Blinder Speaks Out on Fed Day
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Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and I've got my trusty co-host, Chris Dorides here. Hey, Chris. Hey, Mark. Good to hear you. Big day today.

Big day? Yeah. Well, that's not a trick question, right? I mean- Because of our guest? Oh, we got a guest, Alan Blinder. Hey, Alan. Good to see you. Hello. Hello. I'm not sure I make it a big day, but hello. I understand it's exam day at Princeton today. In my course, it's exam week in Princeton. I still teach Economics 101, Mark. Do you? Nice. That's nice. Yeah. Has it changed? It has changed a bit over the years. Yeah. I never-

dreamed until some a few years back of teaching about the economics of a pandemic ah never occurred to me good point so how long have you been teaching at princeton oh lord i started in 1971 how's that wow uh so that was uh richard nixon arthur burns

Yes, that's right. Which is apropos, because you, you know, Alan, I have to say, you've had an amazing career in preparation for the conversation. I did go look at your bio. It seems like you've held every key government economic position there is. You were even in the CBO. I did not know that. I was, yes. I was a youngster then. I was a

Excuse me. I was one of the founding fathers under the founding mother, Alice Rivlin. Right. Yeah, the deputy director, you know, back then. And you were also on the Council of Economic Advisors under Bill Clinton. Yes. And vice chair of the Fed. And you're the... Right. Other than this go around, I think you're the only Fed that's actually soft-landed the economy under your...

under your leadership, I believe. So far. This one's looking pretty good, I must say. And as I've said in a number of contexts, in the much harder circumstances. But yeah, so far, we're the only ones. And here's the thing that I found most amazing. You've had your hand in 23 books. Is that right? 23? That's what Amazon says.

Well, who's to dispute outside? This does depend a little bit on how you count the textbook, which is now in its 14th edition. Ah, okay. Usually that counts as one, but if you count it as 14, you'll be at a lot higher number than 23. Got it, got it. And of course, you've recently published a new book, A Monetary and Fiscal History of the United States, 1961 to 2021. Yes.

That's correct. Yeah. How's the book doing? You know, the answer is for a scholar. That's a scholarly book, not a trade book. Yeah. So you have modest expectations, but for that sort of a book, it's done quite well, actually. That's great. Well, you'll be happy to know I bought the book. It's on Kindle. I've been reading it. You can buy more copies, Mark. Well, I was going to say my son actually bought the book before even...

He just bought it. I go, oh, what you're reading there? And he was reading your book. Yeah. How old is your son? He's early 30s, 32. Oh, I see. Okay. Yeah. Good taste. Yeah, yeah. He was in the chapter on, I think it was on Nixon Burns. He goes, you know, he didn't realize, you know, how big a deal that was. No, most people that age wouldn't. Yeah. Yeah.

So you found that very interesting. Well, it's great to have you back on the podcast. And of course, I'm a great admirer of you and your work. And I may have said this last time you were on, you know, there are some people,

that almost invariably, whenever they say something you disagree with, and then there are people that, very few people in my case, that say things and you always agree with, you're that person for me. Well, you're that person for me also. I'm constantly citing you, Mark.

So we're both going to be wrong is the bottom line. We're going to go up or down together. Yeah, we're going up or down together. Very good. Oh, and I should have said, you still write prolific for the Wall Street Journal, the op-ed, the opinion pieces. I do. I do. Which is not easy. Not easy. Well, maybe I thought we'd start just because of the other big thing today was the Federal Reserve, Matt. And this is December 18th in the afternoon. And I'm going to start with the Federal Reserve.

And they announced that they were going to cut interest rates. So I thought we'd just kind of sort of begin there. And maybe I'll turn to you, Chris, and maybe you can give us a kind of a rundown on what exactly they did. Sure. So they did cut the Fed funds right by 25 basis point as anticipated, as we discussed in our previous podcast. Sure.

The vote was 11 out of 12. So there was one dissenter, but the majority of the committee voted to go ahead and cut. In the remarks, Powell did say that it was a closer call, certainly than some of the previous meetings. So there's certainly more discussion here, more concern about the state of inflation, the state of the labor market.

And perhaps the most interesting part of the day is the guidance for next year or some of the projections that were made. So now it looks as though the Fed is projecting only two cuts in 2025. So that's certainly coming down from the September projections that they had. I think they had four. This is referring to the so-called dot plot where they-

That's right. Give us a sense of, and in the September meeting, was it the September meeting? No, the November meeting. No, September meeting. Yeah, that's when they released the previous dot plot. They were at four quarter point rate cuts in 2025. Now they're down to two is what you're saying. That's right. Yeah. That's right. And associated with that was a somewhat higher projection for inflation. So-

Right. With that kind of view. It's going to just take longer for inflation to get back down to the target. I saw the consensus is they pushed the equilibrium rate up, the so-called neutral rate where policy is neither supporting or restraining growth to 3%? I think it was a little higher. In the long run. Like 3.4% is the terminal.

No, I don't. I saw. No, no, no. I think it's 3%. Really? Maybe I was looking at the wrong. Maybe I'm looking at the wrong one. Was I looking at last month's? I think the last one was like, wasn't it 2.9 or maybe I'm mistaken. Here, let me take a look right now. All right. All right. This is- I thought it went up from 2.9 to 3. Yeah, it did. That's right. 2.9 to 3%.

Okay. Yeah. No worries. 3.4, that would have been big news. That's a big increase. That is a big... Okay. All right. Yeah. You stand corrected, Chris. All right. All right. No worries. So how are markets reacting? Do you know? Stock market fell. Okay. Now the 10th, this is the big headline, of course, the 10th straight day of stock market declines. First time since 1974, I believe. So that's...

kind of headline news. And the bond market went up. The 10-year treasury rate went up about six, seven basis points. Well, that's getting up there. We're probably closing on 4.5%. That's right. Pretty high. Anything else you want to point out in terms of the meeting? No?

Chris? I think that's it, just some changing views here. Okay. Hey, Alan, what's your sense of today's move? And I guess even more broadly, how do you feel about the way monetary policy is being conducted here under J-PAL?

I think pretty well. As we were saying a little while ago, the chances of a soft landing still look excellent. In fact, you could argue that we almost have soft landed other than the inflation rates a little bit higher than they would like it. But among friends, another half a point on the inflation rate doesn't seem like such a big deal to me. They did this under circumstances that were much more difficult

than what the Greenspan Fed that I was on in the mid-90s had to contend with. So, you know, I think they should get two gold stars for that. Now, it's not over yet. There still could be a relapse. There could be another upsurge a bit in inflation. I don't mean to eight. Well, let's talk PCE. I don't mean to 7%, but a little bit up rather than

And at best, the downward momentum that was very clear for quite a few months seems to have stalled out a little. And the Fed is reacting that by saying, you know, whoa, Nelly, so to speak. We've been cutting rates and maybe we should slow down. Not maybe, we shouldn't.

That doesn't speak quite that frankly. The message was we should slow down a little bit. Now, that doesn't mean they won't cut again at the next meeting, but I have a hunch that they won't cut again, that they'll still be waiting. And a major thing they'll be waiting for is a little clarity on what of Trumponomics 2,

looks to be bluster and what looks to be real. I mean, if you take him at his word, which is always a mistake, the massive tariffs, the massive deportation, and later on, the extension of the tax cuts makes for a seriously inflationary

Again, I don't mean driving inflation back to 7% or anything like that, but moving it up rather than down. And if you're the Fed, you don't know what's going to happen on those three fiscal, let's call them fiscal fronts. Those are major uncertainties that you're staring at and wondering about. And when there are major uncertainties, just hanging on where you are is...

often an advisable thing to do. So the three are tariffs. Did you mention deportation? Yes. And the third was? And the tax extension, the tax cuts, which would be later. Right. The tariffs and the deportation should at least, we should have some clarity on those pretty soon. Right. I guess the other point that's consistent with a pause is

with regard to the tariffs and the deportations, that lifts inflation, but it also potentially diminishes growth, right? So what do you do with that at the Fed? Should you be responding to the inflation or should you be responding to the potential for weaker growth? And I guess the answer is, you just kind of sit on your hands to kind of see how things play out. The classic answer to questions of that ilk, Mark, as you well know,

is central banks around the world, including the Fed, have learned over the years of something they didn't know or didn't think of in the late 70s, which is supply shocks tend to crest through the economy and then go away. And so the canonical response is to look through them to the other side. Now, politically, that looked bad recently because we economists learned, at least I learned,

that people really care about the price level, maybe more than they do about the inflation rate. I mean, as you know, basically all of macroeconomics is predicated on the bad thing being inflation, not that the price level is now 20% higher than it was three years ago, but it's not rising very fast.

so we're used to uh that and on inflation these supply shocks crest through and disappear on the price level they may not some of them will some of them won't the tariffs are uh examples that i think so on inflation will crest through and disappear but on the price level will not as long as they stay in effect the price of various and sundry things

that come in with heavy tariffs will stay higher. So if you're at the Fed and it's clear that some big changes to economic policy are dead ahead, unclear exactly how big they're going to be, but there will be some changes. And I do think

In the case of tariffs in particular, President Trump does seem to be committed to the tariffs. Just listening to the way he talks about them, it feels like he's much more committed to them. But at the Fed, I guess you can't really...

I guess I'm going to pose it as a question. Should you be considering that in the current conduct of policy, or do you have to wait and see exactly? Yep. I'm going to give you two answers to that. Yes, you should be considering it, and no, you shouldn't say a word about it. Yeah. Okay. Okay. So I'm sure Jay Powell is well aware of the threat to raise tariffs substantially, and he won't say boo about it, nor should he.

Right. Right. So maybe this kind of hawkish, I guess it's kind of a hawkish ease. They lowered interest rates, but they signaled don't count on future rate cuts.

It would be in part because they are anticipating these changes to economic policy down the road, and they need more clarity with regard to that before they can make a decision. Yeah, I think I played a role. It's also the case, just take straight macroeconomics.

that growth is running higher than we thought six months ago, and inflation, which was coming down, down, down, down nicely, stopped coming down. And is even, well, if you're very fussy about it, ticking up. The media get excited if the inflation rate went from 2.6 to 2.7. I look at that and say, that's well within the measurement era. I mean, do we really think we can measure it within a 10th of a percent?

But at the least it stopped coming down and maybe it's ticking up a little. So this is one case where the fundamental macroeconomics might also be pointing you if you're the Fed towards a pause. And then this overlay of Trumpian uncertainties is definitely pointing you in that direction.

And so you go in that direction. Yeah. Yeah. I like that Trumpian uncertainty. That's a pretty good way of describing it. It sounds like a good op-ed title, Trumpian uncertainty. I could have used less polite language, but this is a five-ton cycle. Yeah, exactly. I guess the other factor playing a role here in terms of pause or no pause or what

where policy should be headed, and here we're focused on monetary policy, is the so-called equilibrium rate, which we referred to earlier, that the consensus on the Fed appears to be it's around 3% on the federal funds rate target. That's the rate at which, in theory, monetary policy interest rates are not supporting or restraining economic growth.

If we replace it to 2%, what you just did in your head was 1 plus 2 is 3. Yeah, right. Exactly, right. So that's the nominal equilibrium yield, right? So is that – it feels like the equilibrium yield – now, that's the so-called – what the Fed calls long-run equilibrium yield. So presumably, in my mind, that's kind of through the business cycle. That's what it would be.

But at different points in time in the cycle, like now, it could be very different than that. And it feels like the equilibrium yield is higher than 3%. Is that consistent with your thinking? Yeah. I mean, among...

So let's leave the real part aside for a moment. The inflation rate's been running above two, not radically above two. So if you're thinking of the nominal neutral rate, for that reason alone, you want to add 60, 70 basis points or something like that. And then the way I teach my students about the equilibrium rate, it depends principally on the

a balance of saving and investment. And if you have a strong economy with a lot of investment and your savers are Americans who don't save very much as opposed to Singaporees or Japanese or some people like that, that can also push the equilibrium rate higher. You don't see that very much in the estimates. It's one of my pet peeves about these estimates.

They tend to run off of almost exclusively off of the estimated long run growth rate of the economy. Yeah, right. And the saving and investment balance don't even show up in the analysis. Right. But they do in my head when I think about it. I am thinking about that. That's the framework you use to try to get to whether the equilibrium rate's up or down. Yeah. Yeah.

The other, I guess, issue that's come to the fore in the election and now with President Trump headed towards the presidency is his kind of casual, at least my words, casual kind of conversation around the president having influence on monetary policy, that the president is

i think he trump said this almost as explicitly as i'm going to say the president should have input especially him as president should have input into right the decision-making process at the fed yes yeah which goes right to central bank independence uh certainly does what do you think i think it's a horrible idea horrible idea it's made more horrible by the fact that the president would be trump but it's a horrible idea for president x

There's a reason that not just the United States of America, but countries all around the world have to various degrees made their central banks independent and not given much influence over monetary policy decisions to their presidents or prime ministers. It's not just the United States that does it.

In terms of law, we're one of the weaker countries. I often point out to people, there's nothing in the Constitution about a central bank. There's certainly nothing about central bank independence. And if Congress would pass by majority vote on Wednesday, and the president would sign on Thursday, that monetary policy is made in the Senate Finance Committee, that would be the new law. And the Fed might as well go home.

So we don't have that much protection against Federal Reserve dependents, and we don't want that wall breached. So a great way to breach it would be to have the President of the United States opining after every FOMC meeting, "Oh, that was good, that was bad." You may remember, Mark,

In the Clinton administration, which you graciously referred to earlier by public service, I was on the Council of Economic Advisers and the admonition across the board in the economic team then is we had a mantra and the mantra was, "We don't comment on the Fed." No matter what they asked us, the media about the Fed's decision, it was the same. It needs to be the same.

Because if you don't comment when you don't like it, and then you comment that you love it when they do what you want, you've destroyed the no comment on the Fed. And other than Trump in his previous term, presidents since Clinton have basically adhered to that. Joe Biden doesn't say it. He just never comments on the Fed ever. Well, this goes back to your book. I think one of the...

earlier chapters in the book is about Richard Nixon and Arthur Burns. Yeah, he didn't comment on the Fed. Yeah, well, I use that as an example of, a good historical example of what happens when the Fed's independence is breached. Right. Yeah, and I didn't realize this until reading your book. Nixon and Arthur Burns, the chair of the Fed at the time, they were good buddies. They were. They were from the Eisenhower administration.

Right. And so in the lead up to the 1972 election, of course, President Nixon wanted a strong economy. He kind of revved things up and he is I guess he was very explicit with his buddy Arthur Burns saying, hey, let's keep interest rates down to keep the economy chugging along here. Yeah. And he was for a long time. That was a sort of a.

an hypothesis that people believe, but there wasn't a lot of evidence. But then when the Nixon tapes were revealed, some scholars looked at them and there it was. I mean, unless you're speaking of, don't speak English, you couldn't deny that Nixon was basically urging Burns to kick the rest of the FOMC in the butt if necessary to get them to keep interest rates going down.

There was huge interference and Burns was complicit in that. Nixon never talked, as Trump did about Powell, about removing Burns from office, at least not out loud. He didn't have to. He had Arthur Burns doing his bidding on Constitution Avenue.

And do you, you know, of course, inflation, even before that period in the late 60s, that started to rear its ugly head. Yes, it did. Yeah, I think that goes back to all the fiscal stimulus during that period related to the Great Society and the war, obviously. Yeah.

But it had calmed down a bit, I think. Correct me if I'm wrong. You wrote the book. But when Nixon took over and then we had this Fed capture, how big a deal was that in the subsequent inflation period?

that we suffered. And of course, it was a much worse episode of inflation than we experienced here in the pandemic and Russian war. Inflation rates were much higher for much longer. Do you trace that back, at least in part, to the Nixon-Arthur Burns episode? Yes. I'm glad you said at least in part, because I wouldn't give it the leading role. If this was a Broadway playbill,

inflation starring this and then lower on the playbill, you see who else is in the cast? He was in the cast. But compared to oil shocks and food shocks, which started in the early 70s and then continued into the end of the 70s and into the 80s, I don't think the Fed's unfortunately too loose monetary policy was...

such a big player. It was there. It was there. Meaning that we'd have had a lower inflation if the Fed didn't do what it did. But remember, Mark, this is in the book also.

One of the reasons, even before the phone call transcripts, we really knew what Burns did is that once Nixon got reelected in 72, the Fed reversed and went much tighter on monetary policy. What a coincidence that was. Mm hmm.

Yeah, of course, we had the 73, 74, 75 recession. We had the oil price shock plus that Fed tightening. And that brought inflation down. Yeah. And also price controls. And the end of price control shock crested through. This is just like what I was talking about before about looking through it. Yeah. So we knew if we thought about it, we were going to get a burst of inflation as price controls were lifted. And that would go away.

And that's precisely what happened. Right. I guess the other contributing factor was that policymakers at the time in the 70s really didn't have a good grip on the role of inflation expectations and how that affected behavior. And that was a big deal. Yeah, I think so. I think.

Yeah, I'm saying yes, and I'm going to stick with yes. Okay. In the back of my mind, the way you can't see it, I have written several times and talked more. I think modern economists...

way overestimate the role of inflationary expectations. Not that there isn't a role, there certainly is. But in many modern economic models, you see the expected rate of inflation like drives everything. And I don't really believe that. It's relevant. And the way you phrased the question, the answer was yes, that back in the day,

73, 4, 5, people were not talking or thinking about inflationary expectations all that much. That changed with Volcker dramatically.

So let's come back to current time. And, you know, it's clear in the conversation, you're no fan of the economic policies that President Trump feels like he's going to pursue. I'm not. You're not. So broad-based tariffs, not a fan. No. Significant deportation of immigrants, not a fan. Correct. Let me just say something about that. My...

It's not that I'm in any way opposed as an economist or a citizen to apprehend people who are here illegally and send them out of the country. But my fear is that this is going to be such a broad sweep, it's going to get a lot of, it's going to sweep in a lot of people that shouldn't be swept in. Law-abiding citizens, dreamers,

Probably a bunch of legals that have Hispanic names and Hispanic accents are going to wind up in what I fear might look like concentration camps. I find that as a citizen completely abhorrent.

Just as an aside, I noticed the job finder rate, the percent of the unemployed that are finding jobs has fallen very sharply in the last couple of months, particularly for immigrants. It looks like this is already having an impact on how employers are behaving in terms of hiring. Yeah, I don't doubt it. I mean, I have a gardening company that takes care of our property.

I don't go out and check in for their green cards. I don't know if they're illegals or illegals. They're hardworking. They're all men. They're hardworking men, that's for sure. I know that. And most of them don't speak English. I know that. But I don't know if they're illegals or illegals. So broad-based tariffs, broad-based deportation of law-abiding citizens,

So tax cuts, corporate tax cuts, it feels like obviously the individual tax cuts were going to be extended. They were going to expire. Right now they're slated to expire at the end of 2025, but they'll be extended for all individuals. And then in all likelihood, more corporate tax cuts. You're not a fan of that.

No, I think the corporate tax is a very inefficient way to, well, to do anything. If you think about it, Marcus, you have. So I'm not telling you anything you don't know. When you cut the corporate rate, let's leave aside accelerating depreciation. They already did that to expensing. You can't go any further than that.

the cuts of the corporate rate itself are mainly ex post facto reductions in the taxation of investments that have already been made it's the investments you made last year and the year before and the year before that oh so we're going to cut your taxes on that what is that going to incent you to go back three years and invest more i i don't think so i think it's pretty hard to do that

So it's a very inefficient, it's a good way to line certain people's pockets. It's not a very good way to incent investment. Okay, so not a fan of that. Obviously, very opposed to any efforts to breach the independence of the Federal Reserve. So you add all of that up. What's your sense of what it means now?

for the economy next year in 2025 and into 2026? Well, the latest words out of Trump's mouth on the Fed sound more peaceful, if I use that word, than they were before. I'm praying that that comes true, that we don't. But I can well imagine that the first FOMC meeting under President Trump

that does not cut interest rates sends him into a rage. It doesn't take much to send him into a rage. Now, I don't know that that'll happen, but if that happens, that will put that independence way back on the table. For all I know, he may start talking about firing Powell, which is probably illegal. I don't think that danger is gone, although it's looking less serious now than it was a month or two

I start with that because if you want to think about the medium and long run implications for inflation of Trumponomics, that's where the biggest danger lies. You know, the tariffs will be what they'll be. They will raise the inflation rate transitorily and the price level permanently. I'm back to that again. I can't get out of this trap that the bad thing is inflation.

I've been thinking that way since I'm in my 20s, and I'm a long way from my 20s now. And the immigration thing, that'll have to last longer. He's not going to get that done in a year. But I don't know what to make of that, how big it will be, how long it will last. And this stuff we were just talking about, about the tax cuts,

will be modestly inflationary, but not a big deal on the inflation rate. I could use the Moody's model to prove that if I had the Moody's model at my fingertips, as you do. Anytime, Malin. It's yours. But you're right. That's exactly what you'd say. Yeah. It's small potatoes. You know, we don't need it, but it's small potatoes. The one thing that could really...

I don't want to use purple prose here, really boost the inflation rate in a lasting way would be a serious threat to Fed independence, which among other things, to go back to where you asked a couple of minutes ago, would work through inflationary expectations. You'll see it in inflationary expectations right away. So it sounds like

you're like the clearly the economy's coming into 2025 and at least in the aggregate in a pretty good spot oh yeah and can weather storms and it feels like a storm may be on the horizon coming but it's not going to be big enough to knock this economy off the rails that that feels like sort of what you're saying i think so but there is a danger of um

- I mean, let me just give you a spurious example. Suppose Trump, because he talks to Pete Hegseth or Robert F. Kennedy Jr. or something, decides we need to put 75% tariffs on everything coming into the United States. That's not my best guess, but let's suppose. That would be quite a whammy on the US economy. Or suppose that the roundup of Hispanics in America

turns out to be bigger than most people think in terms of disrupting the workforce. It won't be the workforce that works for Moody's or Princeton University mostly, but it'll be the workforce that is involved in building, in landscaping, in gardening, in home health, home care, and a whole variety of other things.

uh on which we rely on immigrant labor whether it's legal or uh illegal but suppose all these things are bigger I don't think we're the economy is in very fine shape as you just said but I don't think we're immune to what should I call it a mega shock yeah right so directionally all these things are the best guess

Right, right. What's going to happen. So these policies are directionally going in an untoward direction in your perspective. If it's a moderate move in that direction, okay. But if it's a big move in that direction, we got a problem. Yeah. Yeah. Okay. Yeah. That's my view. Yeah. So why, and this is a question I get, why is the stock market at record highs? Why are corporate credit spreads...

paper thin. It seems like every asset market is flying high here, except for commercial real estate, maybe. Yeah. And by the way, the stock market, the last, what is it, 11 days? 10. Last 10 days. How many? Last 10 days of losses. Longest streak since 74. 10 days in a row, which doesn't happen that much. I haven't heard Trump

screaming about how wonderful the stock market is lately. Well, I think that's the Dow, though, in all fairness. I think that's the Dow, and the Dow is down because of UnitedHealth, for obvious reasons. So the S&P is not- Yeah, the S&P, yeah. I mean, it might be down today because of what the Fed obviously is doing. Yeah, yeah. But it's not down 10 days in a row. I mean, I think if you go back, say, three months ago, that's when

Trump started to win in the polls and the betting markets. And you look at the increase in stock prices since that period. Stock market's happy about it. I'm going to say it's up 10%. It's probably around that, about 10%, something like that. Just FYI, as we've been recording, the market has collapsed here. Collapsed? Okay.

Okay. Now is down 900 points. Whoa. Oh my goodness gracious. S&P is down 2.7%. This is not going over live, is it? No, not on podcast. It should be. Yeah, it should be. Oh my goodness. Okay. So I'll take it all back. I take it all back, Alan. But to your question, I'm going to start by the Weasel words.

As you well know, nobody can really answer that question why the stock market does what it does. Yeah, I try. I try. Yeah, let me give you a few hunches. Yeah. I'm going to lead with what I think is the main reason.

which is that the people that trade stocks, it's not mainly you and I. I own stocks, but I hardly ever move my portfolio. It's professional traders that are moving the stock market on a day-to-day basis. They are almost all very high-income people. These are not the gardeners that earn $12 an hour. And what they care about more than anything else is their marginal tax rate.

And the greater the probability that Trump would come back, the lower the probabilistic marginal tax rate for them in the future. That's what I think is the main reason. Second related reason is if you're in the corporate sector, I said before, cutting the corporate tax rate is not an efficient way to survive.

a boost investment, but it is an efficient way to put money in people's pockets. And thirdly, this is all in the same basket. Trump is likely to be a deregulator and businesses don't like regulations. That's a generic stat. There's some very small exceptions to that, but by and large, businesses don't like to be regulated. So you've got all of those things that are pluses

with Trump. And as against that, why are people like me, I won't drag you into this, Mark, so much against Trump? There are things like trampling on civil liberties, spreading conspiracy theories, making a mockery of justice, and dot, dot, dot, a whole lot of things that the people that are trading stock right now aren't thinking about.

Those are the same reasons I give. I'll throw one more into the mix. Mergers and acquisition, M&A activity. Oh, yeah. Yeah, I just left that out. Yeah, I agree. Very different attitude towards M&A. Okay. I thought we're running out of time, but I'd like to go back to the book and kind of talk about it. And you cover so much.

60 years worth of economic history, monetary and fiscal history. Of all of the periods that you analyzed, which one do you feel is your favorite? And it's not quite the right word I'm looking for, but that you find the most fascinating, the thing that kind of stands out. Well, I must admit I'm partial to the Clinton years. I'm not an unbiased observer of that.

for a couple of reasons, one of which I already mentioned. It was Bill Clinton who first developed the White House attitude of hands off the Fed. That was not before. People think we've always done that. And like Trump was the aberration from history. No, Bill Clinton changed history on that. Now, it didn't last. It lasted until Trump died.

but he did that. He also managed, excuse me, and I don't know how he did this, to make a political virtue out of cutting the budget deficit. You cut the budget deficit not by magic, by raising taxes or cutting programs. He did a lot of that, including I remember I lost the bet to one of my colleagues around the table

that I bet no, he bet yes, when the proposal to quote, cut unquote social security benefits by making them taxable came to the presidential level. You know where these things go. Ideas filter up from the bureaucracy and some of them get to the presidential level and some don't. That did. And I made a side bet with one of my colleagues, he's going to reject that. And I was wrong. He did not.

reject that. So I have some personal reasons. And we wound up with budget surpluses and strong growth. I mean, the second Clinton term had everything. It had low inflation. It had high growth. It had budget surpluses. I don't know what else you could ask for.

Yeah, the thing I find so fascinating about that period was the bond market vigilantes, right? I mean, it was the bond... I think it was the bond market...

that imposed the discipline, maybe not in the sense, direct sense, but like in an indirect sense, because it allowed Clinton and Rubin, who was the secretary of treasury at the time to say, Hey, look, if we don't do something here, here's the alternative. They could connect the dots in the minds of the electorate and therefore lawmakers and say, look, we've got a Hobson's choice here, but let's take the bad choice.

I thought then and now that that was true but exaggerated. You can emphasize the true part. But I can tell you what we did. I'm not revealing any deep secrets. We were very cognizant as we put the plan together of how it would be likely received in the bond market. That's one reason I'm sure why Clinton made me lose $15 or whatever I bet.

on the Social Security tax cut. It was like, wow, the bond market looked... The Democrats came in and they cut Social Security? Yeah. Wow, this is a different world than we thought. And there were a number of other things, sacred cows that were taken off for ritual slaughter to impress the bond market. And it did impress the bond market. If I remember correctly, it didn't last forever, which people point out, but...

I think that the 30-year bond rate was the one that we were looking at then. I remember it fell by about 150 basis points in a fairly short period of time. And that's what put back the demand that the Clinton budget was taken out. Yeah, I think the last time the nation experienced a budget surplus was at

The fiscal year 2000, I think. Something like that. Right at the beginning of the Bush administration. Yeah. Quickly destroyed it. Right. Right. I should tell you, Chris and I have bets, or we used to have bets, which they're a dollar bet. I've lost every single one of them, so I don't bet him anymore. Right.

Usually the bets around Fannie Mae and Freddie Mac. Oh, yeah, we'll get them out of conservatorship in my lifetime. Yeah. They shouldn't be in it now, but anyway. Yeah. Okay, so let's do the opposite. That was kind of your favorite kind of period. What is your kind of...

Again, it's not the right word, but you get my drift. What's kind of your least favorite historical period over that time span? Well, I'm going to give you two. One, I'm going to be very quick because it's mainly about the rhetoric, not about any catastrophe, which was the rhetoric around supply-side economics that Ronald Reagan came in with, which was extreme nonsense and a denigration of what economists knew or thought they knew and so on.

Now, I want to fast on that because it did not cause any great catastrophe. The worst, I think, is the period we were talking about before, the Nixon and Burns period. They had the bad luck of the supply shocks, but they created the bad luck of the –

price controls, and Nixon juiced up the economy to get elected when he didn't have many. Remember who he was running against? George McGovern. Yeah, right. How many states did he win? 49 or 48? He didn't really have to do that. McGovern was from South Dakota. I think McGovern won South Dakota, didn't he? I think so. Maybe. Yeah, yeah.

Maybe. I'm not sure. One of those two catastrophic elections for Democrats. I'm a Democrat. We won one state and one we won two states. The memory fades a little bit. But Nixon had a margin of victory. He didn't have to do what he did. And that sort of did some damage to the Fed, which thankfully Paul Volcker reversed.

dramatically but he wouldn't have had him been quite so tough as he was if he had better initial conditions you know I thought it was still a legacy of that period I thought you might pick the thing that historically always makes me upset was actually back early in the Bush administration when we had that surplus

And I remember Alan Greenspan testifying, saying our biggest problem is going to be no more treasury bonds. And that was like a bright green light to we're off and running here, you know? Yeah, I must say, not that I think I was so much smarter than Alan Greenspan, but I was never much worried about that. Yeah, right. I thought, you know, if we had just shown a bit of discipline then, you know, think of all the problems we could have solved, you know, but.

By the way, Mark, you'll remember it was at that time that Alan Greenspan got a lot of criticism, which he wasn't used to, for basically advocating the Bush tax cuts. Yeah, well, that's what that was. Yeah, that testimony was in defense of.

at least indirectly, I don't know if it was a direct defense, but it was definitely indirectly, I'm giving you the green light to go cut taxes. Yeah, absolutely. Yeah. Absolutely. And Greenspan became almost a god

And he wasn't getting much criticism, but he got a lot of criticism for that and justifiably. Yes, certainly in hindsight. Good. Good. Well, how long did it take you to write the book, Alan? That's a tour de force. It was a couple of years. But, you know, if you're a professor and you have a column in the Wall Street Journal and you're doing other things, it's not like you work on the book every day. Yeah. Yeah. So it was a few years, two or three years to do it. But yeah.

You know, I didn't keep track. I wasn't keeping track of hours since I wasn't getting paid by the hour. So I don't know how much it would have been if that's all I did, you know, probably three to six months or something like that.

I thought that was a guess. Really, really highly recommend. Very, very good book. I haven't made it all the way through yet, but I'm probably three quarters of the way through and I will finish it over the Christmas holidays. So great book. Merry Christmas to you. Yeah. Thank you. Hey, Chris, what's the market doing now before we leave? I'm just curious. Oh, it's down a thousand. Oh. Over a thousand points. S&P is down 2.65%.

Ooh. That's about to close. Okay. Oh, about to close. Okay. All right. Well, I think Jay Powell probably had more to do with this than we did. Yeah, right. And the 10-year is...

4.49, 4.49. There you go. Okay. Uh, well, Alan, I want to thank you really appreciate you taking the time, especially on, on, uh, test day. Uh, well, you didn't know that really big day and I really appreciate it. And, um,

Hope to see you soon and happy holidays to you. I hope so. And thank you for your appearances at Princeton, which are always well received. Oh, you know, that day is, I love that day at the Griswold Center. It's like one of the funnest days of the year. Yeah, it really is. Yeah. Thank you for having me. We'll ask you again. Anytime, anytime. So with that, dear listener, we are going to call it a podcast. Take care now.