Out of the Wilderness with Glenn Hubbard
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Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and I'm joined by my trusty co-host and, of course, Dante D'Antonio, Dr. D'Antonio on Jobs Friday. Hey, Chris. Hey, Marissa. Hey, Mark. Hey, Mark. Hey, Dante. How are you guys? Doing well. How are you? Doing well. Yeah. Are you guys all... Well, Marissa's in Southern... Oh, Southern California. How are you? Everything okay? Yeah. Yeah.

Yeah, I'm fine. I'm about an hour and a half south of the fires. I've got a house full of refugees and dogs. All my friends are evacuated. Yeah. And so I have a bunch of them here.

staying with me until they can hopefully safely go back home. So it's very, it's very tense. I bet. I haven't kept up this morning. Uh, is, uh, are the fires still raging or are they, they are? Yes, they are. And, um,

We had a day yesterday of very light wind, so they got a lot of them. They made a lot of progress, but the winds are coming back today and through the weekend, so we'll have to see what happens. But they were able to make some progress yesterday. Oh, good, good. Well, you know, wish everyone good fortune, and hopefully everything plays out reasonably well here. I know it's a very trying time. Yeah.

But back here on the East Coast, Dante, you're in Philly, in the Philly region, right? Yes. Cold, huh? A little cold. It's okay. Yeah, not too bad.

Well, it's January. It's expected. Exactly. We've got a guest, Glenn Hubbard. Glenn, hi, how are you? I'm great. Thanks for having me, Mark. Absolutely. It's been meaning to have you on for a long time. And you have such a great career. Maybe there's so many things that you've done over the years. Maybe I'll just... Listeners always love to hear about...

folks' background and how they got to where they are today. Maybe I'll just throw it into your court. Maybe you can give us a sense of your career path, how you got here today. And we've gotten to know each other a little bit over the years at the American Enterprise Institute function that is held in Georgia every year. And are you going to be there this year? I am. I look forward to it. Yeah. I'm looking forward to it as well. But maybe you can just give us a sense of your career. I think people would be very interested.

Well, nobody grows up as a small child thinking I'd love to be an economist. It just doesn't happen quite that way. I went to college studying engineering and found that I fell in love with economics instead for two reasons. It was about analysis and data, which I liked, but it was also about people. And I went into economics actually because of some specific people. Now, keep in mind, I was in college

in the late 1970s and then started graduate school in the late 1970s. The heroes I had were Alan Greenspan, who was really a model. He had not yet gone to the Fed at that time, but was a business economist. Somebody had been chairman of the Council of Economic Advisors. I saw him interested in real stuff.

I chose Harvard for grad school because of Marty Feldstein. He was on the cover of the New York Times Sunday magazine with the heading superstar of the new economists because he cared to look at data on public policy. And I said, I want to be him. And so that's what got me into it. I fell in love with almost every area of economics, but it's principally finance, applied micro, and a little bit of monetary policy that keeps me going.

And you were very active in the Washington political circles. I know you were at the Treasury in the early 90s. I went to the Treasury in the early 90s. The tax part of the Treasury Department was me, the Office of Tax Analysis, which was a fun time. At that time, the Treasury was doing the landmark integration study, which actually became law under another Bush.

many, many years later. I thought that was a very formative experience for me because Secretary Brady would often ask questions that I didn't know the answer to. And I thought, you know, our profession needs to work harder to give the answers policymakers need.

And then I had the privilege of working in the White House in the second Bush administration, George W. Bush's administration as chairman of the CEA. I also learned a lot then. Any tour of duty in Washington, whoever the president is, is a great experience for an economist. You hope you can bring some of your work, but you certainly should learn a whole heck of a lot about what's going on.

Yeah. And now I know you're a visiting scholar at AEI and you're also on the board. Is it Total that you're on the board of? I'm on the board of Total. I chair the board of MetLife and I chair the board of the fixed income complex at BlackRock. So I've been very active in boards for many years, in part for interest in those industries and policy. And in part, it's a great learning opportunity about this. For sure.

Yeah. And of course, one of the key things you did, you were dean of the business school at Columbia too.

And I was Dean of the business school for 15 years, a great experience for me. I'm not sure why the economists brought somebody, why the trustees brought somebody from the economics department to do it, but I learned a whole heck of a lot.

And the business was in great shape. Yeah, it really is. And of course, you know, the folks going into the on the economics team for the incoming Trump administration, Kevin, Kevin Hassett. Kevin is very impressive. I think that's a very good choice for President-elect Trump. Yeah. Amy, obviously, he's really focused on

tax policy, a strong supporter of corporate tax cuts and was really instrumental because he was head of CEA under Trump won and led the way on TCGA. In the early 90s, Kevin and I wrote a series of papers using natural tax reforms as a natural experiment to estimate effects of big tax changes. Because as you know, it's hard. Traditionally, macro people were looking at time series and

But if Congress tends to change tax policy with business cycles, you don't learn anything really from doing that. But if you use a tax reform as an experiment and focus on the cross section, the effect across industries, you can actually estimate underlying effects. So the Kevin and I found very large effects of tax reforms. And I think Kevin used some of that information when, um,

The Tax Cut and Jobs Act of 2017 was being developed. There's a new economist who just was on the job market last year, Patrick Kennedy, and a group of Washington co-authors that have a sort of much more modern version of that work, also finding very large effects of corporate tax changes on investment. So there's a lot for Kevin to do.

Yeah. And do you know Scott Besson, the incoming treasury secretary? I don't know him well, but he's very impressive. I think that by focusing on the growth objectives, there's a lot of good work to do there. 3% is pretty ambitious, but there are some specific things he could do. Tax is one, but there are others. But I think it's an excellent choice. And on the economic side, the president-elect seems to have done a very good job.

Yeah, that you're referring to the Besant's 3-3-3 plan, 3% growth, presumably that sustained GDP growth.

Of course, you do that. So I think it's an Aave-like search for three arrows. Yeah. Right. But it worked for Aave as a communication device. Right. The trick will be, you know, what is it that gets you to 3% growth? Aspirations are nice, but policy's good. Yeah. And we'll come back to that in the context of tariffs and immigration policy. I'm really curious how you think about that. And also-

Tax cutting in the context of large budget deficit, because the other three is, of course, a 3% deficit to GDP ratio. We're at 6%.

That's a heavy lift. Heavy lift. Heavy lift. And then the other was the three million barrels a day of oil, equivalent energy increase of three million barrels of oil a day, which that one I don't get. Yeah, it's harder to understand because when people say the oil industry, there's

There's no such thing. I mean, there's big supermajors. Total happens to be one of them. And there's lots of the independent sort of shale frackers. And I think that's the audience that Besson is talking about. But the supermajors aren't so wedded to big oil production increases.

Yeah. I mean, it's hard to imagine these guys ramp, the frackers ramping up production unless oil prices are a lot higher. They're not going to produce. They're not. And there's no likely prospect that that's a part barring geopolitical. Yeah. Okay. Okay. Well, I want to come back to all of that. But before we move on, today is Jobs Friday. This is for the month of, we got the jobs report from the Bureau of Labor Statistics for the month of December.

And wow, Dante, what do you think? Yeah, impressive, right? Better than certainly I expected. Headline job growth came in at 256,000, well above consensus expectations for growth to moderate in December 2020.

three month average growth is much lower than that. It's at about 170K, which I think is a more realistic sort of target for where trend job growth is right now. I don't think 250,000 isn't realistic in terms of sustainable job growth. Industry wise, it's not all that different than what we've seen in recent months. The same industries are sort of leading the charge here in terms of healthcare, leisure and hospitality, the public sector,

Retail was a big contributor in December, but that was really just some buyback after a big drop in November. Weakness in manufacturing is sort of back. It fell 13,000 in December. Very small declines in wholesale trade and utilities. So definitely some weak points there, but the same industries are sort of powering the charge here and accounting for the overwhelming majority of job growth and have been for most of this year.

Wage growth down a little bit. Dante, I always ask, and I'll ask again, what's underlying monthly job growth? Abstracting from the ups and downs and all arounds of the vagaries of the data, what do you think it is? I still think it's between 150 and 175, which is- Right. Okay. We averaged 190 over the course of 2024, but that was front loaded to some degree in the first half of the year.

The three-month average is around 170. I think that's in the ballpark of what we could expect moving forward, if not a little bit weaker than that. Got it. Okay. Very good. You're going to go to wage growth, I think, next. Yeah. Wage growth, sort of reasonable in December, 0.3% on the month. Year-over-year growth actually ticked a little bit lower as a result because you rolled off a stronger wage gain rate.

From late last year, so year-over-year growth is at 3.9%. It was at 4% last month. So I don't think anything to be concerned with on the wage growth front. Hours worked were steady in terms of average weekly hours. Aggregate hours ticked up a little bit, not surprising given the strong headline job gain.

For once, the household survey was sort of in alignment in its positivity about the labor market. We've had a lot of months where they diverged. And here, that wasn't the case. We had a strong labor force gain, a strong gain in household survey employment. The unemployment rate ticked down by a tenth to 4.1% again.

So it's really good news all around on both sides of the report. Can I ask on the household survey, I think for the month of January, Bureau of Labor Statistics benchmarks, right, to new population counts? Do

Do I have that right? Right. Next release, we'll get the updates to population control. The next release. Okay. They update the seasonal adjustment factors in this report. Oh, I see. And that had very minimal impact to the unemployment rate. And I know census came out with, I think last week, with some new population estimates based on some revisions to the immigration numbers that they've been using. They've been completely undercounting it, but it looks like they caught up to the reality of what's going on across the southern border. Yeah.

Is that will that be reflected in the household survey, the population counts that the household survey will benchmark to? Will that get into the data or not? It should. Yeah. I mean, the population control should be based on the latest Census Bureau estimate. So I would expect to see a pretty big shift. They won't revise the old data. Right. That's the one nuance in the household survey is that they don't go back and actually change previous data based on those new population controls. They just sort of create a new level starting in January. So we're likely to see a pretty big disconnect between that.

you know, the level of employment in December of 2024 versus January of 2025, if there is as big of a shift as we are anticipating. Okay. Yeah. One word, two words, three words. How would you characterize the report? Impressive. Impressive. Okay. Marissa, any other word you would use? Surprising. Surprisingly. Strong. Strong. Yeah. I wasn't expecting that. And Chris? Yeah.

Just one word? You can use two, maybe three. You got to do it in the next second though. Yeah. What comes to mind? Surprising. Oh, original. Hey Glenn. Glenn, so I'd say that's a

Damn good report. That'd be damn good report. Three words. It's a very good report. I mean, I'm not, I wouldn't have guessed 256, but I would have guessed that it's going to be quite good. The economy is in good shape and the job market is in good shape. The conundrum is that, you know, everybody's saying this is good news. Of course, the stock market today is panicking a little, and I'm not quite sure why. I've been of the view that

Employment is reasonably good. The economy is strong and inflation stuck higher than it should be. The market was of the view rate cuts are coming. I think they learned that's not happening today, but that's not new. So that's what's surprising to me that people who are far richer than I am seem to have misjudged this. So you would characterize the economy that's being handed off to President Trump as a as a good economy?

Well, it depends what you mean by that. Obviously, the political economy version of that is probably not true, or we wouldn't have had the election result that we just had. But if you're asking me about averages and aggregates, absolutely. Yeah. Okay. I mean, in the aggregate, it feels almost exceptional, doesn't it? I mean, in terms of growth, jobs. Very low rate of unemployment. Inflation came down. It's not at the target level it should be, but it has come down. GDP growth

There's a lot of innovation potential in the economy with generative AI. So, you know, it's not a bad economy. The question is, you know, how to make that sustainable going forward, how to realize that the FISC, the public sector is going to have feedback effects from this. If I'm right about this description of the economy that says interest rates will be higher than people thought, and indeed we're already seeing that. And one place that's going to feel that concern

aggressively is the federal budget. To Glenn's point about the markets, so I know you're following them. What have they done here? This is now 11:00 AM Eastern Standard Time, so the market's been open an hour and a half. I saw a lot of red, at least in the equity market. Yeah, equity market down five, 600 points. Right. Right. So kind of across the board.

Given the expectation, and if you look at the Fed futures, the Fed funds futures, investors now are expecting one, maybe two cuts this year, later in the year, nothing until June. So on that higher interest rate environment, pushes down the expectations for the stock market in terms of the discounting. The 10-year treasury is up. So if you wanted to look for some green, there's the green on your screen that's up.

seven eight basis points were over four four point seven i view that as red bond prices are down yields are up all right oh i guess maybe if you look on the screen does are they in green when they are in green are they really okay well my screen has them in red no okay bond yields up uh are are in green online if you go to cnbc all right okay they're

Anything that goes up, whether it's good or bad, is in green. Correct. Correct. You got it. Okay. Right. But the 10-year yield is now at 4, last I looked, 4.75, 4.75, right? Yep. Yeah. And so the markets are thinking, because of the strong job numbers, because of the sticky inflation,

and potentially uncertainty around the economic policy debt ahead, the Fed's not going to be cutting interest rates here very soon. So that's the interpretation, Glenn, is that

That makes sense to you? I mean- Yeah, but that's what's baffling to me because none of that is news. I mean, again, I didn't know that would the job report be 256, but underlying healthy economy with inflation stuck at too high a level, that part's not news. I didn't think the Fed would cut it all in 2025, and I'm still not sure that it will.

Oh, really? Oh, interesting. And just because the strength of the economy or because of the economic policies or combination or? Well, I think combination, certainly the strength of the economy. But if you look at, let's say, TCJ, the Tax Cut and Jobs Act, which has to be done this year, I think there are ways to do that that would not make the budget deficit worse. But I'm not sure those will be the ways.

ways that are selected. And so if you had a higher budget deficit on top of the strength of the underlying economy and throw into that just things that can happen in the world, it's not hard to imagine the Fed becoming more cautious. Yeah. My sort of narrative has been, well, you've got a strong, obviously strong economy. You've got sticky inflation. It hasn't quite got back to their target.

And it feels like it might not in the context of the policies around tariffs and deportations and potentially deficit finance tax cuts, which would be in a full employment economy, somewhat inflationary. But also the uncertainty, right? It does feel like there's a fair amount of uncertainty here with regard to what economic policy actually is going to be.

It feels like we're going to get tariffs, but who knows what that means exactly. And because of that, because of the uncertainty, the Fed is doing what the Fed would do in a world of uncertainty, and that's do nothing, just sit on their hands. Does that all sound right to you? Yeah, that sounds right. I don't think we know in a lot of areas. We know that TCJA will be addressed.

because it has to be yeah what exactly that looks like we don't know we have a strong suspicion there will be tariffs but there too we don't really know across the board what size you know so it's very hard to judge until we start to see specific proposals from the administration

Right. I've even heard some chatter about the next move by the Fed is for higher rates. Maybe it's my chatter. I don't know. But I think I've heard this chatter. Is that a possibility in your mind? Well, I mean, anything's possible. I would doubt it unless something really goes off the rails in terms of inflation. It seems to be much more likely a watching and waiting. I think the market disappointment this morning is less that it thinks the Fed's going to raise rates, but more just that it won't cut them. Yeah.

Right. Okay. All right. Let's turn to the policies. And the way I think about it, just I'll lay it out and see what you think. It's really, we've already mentioned them, tariffs. Here in year one of the incoming Trump administration, it's going to be about tariffs. It's going to be about immigration policy. It's going to be about tax cuts and the TCGA and how to handle that and what to do about it.

You know, maybe I'll throw into the mix a little bit of angst, Henry. We had Alan Blinder on the podcast a couple of weeks ago, and he was very focused on Fed independence. You know, some of the comments that Trump was making around the Fed.

Let's take each one of those in turn. And I just want to get your sense of things on the tariffs. How do you think about that? I mean, it, it, it feels, you know, you're, you're cut my sense of you, uh, you're kind of your, uh, economic, uh,

you know, background is that you're, you're cut from a kind of a more traditional Republican kind of perspective on things like, like a Bush or a Romney or, you know, maybe even a McCain. In fact, Kevin, Kevin Hassett was, wasn't he McCain's chief economic advisor? Yeah, I believe he was McCain. In fact, I worked on that campaign because of, of Kevin. Kevin drafted me, you know, in that campaign. And, and,

So that doesn't feel like that's tariffs, higher tariffs, broad-based tariffs. Maybe there's a distinction here to be made between strategic increases and broad-based tariffs. But broad-based tariffs doesn't feel like something that would be consistent with kind of

more traditional Republican thinking. But has that changed? Do you have a different view on that? How do you think about terror? Well, I mean, I think it's important, Mark, to set the table a little bit, because I do think that President-elect Trump, former President Trump, President to be Trump, whatever we're calling him, has mined a very important vein. You know,

globalization and technological advance, globalization is actually the smaller of the two, but both of them have had tectonic changes on the labor market, on prospects of many Americans and on many places for several decades now. And I think what President Trump is saying is, you know, we need to take a hard look at gains from globalization. That far, I am with him.

Where I worry is that there are other ways to help people in places left behind.

And we've done them before in our country. We once built land-grant colleges. We once had GI bills. I mean, we know how to do these things. And if we want big structural shifts in the economy, tariffs are probably not the first place I would look to them. So I think it depends what kind of tariffs we see. One version, I wouldn't call it a tariff, that I would certainly strongly support would be

In fact, allowed to mix your subjects. If you did for TCJA what economists would call a destination-based cash flow tax, you would have border adjustments in there that would raise revenue, helping to pay for the reform, and they would look like a tariff. So I'm not opposed to all of that, but I think it has to be part of a policy mix that makes sense. Got it. Got it. One thing I worry about in the context of

tariffs and how they're being talked about, how President Trump is, incoming President Trump is talking about them. It's just the uncertainty it creates. I mean, because it feels like a lot is being thrown out there, you know, 25% on Canada, 25% on Mexico.

60%, 100%, 10%, 20%, broad-based. And it feels like that's the thing that may actually do the most longer-term damage here, right? Because from the perspective of a business person,

I'm not going to make an investment in my supply chains or make a location investment decision, expansion decision, unless I have some clarity with regard to what tariffs, which countries, which products over what period of time. And that makes me nervous. Yeah, I think that's reasonable, Mark. I guess I'm as worried about certainty, meaning high tariff regimes tend to generate a lot of rent-seeking problems.

There are a lot of inefficiency. It's the certainty that works more than the uncertainty will clear up. We will have a policy and it'll be there. But a policy of very high tariffs really raises lobbying, rent seeking, corporate inefficiency of all the things economists worry about.

But I don't know that we're going to get there. You know, I have no idea, of course, what the president is going to do, but I would imagine this is more of a negotiation. So I'm with you at the moment in the uncertainty. We'll see how that plays out. But if it were to be a high tariff regime, then I do worry about the certain downsides. Yeah, I'm not sure. So sure. Like, you know, you impose a high tariff on, I don't know, vehicles coming across the border from Mexico. Right.

if I'm a business person, I don't, how long are those tariffs going to be in place? Right. I mean, that's the, you have certainty you got those tariffs, but like, how long are they going to be there? And that really makes a big difference in terms of, you know, whether I'm going to invest in, you know, in whatever, you know, you know, going forward in Mexico. Well, and again, if the goal here is more things made in America,

The destination-based cash flow tax does that. It sorts out the incentives and pushes toward America. So there are plenty of good policies. That's why I'm hoping that the team will step back and rather than using the tariff word necessarily, just say, look, what is the president trying to accomplish? And what's the best way we can accomplish that for him? That might lead to a different answer. Okay. All right. Immigration policy. Okay.

I mean, how do you think about that? I mean, I think there's widespread agreement that we need to control the southern border. That is a national security issue. It doesn't make sense to have people streaming over the border like we've had, although that does feel like we've made some progress there. Maybe more can be had on that front. It's more about the thought of broad deportations of the undocumented or unauthorized immigrants in the country.

How do you think about that? Should we- Well, again, I think, Mark, it's important to table set. So I think what President-elect Trump got exactly right is the zeitgeist of concern over immigration. Many people who sit in policy circles simply don't face communities where there have been lots of new immigrants not well integrated in school systems and culture. There's a lot of illegal immigration. I think he got that exactly right.

There's two things that I worry about. One is, I think economists have been a little facile when we say, what's this fear about wages? Well, if we think that deportations are going to be inflationary and raise wages, well, I think we have the answer there. I mean, the illegal immigration was holding down wages and prices. I think we'd be honest with that.

And so then it gets back to, well, how do you prepare domestic born people to succeed in the labor market? So, yes, we need to make sure the border is secure. But yes, we also need to help domestic born, low skilled people. And there's a whole separate debate over high skilled immigration, which to me is a very different subject. I mean, I teach in a school where half of the students here are not Americans. And I would hope that every one of them wants to work in the United States.

not because I'm a nice guy, but because they're really smart and I'd like to have them here. And I hope everybody's in agreement with that. And I think President Trump said, yeah, H-1B visas, which is the high skilled program, he's fine with. Right, right. Okay. Okay. Then onto the TCGA, the tax cuts. I mean, it feels like they're

the individual tax cuts that are set to expire at the end of 25, they will be extended. I don't think there's any question about that. It really is. The debate I think would be more around the corporate tax side. And do you have a sense of how that might play out? I'm not sure I agree with you on the individual side. Oh, is that right? Okay. Let me start on the corporate. So on the corporate side,

The piece that's missing, most of the law on the corporate side was permanent. So the rate cut from 35 to 21% is permanent.

or at least as permanent as anything is in the tax code. But things that economists are just as interested in like expensing, we're not. So expensing is already phasing out. It phased out 23 to 26. So I would think an obvious thing is to restore expensing and make that permanent. I think I'm going from memory. I think the 10-year cost of that, which is the way Washington looks at numbers, is about $400 billion.

So you could pay for that a whole number of ways. Obviously, you pay for it with offsetting tax provisions. You could also pay for it with reductions in IRA credit spending or President Biden's executive orders. There's lots of pay-fors there. Now, that assumes that Washington is content with what inside baseball is called a current policy baseline. So as long as we just let the

current policy go, we're fine. That, of course, isn't a current law baseline because a current law baseline has things expiring. So if we're serious about current law budget, we would be needing some revenue raisers. On the individual side, here's what worries me.

the SALT conversation, state and local tax conversation, the very thinness of the Republican majority in the House, anything that increased SALT, which by the way, as a New Yorker, selfishly, I'm cool with it, but it's a terrible tax policy and we shouldn't be bringing it back. SALT, just for the listeners, is state and local tax. State and local tax deduction. So the reason that

old fogies like me think it's not a great tax policy is why should somebody who lives in Florida, the state of my birth, subsidize me and the government here in New York state in Albany that's a high spending government. It doesn't make any sense.

And so we shouldn't have it. And that was scaled back under TCGA Trump won. It was capped at, I think it was $10,000. And so there's several things that could, I don't expect it to be brought back in its entirety, but the cap could be raised or all kinds of things.

And President Trump has talked about that, about raising the cap. Right. And there may be other provisions as well. So I think one of the things to look for in this process, if this is to be part of what's called in Washington a reconciliation bill, then there will be a budget limit that's articulated before.

And so when we know what that deficit limit is, whatever the policy happens to be, it's got to fit in that breadbox. So just like in TCJA, there was a decision of here's how big the 10-year deficit can be. And you guys have to fit in that breadbox, which is why some things couldn't be permanent and so on. So we'll see that discussion all play out again. But I do hope early on the president will say, what am I trying to accomplish with this?

Because it's not just extend TCJA, maybe we can make it better in some respects. But I do worry that a theory of opening it up broad base might encourage bad things like the SALT coming back and so on. And ultimately higher deficits and debt, which obviously- Because keep in mind, the higher deficit and debt, it's not just the TCJA discussion. I think there's widespread agreement that we need to spend more on defense.

I'm not a military expert, but those are big. When people talk about the Wall Street Journal this morning talked about, well, wouldn't it be great if we spent 5% of GDP on defense, but we're just spending a little over three. Those are big numbers if you're trying to add that. And then keep in mind that interest payments, which are already as large as defense, are

are likely to stay elevated because of higher interest rates. So it's not just TCJA. This is a conversation that I hope will focus the public's mind on deficits and debt to GDP. Right. And the final policy, and there's others, and I will hopefully find a few minutes to come back to them, but the other big one that's kind of on people's minds, and I mentioned Alan Blinder,

is Fed independence. Do you worry about that in the context of President Trump's comments around the president having input into the decision-making process at the Federal Reserve? Well, obviously, I think Fed independence is a good idea insofar as it relates to monetary policy. The Fed has gotten its fingers in too many pies, in my view, in financial regulation where independence is not merited. Those are clearly congressional areas.

you know, I, I would speak somewhat differently about the Fed, but I'm not terribly worried when we actually start seeing appointments. I mean, people can say they would have preferred X to Y or whatever, but I don't think there'll be any serious diminution of independence.

Of the Federal Reserve, mainly because it's just too important for everybody. A Federal Reserve that is seen as not being independent would probably lead to higher risk in term premium interest rates. It wouldn't even serve the government to have that.

Right. So, okay. So you add this all up, you add up the whatever's happening on tariffs, immigration policy, the TCGA, other fiscal policy efforts that are going to be made and that independence, and you can throw in the regulatory issues.

discussion around regulation, lighter regulation, antitrust, some of the things around DOGE, the Department of Government Efficiency, the thoughts about that. How do you feel about the kind of the

overall policy mix and the concerns that obviously the Federal Reserve has. You can see it in their minutes from their December meeting and I have and I think a lot of other folks have. And you can see it in the markets. And I think investors are also concerned that this is all...

inflationary, some combination of higher inflation and interest rates and potentially slower growth? Well, I think the administration's got to do two things right out of the box. One is to first be clear as to what its objectives are. So take the uncertainty part off the table, at least about policy.

But then to really think hard about some good policy changes that are not inflationary, I would put a lot of weight on the potential for regulation here, just to name several areas. And not all of them are federal. They may require work with states as well. Housing and zoning, permitting and the electricity grid, things that really get into the regulatory state, I think are going to be very important. I don't think DOGE,

is going to be very successful in cutting $2 trillion out of the budget. First of all, if you take interest, social security, Medicare and defense off the table, there's not $2 trillion left. So I don't think that's going to be successful. What could be very successful is a focus on the efficiency, the Department of Government efficiency. What regulations stand in the way? Why does it take so long to build infrastructure?

in this country, not only relative to other countries, but relative to our own past? What can we learn there about policy? So I'm pretty optimistic if the administration wants to have that kind of discussion, it will do very well. But right up front, it's just got to be clear.

Right. Okay. Hey, let's play the game, the stats game. We all put forward a stat. The rest of the group tries to figure that out with clues, questions, deductive reasoning. The best stat is one that's not so easy that we get it immediately and not one that's not so hard we never get it. And if it's apropos to the topic at hand, all the better. And Glenn, we always begin with Marissa. So Marissa, you're up. Okay. I think this is, well, I think it's easy, but we'll see. 213,000.

Some jobs number? Is that the four-week average? No, it's not in the- On a mobile home insurance? Oh. Yep, that's what it is. I thought it was 201. I thought it was lower than that. No? This is the average. That's last week's. 201 was last week's. Oh, this is the moving average. 213 is the four-week moving average of UI claims, right? For the week ending January 4th. That's a little disappointing. Dante, don't you think that was a little disappointing, that stat? Right?

I think it was a great stat. I think it was a great stat. Thanks, Dante. I'm Dante's boss. That is my manager we're talking to. I think that's a double cowbell stat. Oh, there you go. I know. It's a pretty basic one. Why did I pick it? Just because I think it illuminates something else about the job market that we've talked about a lot that's not in the jobs report.

Which is that layoffs are extremely low. I mean, we got another report this week, the Challenger Gray and Christmas report on layoffs. Layoffs fell in that as well. Even in the jobs report, if you look at the reasons that unemployment fell, you know, one of them was fewer people being let go from their jobs. So,

We've talked about the JOLTS survey that hiring rates have come down quite a bit. Job opening rates have come down quite a bit. So despite that demand side of the labor market, we're still seeing that companies really are not laying off workers, right? So we may see job growth slow here going forward, which is what we expect, but not because layoffs are ticking up to any meaningful degree. So this four-week moving average of UI claims is the lowest that it's been

since April of last year. So it's really extraordinarily low here. Hey, Glenn, what's going on here? I mean, one theory we've been bandied about is some form of labor hoarding argument that

businesses have been scarred by severe labor shortages during the pandemic, pre-pandemic, and demographics are such, abstracted from immigration. If you look at the native-born population, that's declining, working-age population or close to. The businesses are just really reluctant to lay off. Does that resonate with you? Yeah, completely. I do think this is a classic.

labor hoarding story. So I'm not so surprised. I mean, we're very far away of any trouble in claims data. I mean, claims hitting like 400,000 would be an issue. But if you're talking about half that, we're like nowhere in the news. Everybody who's hand-wringing on the labor market, we're so far away from labor market calamity that I'm not sure why there's so much focus there.

Yeah. Okay. We'll do Dante next and Glenn, we'll come back to you. I'm really curious about your step, but Dante, you want to go next? Sure. 1.695 million. Are the three or the four significant digits important here? Not important. I just wanted to be, I wanted to be precise. Is that the number of private sector jobs created last year?

It is not. That's close. There was 2.2 million in total. So that sounds about right. Is it the sum of all of President Biden's pensions from so many government jobs? It could be, but that's not what I totaled here. Is it in the Jolt Report? No, it's in today's report. And you were on the right track thinking about how many jobs were added this year. It's related to that. Yeah.

Is it a payroll survey number or a household survey number? It's both. It's a arithmetic. Oh, it's the household survey on the payroll basis? Oh, the average of the two? Or no? No. You're dancing around it.

We give up. What is it? Difference? It's the difference between the two. The payroll survey added just over 2.2 million jobs. The household survey only added 537,000 jobs. So the difference was an average of 140,000 jobs a month. Right? Right. That's the biggest difference over on an annual basis since 2003.

And that's now the fourth consecutive year where the payroll survey job gain was over a million jobs higher than the household survey. So in 2021, 2022, 23 and 24, that total difference is over 5 million across those four years. So I'm curious to see what happens when we get those new population controls. How much does that shift?

The household survey, I will say it's not completely unprecedented to have a gap that large over a long period of time. If you look back in the early 2000s, the gap was actually the other way where the household survey added more jobs than the payroll survey from 2000 to 2003. It was about a 4 million difference over those four years. So it's not completely unheard of that we get these sort of several multi-year divergences between the two surveys.

And again, I expect this one to get a little bit better here once we get those new population controls, but I think it'll be interesting to watch next month to see how that changes.

And we're going to get the benchmark revision next month. And we'll get the benchmark revision, which is going to be negative, at least based on the... Right. So both of those together should help narrow that gap. Well, only like five people on the planet that are on this podcast know what you said, what that actually means. You want to just explain that for a second? And four of them are here? Is that what you're telling me? Four of them are here, yeah. Yeah.

Yeah. So yeah, we get a couple of things next month with the release of the job support. On the household survey side, we get updated population controls, which we touched on earlier. So they use updated population figures from the Census Bureau to benchmark, to essentially weight that household survey sample to get the correct level of employment population, which will obviously affect the relationship between household survey employment and payroll survey employment.

On the other survey, right on the payroll side, the survey of establishments in the January report, which comes out next month, we get the benchmark revisions, which means they go back and benchmark the March level from last year to a near universal count of employment from the QCW program. So they essentially refine that level and set it based on a near universal count and then revise the data from March forward based on that new level.

So it'll change, you know, essentially the level of employment that's in those two surveys and should bring them closer together after they've been diverging here quite a bit. Glenn, you should know that both Marissa and Dante came from Bureau of Labor Statistics. So they, yeah, they know these, the data well. So your bottom line point is next month, we're going to see, you know, likely an upper revision to the household survey employment estimate and a downward revision to the payroll survey estimate. And that gap, that one point gap

was it 695 million, is going to be lower. It'll be lower. And yeah, just to reinforce the point that I don't think it's a huge concern, right? I think people have pointed to this widening divergence as something to maybe be worried about. I don't necessarily think that's the case. I think there's some reasons why it has diverged and it's not completely unusual in history to see them diverge over periods of time. Good. Hey, Glenn, you want to go next? 5%. 5%. Labor market related, Glenn? Nope. Fiscal policy related? Nope.

Could be, but not really. You can play this game anytime. You know how to play this game. I can tell you. He's good. He's good. Poker face. I'm choosing this statistic because it wraps in everything we've talked about all in one number. 5%. An interest rate of some kind? Yeah. Yeah. It is an interest rate. Is it?

Well, the 30 years bond is over 5%. Yeah, the 30 years hit 5% yesterday, I guess. The reason I chose the 30 year is... Oh, you've picked it. Oh, that's right. 30 year? Yeah, it's a 30 year. There you go. Okay, Glenn. Glenn, do I get an A in your class? I mean, come on, man. I mean, Dante... Do I get the assist? Yeah, Dante... Do I get the assist for their interest rate? Yeah, come on. I think Dante gets at least half of the credit there.

No, I was thinking interest rate. He put the ball right on the tee for you. I held it up for him and let him take it. An inch from the hole and then you cut it in. But no, 30 years telling you everything we've talked about, prospects for the real economy, about inflation and the term premium and uncertainty. So it's one to watch. And I think it's going to drive a lot of the fiscal conversation because interest rates this high are

on people's minds. Yeah, absolutely. Um,

One thing we didn't talk about that may come to the fore here is the debt limit battle. Do you think that's something we should be, because obviously the debt limit has been triggered again. Yeah, this is one where I think Trump got it 100% right. You know, I shouldn't be able to like go charge my dinner tonight with my visa card. And then my wife and I vote on whether we pay visa. I mean, that doesn't make any sense at all.

And I realize this gets into a fight over spending and taxes, but we should have a more honest discussion. We will have the debt limit, but I think the Republicans need to be somewhat careful. I mean, the majority in the House is just so razor thin.

Adding debt limits to these bills is going to be a problem. We're coming close to the end of the conversation, but Chris, will you want to do one more? Sure. What's yours? I have 3.3% and 3.3%. Oh, okay. 3.3% in the jobs numbers? No. Interest rates? Nope.

It's the hiring rate. Housing related? Nope. What's that? Housing. Oh. Hiring rate was 3.3%. Nope. Nope. Okay. Is it jobs related? No. Is it housing related? No. It's rough. It's the share of GDP we spend on defense, which I think is 3.3%. Oh, that's a nice guess, but not what I was going for. Okay. Is it fiscal policy related? No. No.

It's much more- Is it related to the economy, Chris? Is this like the odds that the Eagles are going to win the bowl or something? Oh, no. That's much higher. Much higher. Much higher. Okay. Came out this morning. Is it Michigan survey came out this morning? Yes. Oh, it's inflation expectations. Right. That's right. It's the one year and the five year ahead. Wow. Okay. But who gets credit for that? Me or you, Marissa? I'm just asking. Okay.

Shared. Okay. We both get the Golden Globe Award. Okay. You both get C's. That's good. Okay. I'll get C's. Okay. That was extremely mediocre on all accounts. This is inflation expectations, what, one in five years out. And it's a big jump. Oh, is it? Yeah. Well, in relative terms, it was 2.8%. Okay.

So the public is certainly factoring or considering that. Last month? So the last release, it went from 2.8 to 3.3. 3.3, yeah. Wow, okay. I don't know if you noticed, but I think gasoline and now natural gas prices are moving north here, right? So because of the cold weather and...

That may be part of it. Is that what... Yeah, I think the actual observed prices are higher. And then I do think that the public is considering, or there's been so much chatter about policies being potentially inflationary that that . Not having an impact? How interesting. Investors certainly are projecting higher inflation.

as well. Right. Yep. Yep. Okay. Well, we're, I want to end the conversation, Glenn, with, with something I read in the New York Times today. There was a good piece about economists being, I think they said the title was economists in the wilderness. Basically, no one's listening to us, Glenn. So, and you were quoted saying,

I'm sure you read the piece. I didn't read the piece. Is this Ben Castleman? Ben Castleman. Because I did talk to him while I was on vacation. But I think what I said to him, I don't know what he put in the piece, but I said, it's our own fault.

You know, we, you know, when the Queen of England asked at the London School of Economics, why did nobody see it coming? I think about the GFC, Global Financial Crisis. I think the Queen was saying like, what are you guys up to? And I think if we want to have impact, it's not just how smart we are or what we're writing. It's really about focusing on the questions that policymakers have. So I do, I'm more optimistic about economists' role than most people if we focus on that.

If we continue to do as we have been, I'm less optimistic. So I don't know what Ben said I said, but that's what I said. Yeah, I think, yeah, you were actually, the point of the piece was like a lot of experts, to be frank. You know, I think their voices are being diminished. They're less influential. And the piece was about women's

Why? What's going on? What's behind that? Some of it was bum forecast. A lot of economists thought recession back a year or so ago, and that obviously was wrong. In fact, just the opposite. The economy performed exceptionally well. So that diminished. And also, I think there's a general sense that...

in this kind of populist fervor that's taken over, less of an interest in what experts have to say about climate, about the economy, about pretty much everything. But then your point was, the point you just made was that, in fact, economists are

I think the word you might have used is callous. The words we're using are- Yeah. I mean, the example I gave Ben was, sometimes when we talk about policy, in economics, we live in steady states. There's this one, and then there's this one. The real world lives in transition paths in between.

And we call people who are in that transition path, transition costs, not about you, but I wouldn't want to be referred to as a transition cost of a policy. I understand that people don't mean anything ill when they say that you could be forgiven as a politician for saying, who the heck are these people? And why do they use words like this? And you mentioned Alan Blinder, you know, Alan, like me has been kind of a Johnny one of them is we've got to clean up our language and

to talk to policymakers. Yeah. Sometimes it's hard. We were talking about back in the start of the conversation about the exceptional economy. And as you rightly pointed out, it's the averages, it's the aggregates, but there's a lot of stuff under the hood. And particularly if you look across the income distribution, the folks and everyone on this call are doing quite well, no problem. I mean, we own stocks, we own a home and they're

they're at record high values and we're doing just fine. One of my graduates at Columbia Business School is Warren Buffett. So I took the living alumni population. I'm quite confident that the average net worth is in the tens of millions of dollars, but I have a hunch it's not the median. And so I think we just have to be very careful. Yeah. And it's hard to do actually. I'll say the economy is performing very well

But not in the agri, but not for everyone, obviously. And for folks in the bottom part of the income distribution, it's a struggle. It's a real struggle. And not that that's... And then the other thing I say is, look, the broader economy can do well even if the bottom third isn't.

doing well because all the spending is done by the folks in the top part of the distribution. Not that that's good. And you have to say that, I think you have to say, look, this is you can see it in our fracture politics. You can see it in our social fabric breaking down. You know, it's it's not a good thing. But for the for the immediate near future, the economy can continue to perform well, even if the bottom part of the distribution isn't going along for the ride.

But it's a tough one. It's a very difficult one. Yeah. Anyway, well, hopefully economists continue to listen to you, Glenn. That's all I have to say. Well, hopefully policymakers continue to listen to all of us. We may not have the answers to everything, but I think we're pretty useful to have around, but we'll see. I hope so. I hope so. Well, it was really an honor and pleasure to have you on. Thank you so much. My pleasure. Thank you. Thank you.

Uh, guys, uh, good to see you all. And Marissa, you know, I hope everything goes well there and in Southern California. Yeah. Hopefully the winds die down here relatively soon. And, uh, you guys stay, stay as warm as you can, uh, up there in the PA and, uh, we'll talk next week. Yeah. Thank you. And, um, go Eagles. Uh, it's all I'll have to say, go Eagles. They have a big, there you go. Dante's got his Eagle shirt on, uh,

Maybe next week we'll all be, Marissa, you're not an Eagles fan, are you? Yeah. I mean, sort of. Sort of. All right. Okay. We'll forgive you. This week. Yeah. Right. But with that, dear listener, we're going to call this a podcast. Take care now.