The Economy Is at a Hinge Moment

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We are at a Hinge Moment in the Economy. For the past few years, there has been one problem on economic policy makers' minds. One problem of assessing the Fed, the Biden administration, assessing everybody. Inflation. But in mid-September, the Federal Reserve officially called an end to that era when it cut interest rates by 50 basis points. Inflation it was saying is no longer the problem. It's come down from around 9% to around 2.5%. But now unemployment

is creeping up again. There are signs of economic stress. Having spent the last years cooling the economy down, the Fed now feels it is both safe and necessary to heat it back up at least a bit. The fact that inflation is over, at least for now, as an economic problem, doesn't mean it's over as a political problem. Prices remain high. Inflation going down means prices are no longer rising at that rate, but it doesn't mean the prices themselves

have gone back to their previous levels. And people remain pissed. And the inflation crisis, as we talked about in a past episode with Anilari, it's focused attention on the long building and completely unsolved affordability crises, the cost of homes, of childcare, of health care, of education, of elder care. And so the 2024 election is still very much about the cost of living. But that is not all that the next administration is going to

have to deal with. So what does it mean to fight the next economic war rather than the last economic war? What's coming that we have to prepare for? Jason Furman is a professor of economics at Harvard Kennedy School. He's the former chair of the Council of Economic Advisors for Barack Obama. He served in a number of other roles in government as well. He has been very closely tracking the inflation crisis over the past few years. And we talk about both what he got

right and wrong there. But he's just incredibly knowledgeable about the ins and outs of how economic policy actually gets made, what happens in the room, what tools are in the toolkit, what can go wrong. So I wanted to see what he thought the next administration be dealing with. And we'd thought of some of the big policy ideas that Vice President Kamala Harris and former President Donald Trump have proposed. As always, my email as a client show at nmytimes.com.

Jason Furman, welcome to the show. Great to be back with you. So the Fed just cut interest rates by a half percentage point. You thought the Fed would and should cut rates by a bit less. Why? I don't feel particularly strongly. The important thing here is that inflation is down a lot. The unemployment rate is up a lot. And so the Fed should not just move once, but make it clear that they're going to keep moving. And that's exactly what they did. I didn't think the data was

so overwhelming that they should start out in a different place than they usually start. They usually start with 25 basis points. I don't think things are so bad deteriorating so quickly that there's a reason to do a jump start on that. But the path is pretty much almost exactly what I would have wanted to see. But when they worry that it's deteriorating, what are they seeing that makes them worry about deterioration in the economy? As always, there's just different economic

indicators telling very different stories. And the one that got their attention, that got my attention, is the unemployment rate has been steadily rising. It was a low of 3.4%, and now it's up to 4.2%. And the worry is that historically every time you see a small increase in the unemployment rate, you see a large increase in the unemployment rate, and no one would want to see that. But that's just one piece of data. If you look at consumers, for example, they're spending like

crazy. Businesses are investing at a high rate. Home building, which had been quite low, is starting to make a rebound. And so overall GDP growth is at about a 3% rate, which is incredibly fast, least on a sustained basis. So that's what I mean by different indicators telling different stories. Yeah, I was looking at the social network formerly known as Twitter today, and Mark Zandy, the economic forecaster, wrote, I've hesitated to say this at the risk of sounding hyperbolic.

But with last week's big GDP revisions, there is no denying it. This is among the best performing economies in my 35 plus years as an economist. Economic growth is rip roaring. I mentioned real GDP up 3% over the past year, unemployment of 4%, inflation closing in on the feds 2% target, corporate profits robust, stock market hitting record highs. Are we at a point now with inflation much more under control where you feel like that too that this is a sort of historically good

economy? I think the economy is pretty amazing. I mean, first of all, you go around the world, and I do. I have meetings with economic officials in other countries, and they all would love to be the United States. They'd love to be us in the short run in terms of where our growth is right now. They'd love to be us over the medium or longer term because of our productivity growth, because of where some of the world's leading companies, fastest growing companies are located.

You never want to relax too much, but right now, yeah, it feels very, very good. This has been on my mind, maybe you have an answer to it. What I began covering economics in like the early mid-2000s. There were these books about how the Eurozone is going to be a bigger economy than we were. You would talk about productivity numbers in France and German manufacturing. Just over the couple of decades, we've really pulled very far ahead of Europe. I mean, the UK is

quite poor compared to us now. What went so wrong for them or what went so right for us? For us, there's two halves to that. The thing that didn't go as right as you'd like it to go is productivity growth. It's been fine, but it hasn't been that great. Europe in contrast has had terrible productivity growth, and the big difference between the two economies and Mario Draghi has a terrific recent report about all the things Europe should do, and he emphasizes this point. The big

difference between the US and Europe on productivity overall is the technology industry. We have one other than Spotify and a few other things Europe basically doesn't. We've had decent productivity growth. Well, Europe has had terrible productivity growth, and then our stock market has done even better than you would think from our productivity growth. That's because there's all this extrapolation forward about how much they're going to be able to make in the future when, for example, AI all

comes together and pans out. Hopefully, it's forward-looking and knows what it's doing. Of course, it might be forward-looking and over-optimistic and we'll eventually find out which of one of those it is. I think one of the things that really struck me preparing for this podcast with you is that we called Six or Seven Economists on different sides of the ideological spectrum. The question we kept asking, and I'll ask a few minutes, is to talk through what problems they were worried about in

the next couple of years, and not one sudden inflation, not one. Is that done? Where the inflation war is at one, and we can relax, and the Fed is cutting interest rates, and whatever that was, it is actually gone and tamed or due to disagreency, it is a burbling risk in the background. I hope you didn't call seven Fed governors to get that answer, because they should never think the inflation job is done. The beauty of a fiat currency is you have a lot of control over the

economy. The downside is if you create too much of it, inflation is always lurking around the corner, and the only anchor you have is the seriousness of monetary policy makers. I think the Fed should continue to be nervous. I think almost everyone else, though, does not need to be.

So, when you think of the inflation story over the past couple of years, when it begins rising, you have this whole talk of tea transitory, people like this is just a pandemic, supply kink, it's going to go back down quickly, don't worry about it, there are people like Larry

Somers famously, but also you who begin really raising the alarm and saying, no, this is going to be worse than you think, there's more, we've overheated the economy, there's more pressure building up, it's going to spread from used cars elsewhere, and that proves out to be right. But then the same folks say that it's going to be pretty tough to get it back down. In 2022,

you said we might need to have unemployment as high as 6.5% for a few years. Larry Somers famously said you might need unemployment above 5% for five years, and we're able to get a soft landing without that, we bring inflation down, and even now we're only up around 4% unemployment. So, what did team transitory get wrong in your view, right? Why did inflation get so much worse than people thought? And then why was it easier to bring down than the more inflation hawkish

among us yourself included, assumed? Yep. So, first of all, thrilled to have been wrong on that, so that's a great thing. In terms of team transitory, they really were predicting inflation was going to go away right away, not in two or three years, but literally in two or three months.

I think they incorrectly thought it was all on the supply side. The fact that it's gone away does not change my view that an awful lot of it was demand, and it sort of defies the imagination to think that you can give so much money out to people, and it won't have any impact on how they behave or what they do. So, what I think has brought inflation down is a combination of three things.

The first is some of it was a supply shock that was most clear with Russia's unprovoked invasion of Ukraine and what that did to energy and food prices, and that just went away. Second of all, the labor market really has loosened quite a lot, but it's loosened in an incredibly pleasant way. My single favorite indicator for the labor market is to compare the number of job

openings to the number of unemployed. At the peak of labor market tightness two years ago, there were two job openings for every unemployed worker, and you didn't just need to look at the Jolt series to see this. You could just walk down the block, and you'd see help wanted ads, or we're sure to people ads, no matter where you went. That was an incredibly hot labor market. That has since fallen down from two job openings for unemployed to 1.1. Now, here's where the good

part comes in though. That big improvement in the labor market, at least loosening of the labor market, happened almost entirely because job openings fell sharply, not because unemployment rose. Governor Chris Waller on the Fed basically called that correctly. He in effect said, the reason for these job openings is not just a huge amount of demand. It's also that everything's

been reshuffled. We've had a reallocation throughout the economy. In 2021, maybe your business didn't have work from home, and you wanted to work from home, so you left it and went to look for a work from home job or vice versa. There was just a lot of reshuffling going on, but once that reshuffling finished, you would return to some more normal relationship between job openings and unemployment. If we can lower demand a little bit, we can get those job openings

down a lot and loosen the labor market in this really pleasant way. When people looked at the inflation rate and thought we would need really sharp unemployment, was that built on the theory of the 70s? You would have to break expectations about the future. Was it really just a direct calculation that you would need that much less demand to get prices down? Yeah, so that's the third one. On the first was the supply shock got better. The second is the

labor market loosened. The third is expectations stayed really well anchored, and that was hugely different from the 1970s and early 1980s. Back then, businesses thought inflation was going to be 10%. So they raised prices by 10%. They raised wages by even more, and then they raised prices by 10% raised wages by even more, and it became self-fulfilling, and it took a recession to break that

expectation. This time around, there was tons of criticism of the Fed, you know, on the Wall Street Journal and CNBC, but if you looked at what the market was pricing in terms of expected inflation in the future, that never got much above 2%, which is a measure of how the Fed, at least with financial markets and people betting their own money, kept its credibility. I would argue, and I can't prove this at all, that the Fed saying, you know, we're obsessed with inflation, we're going

to raise rates a lot. If we need to have pain, we're going to have pain, helped keep those expectations anchored and made it much easier for them to do their job. And again, had they followed the transitory advice, inflation expectations might have gone up, in which case it would have been much, much more painful to bring this down, but I can't prove anything that I just said.

So now if you're imagining writing the textbook that will be taught in economics classes like yours in a couple of years, does our understanding of what happens in inflationary periods or what modern central banks are capable of doing, has any of it really changed, given everybody's models released a little bit wrong going through this? Yeah, no, no one got this right from beginning to end, very strongly agree with that. I think this importance of expectations has been to some degree

the most important lesson. And so on the one hand, you can sort of relax a little bit more about inflation knowing you can bring it down, but I think the only reason you can bring it down is if you're willing to raise rates quite a lot and you know, risk what happens in the economy. And so for me, I come into this with a little bit more respect for some of the central banker conservatism trying to do their main job, which is keeping the price level stable. But you know, you can also

look at this just as easily and say, hey, this all would have gone away on its own. The Fed did nothing. And next time around, let's not worry. Let's just be a bit patient. I know people who got very used to the low rates, pretty low mortgage rates of the past preinflation 10,

15 years. And some of them are, practically now that they saw the rates cut by 50 basis points, I kind of see them saying things like, I'm going to wait to buy home because you know, the Fed is going to get interest rates back down to where you know, I can get a 3% or 2% mortgage,

or I'm going to wait to refide till I get there. Do you understand rates as on an inexorable or at least intended march down to where say mortgage rates were four years ago or five years ago, or should people who want to buy a home not be expecting that interest rates will be in a very different place in 2026 or 2027 or at least not a predictably different place than they

are now. So it's hard. I'm not sure how much more mortgage rates are coming down. Now, if you told me you had a friend who is a banker and they wanted to borrow money overnight in a securitized basis, I'd say great, they should just wait because they're borrowing it what's called the federal funds rate. That's what the Fed controls and that is definitely coming down. The problem is mortgage rates are based not just on where the federal funds rate is today, but where it's expected to be

tomorrow and the year after that and the year after that. So mortgage rates already come down by about a percentage point, but they're still very high. They're high in part because of an expectation that rates just aren't going to come down that much on a permanent basis. In that sense, they're a little bit like the stock market, which famously is a random walk. At any point in time, the stock incorporates all the information. If you ask me whether Nvidia is going to go up or down,

I have no idea because that's already priced into the stock. Mortgage rates aren't exactly like that, but they have some of that characteristic. For all people, they didn't get the wonderful 7% mortgage when they could. Do you worry this will keep the housing market somewhat frozen for a long time? I know folks who would like to move, but they got one of those 2.5% vantage point rates. They're not going to have that if they move. There's a lot of places where

people are worried this has been making it harder to get housing supply onto the market. Do you think that is a real problem? I worry about that, some. First of all, it's a terrible thing about monetary policy that you wish you had a tool that spread itself evenly over the whole economy, and this tool doesn't. It disproportionately hits the housing sector, and then it has to do even more to make up for all of the parts of the economy that it doesn't have as big an effect on. I do think

a lot of the freezing up of things is based on an expectation. If everyone thinks mortgage rates are going back to 3, they're not going to move right now. Five years from now, if it becomes clear they're never going back to 3, you're not going to stay in your house forever as your family shrinks, your family grows, you get a new job, or whatever it is. So I think some of this is the degree to which people expect it will be transitory as opposed to what the rate actually

is itself. I have a pet economic theory idea. Great. That I want to run by you. Give that answer, which I've had other economists yell at me about this. Maybe even you were one, I don't remember who sent me, which mean email when I wrote about this. I recently did another podcast, and I think I eventually started yelling at the host, and I realized that wasn't the best strategy to win anyone over to anything, especially winning them over to liking economists, which is my ultimate goal.

Well, we've done each other a long time. You're welcome to yell at me on my podcast. So it is annoying, as you note, that when we need to bring down inflation, we use this very blunt, but also strange, interest rate tool. And it's always seemed to me that you could use things like

a progressive consumption tax. So some kind of tax that was on spending, but given you're worried about hitting the poor, you could orient it so it was higher or really only hitting wealthy Americans and turn that up during periods when you needed to cool off demand, such that if you're wealthy, you have a little bit of a distance that to spend that much right then. And it seems like that would be one more tool in the sort of economic management arsenal, and it would spread

itself in ways that at least were differently uneven than interest rates. And I'm curious what the holes in that are. We've talked about that before, Ezra. I like that. I'm just not sure how many other people you're going to be able to sell on it, but you can sign me up. You'd want to figure out some way to make it somewhat automatic. So it's not that Congress's

response to people having a hard time affording stuff is to raise taxes on them. But if your way of managing demand is getting people to postpone a purchase by a year, and it's more expensive this year, but you know if you wait, it'll be cheap again. That's a pretty appealing way. And conversely, when you need to stimulate the economy, it'd be great to do the opposite. Get people to take purchases they were going to make one, two, three years from now and to pull them forward.

So I appreciate you signing on to that. And I guess you were not one of the economists who emailed me and they have to that column. So one of the difficulties that any incoming administration faces is not fighting the last economic war. And we're still in this place where inflation is low as a measured rate of price change, but prices are high and people are annoyed. And so a lot of the election is taking place in the context of inflation and having things to say about how you're going to bring

down prices is important for both candidates. But some of their economic teams have to be thinking about what the coming problems are or the existing problems more than how to bring inflation down from its current, you know, as you said, roughly two and a half percent. So if you were, you know, the Harris and Trump economic advisors came to you and said, what should we be worried about, you know, in 2025 and 2026? What should we be thinking about in our plans? What kinds of crises

should we be most alert to or alert to heading off? What would you tell them are the most pressing current or next wars? First of all, I would just focus on the stuff that happened outside of a crisis. What can you do to have more productivity growth? What can you do in things like the housing sector, improve job mobility, you know, productivity inequality, just your main staple things year after year.

I don't think the debt is coming anywhere close to a crisis right now, but it's definitely unsustainable. It's definitely in a place that makes me somewhat queasy. And so I don't think everyone needs to drop everything to have a grand bargain, but to at every step of the way, make sure you're making

it a little bit better rather than a little bit worse. And then in terms of crises, I, you know, my biggest fear is that we're too shy to do as big a response to the next crisis as we need to do because we overlearn the lesson of this one and think we did too much this time and next time end up making the opposite mistake and doing too little. My hope is that as somebody who does think we did too much this time around that I'll have some credibility the next time to explain,

no, no, you know, it's not the same thing. Don't worry about it. We're not going to get inflation or whatever the situation is. So one thing we know is coming is it in 2025, a bunch of President Trump's 2017 tax cuts are set to expire. To start this, how would you describe with the evidence we have now what the Trump tax cuts did for the economy or at least intended to do for the economy and how well they worked? So there's two parts of the Trump tax cuts. One was the corporate tax cuts

which were permanent and there was a lot of ex ante research. I did one paper with a colleague of mine in the economics department at Harvard is probably the single most conservative person in that department and we teamed up to do a paper to figure out if we could sort of go back and force and converge on a growth estimate and we did and that it was that it would add after a

decade 0.2% to the level of GDP. And just to understand that's cumulative over a decade. So each year that's something like 0.02 percentage point, something you wouldn't even see in the rounding of the growth numbers. Other economists who have looked at the corporate tax cuts have seen similar numbers, you know, maybe even as high as adding half a point to the level of output. Again, the growth rate is much lower because it's spread out over time. Those tax cuts though,

those corporate ones are permanent and they're in the system. The ones that are expiring are mostly on the individual side. I think a reasonable guess is that they added about 0.00% to economic growth. They had them going away because first of all they thought it would be politically hard for anyone to let them go away and second they thought it wasn't completely tragic if they did go away because they weren't really about economic growth so much as they were about the distribution

of income. What happens if Congress does nothing in 2025 and does let them go away? What is the magnitude of tax increase? And when you say it doesn't have any effect on the economy, I think people's natural assumption here is that whatever else you do, cutting taxes puts more money in people's pocket and they spend it. So how can that have no effect to one way or the other on the economy? Yeah, so when analyzing a tax cut, you have to separate the analysis of the demand side from

the supply side. The demand side is putting more money in people's pockets. If you're in a recession, that really matters and that really helps. In normal times, including over the medium and long run, it doesn't matter because the Fed is going to adjust interest rates to get demand to where it wants to be. The second thing tax cuts do is the supply side of the economy and if they're well designed, they'll lead businesses to invest more or people to work harder or whatever it is and the economy

will grow more. It'll have more supply. And the corporate tax cuts, I think, added a tiny bit to supply and basically nothing very much to demand. The individual ones were the opposite. They added some to demand, but basically nothing to supply. So now if they went away, the magnitude of that would be if our economy is still strong, something that we could easily handle, the Fed could lower

interest rates if it needed to. It would be subtracting demand from the economy, but this is not like 2010 or even 2012 when you had an unemployment rate of 7-8% and we were really too afraid when I was in the Obama administration to let those tax cuts go away. That was not a credible threat to go over the fiscal cliff because we were looking at the eurozone crisis, worried we might go

into another one. If our economy is in the shape it's in today, a president Harris or a speaker had came Jeffries, I think could credibly threaten that if we need to go over that cliff we can. This is not must pass legislation. The individual tax code was perfectly fine in 2016. If it goes back to the 2016 tax code, so be it. Our Democrats are too afraid of making that argument. Vice President Harris has picked up President Biden's pledge to not let taxes increase on Americans making. I believe

it's any less than 450,000. It's something right around there. If the Trump tax cuts did expire, that would be an instant tax increase on those Americans, which might be fine. I mean something you didn't mention there, but is the impact there on budget deficits and at some point you have to pay for this stuff potentially. The Trump tax cuts are not well, at least the individual side, are not well designed. That might be a pretty straightforward way to help make the budget a little

bit better. Democrats are still pretty afraid of being blamed for raising taxes on anybody who's anything less than pretty rich by American standards. Are they making a mistake there? Before I get to the politics, let me do a tiny bit of substance. A lot of the structure of the individual tax cuts that were done under Trump were quite good. A larger standard deduction makes

taxes easier for people. A larger child tax credit is great for families. I like the limitation on the state and local deduction and the mortgage deduction, even if they're not popular with everyone. So if we're up to me, I actually would take all that and make it permanent. What we can't in my view afford to do is take the lower rates on the individual side that were in that and make it permanent. That's where the real cost came from, not some of the structural changes, which actually

were simplification pro children and the like. The rates were huge amount of money, not just at the top of which there was a lot of money going to the top, but also a decent amount going to the middle as well. And that's where things, as you note, get difficult politically. Second, I'll just to do some magnitudes on all of this. We're talking 1.5% of GDP. To put that in perspective, the entire shortfall of the Social Security program for the next 75 years is only 1.2% of GDP.

So whatever you're doing on taxes here is actually much more fiscal consequential than whether you even save Social Security or don't save Social Security. So it's actually quite a big fiscal issue. In terms of the politics, yeah, it's obviously not easy. What you'd have to sell is the notion that you didn't raise taxes on anyone. That's where taxes were scheduled to be in 2026. That's what Donald Trump, how he wrote the law, how his Congress passed the law, could Democrats get away

with that? I don't think it's easy, but the other alternatives for this magnitude of deficit reduction are even harder than this option would be. I don't get the sense that when Democrats look at this fight, what they see is an opportunity to get deficit reduction, maybe a little bit. But I think they see it as an opportunity to bargain for tax changes they actually want. And when you go through the various pieces of policy that Vice President Harris has proposed in the campaign,

you see a couple of big ones that at least I could imagine being in a tax fight like this. So bringing back the expanded child tax credit that the Biden administration passed during the pandemic, making that permanent, creating this new $6,000 credit for families of newborns. So you'd get that in the first year of a child's life. There's an expanded or an income tax credit for childless

adults. There's making permanent the expansion of affordable care act subsidies. There are others if you read her whole plan, but I'm curious what you think of these, like which you would like to see Democrats really try to bargain for and which maybe you think should not be as high of a priority. So number one for me would be making the child tax credit fully refundable so that right now to $2,000 tax credit, middle class families get $2,000 per child, lower income families don't get

that full $2,000 and in fact some families don't get anything for each child. Ideally, you'd get to a flat $2,000 per child. That is incredibly high bang for the buck poverty reduction in the short run and there's a growing amount of evidence that it helps mobility and opportunity in the medium and long run too. Second, the earned income tax credit, especially for workers without children, is really inexpensive. Paul Ryan was in favor of a decade ago. Barack Obama was in favor of a decade

ago. I think that should have been sufficient for it to have become a lot of decade ago, but it wasn't. So here we are might as well do it now. Third would be the $6,000 for the first year and there really is good evidence for front loading the child tax credit. And it's not incredibly expensive because I believe the child tax credit is for 16 years. So it's one-sixteenth the cost

of an expansion because it's only for one of those 16 years. The last one which is the most politically attractive is increasing the child tax credit to something like 3,000 or more for everyone. I just don't see how you can afford that right now given where our deficit is. Ultimately it's impossible to figure out a sustainable fiscal solution without higher taxes

on middle-class households. And it's incredibly hard to see how you get there. And in the interim to do lower taxes on middle-class households is just going to make it that much harder to get to the solution everywhere. So sadly I just that to me feels not just like a low priority, but maybe even a negative priority if you think it's going to end up crowding at the resources we're going to need to sustain the type of government that at least I would like to have and you too probably answer.

When I look at Kamala Harris's policy proposals, pretty the first set she brought out which was a sort of vague plan to build 3 million homes, although we'll talk about some of the details have been released there in a minute. That $3600 child tax credit expansion. I mean that's been in there from the beginnings. You're saying you think that's a little big given the fiscal position. Yeah, I just don't see how you can go ahead and legislate something like that given that the

United States does have a debt equal to 100% of GDP. That debt is growing again with interest rates where they are. Am I panicked about this? Absolutely not. But I do think a do-no-harm principle is in order. And what's the end game of all of this? You have to write down something that you could imagine lasts in the sustainable over 10, 20, 30 years. I mean I love more tax increases on the rich.

There is more space there. But there's just a limit to how much you can do. You can basically do enough that you could either solve the deficit problem or pay for the tax cut extension or pay for things like paid leave, child care and the like. But you can't really use it for all three things simultaneously. Let me ask you about the budget deficits. The deficit right now is running at about 7% of GDP. In fiscal year 2024, I think 17% roughly, a federal spending is just

paying off interest on the debt. When I download my latest congressional budget office, long-term budget outlook, they have that interest payments as percentage of GDP or percentage of federal spending goes up quite a lot in the coming years. You seem very chill about this. It's a problem, probably not a big problem, make things a little bit better where you can. What level of work to make things better are you actually at here? What percentage of federal spending should be not going to interest

payments? Yes, so I don't love the interest payment, which I view more as a talking point than an analytically serious point. Maybe your mind has been infected by some of the deficit hawks on this one, Ezra. I've been around Washington a long time, man. I remember it's hard to not pick up the

occasional brainworm. I remember he's to hang out with Paul Ryan. The issue is that every year we pay interest on the debt, but every year inflation erodes some of the value of our debt too, which is why I focused on something called real debt service, which is the actual burden of carrying your debt forward,

taking into account inflation and interest rates. That right now is below a threshold that Larry Summers and I proposed of not rising above 2%, but it's rising and it will eventually get above that. If you ask me what the magnitude of adjustment we'd need to stabilize everything, I think it's about 2.5% of GDP. Just to put that in perspective, in 1990 and 1993, there were budget deals that totaled 3.5% of GDP. Those two deals together

were larger than what we're doing we'd need to do now. I think it's a very doable thing for the American political system once upon a time. I don't think it's a doable thing right now. Part of why it's not a doable thing right now is it's not as pressing as it was in the early 1990s. Back then, interest rates were really high. People wanted to get them down. Death is at reduction with part of how to do that. In some sense, the political system is not highly motivated to take

the step, but eventually things will change. When they do, I think the political system will change, and it's within sight of a doable adjustment to get from where we are now to where we need to be. So I haven't talked to Paul Ryan in a minute, but I still do know a budget hawker too. The thing they seem to me to worry about is a political economy issue, which is that in their view, the structure of the parties that would occasionally give you budget deficit deals is just gone.

I think the clear way to look at it was that Republicans didn't really care about debt or deficits when they were in power, but they developed, you can call it opportunistic or you can call it a flexible and fast way of changing opinions, but they did care about it a lot when Democrats were in charge, and Democrats cared about it a lot when some mixture of their economists and wanks

and the media yelled at them enough to care about it. But now Donald Trump has, I think, annihilated the budget hawk class in their Republican party and sort of ended that fig leaf almost entirely and made it non-Republican to care about Medicare spending and Social Security spending, so much of the things they wanted to cut, they can't even really talk about any longer.

I think there's a lot of anger in the Democratic Party still about the turn to budget reduction in 2010, 2011, when the economy was still weak, and so the political interests that were once there, where you could imagine, if you have President Kamala Harris and some Senate Republican leader, whoever follows Mitch McConnell, getting some kind of deal aren't there anymore in a way that creates structural conditions for budgets to rise quite a bit without anybody really being at the table

caring about bringing that down. So when you look at the alignment of forces that might get people to pay attention to this, do you agree with this narrative that is materially different in a way that might make this a problem or do you think this is epiphenomenal or not something worth worrying

about? Yeah, I think you nailed it. In game theory, you give these two sides, and if one of them does a dollar of deficit reduction when they're in power, and they think it's going to lead the other side to do a dollar of spending or a dollar tax cuts when they're in power, maybe even worse, by the way, a dollar 50, because it just catalyzes everything, then why would you ever do it?

And so maybe both Bill Clinton and Barack Obama made mistakes with the amount of deficit reduction they did, and both of them teed up tax cuts from George Bush and Donald Trump respectively,

and we've learned a lesson that that fairy tale was never true. What's the only way to end this cycle where you never want to do anything, because you're sure the other side will undo it, if you believe they're motivated by some sort of restraint, and that restraint, I think, is entirely, almost entirely absent on the Republican side right now, and is mostly absent on the Democratic side

as well. I do think if you look at public opinion polls, people do seem less worried about the deficit than they were about a decade ago, so it's not like voters are demanding that the two candidates talk about their deficit and debt reduction plans, and why might the voters have changed?

Well, interest rates are lower than they used to be. Federal interest payments looked at the correct way, which is the way I look at them, are also on the low side, and maybe people aren't totally crazy to be less worried about the deficit now than they were once upon a time. How would we know if there is a problem? One of the reasons I ask is that one thing that has been

true in other budget deals is the problems have been speculative. When there were these fights with Paul Ryan and Barack Obama and Mitch McConnell and those deals, there's a lot of talk about us becoming Greece, but we were not at that moment Greece, and we were probably never going to become Greece. When I say parts of this politics have been discredited, one thing that has been discredited is that Republicans really care about this. One of the fun things about Donald Trump

is he didn't just cut taxes without paying for it. He also increased spending quite a bit with a Republican Congress without paying for it, so the degree to which Democrats felt like suckers on that after being harranged about budget deficits for years was pretty significant. But also, there's a feeling that some of these scarce stories just don't happen, and that this fear of what used to be called bond vigilantes coming one day and ceasing to buy treasury bonds

is pretty unlikely. When you think about what is a warning sign that would try to get you to take things more seriously, is it just watching these real payments you're talking about? Or is there something else you look for that might signal instability in our fiscal position? So, I would say interest rates are the main thing I'm looking at, and so right now the 10-year treasury is at around 3.75 percent. That is higher than it was a couple of years ago, but pretty low in

historical perspective. If that went above five and it seemed sustained there, that would get a lot more of my attention than it's getting right now would be one thing, and the higher the debt is, the bigger the adjustment you might eventually have to make, so this is the commonplace that the sooner you deal with it, the better. For me, one big question is we do have this forcing event in the Social Security Trust Fund, as exhausted, which is supposed to happen about a decade from now.

That's entirely sort of accounting convention. We could choose to pass a law that said ignore that accounting convention and just keep sending people checks, don't raise anyone's taxes, don't do anything, and that would be a perfectly valid law, but it would be, I think, a real shame to lose that forcing event, because that's a much better forcing event than a fiscal crisis would be to get

us to deal with our house. So, I'm going to admit that I am one of these people who does not wake up in the morning and worry a lot about budget deficits, but like a good Californian, I wake up in the morning and I worry about housing. So, I want to spend some time before we talk about the current set of housing policies being debated, talking a bit about how we got to here.

I think people who listen to podcasts like this one have heard a lot about zoning and regulation, but if you look at a chart of housing construction, new housing starts fall off a cliff after the housing crisis and never really recover. We're still below the level we had. So, you were in the Obama administration during the housing crisis. What happens here? What happens to bring housing so low and why does it never fully recover? Because that's not a story of zoning and regulations,

I don't think. It's not like we invented that in 2008. How do you tell that story? So, I don't exactly know. Certainly, when I was in the Obama administration, we had forecast that basically said, look, we overbuilt on houses, but now we've been way below normal for several years. We've made up for that overbuilding. Here's what the demography is and people need houses. So, we'll get back up to that higher level of home building and we never got it. I don't love when

people talk about housing shortages because I don't know exactly what it means. I mean, there are more than enough structures for every American to live in. We have a homelessness issue, but that isn't that there isn't enough houses in San Francisco. It's a very, very different issue that causes homelessness. So, I don't think it's that we don't have enough houses. What we do have is a very big problem of enough housing in the places that people most want to live and most want to

live and are probably most productive for the economy as well. When you say that homelessness in San Francisco isn't because there aren't enough houses there or at least housing structures, what do you mean by that? Oh, I mean, first of all, literally, there's like enough spare apartments or houses or whatever it is in the area for people to move into. So, you know, this is a little bit like a martia sen used to study famines and pointed out in almost all of them,

there was enough food. There were just a set of people that didn't have enough money to buy that food. So, I don't think you want to think of homelessness as, oh, if we just had more houses, it's a real inability to have the money to afford a house to manage your life in a way to have it. And if you lowered all the house prices in San Francisco by 20%, which would be a massive miraculous amount for a public policy lever to accomplish, I don't think that would change

homelessness very much. Do you buy the basic argument that more housing leads to lower housing and rental costs? Yes, I do. And so, match those up. I think I could probably tell a story between the two things you're saying here. But when the Yimbees are saying, look, we just need to build more or housing is a homelessness problem, which is a book I quite like, says, you know,

the way to think about this is that it's like a game of musical chairs. And if you have a game musical chairs with 10 participants and one of them has a broken leg and you have 10 chairs, everybody's going to get a chair. But if you have only nine chairs, then the person with a broken leg is not going to get a chair. And the housing is really like that. The individual circumstances only matter because there aren't enough homes, we're in West Virginia, which is a lot more

poverty than California. You have a lot less homelessness. So sort of walk through why then if there's enough structures, you don't have, even if you got more structures, like you wouldn't get to a place where you could solve homelessness. So give me the ikan 201 here. Cities are very attractive. Even though they're much more expensive places to live, they're attractive for rich people because of all the amazing amenities they have. They're also attractive for poor people.

They would, in a lot of cases, rather locate in a city for a whole variety of reasons. And so, so I think it's largely should be thought of a little bit more as more attractive housing. And I think that's the better way to think about housing is how can you get the cost down, the quality up so people can live where they want and live more in the ways that they want as opposed to literally they're just aren't enough homes. I think in some sense there aren't good enough and cheap enough

homes. And by the way, maybe this all leads us to the same exact policies. I'm not sure. I guess one question this raises before we go back into the back into the policies is something that I do see coming up a bunch in arguments over yinbism, which is is it in any way plausible to imagine policies that would lead to sufficient levels of home construction that places like San Francisco, like Boston, like Los Angeles, like much of New York City would become quote unquote

affordable. It's not that you can't imagine more homes, apartments, etc. being built. I think everybody can imagine that. But one argument is that at any of the levels you can imagine that, even pretty high levels, there are so many people waiting, people who live somewhere else and will like to move closer to where they work or closer to a fun and interesting and culturally vibrant city, people who are doubling up right now, people who are living with their parents right now,

the demand is functionally inexhaustible at any level of plausible building. So you can make things a little bit more and a little bit less affordable. But this idea that you know, you'll have the firefighters who protect the city of San Francisco able to live in the city of San Francisco is just not that plausible, at least not without the government or someone else doing something that forces a lot of this housing into the affordable category. Look, I think it would help. It's not,

you know, let's say it costs $4,000 a month for a place for a family in Cambridge. Are there an infinite number of people that would come in if you lowered that to $3,995? No, you get some additional ones at that, some additional ones at $3,900, etc. I think there is some sort of downward sloping demand curve here, not just an infinite number of people that are willing to pay $4,000 a month to live in Cambridge. And right now we have a situation in Cambridge where most of the housing

stock was built before we had zoning laws. And my hope is that we're on the cusp of a really, really big radical change where you can build six stories anywhere in Cambridge and a bunch of other rules would be waived as well. And, you know, I think that'll mean lower rents in Cambridge and I think it'll mean more people. All right, fine then. We'll talk about zoning. So, Democrats have had a bit of an intellectual revolution here. You hear Kamala Harris talking about

increasing supply, Barack Obama at the DNC. But you were the chair of the Council of Economic Advisors in, I think it was 2015 when you released, I think the first of these big reports on land use policy and housing prices out of a Democratic administration. What was the argument you were making then and how in your view has the situation or the evidence changed between now and then? Yeah, so I was an enthusiast back then and our administration did things that were basically

I described as bully pulpit. We put out a toolkit for what local areas could do if they wanted to improve their zoning. And largely the argument was that these types of rules were limiting supply. They were limiting supply in some of the most attractive areas of the country. So, there was an economic growth case of having more people agglomerated into especially the coast is attractive

for growth. There was part of an anti-rent seeking theme of part of why you have these rules as they protect some of the existing incumbents at the expense of everyone else that is not there. And when I talk to the people on city council in Cambridge, they saw the types of things that we were producing, that others were producing arguments that people like Madagalaceus were making and they were really taken by them and persuaded and excited. And that's why they started to write down

these types of reforms. So, I do think the bully pulpit and putting this idea out there really has mattered and probably mattered more than I would have thought a couple of years ago.

Kamala Harris just released a lot more detail on her housing policies. A bunch of different credits for building certain kinds of affordable homes usually or homes for new buyers, a tax credit for people who are buying a new home for the first time, that bigger tax credit, if your parents didn't own a home, a $40 billion grand program for cities that have

sort of planned to change regulations and construct housing. And if you can sort of persuade the federal government that what you're going to do here might work, they give you money for it. What have you thought of her policy announcements? And do you think they add up in a possible way to the 3 million new homes promise she's made? I haven't quantified it, so I can't tell you whether I think it hits the goal or not. Gone balance, it moves in the right direction, as you'd be

unsurprised to know from everything we've just been talking about. I think the bully pulpit can help with zoning reform. I think $40 billion can help even more. And that type of money could really catalyze some bigger changes in the space. I'm very excited about that. The home buyer cracks credit, I'm less excited about. First of all, if you know the person has a home buyer credit, you're going to raise the price of the house. And so some of this will make housing more affordable,

but some of it will also increase demand and drive up house prices. Moreover, it's a very expensive credit and they say they're only keeping it for a couple of years, but it's hard to put these in place for a couple of years and then not continue them. So to me, that's a much lower priority that could even be counterproductive. And then finally, there's a whole set of things on antitrust and restraining private equity in the space and the like. And some of those I like and some of those

I'm not sure about. I like things like the, you know, what the government is doing now on basically price fixing in some of these automated algorithms. I think that could really be real and is worth really bringing to court and exposing and seeing whether that's the case. Private equity, it's big, but it's still really small compared to the size of this market. It's still really not a very concentrated market. And by the way, they can help with the supply. So when you're cracking

down on them, I get it. I've read some of the horror stories. I'm worried that that might get more in the way of supply than it does to help bring the price down. There are a number of tax credit proposals in there to try to incentivize the building of new housing directly, particularly housing for new homeowners, housing that might be affordable. What do you think of that side of the policy? I guess I'm skeptical of that too. When I've looked at studies of like the low income

housing tax credit and awful lot of it ends up going to developers. There's not a huge evidence that it's going to the people you want it to go to. So I think it's much easier if you want to help lower income people give them a larger child tax credit, give them an EITC, give them something where I'm 100% sure that every dollar you're sending to the person is basically showing up

in their benefit. So I'm a pretty big housing guy and I guess I felt mixed. I have been very excited by how much bully pulping by his president Harris has been doing here to see her putting a 3 million home pledge as I think the first bullet point on our first policy announcement. That was great to hear her talk about that every time somebody says what are you going to do to bring cost down? I think that's great. I think this stuff actually really matters moving it salience to the center

of the agenda in the way she has feels like an important thing. And then the policy just struck me really underpowered. I mean the reason I ask you that question about 3 million homes is that I don't think this policy is going to get anywhere near there. The housing experts I've spoken to don't seem to think it'll get anywhere near there. And I was particularly struck by how just targeted everything was right credits to build these homes. But only if the you know person who

buys them has never owned a home before. Well, like how is the home builder supposed to know that and don't we just need more homes and isn't it okay if somebody moves you know into that home and then opens a home living living in for a first time buyer. Right. I'm all for affordable housing. But there's just a lot of you know you got to submit your tax receipts and you know show that you've been paying your rent for two years and in the tax credit for buying a home show that your

parents didn't own a home. And it struck me as this way Democrats endlessly over complicate policies in order to show they're helping the right people and none of the wrong people. And then finally I mean I the best part to me is this $40 billion grant program. But the government gives a federal government gives a lot of money to states and cities already. And you can tie that money to things to whether or not they are seeing housing starts to go up to whether or not they

have ended single family zoning. You don't need $40 billion new dollars. You can also use some of those tens and hundreds of billions of dollars you're already using. It felt to me like a place where the rhetoric is outpacing the policy solutions. You might be right about that. I guess I'm just so excited about the rhetoric that maybe I let myself get a little bit carried away and you can talk me down. I'm the first time I've been more you've been more excited than I've been about

something. So some of you are talking me down here Ezra but yeah on the all the different you know rules and all those tax credits and everything. I guess it seems to me a little bit like you're talking about how the portions are too small and we need to decide if those food was good or not. If that food was good then all those different rules are a problem. On the other hand if you think a bunch of that was misguided and we'll show up in higher prices because it increases demand and doesn't

do anything for supply then all of those rules might actually contain the cost. I should say there are two types of these tax credits which I think are just to note there's a 25,000 r credit for people to buy. But then there are a bunch of tax credits for people to build. And the build tax credits also have a bunch of rules on them. That's sort of what I'm pointing at which surprised me. But even then there's this question of you know who's the beneficiary. Would the

house have been built anyway? What's the bang for the buck? Cost per house etc. It can be hard a bit to talk about the Democratic and Republican campaign proposals in relationship to each other because there's this tendency to be like well I read Kamala Harris's almost 80 page economic policy booklet and on page 36 I don't like bullet point number four. And meanwhile in Donald Trump's all caps truth social post on this issue. It just talks a lot

about illegals. In this case that's more or less what their plan is. They do not have a detailed housing plan that we can look at. My time's colleagues talked to the Trump campaign. They were told that the theory is about stopping the quote unsustainable invasion of illegal aliens which is driving uphousing costs. This is something by the way that JD Vance has talked about in terms of Haitian immigrants to Springfield that you know if you really want to understand why

why housing has got in bad he talked about this at the RNC. There was underbuilding after the financial crisis. We've talked about that but then there was an invasion of legal immigrants and that's led to high housing prices and they've also talked about pushing the Fed to bring down

mortgage rates. What do you think of those two arguments? One that the pressure here is coming from immigration and that if we cut immigration or deported a lot of immigrants we would have lower prices right you can either build more homes or get rid of people they want to get rid of people and two that they have been and and and Trump has been very clear that he wants the Fedors are more under the president's control in order to bring interest rates down on a more

rapid path. So on your first you know a lot of immigrants move to an area really Donald Trump's first I want to be sorry. On Donald Trump's first argument immigrants have a lot

immigrants move to an area really quickly that could increase housing costs in that area. Now part of why it's happening in a place like Springfield is Springfield is an increasingly economically attractive place so even without immigrants coming from other countries if your manufacturing starts turning around you're making more stuff in your place you're also going to see house prices

and rents go up. Over the medium and long run though and in a lot of cases maybe even in the short run immigrants just look around they're building a lot of houses they're repairing a lot of houses they're installing a lot of stuff and so you're getting both demand and supply and by the way in a

place like Ohio the issue is not land there's is enough land there's enough space for for houses and the issues who's going to build those houses so I don't I think the immigration housing thing is is a complete almost a complete red herring on the Fed if you want the Fed to lower interest rates

do some deficit reduction. Part of why interest rates aren't going back to where they were before COVID is that the debt isn't going back to where it was before COVID and when the Fed sets interest rates it has essentially the sort of upward pressure on what economists call the neutral rate

on which is coming from debt so if anything one of the bigger housing differences between the two candidates is that Donald Trump is proposing a lot more deficit increases no matter what he does to the Fed yelling at them screaming at them that is going to result in higher long-term interest rates and higher mortgage rates and will make the housing issues worse not better.

All right so I've asked you about at least one of the issues that Vice President Harris' front loading so now I want to flip this and I was saying a second go that it can be hard to know what Donald Trump wants to do on many policy issues but at least on trade it's a lot clearer and he's proposed this big universal tariff we'll talk about that in a second.

I want to talk about where the trade question starts if people tune into the presidential debate between Harrison Trump they heard talk about the trade deficit and who's responsible. Trade deficit is one of those terms I think people here in politics and have you know some kind of hazy ideas about but it doesn't get explained that often or at least its implications don't so how do you explain the trade deficit and what different levels of it might mean.

So right now the United States imports more than it exports by itself that is neither good nor bad imports are a wonderful thing we all love buying them and you know by the way we still export an awful lot there's this notion that somehow the trade deficit is taking our jobs but that's just false I mean we had a trade deficit a year and a half ago and we had a 3.4% unemployment rate we still have in the grand scheme of things quite a low unemployment rate and by the way it's not

like the unemployment rate moves up or down with the trade deficit in fact if anything it's the opposite of what you'd think times when the unemployment rate goes down Americans buy more stuff and the trade deficit goes up and vice versa so for almost no economist is the trade deficit on the thing they'd

look at. Something you will hear from the JD Vance world of Republican economic theory is it it's much worse than it looks because we import goods we import things people make and we export a lot of money and financial services and so there's this sense among I would say like the orange

gases of the world that we are importing real things and we export fake things how do you think about that so this idea that like the stuff you can weigh is you know real and the stuff you can't is not it's just nuts look at how most of us spend most of our money most of us spend most of our

money on services not on goods there's just a limit to how many cars that you want to buy and there's a very steep limit on how many refrigerators you want to buy by eating out in restaurants traveling all sorts of services there's much less of a limit on so as we get richer that's what we

want that's what we like in terms of jobs you know once upon a time not only were there a lot of manufacturing jobs but they were among the best paid jobs in the economy those statements are just not true anymore there's a lot fewer jobs and outside of people with you know graduate

degrees we're helping to set these factories up and and run them at a high level they're not actually much better paid than many of these service sector jobs so I think it is just you know sort of fanciful nostalgia maybe a plan for one percent of Americans to get better off

at the expense by the way of higher prices for the other 99 percent but there's not a plan here to help 10 20 30 percent of Americans let alone all Americans so Trump's tariff plan which we've talked about on the show before depending on when you hear him talk about it 10 percent or 20 percent

tariff on all important goods when you get to China it becomes much higher I think in the 65-ish percent range how do you think about that in theory right when are tariffs a good idea and what are they not and then how do you think about that particular plan were to become fact so in theory

for the most part never like tariffs the British got rid of the corn laws not as part of a trade negotiation but because they recognize that they were making the prices that British people had to pay to eat corn much higher and they were doing it for the benefit of rich landlords and had nothing

to do with foreigners so I'm sort of low tariff guy pretty much across the board where I would make a very very limited set of exceptions is national security with a high bar for what counts as national security so you know should we have drone factories in the United States because in the event of

war we want to be able to you know repurpose them and make military drones I think the answer is probably yes and it's possible that tariffs would be part of the toolkit for that as a legal matter if you're responding to another country's tariffs with your own I think you're probably

hurting yourself more than you're hurting them but at least as some limiting principle and legality underlying it and it doesn't lend itself to a spiral so I guess I'm okay with it and um in a case like that president Trump what is completely nuts is there's just no theory

around it other than just enthusiasm for tariffs it will go on friends like Germany and Australia it will go on products that you know we don't have any plan at all to make in the United States and I have nothing to do with our national security like ballpoint pens if you're genuinely convinced

that the foreigners are paying the money and not the Americans paying the money why would you even ever end these why would they even be a negotiating tactic they would just be a permanent part of the arsenal and when it comes to China I think this administration rhetorically had it

exactly right when they said we want to have a high fence and a small yard the small yard would be the way you protect all the things that are vital to our national security and you don't just do a small tariff on them you basically ban trade and then you ban the export of them or whatever it is

you want to do every single thing made in China toys clothing furniture why would we want to raise the price of those to to one end so here's the end I guess so or in cast of American compass who's been influential in in this argument on their public inside and people can hear him on the show

from a couple months ago put that in in show notes you had a piece for the Atlantic defending this saying the economists are not telling you all the truth about this and he says basically the tariff suggests an externality quote the basic premise is domestic production has value beyond what market

prices reflect a corporation deciding whether to close a factory in Ohio and relocate manufacturing to China or consumer deciding whether to stop buying a made in America brand in favor of cheaper imports will probably not consider the broader importance of making things in America and he goes

on to argue that you know those decisions add up to a collective set of questions and those are about partial national security that it increases our national security to make things here partially innovation we innovate more if we make things here and and there are things like semi

conductors where I think we've really come to realize that and are now spending a lot of money to try to ensure the supply chain and and the manufacturing and that there's just better spillovers from having more manufacturing domestically placed how do you think about that first of all

I don't think you get any more manufacturing from tariffs so when you put a 10% tariff on everything coming in from the rest of the world Americans aren't going to need to buy as many euros as they used to they're not going to need to you know buy as much renman be from China

as they used to and that will lead those exchange rates to get weaker because there's not as much demand for that currency so the dollar euro exchange rate will change what that means is it will be more expensive to export other stuff Europeans will have to pay more euro in order to buy an export

from the United States the second step is other countries aren't going to stand still they can place tariffs on us as well the third thing are our intermediate goods that are used in other sectors of manufacturing so you raise the price of steel in the United States and all of a sudden

it's much harder to have a competitive car industry in the United States and there's just huge linkages throughout the supply chain and so I don't not at all convince you get more manufacturing if you follow all of the advice that's here and even if you did I'm not convinced that that would

lead to more spillovers and innovation except in some very targeted places like semi-conductors I think the place some of this thinking comes from not exactly sure if this is true for Donald Trump himself but when I talk to other people on the sort of Trumpian right a lot of it comes from

feeling that we got sold we being America here a bill of goods on China and that the comments all said this is going to work out totally fine and it's going to work out great and now you know David Otter is probably you know the leading economist and is very well known for his work on the China

shock about how much more damage the sort of movement of manufacturing to China did than people predicted and they look around and now China you know owns a lot of you know the renewable energy sector and we don't really like that and we are now putting in effect the Biden administration is

putting huge tariffs on Chinese electric vehicles and we're worried about that and our semi-conductor industry is gone and we're worried about that and we're trying to bring it back and you can kind of go down a list like this but but even some really celebrated economists will say actually the

deals we made had a much more significant effect and negative effect on particularly a lot of communities in America than we were told so I guess what's your answer to them and how does that affect the even what Democrats believe now because I do think there's been also shifting you

know Democratic views on trade so my views probably haven't shifted very much at all and I'm much more unapologetic than what you just laid out let me just go through a few things first of all there was a really big increase in inequality from 1980 to 2000 um since 2000 depending on

what data you're looking at inequality's been up a little or down a little bit but it's much much less of an increase than before 2000 and that's important because there wasn't much of an expansion of trade with China until 2000 second most of the expansion of trade with China was not about the

WTO and lowering the tariffs it was that they grew and they're you know a big country and they grew third if you do the full distributional analysis you want to look at the impact it had on inequality in the United States which even in David Auder's numbers aren't that many people relative to the

monthly job loss this was a period of generally quite low unemployment in the wake of this China shock and most importantly the biggest most progressive thing that much of the analysis misses is that lower income households spend a higher fraction of their spending on imported goods

and imported goods from places like China so it's mattered the most to them now in terms of what I'm worried about I am worried about microchips but we didn't lose microchips to China microchips became a global supply chain and we've lost part to the Netherlands and part to Japan and part to

Korea part to Taiwan and by the way that's a good thing every one of those countries I just said is a friendly country but you don't want 90% of the world's advanced microprocessors coming out of you know in island off the coast of mainland China and so the chips program I think has been a

it's a horrific thing it goes against the standard economic recommendations but there's a good national security reason I think so far it's working quite well but the microchips is not a China issue the solar panels I'm thrilled about what China's done there cheap solar panels bringing down carbon

emissions electrify everything we're closer to that goal today because of China do you think that the democratic consensus on trade has moved too far in the Trumpian direction yes I think it certainly has if you look at the Harris 80 page policy book or whatever it is

it doesn't look that different from the Obama book or the Clinton book but trade does look different so yeah I think Democrats have gone too far and if anything you know insofar as there was a China shock which there was by the way it's one that was 15 years in the past it's not continuing

in the present so if anything we're in a very different place right now this is a place where I feel very myself unsettled and feel like there have been some very big moves that feel like they have trade offs that are not being well articulated so the Biden administration put a I think it was 100% tariffs or something like that on Chinese electric vehicles and so on the one hand we want this huge transition to happen really really rapidly on electric vehicles and on the other hand we have

these very cheap Chinese ones which we are functionally going to make it impossible for people to buy at least to buy cheaply and there's a lot of things like that happening right now that seem to me to pit a view of I can't always tell if it's national security or just our competitiveness against

what is you know the climate threat right and the difficulty of having a low cost rapid transition how do you think about both where the Biden administration is ended up there and just how do you think about that in theory so I'm not sure when I think about where the Biden

administration has ended up I don't like a lot of the way to discuss publicly and frankly even privately because yes I think this is all really difficult trade offs and if it wasn't a difficult trade-off the answer would be really obvious if you come to me and say we're going to place limits

on Chinese solar panels and because of that Americans are going to figure out how to make solar panels and our solar panels are going to be way better and cheaper than the Chinese ones ever would have been and so it'll be much cheaper to deal with climate change because we did this and we're

going to get lower emissions reductions more down the center I don't think you've done the analysis right I think you've gotten the sign wrong on one key part of it and so I don't really trust your benefit benefit analysis you're not going to persuade me that way you'll only persuade me

if you go through the cost benefit analysis and for the most part I haven't seen it so I don't know where you get to with the correct reasoning I don't think it's where we are right now it certainly isn't where Trump was where you're putting tariffs on washing machines and all sorts of things that have nothing to do with national security but I don't know what the right answer is this picks up on something you just gave this speech it was you called it a defense of the dismal science which

is in this case economics and you sort of described what you think of as the liberal vices on economics and the conservative ones and the liberal one you described is that there's a tendency to deny trade-offs and I would say in a way a growing tendency to deny trade-offs and I'm not 100%

sure why but I will say that in my experience reporting with democratic policymakers and economics types I feel like they used to be more of a culture of almost like delighting like Larry Summers was always delighted to tell you five or ten different ways or policy idea or somebody

else's policy idea could go wrong in unexpected fashions and that's just not the culture among democratic policymakers right now so I'm curious how you think this question of trade-off denial has evolved and I'm curious also what you think of then as the leading and growing conservative

vices yeah so let me just state what I think these two vices are with the caveat lots of liberals and conservatives don't suffer from these vices and by the way some of them cross and suffer from the the opposite vice on the liberal side it's getting the sign wrong it's taking something that

may just be even a small cost and thinking instead that it's a benefit so dealing with climate change dealing with inequality dealing with national security you know whatever it is that's the smart thing to do and it's going to help the economy etc for conservatives I think the

vice is getting the magnitude wrong it's taking whatever regulation you're going to do to deal with climate change or poverty or whatever it is and think that'll kill growth kill jobs and the like when you're suffering from the liberal vice you think all good things go together

and so you're going to not do cost benefit analysis you're going to do benefit benefit analysis and the whole point of your analysis is really just propaganda to get done what you wanted to when you suffer from the conservative vice you're just going to do cost analysis because the cost

is infinite and not too is propaganda now if the liberal vices were simply coming up with arguments that aren't totally true for something that's a good idea then you know there's no reason to be overly bothered by it I think it does lead to some real problems first of all if you did your analysis

right you would actually rule out all sorts of things during covid for example part of the argument for you know shutting things down at some point was that you were saving lives even if you were doing it at the expense of the economy and if you weren't willing to do some things at the expense

of the economy you actually weren't going to be saving enough lives second I think you often end up getting the analysis wrong and contorting yourself but finally a lot of things end up not happening if you don't recognize that your policy does actually create some losers those losers will sort of

come out of the woodwork and stop your policy from happening I guess I have two questions about this so let me start on the liberal side because I do think I've seen culture change here you described it as getting this sign wrong right you'll have an art you'll be talking to somebody and you know

they'll be telling you about why we need to do ex-unclimate and also telling you that'll be really good for the economy I buy that the bigger thing that I see is denying that there are costs to things at all and like maybe there's just me talking about the things I'm thinking about in my book I've

called this at times things like everything begot liberalism but you sort of layer on a lot of goals and don't admit that having all those goals or all those processes all at once will make it harder to do something make the thing more expensive I see is a lot an infrastructure right on the one

hand we want infrastructure to be fair and we want it to be fast and we want to have a lot of community input and we don't want to be too expensive but we want to make sure like all the jobs it creates are really good and it's either union work or prevailing wage work and these things

don't all work and I think there's a bit of a denial about say how bad infrastructure cost has become under Democrats my view a bit is it because it's become harder to pass legislation people want to do things do more things in any individual project you can't pass a big bill the changes say

the laws around union organizing so instead you put a lot of union laws in union regulations and rules into any given project which is sort of a different idea but I'm not really sure what the the answer is and I'm curious sociologically what you think it is yeah so first of all I think

you have it exactly right I do think you're everything bagel is incredibly memorable even if many people have pointed out that everyone loves everything bagel so what are you complaining about I think child care in the chips act is a good example the administration went out and announced

they were including child care in the chips act and their argument was oh if these factories have better child care they can attract more workers and then they can make more microchips and they'll do the whole job much better you know with all respect to people in the government they don't know

these factories if they could set up a child care facility and that was going to help them attract better workers and make microchips I think they'd do it if some a moral consultant came along and told them to do it you know maybe they had missed out on something and they'd learn about it so

they could do it if the government which is extremely biased and cares deeply about child care comes along I don't trust that prescription at all now if you said they should do child care we're going to get raised the costs on them we're going to get fewer microchips but it's worth it

then again we could have the conversation in that case I think you'd have a very very hard time persuading me because as important as I think child care is people will only remember the chips program for one thing did it increase the production of advanced microchips in the United

States or not and no one's going to look back and say it revolutionized child care or anything like that it is this goal and this goal is a hard enough one on its own not to add extra things now in this case I think the good news was it looks like that was more rhetorical than reality

so it didn't get in the way of the program there are other rules though they do and you know you have to look hard infrastructure in this country this administration put a lot of money into infrastructure the cost of infrastructure has gone up even more than the money they put into it

and the answer is you have to look at how much it costs to build stuff not just how much money do you have to put into the building so let me ask you about the conservative side because what struck me when you said that is I would almost describe it the opposite way I think there was a

long time when conservatives would tell you that the cost of any liberal program would be infinite I don't get the sense they even pay attention at this point to the cost of liberal programs in any real way that now it's at the magnitude on anything they're doing is almost infinite right I

mean I think the hallmark of Donald Trump's rhetorical style but I hear it now all over the right is you know if we do these tariffs you know you'll never see an economy like this if we kick out all the immigrants you can't believe what will happen the right seems to have moved into a place I mean

it's just not a place of policy analysis whatsoever I think there's a time you might have said that the right was about overstating the harms of liberal policies and then overstating the benefits of tax cuts but I think one of the difficult things about policy making right now is I don't I don't

know there is a policy process at all that holds water on the right so I mean the question is to whether conservative is the wordful use for whoever happens to be the current Republican nominee or whether it's a coherent set of ideas and don't know the answer to that and we're probably not

going to settle it right now when it comes to regulations you know increasing corporate taxes increasing capital gains taxes the Republican political system does describe those in almost apocalyptic magnitudes relative to anything that the academic literature whether that's a

conservative reading of the academic literature a liberal reading of it would would have you believe so I do think that's there but then the flip side of that and I agree with you especially with Donald Trump I mean in his first budget when he was president he forecasts 3% growth which was

even lower than the 4% he was talking about at a time when every private sector forecaster was at about you know 1.5 to 2 and the gap between what private sector forecasters were saying and what his budget was saying was the largest that I found in any budget going back to Ronald Reagan so he

just was really disconnected from you know at least professional opinion I would argue reality as well in those numbers and that was in a budget where the numbers were much smaller in terms of the claims than even he was claiming rhetorically so yeah analysis doesn't seem to be the the

strong suit right there right now I think that is a good place to end always our final question what are three books you'd recommend to the audience my first book is How the World became rich by Mark Koyama and Jared Rubin it's just an amazing synthesis of the amazing research in the

last 20 years that looks in a deep way at the role that institutions culture geography and other factors have played in just the enormous transformation of humankind second one is outside of my discipline and it's the goodness power gox by Richard Rangham that gets at the question of why

humans can be so good to each other but also can be so bad and when we're bad we plan it meticulously and execute it over a long period of time rather than just do it spontaneously the way animals do each other and it helped open my eyes to a new way of thinking about that the final book is a novel

by Emil Zola called the Ladies Paradise and I picked that because it's a pretty good 19th century novel but it's a fantastic exposition about capitalism and competition in which it portrays small businesses

losing out to the growth of the first department store in Paris the terrible things that happen when you use advertising to manufacture taste but also the real benefits you get from lower prices and in fact the higher wages and benefits that people get in the department store because it needs to compete with other department stores for jobs so pretty much everything you want to know about capitalism is contained in Emil Zola's The Ladies Paradise. Jason Furman thank you very much. Thank you.

This episode of The Asher Clangio is produced by Roland Hu, fact checking by Michelle Harris with Kate Sinclair our senior engineer is Jeff Gellb with additional mixing by Isaac Jones, a few Shapiro and Amin Sahuta, our senior editors Claire Gordon. The show's production team also includes Andy Galvin, Elias Isquith and Kristen Lin. We have original music by Isaac Jones,

audience strategy by Christina Samiluski and Shannon Busta. The executive producer of New York Times opinion audio is Andy Roestrosser and special thanks to Tyler Cohen, Veronique Derrige, Desmond Lockman, Lindsay Owens, Nathan Tankis, Isabella Weber and Sonia Herrero.