care of old people. Either you can do it yourself at home, or you can pay a nursing home to take care of them, or assisted living center whatever you know, thing, you know, home care workers, whatever you can, you can
pay for it, or you can do it yourself. You can take care of grandma, you know, at home. Right, but somehow the old people have to be taken care of. Old people can't really work, and so you can push up the retirement age to like, you know, you can push it up from like sixty five to like seventy two. But after that people become really unproductive really fast. And so so really you have all these retirees and then we have a much larger ratio of retirees to workers.
So you know, Japan has a like only two workers per retiree. Now that's really really severe, and that means that it's a world of toil for workers because they're you know, imagine having to support you plus point five other people right when you work. That's that's just a huge burden. And the burden comes either through taxes or through the hours you have to spend doing elder care, which they do a lot of in Japan. And so that's the people focus on the idea of population shrinking,
when in fact this is from population aging. This is from the change in the age structure of the popular old people become a higher percentage.
Okay, so you just shared with us the bad news. Noah, what's the Is there any good news when it comes to the population shift that we're Oh.
No, there's no good news. There's more bad news. There's more bad news. So in addition, so the way you sustain living standards in the face of collapsing population is to raise productivity. However, we have, unfortunately, we have pretty good evidence that an aging population reduces productivity growth having older people. So one reason could be that old that old people start managing the companies, and the companies aren't as able to like, hop on new technologies, new business models.
They're not as inventive, not as creative. Old people just are sort of you know, can't teaching old dog new tricks kind of thing. That may be why. There's other possible reasons why, but having more young people is associated with higher productivity growth. So fewer young people, less productivity growth at the time when productivity growth is exactly what you need to balance out the effect of aging. More old people means few we're young scientists to discover your
next big technological you know, productivity increasing innovations. And so that's something that Chad Jones. The economists talk a lot about, well.
What about immigration, and you barely you quickly touched on this earlier. But I mean, obviously that debate's pretty fraught right now. But do you think the US just needs some more common sense immigration policy reform for that's right?
Yeah? Well yeah, so see, the United States has this special ability to do skilled immigration, right. We can we can get not just the world's top few, best and brightest, but also just like very large masses of like people with college degrees who are like pretty good at doing you know, standard middle class jobs. We can do that. We can do that, right. Unfortunately, we're in the middle of this you know, Trump spasm of just anti immigration feelings.
So you've seen on the right this rise in anti Indianism, right, anti Indian immigration specifically, Like all these rightists are just like screaming about Indian immigrants and how bad they are. But India is a country of one point four billion people, and that can solve that can help solve our population
crisis in the short term. It's not going to fully solve it, and it's not going to be it's not going to solve it long term because India is getting richer, people aren't going to want to come like thirty years from now. And also because like India has a lot fewer kids now, so India is not going to have nearly as many people to send us of high qualifications like right now. So we're in this sort of golden age of this potential binans of Indian immigration, and we're
not taking it. We're we're resisting it, partly because the Mega movement has decided that they don't like Indians and it sucks for America.
But you think smart immigration policy could help correct a lot of the issues that we have when it comes to kind of demographics.
Yes, absolutely, it's it will ameliorate them in the next thirty years. But then after thirty years we're in trouble because fertility rates falling everywhere, even like Africa is sort of the last bastion of high fertility rates used like Africa, like sub Siheran Africa has like four point two kids per woman. I want to say, four point two sounds like a lot, right, I mean, like for us that would be a ton. But that's down from six in just a few years.
Wow.
So yeah, so sub Sera in Africa will be at replacement fertility relatively soon. Things things are just continuing to plumb it. There's a few countries. There's like I think six countries where the fertility rates are still pretty high and are coming down only slowly, and those those countries are going to be sustaining the population of the rest of Africa. So you know, you're talking about like Niger, Somalia, Central African Republic and other places you know that you
normal people may even have never heard of. And you've got like these Democratic Republic of the Congo is another one, and like you've got like six of these these these guys, and Democratic Republic of the Congo has more than half the population I think of the combined six. So basically you're gonna have, like you know, you're back to the cradle of humanity, sustaining the rest of humanity for a while.
But even their popula, like fertility rates are falling, and as those countries get more you know, stable fertility rates will fall more, and so even those those countries will not be able to sustain humanity. All of humanity is trapped in this low fertility cycle and we don't know how to solve it yet.
While we're talking about depressing stuff, let's talking about healthcare for a second, maybe just a bastion of hope I think on that front, and I feel like there's been this like recent kind of spotlight on the health insurance system after the shooting of the United Healthcare CEO, and actually took that topic head on. You wrote about why the insurance companies aren't to blame, although there is I think a lot of loathing about insurance companies from the
American public. Can you explain what's going on in US healthcare and why we pay like so much more than the rest of the world for what we.
Get, right, So, there's a number of reasons why we pay more. One is because we are are richer, So of course richer people will spend more in healthcare. But even once you control for that, we pay a lot more as a percentage of our GDP than other kind.
So there's part of it, that part of our excess costs that you can't really explain with that unless you assume that as people get richer, they spend an exponentially increasing percentage of their income and healthcare, which would mean that by the time people get to about one hundred thousand dollars of income per year, they're spending all of their money in healthcare, which is obviously counterfactual. We know that rich people in America don't spend all their money
in healthcare. So I will say that I spend more money in healthcare than I used to, but you know, it's one of the only things I'll splurge on a little bit, but honestly not even that much. So yeah, So basically there's this unexplained portion of costs, and part of it is because our insurance industry is so fragmented that insurers can't push back on high prices by providers.
So when you go to the hospital, you know, pillows costing twenty five hundred dollars, or like, you know, an MRI that I got at UCSF cost the insurance company ten thousand dollars when at Simon med Imaging it would have cost one thousand dollars. So you've got a ten x cost difference there for an MRI. Now the UCSF will farm it out to a radiologist for an instant report, and that radiologist is good, But that's not worth a ten x cost difference, right, And so I don't think
it is. And so you know, basically, insurers can't push back on high provider prices, and so insurers basically in
America act as pass throughs. There are these incredibly low profit, low margin businesses, and everybody hates them, hates them, hates them because that's the part of the healthcare system that you deal with on a daily basis, Right, that's the part of the healthcare system that you're that they're they're the people who are paid to deliver you the bad news of like, oops, your coverage was denied on this thing,
or like here's how much your deductible is? Right, your health your health insurance is how is who tells you how much to pay? And so you hate it because that's the part of the healthcare system that you interact with. However, ultimately, these are low profit margin businesses that are passing through costs from the providers. And when I say providers, I mean hospitals, I mean doctors, I mean the equipment providers, I mean the pharma companies. You know, those are all
the providers. Those are the people actually give you the care. And you know, we have this weird interaction where you go in, you know, and the pharmacist is like, here's your drugs, and then the I guess they do make you pay a copay at the window, but then the doctors like, here's your care. I'm just caring for you. And it feels like you're in Cuba in a socialis system that just wants to wrap you in its loving
arms and take care of you. And of course that same hospital is the one sending you your insure a giant bill which you're insured then struggles to pay, and you're insurer has to like figure out how to pass as much of the cost on as possible to you, or else they just go bust because they're such a low margin, low profit business, and so our interactions with
the healthcare system. We have negative interactions with the part that's not making much profit and positive interactions with the people who are making all the profits.
Do you think if our health insurance function a little bit more like car or home insurance, where that we would be more price sensitive to the care that we're receiving. I think about filing a homeowner insurance claim that the average person files a claim maybe two times in their life if they own a home for a few decades.
And yet we're interacting with our health coverage all the time in order to instead take that one hundred and fifty two hundred dollars price of an appointment with the doctor down to twenty five or thirty dollars copay that insurance is constantly Is this friction involved with every single element of healthcare? If it was just involved less, especially in some of those less expensive healthcare endeavors, would that help, I don't know, fix the system at least to a certain degree.
So the short answers, No, much of what you pay insurance for is not actually insurance, as you noted. So for example, you have a yearly check up with the doctor, that's not a risk, that's something you know you're going to need, right, and so yet the insurer is this sort of the designated person who pays for that, and you pay your insurance premium, so that really there is a little bit of administrative cost for that, right. So some paper pusher or excel jockey has to say like, okay,
you went to your yearly checkup. Here's how much we pay for your yearly check out. Blah blah blah. It's extremely low cost actually to pass through those regular expenses. And then there's chronic expenses. So you're a person who you know you have the chronic back problem and you just keep going in again and again, and you don't know exactly how much you're gonna need to go in, so there is some risk there, but then essentially that is actually taken care of, so that actually is a risk.
It's just like when you start having that chronic problem, that's when the risk sort of realizes. That's when the risk stort of manifests. And so in that sense, it really does act like insurance, even though once you've got those chronic injuries, then after that it looks very predictable. But then before the chronic injuries, it's the risk of
whether you'll develop a chronic injury or not. So honestly, switching to health insurance that looks like true insurance would save us a little bit of money, but not a ton. And if you look at the countries that do health insurance, it's cheaply. That's not what any of them looks like.
So we're talking about I guess a lot of negatives kind of touched on the bad news here and no you mentioned just how individuals like on a personal level, they think things are going pretty well. You back that out a little bit to the state it's fine. As a country, it seems like that we're doing pretty poorly, but compared to the rest of the world, we're actually
doing pretty great. Like, what do you think is causing that disconnect between individuals' perception of how we're doing as a country versus how it actually is.
Well. Okay, so first of all, I don't think we're doing, you know, badly as a country. I think the debt is a huge problem. Healthcare costs are big, but there is good news about healthcare, which is that healthcare cost growth has slowed a hell of a lot. Healthcare costs are no longer increasing as a fraction of GP. That is huge, and that will take a lot of pressure off the budget deficit. That will take a lot of
pressure off of people's pocketbooks and wages. And so that's a piece of good news that's not commonly appreciated, but it's true. So there's some good news.
Appreciate that. Finally, a little bit of silver lining.
Yeah, and so so, so here's some great news about the American economy. Productivity in America is increasing at a fairly rapid clip. Productivity is the underlying generator of economic wealth. You know, you grow productivity fast, you you grow your wealth. That's it. That's how it works. And we've been having pretty high productivity growth historically, like much higher than the rest of the world. So like Japan, Korea, Europe, you know, UK,
you know, even Australia and Canada. I guess Australia productivity has been growing a bit bit Canada, those places have been seeing a productivity stagnation while America has been seeing productivity growth. Why is that true, We don't know. But as best we can tell, our economy is more dynamic. We allow more a lot more labor reallocation. People are able to quit their job and get a different, better,
job and and move around. You know, remote work is part of this, right, and so those that labor reallocation has been a big boon for America in ways that it has not been for other countries or people where labor markets are pretty rigid and people don't shift jobs very much. So Americaique, almost uniquely among rich countries, not uniquely, but almost uniquely, has had tons of labor reaccation and
also a lot of entrepreneurship. So what you see, what you saw after the pandemic was tons and tons and tons of people started small businesses in America, especially Latinos. Disproportionately Latinos are finally like starting a lot of small businesses. And so you're seeing this and this is not but you also did see a boom in high tech entrepreneurship. So a lot more people are doing tech companies and which will provide a lot of growth, especially for the
stock market blah black when some of those succeed. But at the grassroots, ground level of main street, you see a ton of people starting small businesses and this is absolutely great. This is great for dynamism small you know, in terms of value added growth, it's high tech startups that provide most of the value added growth over time. But in terms of the actual employment, it's small businesses
that employ most of the people. And so I think that you're you're you're seeing a lot of these small businesses start and reallocating labor, people moving job to job, all this stuff. This is a lot of dynamism. So America is doing really well at this. Obviously, we've got technology on our side too. I think AI is going to be a big deal that will help us a lot. And I think batteries are a big deal that will help us a lot. Batteries and solar and cheap solar energy. Batteries,
cheap solar and AI go together really well. Also medical stuff like you know, m RNA and synthetic biology, crisper and all that stuff that's important too. But I think that the biggest gains will come from those that that trio of technologies, AI, solar and batteries, the triple technological revolution of our times.
Yeah, in your bio you call yourself a techno optimist. So do you think that like technology is a major solution to some of the problems that we face. Is that why maybe you see bright spots ahead?
Yeah, So I think America's underlying fundamental economy is strong. I don't think Trumpian policy uncertainty can break it. I think that the debt is a big threat, especially in terms of inflation. I think that it will be painful if and when we cut you know, welfare spending, which we're going to do, and it'll probably be Medicaid that we cut. It will be painful if and when we raise taxes, which we will, and it will probably be middle class taxes that go up. And so I think
that those things will be painful. But I think our underlying strength of our economy is strong. We're a very rich country. We're doing better than other rich countries. Even China now has economically stumbled. I think we've got not the brightest people running the country right now. But I think that you know, that's on us, all right.
Well, I feel like we've talked a lot about our struggles here the stateside.
But we're gonna take a quick break.
And then after that, no, we're going to ask you perhaps about another country that seems like that they've been struggling, maybe have turned things around.
We'll get to Vats right after this.
We're back still talking with Noah Smith and no, we're just I was talking a lot about the United States, the country that we live in, are impacted by. But you recently wrote about Javier Malay, the fairly new president of Argentina, and it's been really interesting to see kind of his economic gravitational pull. It seems to be, i don't know, impacting at least some of the Western world.
How do you think about and how would you maybe rate his efforts when it comes to turning around like a struggling Argentina economy and like what can we learn from that?
Well, I'm actually pleasantly surprised. I think even my sort of neoliberal, austerity minded Argentinian friends like Martine Musteau who's the senator there were skeptical of Malay. He was at he was crazy. He was a wild man with crazy hair who had chainsaws. He's just like a if he do right, genetically genetically cloned dogs, just like grabbing his girlfriend's butt on camera, you know, all this stuff. He's just a silly guy, and he's just like, we're aesthetically
superior to the left, you know. And that was a great interview. He's fun. But the idea was, oh, he's an idiot. Well he wasn't. He wasn't an idiot. He was just flamboyant. And it turns out that his policies are working, are much more effective than anyone had a right to think they. Basically, Argentina is a country that tries to maintain a you know, a European style welfare state without a European style income to support it. And
Malay is cutting that. It's unsustainable. Malay's cutting that. But in doing that, he's actually making conditions better for a lot of people, because growth is Argentina had like a short sharp procession from his anti inflationary policies and now, you know, like we did in the early eighties, now it's returning to growth and you know, inflation's down, growth is up. People are you know, Argentina is doing all right,
and you know it's not suffering. So so the dangers of Argentina pegs their currency to the dollar to beat inflation. Currency pegs in the long run can have bad consequences because then your currency gets overvalued. You tend to this sudden big drop and like a currency crisis, which brings inflation back and all this stuff. So so he's got to make sure not to peg the Argentinian peso too high and then but then I think so far he's doing really surprisingly.
Well cutting the fact that he cut back. Do you think that that's the big takeaway? Is that a lesson for the US? So you know, we've already talked about just future spending on you know, on our part over here in the US.
Is that the takeaway for us? Is that the lesson learned?
Yes? So I think that basically austerity combined with hard money carries some costs in the short term, but it does stop inflation. So if you've got increasing inflation, as we may soon have from Trump's policies, that's how you beat it. And it is painful, but he managed to get Argentinians to uh to to accept that short term pain.
Yeah, you seemed to thread the needle. Noah, thank you so much for joining us today on The show Man. Where can our listeners find out more about you, what you're up to and find your substack?
Yeah, my substack is no opinion. That's N O A H P I N I O N. Some people mistakenly put an O in the middle of it and say it's Noah opinion and I don't understand why anyone does that, because it doesn't make a good pun. It's just just so you lose it.
Yeah, if you actually write opinion in.
There, I get. Yeah, it's Noah opinion and that's what it is anyway. So so go to that substack and you can read all my little post to posts and then i'll I'm I'm working on a book about explaining macroeconomics in simple terms, in fun terms that regular people can understand.
Very cool.
We will keep it an eye out for that. Yeah, Noah Smith, thanks for talking to us.
Absolutely until next time.
All Right, Matt didn't end up talking about rabbits at all in that conversation. I was, well, I'm surprised we should have brought it. Well, we did, but he didn't take the bait.
You are the one. You've got more pets than I do, and you actually had a rabbit when you were younger.
Dad.
We did name Skittles. It got really fat and didn't really move, so that I did want to debate him on that topic a little bit because my rabbit was not a great pet. But yeah, what was your big takeaway from this combo that was not pet related? I'm going to have to go with. So we talked about the national.
Debt and the growing deficit right and ultimately in the end, what Noah mentioned was that what it takes is going to it's a combination of two things. Increased taxes so higher amounts of money coming in or reduced spending the different programs at the government is shelling out on. And you know what, man, the same thing is true when
it comes to our personal finances. And oftentimes we try to I don't know if it's either a silver bullet or we're looking for a way to make it a little more fancy, but finding some sort of solution that's going to get us to whatever our goals are with out the austere measures that are often necessary in order for us to in order for folks to call themselves out of debt, like specifically if they've got ridiculous amounts
of credit card debt. It's like, man, what it's going to take is you spending much less than what you were spending, or somehow for you to find a way to matt drastically increase your income.
But a little bit of both.
Yeah, And typically it is a combination of both. But it's just a lot of times those two things, those two levers that we can pull, they get lost when we're talking about the federal government.
Because it's such this large tangle of worms.
It is kind of what it feels like just with all the bureaucracy involved, tough ship to move. Yeah yeah, yeah, But that was encouraging though, because it's it's a reminder that even at a very high level when it comes to the US economy, oftentimes that's it could be as simple as that. It's not rocket science. Yeah, doesn't mean it's easy. Yeah, but yeah, yeah, fairly straightforward.
Yeah.
I think my big takeaway Matt was was you should have more babies because for is not enough. We have a declining birth rate in this country. I thought about speaking of He's like, it's all on your shoulders. He's a four point two. I mean that would be a crazy large number of kids for a family. And I'm just like, well, that's that's what we got.
Yeah. For where's your point too coming soon?
Where's your what is it that's needed? Point five too? Point seven? Yes, that's what's needed.
That's right. So yeah, just.
To all of our listeners out there who are at least considering it parents, it's wonderful think about it a little more deeply for the good of the country.
Okay, is this your actual takeaway? Well, are you joking?
No, I'm kind of joking, but I'm kind of serious, Like I do think well, I mean that I'm trying to tell people who don't want to have kids to have kids, But I am saying like it's I think some people overestimate and we've talked about this on the show, how much it costs.
To have a kid.
You see the headlines, and I don't think it's as bad as as it might seem from a from a financial standpoint, And I don't think you have to be I'm not saying again, don't be prepared, don't think ahead, but I don't think it takes as much preparation or as much money as you think.
It does to have a kid.
And you're gonna cut back and spending in other ways when you have a kid, Like guess what, I don't go to nearly as many like concerts or fine dinners.
Going out to eat as much as you so.
You'll cut back in other ways. The joy that it provides is meaningful. Again, not trying to course people into doing something they're not interested in doing.
But if it's something you're thinking about, yeah, no, I okay, I'll back you because there are a lot of different voices in our heads and within society that is telling us to.
Not do that.
Whether it's your employer, it's just like, oh, you know what that's going to mean, You're not going to get that promotion. Oh you know at least even internally that oh that means you're not going to be placed on this project. And even selfishly, there are different sort of achievements that we're trying to achieve and often and so when you have all these other voices speaking into us as individuals, it can be easy to not, I guess, necessarily say no to kids proactively. But what happens is
that it happens by default. It's something that happens passively, and before you know it, you're a little bit older and you're like, well, shoot, I kind of I guess maybe I missed my window.
And that's happening more and more in our sus.
Yes, the reason is that I never got around to it, as opposed to it being something that you're like, well, no, I'm never going.
To have kids.
It's it's fewer folks who are saying that as a post of folks were saying, oh man, maybe later, yeah exactly, maybe later, or I just it just never happened. Yeah, And I just I do think not everyone. Some people literally go into that proactively and they say I don't want kids, and more power to you. But I think, yeah, I've seen too many people regret that they waited too late and then it became really difficult, if not impossible, And I just think there is there are a lot
of intangible benefits. It's not that the kids are typically going to bring more money into your life, but there are a lot of beautiful things they bring into your life, absolutely non financially related. Yeah, today's message brought to you by trad husband Joe lars Guard was gonna be able to hear homeschool and his kids.
Before you know it.
Followed me on Instagram. Oh my gosh, they would murder me and maybe vice versa.
All right, real quick, the beer you and I enjoyed today was called Melvin, which was an amber farmhouse ale by.
Freak Folk Beer. What did you think about those?
One?
So this beer looks like it was named after a cat because they have a picture of cat on the bottle.
And then it also says, in loving memory, oh poor Melvine. I'm guessing this was a brewery cat. Yeah, they dedicated this beer too.
Well.
I'm a cat dad myself, so I can get behind this. Although I like my cats, I don't love them.
Is that okay? Can I say that?
That's fine?
I love my kids, I like my cats all.
I think all amber beers should have to be sour per new dictation from Yeah Yeah, because I don't love amber beers, but an amber sour?
Wow, maybe you really like this thing?
It was.
It was a nice combo of funky and sour and funky always like sounds like a weird word, I think to people, but there's something about a funky beer that really just does hit my mouth in a special way.
It's like zestiness or the acidity. But with the kids use these a lot these days.
I think.
I think zesty is a hot word.
Zibity. It's that tartness but with body. That's what I think of when you say funkiness, because it's not just like the sharpness that you get with like, let's say vinegar, but there's actual flavor behind it, right, it's oh maybe sort of like acidity is to vinegar as funky is to red wine vinegar. You know, like there's a little more flavors, more body, more. Yeah, just something more going on.
Which I just used red wine vinegar in the making of a food product that well, you tried it earlier today, we'll talk about it. Oh, let's talk about it on maybe Fridays. Yeah, this this episode.
Is going along.
But yeah, Frank Folk Beer, first time we've had one by them, really good. Highly recommend nobody that's going to be it for this episode. So until next time, best Friends Out, best Friends Out.