INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics. And it's a bright, sunny day here in suburban Philly. And I'm joined by my ... I've got two colleagues now. Ryan went AWOL last week, but he's back. Hey, Ryan.

Ryan Sweet:                      AWOL. I was on vacation, Mark. I had to take the kids to Hershey Park.

Mark Zandi:                      Well that's synonymous from my perspective.

Ryan Sweet:                      I did bring the mike. I was ready to do the podcast.

Mark Zandi:                      How was Hershey Park by the way?

Ryan Sweet:                      But Hershey Park is full of kids and there is no quiet place to be found.

Mark Zandi:                      Has Hershey ... I mean I took my kids there when I was your age, probably what is that? 20 years ago now. And I wonder if it's changed at all. Does it look like it's changed?

Ryan Sweet:                      No.

Mark Zandi:                      Is it the same Hershey Park?

Ryan Sweet:                      I remember it looks the same as when I went there as a kid.

Mark Zandi:                      Oh is that right? Nothing's changed.

Ryan Sweet:                      Yeah, the chocolate factory. Like chocolate world, that stuff is pretty much the same.

Mark Zandi:                      It's pretty much the same. Well, the chocolate is obviously you can't touch that. I mean-

Ryan Sweet:                      Yeah, it's the highlight.

Mark Zandi:                      It's a classic, yeah. Good. And we got Cris deRitis. Cris, hey, how you doing?

Cris deRitis:                       Doing well, how you doing, Mark?

Mark Zandi:                      You're not in the office today. Or are you in the office?

Cris deRitis:                       I am in the office.

Mark Zandi:                      Oh okay.

Cris deRitis:                       I just pulled the blinds here.

Mark Zandi:                      Oh you pulled the blinds, okay, very good. And Ryan, Cris never goes AWOL on me. Vacation or not. Oh no, once he did, right? Or no, no.

Ryan Sweet:                      [inaudible 00:01:28]

Mark Zandi:                      He went on vacation. He was in Italy. He was in some kind of wine cellar or something doing the podcast.

Cris deRitis:                       I was on the podcast though, come on.

Ryan Sweet:                      Yeah.

Mark Zandi:                      Yeah, that's right, very good.

Cris deRitis:                       I made the effort.

Mark Zandi:                      And we've got a guest. We've got a guest. Jared, Jared Bernstein. Jared, hi, how are you?

Jared Bernstein:               Hi, hello everybody.

Mark Zandi:                      Yeah. And for folks that don't know, Jared is on the Council of Economic Advisors in the Biden Administration. It's really a pleasure and honor to have you here. He indicated that he'd be with us for a couple hours. No.

Jared Bernstein:               I wish.

Mark Zandi:                      As you said, "Taxpayers would begin to question that." So we're very glad for the time you can spend with you so we really do appreciate that.

Jared Bernstein:               My pleasure.

Mark Zandi:                      And got a lot of ground to cover. We want to play the game, the statistics game. And I know, Jared, you're a fan of that game. As I recall, I don't know if I told Ryan and Cris this, I think we, early on in the podcast a year ago, there was a question about Chinese GDP.

Jared Bernstein:               Oh yeah, yeah.

Mark Zandi:                      [inaudible 00:02:28] And I got it.

Jared Bernstein:               So that was where I realized the fix had to be in because somebody cited nominal ... Okay, here's what happened. I may have this wrong, but you guys will remember. Somebody cited quarterly nominal Chinese GDP growth non-annualized or something. And somebody else knew what it was. And at that point, I was like oh okay, so there's a fix. I get it. That's cool.

Mark Zandi:                      I know. But the reality, there was no fix, no fix. Actually, last week I blew these guy's minds. No it was two weeks' ago. Right, Cris? What was that?

Cris deRitis:                       Yes, the food price index.

Mark Zandi:                      Oh yeah, the UN food price index.

Cris deRitis:                       The FAO food price-

Jared Bernstein:               Oh my goodness.

Mark Zandi:                      Yeah, that was fun.

Ryan Sweet:                      There's a fix.

Mark Zandi:                      No fix, no fix.

Ryan Sweet:                      Cris and Mark are in cahoots.

Mark Zandi:                      Oh yeah, see Ryan gets really upset if someone else wins the game because he's [inaudible 00:03:17]. But Jared, thanks for coming on and before we dive in, I thought maybe we could just spend a few minutes. You can describe for the folks out there, what do you do for a living at the CEA?

Jared Bernstein:               Yeah, no it's a good question. I mean broadly speaking, the Council of Economic Advisers provides economic advice to the President and the Administration. More granularly, we really do four things. 

                                             We write the economic report of the President every year and that just came out and we're so proud of it. 

Mark Zandi:                      You should be.

Jared Bernstein:               And I hope people will go through it. It's just our senior economists and staff did such a great job. Secondly, we make sure the President is up to speed on the data flow which is what you guys talk about all the time.

                                             Almost every day, there's a data report and that goes into his book with our commentary. The third thing is we work on policy processes. So when we're talking about energy policy, counter cyclical policy, really any of the policies that are in the economic sphere, members of the CEA are working on those behind the scenes and that can be a matter of days, weeks or months.

                                             And then finally metaphorical fire drills. You're sitting at home on a Sunday morning and the Turkish lira crashes and the President wants to know what the heck was that about? And you have to tell him.

Mark Zandi:                      Yeah, and the one thing I found fascinating. I didn't know this until recently was that you actually see some of these economic statistics before the rest of us do, right, to help you be able to give the commentary to the President when the ... Real time. Or even before the rest of the-

Jared Bernstein:               Yeah, typically the data reports go in the President's book the night before. But not only do we not talk about them when they come out the next day, but in order to respect market reactions, we don't talk about the reports until an hour after they're released.

                                             So that usually means 9:30 but here's a statistical question. Sometimes it means 10:15, what report would that be?

Mark Zandi:                      Industrial production?

Jared Bernstein:               Industrial production. Damn, you are good.

Mark Zandi:                      Ding, ding, ding, ding.

Jared Bernstein:               Sometimes it means 11. I think I'm right about that?

Ryan Sweet:                      That could be a slew of things. It could business inventories, NEHB. Like there's a lot of stuff that comes out at 10.

Jared Bernstein:               I was thinking JOLTS. Doesn't JOLTS come out at 10.

Ryan Sweet:                      Oh JOLTS is a good one.

Mark Zandi:                      JOLTS, yeah.

Jared Bernstein:               Yeah, doesn't that come out at 10 with ELS?

Ryan Sweet:                      It does.

Jared Bernstein:               Yeah, so we wouldn't talk about that until 11.

Mark Zandi:                      Oh interesting. So you wait one hour after the release before you're able to talk about-

Jared Bernstein:               Not only do we wait, but that's actually a rule in the OMB, in the Office of Management and Budget Register. That's not just arbitrary, that's actually a rule. A rule that was often broken by the prior administration by the way.

Mark Zandi:                      I was going to say even by the president as I recall, the former president. Yeah, yeah, as I recall. And so how did you find your way to the CEA? I mean I think we-

Jared Bernstein:               395 to the Memorial, oh sorry, no that's not true. I've worked in political economy for much of my career. I was at the Economic Policy Institute when I first came to Washington, working closely with Larry Mishel and other folks there. Dean Baker.

                                             And I still think the EPI now headed by Heidi Shierholz is one of our greatest think tanks. Anyway, went over to the Center on Budget for a while which is just a premier public finance group, focusing more on low income people.

                                             And like many political economists in Washington who have come in and out of government, I worked for the Clinton Administration. And then I was President Biden's Chief Economist when he was the Vice President. And that was a really interesting time.

                                             That was in 2009 and '10 during the financial crisis where Vice President Biden was the implementer in chief of the recovery act. And so I spent a lot of time on that. And as someone with a very much of a Keynesian background, that was very interesting to me.

Mark Zandi:                      Yeah, so you've known the President for quite some time now?

Jared Bernstein:               Yeah, it's been my privilege, yeah.

Mark Zandi:                      Yeah. And so were you the Chief Economist for the Vice President through both terms? I can't quite remember.

Jared Bernstein:               No, no. Ben Harris took over and now Ben is his Secretary of Treasury. And Ben and I enjoy the fact that we have that in our past. And there's a great guy named Mike Pyle who is the Chief Economist for Vice President Harris so that is an active position.

Mark Zandi:                      Right. And we've had touch points all long going all the way back to EPI. I think during the financial crisis.

Jared Bernstein:               You and I?

Mark Zandi:                      I believe so.

Jared Bernstein:               I think that's right.

Mark Zandi:                      And when you were at the Center, you commissioned some work-

Jared Bernstein:               That's right.

Mark Zandi:                      That I did with Alan Blinder.

Jared Bernstein:               That's right. It was a really good piece. Looking back at the Recovery Act. That piece still gets cited all over the place.

Mark Zandi:                      Does it? Yeah.

Jared Bernstein:               Yeah I mean you and your team have been very helpful to us along the way. 

Mark Zandi:                      You are kind.

Jared Bernstein:               And very much appreciate the insights.

Mark Zandi:                      I had to convince Alan Blinder, the Vice Chair of Fed and he, of course, Princeton professor, is this great wonderful person. Who, by the way, I should say, there are some people that when you talk with them you just ... Like everything they say, you disagree with. And then there are some people, no matter they say, you go oh man, agree with that.

                                             And Alan Blinder is one of those guys. Everything he says I agree with. It's like it's amazing. You're second place, Jared, by the way. You're in second place.

Jared Bernstein:               That's interesting you should say that. Because I feel not only do I agree with what Alan says with an asterisk that I'll share with you in a second. But it's the way he says it.

Mark Zandi:                      Yeah exactly.

Jared Bernstein:               He's so crystal clear. He's engaging. He's really funny also. I remember he stood up at a Fed conference that I was at once and we were talking about messaging, how the Fed messages. And he said, "First of all, nobody even knows what the Fed is."

                                             He said, "I was talking about the Fed the other night and I was talking about this thing, the Federal Reserve and someone thought I was talking about a national park like a forest somewhere."

Mark Zandi:                      Right exactly.

Jared Bernstein:               That's an Alan line. I mean he has tons of lines. Alan Blinder has ... I've stolen so many Alan Blinder phrases. One of the things he says is when he talks about policies that exacerbate inflation. That tax cuts for rich people. He says that's "Unnecessary roughness to the income distribution.

Mark Zandi:                      Yeah, right, that's a great line.

Jared Bernstein:               No because the primary distribution is always going in that direction so why would you want to make the secondary distribution even more inequitable?

                                             The only reason there's an asterisk is we've disagreed on trade policy but it's always been collegial and hopefully ... I know we've listened to each other. But I guess the truth is I've learned way more from Alan than he'll ever learn from me.

Mark Zandi:                      Yeah, he's great.

Jared Bernstein:               Just because he's knowledgeable.

Mark Zandi:                      Yeah, I did have to convince him though, to tell you, to do that study. I remember. I go, "Alan, we just got to put a stake in the ground here for history."

Jared Bernstein:               Yeah, well I'm glad you did.

Mark Zandi:                      That was a good summer working on that paper with Alan Blinder. Thank you for commissioning that. That was very helpful. Well before we get to the game, I thought it might be good to get a sense from you of how you think things are going?

                                             I mean just to preface this, it feels like there's a lot of pessimism out there. I don't know how you're reading things but you've got consumers, they're down in the dumps. You can look at the University of Michigan Sentiment survey and that's about as low as it's been since the financial crisis.

Jared Bernstein:               Actually it got a bit of the bump in the last read.

Mark Zandi:                      Oh did it? I didn't know that.

Cris deRitis:                       Mm-hmm (affirmative).  [inaudible 00:11:32]

Jared Bernstein:               Yeah, it was actually up about ... But I mean just partially. It's still low. But it got a pretty significant bump up. About 10%, I think, in the overall index or something of that nature.

Mark Zandi:                      Well, you're looking for that, those green shoots, I can see.

Jared Bernstein:               Yeah no, I don't want to overstate that at all. In fact, back when I worked for the ... The green shoot reference for those who don't get it is back when I worked for the Obama Administration, people were talking about green shoots in terms of the recovery.

                                             And I was on a TV show once where people could call in. This was when I worked for the Vice President. And I remember someone saying, "You guys must be smoking green shoots."

Mark Zandi:                      Right. That sounds like an Alan Blinder line. Yeah, that's-

Jared Bernstein:               So anyway, my point is that I'm just correcting ... There was that. But it's still, the premise of your question is, of course, correct. 

Mark Zandi:                      Well an economist generally, they're pretty loathe to say okay, we're going to have a recession. But I don't know if you've noticed but yeah Deutsche Bank last week or was it the week before? And then I think yesterday or the day before that Fannie Mae, Doug Duncan, the chief economist at Fannie ... Presumably it's from him, calling for a recession in 20 [inaudible 00:12:43]-

Jared Bernstein:               Yeah, yeah, but wait a second.

Mark Zandi:                      Yeah.

Jared Bernstein:               Like back up my friend.

Mark Zandi:                      Yeah.

Jared Bernstein:               Like we are in an economy that is faced with some very considerable head winds which I'm sure we'll talk about. And boosted by some very considerable tail winds which we should also talk about.

                                             And I know that sometimes people say like oh the press is just focused on the negative. If it bleeds, it leads. And it's everything's inflation, inflation, inflation all the time. I'm not really bringing that argument to the table.

                                             I think people don't need the media to tell them that inflation has elevated. They see it themselves. But I do think that the coverage has often ignored not just a set of tail winds, but many fingerprints on those tail winds on President Biden's policies.

                                             So the fact that we're sitting here with an unemployment rate that's a tic above where it was before the pandemic, 3.6 versus 3.5. The fact that household balance sheets if you look at net worth or if you look at debt service obligations are in pretty stellar shape.

                                             By the way, I realize that's very much, talking about inequality, that's very much a macro or aggregate observation. And in fact, you yourselves have done really useful work on the disaggregation of those savings rates. Maybe you'll talk about them.

                                             But based on the strength of the job market, the number of jobs, the strength of household balance sheets, the growth of total compensation, jobs and wages together, there are a lot of tail winds operating as well. And I think we should be mindful of them and take a balanced view.

                                             That doesn't mean that you put your head in the sand. And in fact, far from it. And maybe if we get a chance in our discussion, I can tell you all the things that we're trying to do to help ameliorate, ease some those price pressures that consumers are facing.

                                             Because we take them very seriously. Every time the President talks about the economy, he talks about these inflationary pressures. But we should be balanced in our head wind, tail wind analysis.

Mark Zandi:                      Yeah, agreed. And I'm with you on that. Although my colleagues here, they're a little bit more pessimistic. We had Michael Strain. You know Michael? He runs research over at AEI.

Jared Bernstein:               Many have thought his arguments end up being quite strained, it's just listen carefully.

Mark Zandi:                      But he's a good guy.

Jared Bernstein:               He's a great guy.

Mark Zandi:                      A really thoughtful guy. And of course, he's pretty pessimistic. And so are these two. I'll have to say. I mean I think Ryan, what were you saying? What was the probability of recession over the next couple of years? I can't remember you ... 75% or something.

Ryan Sweet:                      I think I said 70. 70, 75, yeah.

Mark Zandi:                      And then Mr. deRitis who's down the fairway. I call him down the fairway deRitis, he's even over 50%, isn't that right?

Cris deRitis:                       55, yep.

Mark Zandi:                      55% yeah.

Jared Bernstein:               When?

Cris deRitis:                       That was within 18 months, all right.

Mark Zandi:                      Or within 18, within 18 months.

Jared Bernstein:               [inaudible 00:15:40]

Mark Zandi:                      I'm at one third, by the way, just to be on the record.

Jared Bernstein:               You always have to say what's your timeframe when you say a recession probability.

Mark Zandi:                      12 to 18 months I think [inaudible 00:15:47].

Ryan Sweet:                      Right.

Mark Zandi:                      Beginning in, we're even more precise. We won't tell you the exact day, but-

Jared Bernstein:               I think a lot of this ... Look again, I get it. We have the models. We should run the models. We run them all. We pay attention to all the probabilities that folks like you are putting out. I think we should be very aware and I'd be interested in other members of the panel talking about this. See if you agree that we are in a very unique and sui generis economy.

                                             And while we can plunk all we want into our models, it's a little tricky to deal with some things that are so unusual.

                                             So for example, of course the pandemic. The pandemic is still upon the land. Obviously its impacts on the economy have been diminished. The Russian Ukraine, Putin's unjust and unprovoked war is very much in the mix.

                                             And we're entering this period with the tail winds I talk about. So look, I've taken some of these regression probability models and I've then put in things like household balance sheets or I'm trying to remember-

Mark Zandi:                      Like debt service, you mean-

Jared Bernstein:               Exactly like the debt service ... And the probabilities shift a lot.

Mark Zandi:                      Yeah.

Jared Bernstein:               So look there's something to be said for taking a tried and true probit model with a yield curve and seeing what you get. But I think you have to be mindful of how unusual the situation is. Too many analyses I've seen don't take account of some very different factors in play right now.

Mark Zandi:                      Yeah, I think I mean you're making an important point that, just to broaden that out, that the fundamentals of the economy feel like they're in very good shape.

                                             And when I say fundamentals, like the balance sheet of the economy. And you've been talking about the household balance sheet. Debt service is the percent of income that households have to devote servicing interest and principal and that's pretty ... I think it's at a record low or pretty close.

                                             Corporate balance sheets feel like in pretty good shape. State, local, government balance sheets feel like they're in ... In no small part because of the American Rescue Plan and all of the money that went to state and local government.

Jared Bernstein:               Yeah, yeah. Are you familiar with the statistic? I probably should have put this on my list for the game is the private financial balance?

Mark Zandi:                      Yeah.

Jared Bernstein:               Which is a pretty important indicator of precisely this basically gross private savings minus gross private investment. That's in good shape right now.

                                             So look, nobody's discounting the risks. And in fact, as I said, the President talks about them every time he speaks. I think our job here at the White House is less to noodle around which probability is most believable.

                                             I mean we do that here at the CEA because we want to make sure we're seeing what the markets are thinking about. But more how are households doing? How are they prepped for whatever comes their way? And what kind of "insurance policies" need to be in place to help them if things were to deteriorate.

                                             And furthermore, what can we do in the near term, medium term and long term to help address some supply side constraints? Whether we're talking about the ports. Whether we're talking about competition policy. Whether we're talking about the labor force which I hope we get to talk about because I know you all think about that.

                                             And I think it's ... Here's something that you'll find interesting maybe. And I wonder if you do this. When the jobs report comes in, everybody goes and looks at the jobs number, payroll jobs number. That's not the first number I look at. I look at the LFPR and then I look at the jobs number.

Mark Zandi:                      Labor Force Participation.

Jared Bernstein:               That's how important I think Labor Force Participation is right now in terms of, again, helping to meet the strongest labor demand, by some measures, we've ever seen.

Mark Zandi:                      Well, I want to come back to all of that. And before that, we're going to do the game. But I have one more question, since we're on this discussion around recession risks. And get your take on the yield curve.

                                             So this has generated a lot of angst in different circles. The yield curve is the difference between long term and short term interest rates. Typically, long rates are higher than short rates. But every so often, short rates rise about long. The curve so called inverts and that's been a very prescient indicator of future recession.

                                             And if you go back to the beginning of April, the yield curve as measured by the two year Treasury [inaudible 00:20:40] inverted for a few days, which made people go on high alert here with regard to recession risks. 

                                             So question to you, and this group, I should say, has debated this on a number of podcasts and we all have, I think ... I'm not a proselytizer but I am a believer yield curve. I think Ryan is a denier.

Ryan Sweet:                      Skeptic, skeptic.

Mark Zandi:                      He's skeptic, a skeptic. I keep forgetting that. And Cris-

Jared Bernstein:               Yield curve denier. I didn't know that there was such a category.

Ryan Sweet:                      You can probably throw me in there.

Mark Zandi:                      Cris goes in either direction as he's down the fairway. Cris, so I'm not sure exactly where he stands on the yield curve. So what's your thoughts on that? How much hang wringing should we be doing over the message or non-message in the shape of [inaudible 00:21:26]-

Jared Bernstein:               I don't think we should ever reduce our understanding of where the economy and where it's going by one variable or in this case, the delta between two variables at different maturities.

                                             I think, I try not to be the one hand, other hand economist that much. But in this case I really am. On the one hand, you've got all these people saying hey this time is different. And then on the other hand like all the people who say this time is different are often wrong.

                                             So I think it's a challenge. It's also something that at the White House we try to be pretty careful about talking about market variables in any sort of granular way. So I probably don't want to say a lot about that.

                                             What I will say is that it is ... This is, again, and I'm not going to go through this because I already did. This is a very unique moment in economic history with lots of different cross cutting currents. Some strong head winds, some very strong tail winds.

                                             So I'd certainly look at the yield curve as one variable. I wouldn't over weight it and I might probably give it a little bit of under weight if anything. I don't know if I'd quite join Ryan's club. But I'd come to their meetings.

Ryan Sweet:                      See there you go.

Mark Zandi:                      Right.

Ryan Sweet:                      All you got to do is come to the meetings.

Mark Zandi:                      Right. Very good. Okay, all right, let's play the game. 

Jared Bernstein:               Wait, before we play the game-

Mark Zandi:                      Yeah, okay.

Jared Bernstein:               As we were talking about all of this-

Mark Zandi:                      You do know, Jared, this is my podcast. I'm just saying but go ahead, go ahead.

Ryan Sweet:                      I don't think so.

Jared Bernstein:               Well, that's why I'm going to ask you is this all led me to think about a joke that I was thinking about this morning. And if you have a second, I could tell you.

Mark Zandi:                      Yeah, fire away, yeah.

Jared Bernstein:               So I think this is the captain of the ship is sailing along and he sees a war ship coming his way. A very big and threatening war ship. And he says to his first mate, "Get me my red shirt." And his first mate says, "I will, Captain, but we need to prepare for battle. Why your red shirt?" And he says, "Because if in the course of battle I am stabbed and I start to bleed, I don't want the crew to see me bleeding. And that will inspire them to know their captain is fighting for them."

                                             And he got him his red shirt and the story got around the crew and everyone was so uplifted by the captain's bravery that they fought and just put all their fight into it and they defeated the much bigger war ship. And they were all very happy.

                                             And the next day they were sailing along and eight huge war ships. Each one bigger from the one from yesterday came sailing around the corner. And the captain says to his first mate, "Get me my brown pants."

Mark Zandi:                      Oh no. Here we go.

Jared Bernstein:               So I think the question is are we talking about a red shirt economy or a brown pants economy? And I think we're talking-

Mark Zandi:                      That is the greatest joke.

Jared Bernstein:               I think we're in red shirt territory.

Mark Zandi:                      Red shirt territory.

Jared Bernstein:               We can fight this battle.

Mark Zandi:                      Hold it. Is that your joke or did you hear that joke? That's a great joke.

Jared Bernstein:               Yeah, thank you. I didn't make it up.

Mark Zandi:                      Oh it's fantastic. I mean that just summarizes things beautifully. Oh okay, let's play the game. And of course the game, let me just describe for any listener who has not been listening to us which would be why aren't you been listening to us?

                                             But the game is we each tell a statistic. The rest of us try to figure out what that statistic is through questions and some clues and deductive reasoning. The best statistic is one where it's not so easy that we all get it slam dunk. Not so hard that forget about it.

                                             And you get a bonus star if it's apropos to what we're talking about. Or something that's relevant to the statistics. I will say this week was hard for me at least. Because there were no statistic, I mean or very few statistics.

Ryan Sweet:                      There was a lot of housing. Housing starts, NEHB.

Mark Zandi:                      A bit on housing and I'm sure, maybe we're all going to mine the same statistics, I don't know, but we'll see. But you can think more expansively here because obviously a little bit of a quiet week. But anyway, who would like to go first? Maybe we won't have Jared have first.

Ryan Sweet:                      No.

Mark Zandi:                      Just so he can get into the flow. What do you think, should we go ... What do we think, Ryan? Should you go?

Ryan Sweet:                      Let Cris go first.

Mark Zandi:                      Let Cris go first.

Ryan Sweet:                      He is like a housing [inaudible 00:26:17]-

Mark Zandi:                      It's going to be housing, yeah.

Ryan Sweet:                      Yep.

Mark Zandi:                      Jared, Cris is a houser. He's a former Fannie Mae modeler.

Jared Bernstein:               Oh I think that's such a great, such a crucial area of policy right now so I hope-

Mark Zandi:                      We'll come back to that.

Jared Bernstein:               Yeah, let's do.

Mark Zandi:                      We'll definitely come back to that. All right, Cris, fire away. Go ahead, fire away.

Cris deRitis:                       All right, all right, better be good. You got a track record to maintain here. I'm glad Ryan's back. So 116.8441.

Mark Zandi:                      Oh my goodness.

Ryan Sweet:                      Okay, well how many decimals did you just go out there.

Mark Zandi:                      116-

Ryan Sweet:                      Reported by the source but-

Jared Bernstein:               116.8441.

Mark Zandi:                      Is it a housing statistic?

Cris deRitis:                       It is not a housing statistic.

Ryan Sweet:                      Ah, you threw us for a loop yeah.

Jared Bernstein:               Is it an index number?

Ryan Sweet:                      It is an index, yes. Yes.

Mark Zandi:                      Anything related to prices?

Ryan Sweet:                      In a very broad sense, yes.

Mark Zandi:                      In a broad sense, but not house prices?

Ryan Sweet:                      No.

Jared Bernstein:               It came out this week.

Cris deRitis:                       Came out this week, yes.

Mark Zandi:                      It did?

Ryan Sweet:                      Is this one of your-

Jared Bernstein:               What year ... This may be-

Ryan Sweet:                      That came out this week?

Cris deRitis:                       Oh well it came out on the Friday last week.

Mark Zandi:                      Last Friday?

Cris deRitis:                       Yeah, it was after our podcast.

Mark Zandi:                      Oh. What could that be, Ryan? You should know that. Oh well you were Hershey Park?

Ryan Sweet:                      I was in Hershey Park.

Mark Zandi:                      [inaudible 00:27:40] somewhere else, yeah.

Ryan Sweet:                      Wait, is this industrial production?

Cris deRitis:                       Nope.

Ryan Sweet:                      Industrial production came out on Friday.

Cris deRitis:                       No, would you like a hint?

Mark Zandi:                      Can you give us a hint, can you give us a hint? Like what's the genre?

Cris deRitis:                       I'm glad you asked for it.

Jared Bernstein:               Wait, hold on, before you give us a hint. This a form of a hint. If it's an index, it's based in some year in a 100. What year is it? So in other words, it's 16% above something that was 100 when?

Cris deRitis:                       Oh gosh, I'll have to look it up.

Mark Zandi:                      Oh good question.

Jared Bernstein:               You don't know. That's okay, sorry.

Cris deRitis:                       I'll have to look it up.

Jared Bernstein:               Give us your-

Mark Zandi:                      So can you give us like a broad hint?

Cris deRitis:                       Yeah, I'll give you the hint.

Mark Zandi:                      Okay.

Ryan Sweet:                      Like a musical hint?

Mark Zandi:                      I can't hear that, what is it?

Cris deRitis:                       You hear it?

Mark Zandi:                      No.

Cris deRitis:                       Oh let me go back.

Ryan Sweet:                      We're doing Name This Tune now?

Mark Zandi:                      Name this tune.

Cris deRitis:                       It's such a great hint.

Mark Zandi:                      You are getting very creative.

Cris deRitis:                       I'm getting sophisticated here, okay.

Mark Zandi:                      Over the top creative here.

Jared Bernstein:               Is that Hurdle?

Audio clip 1:                      I need your dollar, dollar, dollar, that's what I need.

Ryan Sweet:                      Dollar?

Jared Bernstein:               Oh something about the dollar. The strength of the dollar.

Cris deRitis:                       Yes. The trade-weighted dollar.

Jared Bernstein:               That's how much the dollar-

Ryan Sweet:                      The trade-weighted index.

Mark Zandi:                      Oh the nominal-

Cris deRitis:                       The trade-weighted dollar.

Mark Zandi:                      Is it the nominal, broad trade-weighted dollar?

Cris deRitis:                       It is the nominal, broad dollar index.

Ryan Sweet:                      Very good.

Jared Bernstein:               Yeah, that's a good one.

Mark Zandi:                      That is not a good one, Jared. I don't know what the heck you're talking about.

Cris deRitis:                       That's a great one.

Jared Bernstein:               That's a great one. The dollar's really important right now and it's-

Mark Zandi:                      But it was 16.1?

Cris deRitis:                       Thank you, thank you, Jared, you can come on any time.

Mark Zandi:                      You could have said 108 and 132, like the Euro and the Pound. But you've got to give us the innocuous Fed index. Okay, well anyway. What's it saying? What's the deal on the dollar?

Cris deRitis:                       Well it's up. It's showing that the dollar's been strengthening recently. The dollar is up 10% against the Euro and oh I'm sorry, 10% against the yen and five percent against the Euro so far this year.

                                             So strengthening the dollar. In the context of inflation, it's good for consumers, right? Foreign goods are cheaper, right? That helps to reduce some of the inflationary effects. Not great for exporters or for multinational corporations that are converting their foreign exchange back to dollars.

                                             But so there could be some knock on consequences here. We could get a flood of imports as a consequence. But at least for the short term, this is a benefit for consumers in terms of containing some of the inflationary pressure.

Mark Zandi:                      I actually got a question from a client, it was yesterday, about the dollar. In our forecast, we have the dollar coming down. And the logic being that there's a flight to quality or given all the risks, the Russian invasion and pandemic, there's been a flight to quality into U.S. assets and the dollar and that will come out over time.

                                             When I say down, not down right away, but down over the next year or two. And then the other is, of course, the Fed's on high alert. And that's really juiced up the flows of capital, near term capital into the U.S. And that will abate as the rest of the world catches up. Central banks like the ECB and BOEs start to catch up.

                                             I don't know. What do you think of ... That was a pretty controversial forecast. I don't know. What do you think about that?

Jared Bernstein:               Personally, I would probably take the other side of that forecast, but the dollar is one of the hardest variables to forecast.

Mark Zandi:                      Agreed.

Jared Bernstein:               And I heard that from Maury Obstfeld and he knows a lot about that sort of thing. So I think that, I would predict a strengthened dollar based on Fed policy and relative growth rates. I'm sure you all, maybe one you of you are going to use this, I'm sure you all saw the IMF forecast that came out this week.

                                             And they were showing decelerated global growth, but still stronger here than in other countries that are more exposed to the conflict.

Mark Zandi:                      Yeah, in your modeling, the other thing that matters in there intermediate term, not next month or even in a year but over the next several years is the trade deficit which has gapped out quite a bit because the U.S. economy has been so much stronger than the rest of the world so we have been importing a lot of product and exports have been soft so that also starts to weigh on the dollar.

Jared Bernstein:               I think I was the first one got that. I just want to record that.

Mark Zandi:                      Yeah, you're right. That's true.

Ryan Sweet:                      That's right. Yeah.

Mark Zandi:                      Yeah, I don't know if that's cowbell material.

Cris deRitis:                       No, I think it's cowbell.

Mark Zandi:                      Cowbell, you get a cowbell if you ...

Cris deRitis:                       I think so, come on.

Mark Zandi:                      Is it cowbell?

Cris deRitis:                       Yeah.

Mark Zandi:                      Okay.

Ryan Sweet:                      Like I get it. I moved the location of them, hold on.

Mark Zandi:                      Oh okay.

Cris deRitis:                       Okay.

Mark Zandi:                      All right, go get that cowbell. All right, Jared, you're up. What's your statistic?

Jared Bernstein:               Oh cool. Okay, well I brought two.

Mark Zandi:                      Okay.

Jared Bernstein:               Because this sounded fun to me. One is, I think, pretty easy and the other, I think, is pretty hard. And I'll give you a lot of great hints on it and I'll bet you get it.

Mark Zandi:                      Okay.

Jared Bernstein:               The first one is one percent.

Ryan Sweet:                      The insured unemployment rate.

Jared Bernstein:               Exactly.

Mark Zandi:                      Wow, now that is-

Cris deRitis:                       That's a record [inaudible 00:32:48].

Mark Zandi:                      Jared, that's the cowbell. That is the cowbell.

Ryan Sweet:                      No, no.

Jared Bernstein:               That's exactly right. And it's the lowest insured unemployment rate since 1970. And just for listeners to understand, how are we talking about an unemployment rate that isn't 3.6% which is the one you have in you head from the Bureau of Labor Statistics on the big jobs day? This is a rate that comes out every Thursday when the Bureau releases the unemployment insurance claims data.

                                             And it's the percent ... It's continuing claims over covered employment. So it's a different statistic, but it moves very much with the overall unemployment rate. And I just brought it over because I thought it was very topical given how tight the job market is.

Mark Zandi:                      Yeah.

Cris deRitis:                       That's a good one.

Mark Zandi:                      And in that regard, oh Cris, did you want to say something? I'm sorry.

Cris deRitis:                       I just said that's a good one.

Mark Zandi:                      That is a good one. Can I ask you ... This is a question I wanted to ask you because I'm confused. Where do you think we are relative to full employment? Are we at ... Now you look at that one percent insured unemployment rate, you say that's got to be full employment. But are we at full employment? Or how do think about that?

Jared Bernstein:               The way I think about that right now is in a very dynamic sense which is to say that I don't think you can evaluate whether we're at full unemployment without thinking out the labor force and labor supply.

                                             Remember as we all know, payroll employment is still down 1.6 million from its pre-pandemic peak, much less its pre-pandemic trend. So you would look at that and think there's room to grow.

                                             At the same time, the labor demand indicator that all the cool kids are looking at these days which is payroll employment plus openings, right? That's the demand side. Payroll employment plus openings. So payroll employment is 160 million or whatever it is and openings are another 11 million on top of that relative to the labor force, that gap there would suggest a very hot labor market and some people would call that full employment.

                                             I wouldn't because I think that that ignores one of the most important, and in my view, one of the more hopeful trends in the current economy which is the improvement in labor supply.

                                             There is an identifiable trend, it's not a one month thing. And in fact, too few people recognize the fact that labor force growth is actually stronger in this recovery than in any of the past five recoveries up to this point.

                                             Now it was coming from a lower trough, of course, so there's a bounce back in there. But especially if you look at prime age workers, their labor force [inaudible 00:35:30] rate is only 50 basis points its prior peak.

                                             And so I wouldn't call us at full employment unless I'm willing to assume that LFPR is stuck, that that participation is stuck and I don't think it is. It's moving. It's on the move.

                                             A broader point and then I'll stop is that I do think that economists have a lot of thinking to do right now, more broadly about what the capacity variables are right now? What levels is USTAR, which is GDP full capacity?

                                             USTAR which is the full employment, unemployment rate. RSTAR, the neutral interest rate. All of those, I think, are perhaps undergoing structural shifts and they're hard to target in the best of times. I think they're particularly hard now.

Mark Zandi:                      Yeah, my sense is that there's still room to grow here because we're creating 500,000 plus jobs per month. If we were at full employment, there's like zero probability we could generating over a half a million jobs each and every month. That's just not consistent over time.

Jared Bernstein:               Yeah, that's a good way to frame it, yeah.

Mark Zandi:                      And the other thing is, I know you'd mentioned the cool kids statistic with the unfilled jobs. As an employer who post jobs, once you post a job pretty unusual if you would take down the posting, it's going to stay there so I'm not sure what we're actually measuring there.

Jared Bernstein:               That's an interesting-

Mark Zandi:                      Because the economy reopened back a year ago and everyone posted a job at the same time because well we were reopening. And they just ... I don't know-

Jared Bernstein:               That's a really good point.

Mark Zandi:                      That people take that down.

Jared Bernstein:               That's a really ... Yeah. I'm going to have to noodle over that. It's a really good point.

Mark Zandi:                      Yeah. But you said you had a second statistic?

Jared Bernstein:               I do have a second statistic. And it's 17. And I'm going to give you a bunch of hints to help you get it. Now you might think this is very obscure. The reason I think it's okay to bring to the table is because the President of the United States talked about it last week on Friday which is a hint.

Mark Zandi:                      Whoa, okay.

Jared Bernstein:               17.

Cris deRitis:                       Did it come out on Friday?

Jared Bernstein:               It did.

Cris deRitis:                       Was this the Empire State Manufacturing Survey?

Jared Bernstein:               No.

Mark Zandi:                      Well I know the Philly Fed was at 17.6 but that was this week.

Jared Bernstein:               Nope, this is just a good old 17. An integer.

Mark Zandi:                      An integer, 17 on the nose. And-

Jared Bernstein:               I can give you more hints.

Mark Zandi:                      Okay.

Jared Bernstein:               This number wasn't in the report, but if you count up the number of ... Well that's ... I'm going to give it to way if I start to say that. The CEA tweeted about this so this is not that obscure. We tweeted about this number.

                                             Okay, I'm going to give you a big hint just to move the thing along here. On Friday, the Bureau released the State and Local Unemployment Report.

Ryan Sweet:                      Oh this is a good one.

Mark Zandi:                      17 states have unemployment below four percent?

Jared Bernstein:               Yes. 17 states have the lowest unemployment on record going back to 1976.

Mark Zandi:                      Wow, that is cool.

Ryan Sweet:                      Wow.

Mark Zandi:                      That is interesting.

Jared Bernstein:               Bad ass statistic, am I right?

Mark Zandi:                      Yeah, that's a good one.

Ryan Sweet:                      Yeah, that's a good one.

Mark Zandi:                      We should know that. We should be tracking that.

Cris deRitis:                       Yeah.

Mark Zandi:                      That's a really cool one, yeah.

Jared Bernstein:               President mentioned it in a statement. We tweeted on it.

Mark Zandi:                      The 17 states? Are they the Mountain West and South where growth has been strong?

Jared Bernstein:               A lot of them are. I remember Utah, Nebraska was in there, Alabama, Georgia, I think. But if you just go to the CEA Twitter thread, you'll see all the ... We list them out.

Mark Zandi:                      Yeah, yeah, that's a cool one. That's a really good one, yeah. In fact, we should create that measure and track that over time. That would be really good to look at, yeah. All right, Cris, you're up.

Cris deRitis:                       No, Ryan.

Mark Zandi:                      Oh Ryan, sorry. I'm sorry, sorry. Ryan, you're up.

Ryan Sweet:                      All right. Minus 68%.

Mark Zandi:                      Oh geez. Minus ... And is it-

Ryan Sweet:                      It may sound bad but I'll weave it back into Jared's point that the consumer is in good shape. So there's your hint. It's sort of consumer related.

Mark Zandi:                      Is that the decline in debt payments over the last, no? Is that on the right track?

Ryan Sweet:                      No.

Mark Zandi:                      No? Okay.

Jared Bernstein:               Give us a hint.

Ryan Sweet:                      Came out this week. It came out this week. It's year over year. And it's a weekly number.

Jared Bernstein:               Hmm. It's not from UI claims, is it?

Ryan Sweet:                      It is not from UI claims.

Mark Zandi:                      Is it a housing related one?

Ryan Sweet:                      It is housing related.

Mark Zandi:                      Oh okay. Is that the decline in inventories over the past year? No, that would be too big.

Ryan Sweet:                      It is ... No. That would be [inaudible 00:40:09].

Mark Zandi:                      That would be too much.

Ryan Sweet:                      Inventories are actually set to start to reasonably rise in the summer.

Cris deRitis:                       MBA? MBA series?

Mark Zandi:                      Oh is it the NBA?

Ryan Sweet:                      MBA.

Mark Zandi:                      Mortgage Based Decision.

Cris deRitis:                       Refis?

Ryan Sweet:                      Refis.

Jared Bernstein:               Oh refis.

Mark Zandi:                      Oh refis.

Ryan Sweet:                      Over the past year, they're down 68%.

Mark Zandi:                      Yeah.

Jared Bernstein:               Oh down? Oh so like first of all, you should say negative 68%.

Ryan Sweet:                      Did I say down?

Mark Zandi:                      He did, he did. No, he did.

Jared Bernstein:               Oh he did say down. Sorry, I didn't hear that.

Ryan Sweet:                      Okay, I'll say negative, all right.

Jared Bernstein:               No, no, that's good.

Mark Zandi:                      But we are a little dyslexic on this podcast when it comes to [inaudible 00:40:31] negative.

Ryan Sweet:                      We do have a bad track record on saying positive and negative.

Jared Bernstein:               Okay, that's really interesting.

Mark Zandi:                      Explain it Ryan for the-

Ryan Sweet:                      Oh it's just a reflection of the rise of both the 15 year fixed mortgage rate and the 30 year fixed mortgage rate. So both of them have important implications for refis. So I think Cris brought up ... Cris and I were on a call and he mentioned that he saw a stat that 90% of mortgages outstanding have a rate less than five percent.

                                             So mortgage rates are above that so now the incentive to refi is low. But the impact on spending is going to be really small because cash out refinancing has been pretty low over the last several years. It's not a big source of spending for-

Mark Zandi:                      Okay, I actually know this. Guess how? Here's a good statistic or question. How much cash did consumers, households take out of their homes, vis a vis cash out refi in calendar year 2021? Roughly speaking?

Ryan Sweet:                      Well I know in the first quarter of this year it was 50 billion.

Mark Zandi:                      Okay, well that gets you pretty close. 275 billion dollars last year, yeah, in cash out refi.

Ryan Sweet:                      Yeah.

Mark Zandi:                      That's a good one. And you're saying that ... But you still can get cash out refi at high rates because there's all this equity, homeowner's equity that people want to pull out. And it might be cost effective given interest rising and rates on credit cards and other ... New vehicles.

Ryan Sweet:                      Yep. You've got 2.6 trillion dollars in excess savings. Like maybe that's not the first place people go to for cash out.

Mark Zandi:                      Yeah, yeah.

Jared Bernstein:               I have a question about this. Our friend, Jim Parrott, is talking to me about this phenomenon. Jim is a friend of Mark-

Mark Zandi:                      He's been on. He's been on the podcast.

Jared Bernstein:               Great housing expert. And he was talking about a bunch of businesses, these shops that exist to do refis. And when we're thinking about the impacts of how sharply the mortgage rate has been climbing, I would imagine this has implications for that side of the housing finance business. And so would you guys-

Mark Zandi:                      Oh yeah, they're laying off like crazy.

Cris deRitis:                       For sure, yeah.

Mark Zandi:                      That's one place where there are layoffs, yeah. Of that 100, how many UI claims last month?

Ryan Sweet:                      184,000 last week.

Mark Zandi:                      Yeah, I think a fair share probably would be in that industry. Okay, that's a good one. I've got one for you. I don't know if this is easy or hard. I'm not sure. So I'll just throw it out. $1700. 

Jared Bernstein:               I saw this, I saw this.

Mark Zandi:                      Yeah, I bet you did. Yeah.

Jared Bernstein:               Is this tax related?

Mark Zandi:                      Not tax related, no?

Cris deRitis:                       Inflation related?

Ryan Sweet:                      That would have been good though because the tax season's wrapping up.

Mark Zandi:                      Tax season. Yeah, the tax refunds that are, yeah. But that's not this.

Jared Bernstein:               It's like an average income for some household?

Mark Zandi:                      No.

Jared Bernstein:               Oh okay, give us a hint.

Mark Zandi:                      It's housing related.

Jared Bernstein:               Oh.

Mark Zandi:                      Housing related. It's not a statistic that we get from a release.

Ryan Sweet:                      Oh a red fin, right? Increase in the payments on the asking prices?

Mark Zandi:                      Well, you're kind of in the ballpark. You're kind of in the ballpark. Okay, it's probably too hard. It turns out it's too hard. I'll just lay it out there. That's the monthly payment on a median priced home with a 20% down payment at 5.11 interest rate which is where Freddie Mac says a 30 year fixed rate was last week.

Jared Bernstein:               I see.

Mark Zandi:                      And the median priced home, it's hard for me to get my mind around it, is now $390,000. So half of homes that transact are above that price, half below. So if you buy the median priced home, $390,000, put 20% down and, of course, many people might not do that, but let's just go with it to make it easy. And you attach a 5.11% interest rate, it's $1700.

                                             Now here's another question. What was the monthly payment on the same median priced home at the prevailing interest rate a year ago? One year ago?

Jared Bernstein:               $1200, just throwing that out.

Mark Zandi:                      $1200, actually it's a little less. A little less than $1200. That's a $500 buck per month increase in the monthly payment. That gives you a sense of this is going to do some damage in terms of housing activity. We're going to see some real swelling in-

Ryan Sweet:                      But that's not necessarily a bad thing. The housing market was pretty unhealthy so actually some cooling in the housing market would be a good sign.

Mark Zandi:                      Yeah, I would agree with that. I mean home sales, though, haven't been inordinately high, I mean because of supply constraints. But yeah, house price growth, yeah, and so we'll see some [inaudible 00:45:07] in house price growth.

Ryan Sweet:                      That's cool though.

Mark Zandi:                      Which I think that's a good segue to the next part of the conversation around inflation, Jared. And I think obviously this is top of mind for most Americans. I think it probably goes back to why consumers are pretty down on things because they're obviously paying a lot more at the gas pump and when they go shopping.

                                             There's a lot to talk about here, but I guess my first question, because I do want to talk about the outlook for inflation, but my first question to get there is why? What's going on here? Why is inflation as high as it is?

                                             And I know there's probably a lot of reasons, but how do you think about this? Why 8.5% CPI inflation as of March of this year?

Jared Bernstein:               Well, I think the explanation is most simply framed, it's the intersection or if you want to call it the collision between very strong demand and constrained supply.

                                             I think the first order explanation has to include both of those. I know there are those who want to focus just on the demand side and those who want to focus just on the supply side. I think you have to focus on both.

                                             And I think one of the ways in which you can understand why that calculation, or why that framing, that simple equation is germane is to think about where we see elevated inflation? And the answer is pretty much in every advanced economy.

                                             I saw that the inflation rate March over March for the EU recently posted at 7.5%, historical record. Of course, Putin's unprovoked war is in that mix and they're more exposed to some of the commodity issues, particularly energy.

                                             But I think if you start looking around the world and look at the comparisons between countries, you'll see that every country is experiencing highly elevated inflation, advanced economy. I mean even Japan has ticked up recently. But that's in the one and two range. 

                                             And so you have to ask yourself, what did, what are all of these countries experience? Well yes they all had some fiscal and monetary policy, but that was different everywhere. They all experienced the pandemic. And this is a chapter in the Economic Report of the President. Pandemic is absolutely fundamental in understanding the current inflation.

Mark Zandi:                      So there's been a lot of criticism. This goes back to the America Rescue Plan, the seminal legislation passed March of last year, close to two trillion dollars in government support the economy navigate through the pandemic.

                                             And there's been a lot of criticism of that. Clearly, that American Rescue Plan, and we've done a lot of work in this area, has been key to getting the economy where it is today in terms of jobs, in terms of low unemployment and making sure that Americans were able to financially navigate through without losing their jobs.

                                             But the criticism here is that this has juiced up demand and that this is a key to what's going on, why inflation is as high as it is. Just so curious. How do you think about that criticism?

Jared Bernstein:               Well yeah, and I think here we have to be very even handed and understand that two things. One, of course, there's been criticism and we were getting into this earlier. All the focus on inflation.

                                             There's also been a lot of praise. And in fact, if you look at some of the publications coming out of the shop called moodys.com, you'll see some very fulsome analysis of how important the Rescue Plan was. And you're not alone. Lots of others have found that as well.

                                             I think and the second point is that we talk about demand. What does that word mean? I mean to the average person, if I went home and talked to my wife about demand, she'd be like well what are you talking about?

                                             Let's be very clear here. We're talking about jobs. We're talking about an unemployment rate that is back to where it was pre-pandemic, pulling forward a recovery by years relative to what forecasters thought would be the case.

                                             We had lower child poverty in 2021 than we did in 2020. And lower than 2020 and I believe in 2019. We somehow managed to have lower child poverty. How did? It wasn't magic. It was because of the rescue plan in '21 that is. And the impact it had on family income.

                                             We're coming out of this downturn with fewer evictions than anyone expected, with stronger balance sheets than anyone expected. With very little scarring in terms of lasting economic damages on individuals and households. That's what that word demand means.

                                             So yes, we got more heat on the price side, but we got more growth and a lot more very meaningful benefits for the well being of American households.

Mark Zandi:                      And so here we are, 8.5% CPI inflation year over year through March. Obviously just out of bounds and incredibly painful. Ryan's actually done a lot of good work calculating the increase in monthly costs for the typical American household. I think we're up to what? $350 bucks more a month, Ryan, something like that to cover the higher inflation.

Ryan Sweet:                      Mm-hmm (affirmative).

Mark Zandi:                      And when I think about what can be done to address this, I think of three buckets. And maybe we can just take one at a time. The first is around energy prices. Obviously, the Russian invasion and the spike in oil and gasoline, diesel prices is front and center. And I know you've been doing a lot of things in this area and we should talk about it.

                                             The second is global supply chains and this go back to the pandemic and the disruptions to particularly Asia, China where a lot of the chains begin and that's been highly disruptive. 

                                             One of the reasons why vehicle prices and furniture prices and consumer electronic prices have gone skyward.

                                             And the third bucket is I would say housing. I want to talk about this because rent growth is extraordinary. I mean double digit. And this is a problem for every American because you got to live somewhere.

                                             And what are we going to do about this? So I'll leave it up to you. Where do you want to start? I mean you're working on all these things.

Jared Bernstein:               We're working on all those things and I could take the rest of our time and take you through our agenda and I don't want to do that only because I want to hear what the group has to say.

                                             I would say that I've never been part of an administration, and as I said earlier, I've been in this political economy world for many decades, I've never part of an administration that is doing more to try to help on the economy supply side as this one.

                                             I mentioned my Keynesian bonafides early in the conversation. If you've looked at my work up to now, it focus largely on this idea that what came to be called secular stagnation. The idea that demand and the macro economy particularly here has been persistently too weak. And that this has had disproportionate effects on vulnerable households, on communities of color.

                                             And that we have to do things to strengthen demand. I didn't think as much about the supply side because we didn't have these kind of problems.

                                             But here we spend every working day at the behest of President Biden trying to think of what we can do to help on the supply side. And energy prices, of course, we've presided over some of the largest releases from the strategic petroleum reserves.

                                             That feeds quite directly into oil prices and gas prices. And we've seen some of that. There's a much broader agenda over the longer term, including a path to renewable energy and much more climate friendly production.

                                             On the global supply chains, we've done more than I ever could have imagined. And we have a supply side task force run by a really dedicated group of people here helping the ports move to 24 and seven schedule. 

                                             Mark, you and I have talked about economics for decades, I don't think we ever talked about dwell time.

Mark Zandi:                      Yeah.

Jared Bernstein:               Containers in port. I mean we never used those two words. Every day I'm looking at dwell times. And dwell times are down by 50%. By the way, I should say dwell times is the amount ... Not like everybody knows what they are.

                                             The length of time that a container spends in a port. So that's a snarl in global supply chain. We're helping to improve trucking. We're having real success there in terms of increasing people's ... Working through back logs there, CDL policies.

                                             On housing, look again, I think the best thing to do would be to look at our most recent budget which is on the website of the omb.gov. We have deep programs, and Mark I know you know all about these. I think you helped us think through some of them.

                                             Policies to increase affordable housing supply which is so essential. Increasing the housing choice voucher program. First generation home buyer support.

                                             One of the really interesting ideas is some ideas to help push back on exclusionary zoning. And here I just want to end on one point because people don't know enough about this.

                                             We're actually doing something now historical in the field, this is happening, to help diminish exclusionary zoning. It's through the Bipartisan Infrastructure law of all things. And the idea is that if you want the federal government to support a project in your town or city from the infrastructure law which is legislated. It's moving out into the field. It's almost a trillion dollars, an infrastructure investment over 10 years.

                                             And you can show how that project helps push back on exclusionary zoning. How that project helps increase housing and density around areas of transportation hubs, for example. That is an added advantage to you in your bid to get that help.

                                             And it's working. We have examples of how that's being taken up by various cities. So I thought was a very creative idea. And we could talk much longer about all of those ideas. But we're tackling all that stuff as best we can.

Mark Zandi:                      You make a good point. I mean generally policies focused on the demand side. Because that's what you can influence quickly in the near term. And it's clearer and clearer that's where the Feds is entirely focused.

                                             But actually trying to influence the supply side of the economy which obviously has taken all the damage here from the pandemic. It's a supply side shock. The Russian invasion. That's a supply side shock. So you have to work on trying to improve what's going on on the supply side of the economy.

                                             That's not easy. That's just not generally where economists and policy makers have put their thought. But obviously makes it a lot more difficult. Just a couple of things on all the policies you mentioned.

                                             Back on energy, just curious how you would respond to the criticism around the restrictions on pipelines and permitting. I hear this a lot from clients that the Administration has been very down on fossil fuels, focused on climate. What's the trade offs there? How do you think about that?

Jared Bernstein:               I think that we have to walk and chew gum at the same time. We have to help people get through this period of elevated oil prices. And we can't say to them, "Hey, everybody hold tight. We're making a transition." I'm doing air quotes which you can't see on the radio, on the podcast.

                                             Transition is economese for somebody's about to get whacked. And so we're very mindful of helping households get through this period of elevated energy prices as best we can while plotting a course towards robust, renewable production.

                                             And that means American market share for battery production, for solar power, for wind. Make it here, buy it here, build it here. These are all parts of the Biden agenda.

                                             But you can't get there unless you take the people with you. In terms of the friendliness, there are thousands upon thousands of open permits that companies already have. The President increased some just the other day, last Friday.

                                             So that criticism doesn't really land with me. I think if you ask yourself if these companies are making some real money right now? The answer is, of course, they are. I think probably a more important questions, one which big minds like the folks here on your side should take up is are we seeing the kind of elasticity of response in terms of supply production? In terms of rigs in the field to these elevated prices?

                                             By some measures at least initially we weren't. Maybe more lately we've seen a little bit more of that. But I think that's an important question in this space.

Mark Zandi:                      Yeah, the one thing I've noticed. I was just looking at the rig counts which is obviously a good proxy for production of oil and gas and in the U.S., in the fracking fields. And if you look at the year over year growth in the number of rigs, it's just incredibly steady.

                                             Since oil prices got above $70 bucks a barrel headed north, because 70's, by my calculation, break even for the typical rig out there operating. But ever since we got about 70, it's been incredibly stable year over year growth.

                                             It's almost like this is the physical limit on what the industry can actually do in terms of increasing production. And to get to go above that is just not possible given the physical constraints that they operate under.

                                             So it's almost, the rig counts are still a bit below where they were pre-pandemic, but they're getting back pretty fast. So this argument that there's these constraints on the ability of these companies to increase production just doesn't square with the data. At least not from what I can tell.

Jared Bernstein:               Yeah, I agree with that.

Mark Zandi:                      Yeah, hey, back on housing, you didn't mention, or maybe you did and I missed it, all of the various tax credits that are available like LITC, Low Income Housing Credit. There's been new market tax credits.

                                             I mean I bring that up because I think that could have more of an impact sooner in terms of lifting supply. And it also might get some bipartisan support because obviously it's on the tax side and the Republicans might be more interested in that. I just need-

Jared Bernstein:               Yeah, that's an important point. Again, I think that there are those probably, was it Cris or Ryan who come from a housing background.

Mark Zandi:                      Cris.

Jared Bernstein:               Who Cris could get very excited when we start to about this. And others whose eyes glaze over. So I wanted to be respectful to the latter group.

                                             But yes, I mean again, we have a very nice fact sheet at omb.gov from our most recent budget which just came out a couple of weeks ago. The budget proposed 50 billion in mandatory funding, an additional low income housing tax credits, this LITC to help increase supply. To help stabilize housing prices over the longer term.

                                             There is money in there for funding state and local housing finance agencies that provide grants and and other financing tools to agencies.

                                             Mark, there's something that you have talked about which is helping to finance community develop financial institutions which fund new construction and rehabilitation.

                                             There's a rural component, two billion for rural housing loan and grant program. All of this, all of this alphabet soup is designed to do one thing.

                                             It's to make penciling out building low and moderate income housing feasible. Because I think the market failure is in the absence of these supports, builders are, especially right now, have all the incentives they need to build rich people's houses, but not to build middle and lower income people.

                                             To which by the way, I include manufactured housing and accessory development units. All of those are important. Cris, does this resonate with you from your background?

Cris deRitis:                       I would say the exclusionary zoning resonates the most. I think that is actually the greatest barrier. Talked to a lot of builders. I don't think they're averse to building affordable housing. They could make it work, except in the current environment, right? Given the supply chain issues. They're facing the higher costs.

                                             But what they tell me is that it's the zoning that really dissuades them, right? It's just not possible to build in certain areas where there's clearly the demand, but the laws don't or the regulations don't permit it.

Jared Bernstein:               Yeah, and I think-

Cris deRitis:                       And I'm excited most about that proposal.

Jared Bernstein:               Yeah, no, that's a great proposal. And but so there's two things. There's a proposal to undertake doing what we can to get rid of exclusionary zoning. But people always say oh the federal government can't do anything about exclusionary zoning. That's a local thing.

                                             And I think we've proved that we can come up with innovative policies that could help there. And just once more let me say there is a policy in the field that is actively doing this. In the bipartisan infrastructure bill, jurisdictions gets rewarded when they apply for funds where their land use policies promote density, which is a key to boosting supply and often pushes back on exclusionary zoning.

                                             So that's a policy that's in the field. You've got to think creatively about how we can leverage federal resources to crack that nut.

Cris deRitis:                       Well you're right. This is a first.

Jared Bernstein:               Yeah.

Cris deRitis:                       It's always been oh it's a local NMB issue, right? That's-

Jared Bernstein:               Yeah.

Mark Zandi:                      I want to be respectful of your time and I know the taxpayer is calling. I just want to end with a more open ended final question. Maybe give us a little bit of guidance as economists. What should be thinking about that we're not thinking about?

                                             I mean that's a little blue sky. But is there some area of thought, research that would be helpful to you as a policymaker?

Jared Bernstein:               Absolutely, absolutely. First of all, keep doing what you're doing. Your work is tremendously helpful to us. And I don't say that because it's always patting us on the back. It's helpful to us when it's patting us on the back and whacking us on the head.

                                             I think the ... Let me tick off a few things that I know I walk around thinking about. All of them have to do with risk. With probability of things going badly.

                                             I think that digital currencies embed significant risks. There are potential innovations that we shouldn't ignore. But I think the risks of crypto in particular are something that we've tried to think about here.

                                             The President had an executive order. The Treasury put out a report on this that I thought elevated these risks. One thing that appears to be happening in this space is that many, disproportionate numbers of people of color have been investing in some of these digital assets.

                                             And I think making sure people understand those risks is super important, both at the individual level, but also at the systemic level. I'm a very big devotee of the Minsky theory of cyclical innovations biting you in the rear end if you ignore them as cycles evolve.

                                             I think that we're in a situation where we have the conflict, the war in Ukraine creating risk in terms of commodity prices. We're still dealing with a 100 a year pandemic. And I think that this should give us, economists should think about two things in this context.

                                             One, what are the best policies to have in place to ensure both individual, community and macroeconomic well being in the face of elevated risks. Tail probabilities that you may not ... Climate's another one. Tail probabilities that may look like they're not going to fall on your head tomorrow but are very real, have to be taken very seriously. What policy agenda should we have in place to provide the insurance against those risks, both for people and for the macro economy.

                                             And then secondly part of that, economists, hear my voice. Do not assume perfect implementation of everything. Too often we're like we have an unemployment insurance system. Assume it works perfectly.

                                             What we need our greatest minds thinking about ways to ensure that the implementation of our risk management policies that I'm advocating can be effectively implemented. Some of that means fixing your roof when the sun shines, by the way, and not waiting until a recession to question the software in the UI system. But please brothers and sisters in our field, don't assume seamless implementation. 

Mark Zandi:                      Those are great ones. And we're certainly thinking about both. The digital currency and risk management and thinking about what kinds of things we should be implementing, warts and all, to try to make sure that if we get into those tail scenarios that we have some policies that can help out and help us navigate through.

                                             But let me end it here and thank you, Jared, for a wonderful conversation. But more importantly for the service that you've provided to our country over the years. Obviously, you're a very thoughtful and I know you've sacrificed a lot of be able to provide this help to all of us and so thank you for that. And it was good to have you on, my friend, thank you so much.

Jared Bernstein:               My pleasure. Thanks so much. I hope I see you soon. Bye bye.

Mark Zandi:                      Well that was a great conversation with Jared. A lot of think about there. But maybe we'll just spend a few minutes and try to recap. Maybe the way to do that is I'll just an open ended question, what do you think? Was there anything he said that resonated with you especially or you would push back on? Anything that you'd like to point out? Cris, anything come to mind for you?

Cris deRitis:                       Yeah, he made a lot of great points and it was great to get his insights into what the Administration is thinking.

Mark Zandi:                      I loved his joke, that joke.

Ryan Sweet:                      The joke was good.

Mark Zandi:                      That joke was fabulous, yeah.

Cris deRitis:                       That'll go down in the annals of Inside Economics for sure.

Mark Zandi:                      Yeah, yeah. I'll definitely use that. That was really wonderful, yeah.

Ryan Sweet:                      So now we got to debate. Do we want cowbells, to ask Carl for funding to get Inside Economic cowbells or T-shirts that say red shirt or brown pants?

Mark Zandi:                      Yes, well I would say both.

Ryan Sweet:                      We need to do both, yeah.

Mark Zandi:                      Come on, Carl, what's the deal? But what do you think, Cris? Any push back? Anything in particular?

Cris deRitis:                       One thing that stood just at the end there was as he was going through some of the issues, I would certainly agree with and I'll paraphrase here. I'm a big advocate of government infrastructure and actually investing in government infrastructure as something we need to do for the next crisis, right?

                                             There was the unemployment benefits that we were able to get out this time. But that system is quite clunky. We could refine that further. There are lots of things that we should really be investing in, in terms of how we can optimize the government strategies so that when we do get into trouble, we have the tools, the data, the systems in place to respond.

                                             So I would certainly put a plug for that investment. And I don't think it's that large, right? I think the dividends would pay off substantially next time around.

Mark Zandi:                      Yeah, very good. And Ryan, anything in particular stand out for you?

Ryan Sweet:                      No, I would just second what Cris said. I think the pandemic showed that our UI system is broken. But I think the ... Early on in our conversation he was talking about a recession and that household balance sheets are in really good shape. I do think that that doesn't get enough attention. You brought up corporate balance sheets [inaudible 01:10:44].

Mark Zandi:                      Well, you're not paying attention. You say 75% probability of recession.

Ryan Sweet:                      I'm paying attention to it, but here's the point. Is it, yeah, usually recessions are caused by some glaring imbalance in the economy but this is an unusual cycle. This is going to be more boom, bust.

                                             And we didn't get into it, but I mean financial markets are already talking abut a 94% probability of a 75 basis point rate hike in June. I mean-

Mark Zandi:                      Oh I missed that. Really?

Ryan Sweet:                      Yeah, it just popped up on the terminal.

Mark Zandi:                      Wow.

Ryan Sweet:                      Yeah I mean the Fed is going to get back to neutral as fast as they can and I just think that something is ... We're going to be vulnerable to something ... Anything else that goes wrong.

                                             So it doesn't have to be an imbalance both consumers or households, it could just be your garden variety boom, bust type cycle.

Cris deRitis:                       Are we putting too much emphasis on probability of recession and not enough on severity?

Ryan Sweet:                      Severity. I think that's a great point.

Cris deRitis:                       I don't think, what I'm hearing universally, nobody thinks that the next recession actually would be quite severe because of all the economic fundamentals and strengths.

Ryan Sweet:                      I got that question this week from a reporter asking me about what's the probability of recession? And would it be as severe as the pandemic? Or would it be closer to the great recession or 2001? So yeah, I agree with you. It will be a mild recession.

Mark Zandi:                      Well the thing is economists are loathe to call recession. They're even loather to call a severe recession. I mean I can even go back to the financial crisis, when it first happened, it started in January of 2008.

                                             And it looked like that was going to be ... Oh this is going to be a mild recession. And what happens is it starts feeding on itself, right? And exposing any things that you don't even know are a problem, or certainly not to the degree that they are.

Cris deRitis:                       Yeah, my point is we should be rooting out those things. What are the fissures? What are the cracks in the foundation here?

Mark Zandi:                      Yeah.

Cris deRitis:                       And so far, right, as I said, as we've discussed, there really aren't glaring ones, right?

Mark Zandi:                      Yeah, it's hard to find them, right?

Cris deRitis:                       You can find pockets in households, right? So certainly lower income households or zombie corporations that are out there that have been surviving because of the low interest environment. So clearly there's going to be some pain in the next recession.

Mark Zandi:                      Well that's a problem. Like go back to the end of the financial crisis, do you remember the then Fed chair Ben Bernanke giving a speech on subprime mortgage, right?

                                             So we had all said okay if there is a soft spot in the system that might get exposed and create a bigger problem, it would be all this mortgage lending because obviously the housing market was gangbusters and prices were rising and a lot of building and everything else.

Cris deRitis:                       Got to be contained, right?

Mark Zandi:                      And he came out with this speech saying subprime mortgage, no big deal. I mean I'm paraphrasing obviously but that was clearly the message. So again, back to my point, we're pretty reluctant to call out ... But I will say this just does not feel ... The fundamentals of this economy feel pretty good to me.

                                             I mean very different than the fundamentals that prevailed prior to financial crisis. So I agree with you on severity, you would think it would be relatively mild.

Ryan Sweet:                      But don't you think we do a pretty good job. I mean we keep track of the probability of recession, but we have that risk matrix, the global and U.S. risk matrix. Because it's the catalyst that determines the severity and the length of the recession.

                                             And we identify what potential catalysts are. I mean would be wrong. We could miss a couple, but I think we have a pretty-

Mark Zandi:                      Yeah, that's a good tool-

Ryan Sweet:                      Yeah, I really like that tool.

Mark Zandi:                      We identify all these potential risks. What's the probability of that risk? And then also what's the severity, the economic loss, the present loss of the economic loss if that risk actually were to occur.

                                             I mean it is interesting. You have one. I have one. I don't know if Cris has one. They're similar but they're not the same which is actually quite interesting. Very interesting.

Ryan Sweet:                      Yeah, well we'll have to get together and-

Mark Zandi:                      Yeah. You know where I would push back and remember I said, Jared is one of these guys that other than Alan Blinder, he's the only guy I mostly agree with on everything.

                                             And by the way, the one thing that he was alluding to he and Blinder and I agreeing on trade, that's the one area, I agree with Blinder on trade. I disagree with Jared, at least I don't know where he stands now. But historically, he's been much more skeptical of trade.

                                             And in the context of China maybe that makes more sense. But I always, before China, thought ... And even with China, I thought Trans-Pacific partnership was a better way to go than trade wars and higher tariffs.

                                             But anyway, I say that with this comment and that is I would push back on his explication for why inflation is so high. Of course, it's demand and supply. He seemed to be suggesting that demand is almost ... Or it's in the same ball park as supply as driving the higher inflation. I just don't see it that way.

                                             I think what we're observing ... Yeah, the pick up of inflation a year ago when the economy reopened and we had the American Rescue Plan, yeah that was demand driven inflation mostly.

                                             But what we're observing now, that is almost entirely supply side. I don't see that as demand. In fact, consumer demand has been pretty pedestrian over the last, almost, in terms of goods, it's been flat for a year. And for overall consumer spending, it's been pretty pedestrian. Here's a statistic for you. I just calculated this.

                                             The growth in consumer spending since the pandemic hit over the past two years through March average annual, real consumer spending is 2.3%. Excuse me, yeah, 2.3%. Do you know what it was in the two years prior to the pandemic through March of 2020? 2.4%. No different.

                                             So consumer spending has not ... Demand is just demand. It's really the supply side of this economy that's been all messed up. But it's interesting that he seems to saying ah, demand's more of an issue here than ... Supply is an issue, but demand is more of an issue than what I'd say ... So if I had to push back on him, that's where I would push back in terms of his assessment of where the economy is.

                                             Anyway, lot to think about there. A really good conversation. I'm going to advertise my Twitter handle again. @markzandi. Just saying. You can follow me on Twitter.

Ryan Sweet:                      You haven't been very active recently.

Mark Zandi:                      I have been active, yeah.

Ryan Sweet:                      No, you haven't. Or maybe I just don't know how to use a Twitter account. Because when I was on vacation, I was like oh let's see what Mark's saying.

Mark Zandi:                      Really? I thought I ... Geez. Well I don't want to go down the Twitter rabbit hole. Like that'd be ... It's easy to go down that rabbit hole.

Ryan Sweet:                      Oh yeah, yeah, you got to stay out of that.

Mark Zandi:                      But I thought I was pretty active. Geez. That's ... Yeah.

Ryan Sweet:                      And maybe it was just the few days I was checking.

Mark Zandi:                      Yeah. And you? What's your Twitter handle?

Ryan Sweet:                      @realtime_econ

Mark Zandi:                      There you go. And Cris is not really active on Twitter. He's a big, as we've pointed in the past, LinkedIn maven.

Cris deRitis:                       Find me on LinkedIn.

Mark Zandi:                      Yeah. Okay. Well I think we're going to call our podcast. We didn't get to listeners' questions. We got to do that. Got to remind me to get back to listeners' questions because they're piling up. I have a bunch of good ones. But we'll do that next week because we're running out of time. So with that, thank you for your attention and we'll call it a podcast. See you next week.