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Episode 437: Rosy Projections · Words & Numbers

0:00
Hi, I'm James and I'm Anthony and this.
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Is words and numbers brought to you by the good people at Poly
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Hymnia Ants? What's new and exciting in your
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world this week? Listener David Schoen wrote and
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asks, Does the term recession just mean economic stress?
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I'm not talking about the actual definition of the term, but
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consistently when polled, more people believe we're in a
0:27
recession than we actually are. And he asks, I'm wondering if
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this is simply coded language for quote.
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I'm feeling economically under the gun.
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And you know, I never thought about it, but I think he's
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absolutely correct that that's what it is.
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The technical definition is very involved and I don't even know
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what it is, but it turns out that you can approximate it with
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two consecutive quarters of negative economic growth.
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That's the technical definition. But most people don't know that.
1:01
So I would imagine they just look around and ask, are they
1:04
feeling better off or worse off? And this matches David or not
1:08
David. Milton Friedman said some time
1:11
ago, it's a recession when your neighbor loses his job.
1:15
It's a depression when you lose yours.
1:18
And that's probably about right, yeah.
1:20
There's something to that, and we're going to take a look at
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all kinds of economic indicators today, but most people are
1:31
experiencing a little bit of difficulty right now.
1:34
Yeah, I think a lot of people are.
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Unemployment's ticked up a bit, inflation, You know, we went
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through the 2022 and you saw prices rise.
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You never saw them come back down.
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Now they stopped rising as fast, but I think people were
1:47
expecting that we get back to where we were and we didn't get
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back to where we were. Yeah, I don't know why people
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were expecting that. That seems to be Pollyannish.
1:58
To some. Degree, I mean, and we've talked
2:00
about this quite a lot, right? When inflation comes and prices
2:03
go up and up and up and up, and then inflation levels off,
2:09
prices don't go back down. Again, Right, Right.
2:12
The economists say. Oh good, we're back to low
2:15
inflation. But that simply means that
2:17
things stopped getting bad. I'm still spending 8 bucks a
2:21
dozen for eggs at the grocery store.
2:23
Yeah. Now, having said that, the
2:25
median wage has risen faster than inflation going back to if
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you compare today versus prior to COVID.
2:34
But again, there's this psychological thing.
2:37
We feel it. We feel the pain of the prices
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going up. We feel that intensely,
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particularly where the inflation was close to 10%.
2:45
You don't feel so much as intensely the pay hike.
2:51
Yeah, no, that all seems right. And I don't know how this is all
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going to shake out or what it looks like in one, two, 5-10
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years. But it's probably going to be a
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little more painful than people think it is right now, largely
3:08
because of what you keep talking about month after month, year
3:13
after year, the new normal with the inflation rate, it's not
3:18
going to get better. Right.
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We're not going back to the one point something inflation, it's
3:23
going to be two point something. Which means that people's lives
3:27
aren't going to get better. Yeah, I suppose there's two
3:31
things here. 1 is the objective, to what extent does your life
3:36
get better? The other is in perhaps more
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important. This is what David was getting
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at is the subjective. If I'm expecting 1% inflation, I
3:44
keep feeling 2%. Something feels off, something
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feels wrong. And you can look at the numbers
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and say, oh, no, you're better off, you know, adjusted for
3:53
inflation than you were before. But I don't feel that.
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And if I don't feel it, I'm going to respond negatively to
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these polls. Yeah.
4:02
Well, Speaking of things that people feel I got a an
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interesting thing. You know how I like to keep
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track of the medical news. And you might not be terribly
4:14
surprised that I am fascinated by things about Parkinson's
4:18
disease for all kinds of obvious reasons.
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And there's a thing it's coming out of Japan.
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And there are two separate streams that come into
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consonance here. The first is, well, I mean, you
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know, most people only know Parkinson's through Michael J
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Fox. Right.
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Right. They remember him being a young
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guy on the go and then all of a sudden couldn't stop shaking.
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And you know, that's how people perceive the disease.
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And I think reasonably so. Why is it that nothing good has
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happened in Parkinson's research in 40-50 years?
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Yeah, I guess. No, I didn't occur to me to just
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said it, but I can't think of seeing anything in the news.
5:06
No, for your entire lifetime, right.
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And then on the other side, we have what's been an abject
5:15
failure in American medicine, or global medicine for that matter,
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with stem cells. Stem cells seem to do almost
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nothing that they were. Right touted to do, you know.
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Advertised to do. However, it turns out the
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Japanese, God bless them, are reprogramming the Parkinson's
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brain with stem cells. Really.
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They're implanting stem cells in the brain, and those stem cells
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are optimistically, I think would be maybe the best word,
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reversing the problems that Parkinson's brings, which is
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astonishing. I mean, we've got a disease that
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nobody's gotten anywhere with and a treatment that doesn't
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seem to treat anything. What do you know?
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They go together. And what do you know, 2 great
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tastes that taste great together.
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Are. Yielding some pretty good output
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here. Isn't that astonishing?
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And, you know, it's just another one of those things for the
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people who say, Oh yeah, nothing ever gets cured.
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It's just a it's almost like people think of medical issues
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now the same way they think of the cell phone bill that they
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pay every month, right? It's just, well, what can you
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do? You're just going to have to pay
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it. Right, right.
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And yet here we have something that really looks like it runs
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the risk of being quite astonishing.
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And you just know that if it works, people are going to say,
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see, they didn't cure it. Now you got to take all your
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stem cells and take 33 pills a day, which you do have to take
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33 pills a day apparently afterwards to make this work.
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But nonetheless, I think this is cause for optimism.
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Oh, I think it is too. And I'm going to come back to
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what I've said often that we're not thankful enough because I
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can tell you, if they came out tomorrow with one injection and
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you're completely cured for the rest of your life, people will
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cheer for about 6 months and then all of a sudden they'll
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start complaining. Well, that thing costs $500.
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Well hello, 6 months ago it was Infinity because it didn't
7:40
exist. That's right.
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All I can say is I can't wait for somebody to drill a hole in
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my head and dump a bunch of stem cells in there so we could see
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how this works. But of course, this brings us to
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the foolishness of the we can't. And you know, we're recording
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this on June 21, day after June 19th, or as it's come to be
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known in the holiday world, Juneteenth.
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And this is a pretty big day. And I'll put a, an article I
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wrote about this in the show notes and another one that our
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friend Tom Kranowitter wrote about exactly this.
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So you can get a sense of the depth of Juneteenth.
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It's unfortunate that we call it Juneteenth, I think because it
8:33
sounds a little silly. But people didn't rightly know
8:37
which day it was when they got the news.
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They know about which day it was.
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And it was in the teens in June in Galveston, TX, considerably
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after hostilities of the Civil War had ceased, when federal
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troops rolled in and informed the slaves that they weren't
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slaves anymore. What could be better?
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What could be more American a holiday than that, when we can
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step back and say, finally, human equality?
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And. We got all kinds of problems
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before and after so I don't want to make too much of it, but it's
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really quite a lovely thing. And Donald Trump, God help us
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all, comes out on June 19th and claims we have too many non
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working holidays. Oh, come on, what is it with,
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you know, I mean, the stuff he does, right?
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It's like he's got a mole in his PR group and they just build
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very bad optics around whatever it is.
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Very bad optics doesn't even begin to cover it and yet here
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we are. And you know, one of the things
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that he criticized was that, well, let me read his remarks to
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you. Too many non working holidays in
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America. It is costing our country
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billions of dollars to keep all these businesses closed.
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The workers don't want it either.
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Soon we'll end up having a holiday for everyone working day
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of the year. It must change if we are going
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to make America great again. Because here we are, he wrote.
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Untruth Social. But here's the thing, businesses
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don't have to take the day off. No, they don't.
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And what is this business about? Workers don't want it.
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I don't know of anybody who complaints.
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Oh my God, I've got another day off.
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I've got another day off. What a bunch of red hot nonsense
10:36
this is. Wow.
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But. If businesses don't want to
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offer holidays, they most certainly don't have to.
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The federal government does, right?
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Right. I don't think federal holidays
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are costing us billions. I mean, we're already paying
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trillions. I don't know what you could want
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to take away from that. But that tone deafness that he
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brings to this office is remarkable.
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It's just remarkable. You want to make a point about
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federal holidays, Pick a different one.
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Pick President's Day. Maybe if you're a United States
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president moaning about things, pick President's Day.
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But of course, that's never going to happen.
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That will happen right after we cancel the military parade.
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So I wonder, you know, you're beating on him about this, but
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honestly, how much of this was due to him versus tone deafness
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of whoever's in charge of his PR?
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Again, and I have no idea. I really don't.
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We've always had, since I was a boy, since you were a boy, we've
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always had, roughly speaking, one federal holiday per month.
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And right now we have 11, with another one every four years on
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Election Day. That just doesn't seem too
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ridiculous to me. Yeah, particularly when the
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Europeans have, I don't know what they have, but I know
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people point to Europeans as having far more days off than we
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do. Well, I think the French take
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off every summer. Yeah, and you know, I have
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friends in Canada who will rib me about, you know, all
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Americans have to work all this time, blah blah, blah, and the
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Canadians don't. To which I then point to the GDP
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per capita, the US versus Canada.
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And that's the other side of that coin.
12:33
For One Stop shopping, for all things James and Aunt, visit our
12:37
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12:42
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12:46
If you'd like to contribute, go to patreon.com/words and
12:50
Numbers. Well, seeing as how you've said
12:53
GDP per capita. I want to talk this week about
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the Congressional Budget Office. You and I talk about this from
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time to time, and the CBO is one of, I'd say, three major bodies
13:09
within the government that produces forecasts for the
13:14
economy and for the budget. And let me list these three
13:19
because they're worth mentioning.
13:20
CBO, of course, Congressional Budget Office, the Joint
13:24
Committee on Taxation, that's the Jct. and the Office of
13:27
Management and Budget, that's the OMB.
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And you can distinguish them kind of in the following way.
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OMB works for the president. That's an executive branch body,
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and they answer to the president.
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So whatever source of political weight is put on to forecast,
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you'll get it in the OMB Jct. answers to Congress, little bit
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less in the partisan arena there.
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Although you could imagine that which congressman, which
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senators are sitting on this committee is going to push it
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one way or the other. And I don't know how this is
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determined. I do know that they attempt to
14:09
keep it balanced, but then CBO and CBO probably does, I would
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guess the most work of the three.
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And they're a straight up nonpartisan entity.
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Their mantra is we're here to produce forecasts and damn the
14:26
politics. Having said that.
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Yeah, except. Yeah.
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And I put the except here with kind of an asterisk, not to say
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that the exception is partisan, but is to say that CBO,
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generally speaking, produces what are called static
14:45
forecasts. Now they produce a whole bunch
14:47
of forecasts. And for those of you who are
14:49
particular about the details here, we're going to be talking
14:52
about what's called the baseline forecast.
14:54
So they're straight up first shot forecast, the baseline
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forecast, do a couple things. First off, they tend to be
15:00
static forecasts, which means CBO will tend to assume that
15:08
there are no secondary effects from something.
15:10
So, for example, you raise tax rates.
15:13
As economists, we know that's going to slow the economy.
15:17
CBO will tend to say no, that we're just assumed that the
15:20
economy moves on as usual. So the static forecasts are one
15:24
thing. And don't read anything into
15:27
this. It's not a conspiracy.
15:29
The fact is, it's really hard to do the opposite of static
15:33
forecasting. The opposite is called dynamic
15:35
forecasting, where you say, OK, well, we're going to raise tax
15:39
rates and that's going to slow the economy.
15:42
But now we've got to answer the question, slow it by how much?
15:45
And all of a sudden there's all sorts of room for personal
15:49
judgment calls and opinions to come into play here, which you
15:53
don't have with the static. Now, having said that, here's
15:57
the problem with the statics. I was doing this work that we're
16:00
going to talk about. This became very clear to me.
16:02
Static forecasting is one way biased.
16:05
That is, it's going to be too optimistic on the effects of tax
16:09
hikes because the assumption is that you're going to raise taxes
16:13
and it's not going to have any deleterious effect on the
16:15
economy. Tend to be too optimistic when
16:17
it comes to talking about tax hikes and too pessimistic when
16:20
it comes to talking about tax cuts for the same reason that we
16:23
know that when there's a tax cut, it's going to boost the
16:26
economy. But with static forecasting, you
16:27
assume, no, no, the economy is going to continue as it was.
16:31
And so it's kind of like built into this thing that static
16:34
forecasting is going to favor bigger government.
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But this is CBOI want to talk about now.
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They produce these forecasts multiple times a year.
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I want to talk about the suite of forecasts they've produced
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for a while, and we're going to go back to 1997.
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That's a long time. Well, that's as far back as the
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data I have is readily available.
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Going back to 1997, CBO has produced a total of 253
17:05
forecasts that we now have actuals we can compare to.
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And for those of you that are furiously doing the math, keep
17:12
in mind what goes on here. CBO makes multiple forecasts
17:16
throughout the year, and every time they make the forecast,
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they make forecasts for the current year, for next year, the
17:22
year after that, out to 10 years out.
17:25
So every time they do this, they're throwing off all sorts
17:28
of forecast. We've got a total of 253 here
17:31
that we could look at, and I broke them into three groups,
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253 forecasts of future federal tax revenue, 253 forecasts of
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future federal spending, and 253 forecasts of future federal.
17:45
Debt Where will we start? Well, let's start with tax
17:52
revenues. Now what you would expect is an
17:57
unbiased forecaster. Look, forecasting is hard.
18:00
You're not going to get it right.
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But an unbiased forecaster should over forecast about as
18:06
often as the under forecasts. Half the time is too high, half
18:09
time is too low. Exactly as often, one might say.
18:13
Yeah, Yeah. The perfectly unbiased
18:15
forecaster is going to be high by the same amount that he's
18:19
low. And what you find here is, well,
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there's a very clear pattern, but it's not that of the 253
18:31
forecasts for future federal tax revenue, CBO overestimates the
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future tax revenue 74% of the time.
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Imagine that. 74% of the time it's too rosy.
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I was about to ask what the odds would be on such a thing, but as
18:54
I think about it in the moment, I'm a little surprised that it
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was only 74%. Oh, you would have expected
19:02
more. Oh, yeah.
19:04
Hold my beer, James. We're just getting started here.
19:08
OK? Because so CBO is overly rosy
19:13
with their forecasts of federal tax revenues.
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And when it comes to federal spending, you would say, well,
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OK, well, if they're too rosy with the federal revenues, maybe
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they're also too rosy with the spending and it comes out in the
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wash. Oh, no, no, no, pumpkin.
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The CBO of their 253 forecasts of future federal spending, they
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underestimated the spending 67% of the time.
19:43
Yeah. Here we go.
19:44
Yeah. So they're too rosy on the tax
19:47
revenue side. They're too rosy on the spending
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side, which means that when it comes to forecasting the debt,
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yes, yes, take me. You have a question?
20:00
No, I have a prediction. I predict that they're going to
20:04
be too rosy when it comes to looking at the debt.
20:07
Very good, too rosy. And what fraction of the time?
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I've been paying attention and oh, on the debt, oh oh, I'm
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guessing 8085% of the time. 90% of the time, 9090% of the time
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when CBO gives you a forecast for the future debt, it is too
20:30
low. All right, but let's back up a
20:33
step, right? Because we got yelled at by the
20:36
guy who runs CBOA while back, right, saying that, you know,
20:40
we're being unfair and blah, blah, blah.
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And he seemed like a perfectly reasonable human being.
20:46
And one of the constraints that he and they operate under is
20:49
that they have to take whatever Congress tells them and spin it
20:56
out. Yeah, from time to time they'll
20:57
be given assumptions that they have to incorporate.
21:00
This happened back in the Obama years and it was caused a big to
21:04
do because the White House asked CBO to assume that the economy,
21:10
this would have been following the housing crisis.
21:13
Following the housing crisis, the economy was going to grow at
21:16
dot com era growth for the next decade, which was just a
21:22
ridiculous assumption. Of course, with that assumption,
21:25
you get all kinds of nice things about burgeoning tax revenues.
21:28
You can justify additional spending and all that stuff.
21:31
But CBO kind of, to the extent it could put its foot down, put
21:34
a big old footnote in their forecast, in effect politely
21:38
saying that this was an unreasonable assumption.
21:41
It. Was it was a deeply unreasonable
21:43
assumption? Another thing that happens here
21:45
with CBO forecast, and this is particularly the baseline that
21:48
we're talking about here. With the baseline forecast, they
21:52
assume no changes in policy moving forward.
21:56
So whatever policy exists right now is going to exist in the
21:59
future. Now, there's pluses and minuses
22:02
there. On the one hand, you can say
22:04
something like, well, yeah, we know that Congress is going to
22:08
do something about Social Security, OK?
22:12
But until Congress does something about Social Security,
22:17
the forecast is it's going to hit the wall in about 7 or 8
22:21
years. Yeah.
22:23
Now, you know, you can ask me to change the forecast based on the
22:27
assumption that Congress does something.
22:28
But, you know, to me that's kind of hand waving because Congress
22:32
hasn't done anything. And won't.
22:35
Well, yeah. Or when they do, then we can
22:37
change the forecast. I get the criticism, but I mean,
22:42
I don't know what to make of any of this, right?
22:44
This is, in the end, what we're looking at here is an arm of the
22:47
federal government once again passing judgement on the federal
22:51
government and deciding, not surprisingly, that the federal
22:55
government has everything working in its favor and that
23:01
that's just ridiculous. That's not going to happen.
23:04
Well, there's a bright side to all of this.
23:07
And the bright side is that while CBO consistently, and I
23:13
mean consistently 90% of the time underestimates the future
23:18
debt, it does so somewhat consistently.
23:23
So we can look at by how much they've underestimated the
23:28
future debt in the past and we can adjust their current
23:31
forecasts for that amount. So is there a current percentage
23:36
by which they very typically miss the mark?
23:39
Yeah, it varies depending on how far into the future they're
23:42
forecasting. For example, their five year
23:45
forward forecast of the debt is about 28% off.
23:50
Is that all? Their 10 year forecast is about
23:54
45% off, so almost. Back.
23:58
Come on, 45%. Oh yeah, it's gargantuan.
24:01
Yeah, good. Come on.
24:04
And this really makes me mad because at least I start to
24:07
notice it back in 2007. I don't know if it happened
24:10
prior to that, but 2007, I start to notice that every time a
24:15
forecast came out or a politician quoted here is going
24:18
to be the effect of this bill if it gets passed, they're always
24:22
talking about 10 years. So they'll say things like this
24:25
bill will generate $3 trillion in revenue.
24:28
Yeah, but it's over 10 years. And then it turns out not to be
24:32
true anyway. Right, because they often do.
24:35
When I say they, I mean the lawmakers, they schedule these
24:38
things. They backfill them.
24:40
So tax hikes occur later. And I can put this in terms that
24:46
a lot of our listeners will understand, at least those of
24:50
our listeners who like sports. If you're a fan of the NFL, what
24:56
you'll see over and over and over again is that wide receiver
25:00
X or quarterback Y, whatever, just got a five year, $100
25:06
million contract. Right.
25:10
Right. OK, 8 million the first year, 9
25:16
million the second year and you get cut the third year.
25:20
So you never get that money, right.
25:23
And it's kind of the same animal here.
25:25
Yeah, it's 100 million if you stay on for a bunch of years,
25:29
right? It's the same kind of thing
25:30
here. Which you will not.
25:32
Yeah. No politician can look at the
25:37
American people with a straight face and say, yeah, this is
25:42
what's going to happen the next 10 years.
25:44
Yeah. And it's really madding because
25:47
what happens is they'll have a bill that has some vadnais and
25:50
some goodness to it, and they'll back load the vadnais and the
25:56
goodness will be upfront. So they look at this thing, they
25:59
say, oh, yeah, in total, this is a good thing.
26:02
You get the goodness. But the vadnais gets shoved off
26:04
into some future generation. Some future Congress needs to
26:07
deal with it. Yeah, it's essentially they're
26:11
saying life is good, don't worry about it.
26:13
Right. Yeah, go ahead and charge that
26:15
extra meal out. Knock yourselves out.
26:18
What could possibly go? Wrong, because we'll be getting
26:20
a raise in 10 years. That's right.
26:22
Everything is going to work out just fine, don't you worry.
26:26
And look, we've got decades of that happening.
26:29
Yeah. Oh yeah.
26:30
These numbers that we're looking at here that I'm quoting to you
26:33
are based on figures going back to 1997, so however long that
26:37
is. But you know, every time,
26:40
whether they use these exact words or not, when they say
26:43
don't worry about it and we look at our our history, our parents
26:49
history and our grandparents history, say don't worry about
26:53
it was the correct answer. And it will be the correct
26:57
answer right up until the 2nd that it's not.
27:00
That's correct. Yes.
27:03
On that note, let's look forward.
27:06
As of today, CBO is projecting that the federal debt will be
27:11
$60 trillion in 10 years. That's up from the 32 trillion
27:18
today. There's no way in hell that's
27:20
the correct answer. Anybody who can look at the line
27:26
on a graph knows that that's not the correct.
27:29
Answer. Oh yes, because you see, it's
27:31
not a line, it's a curve. It slopes straight up.
27:35
Straight up. That's right, straight up.
27:37
So CBO right now is projecting that the federal debt will hit
27:41
60 trillion in 10 years. And if they're off by the same
27:45
amount that they have historically been off, then you
27:49
can add another 27 to that. That puts us at almost $90
27:53
trillion come 203590 trillion now.
28:02
Let me ask a math geek question. Not that I'm a math geek, but I,
28:07
I, I know one. If we end up at $90 trillion,
28:13
what percentage of our budget will have to be spent servicing
28:17
the debt? Oh, beautiful question, because
28:20
that's my next answer. That you already had answers.
28:23
Right. So assuming interest rates stay
28:27
where they are in all of this doesn't Jack them up
28:30
tremendously. So this is going to be a rosy
28:33
forecast. Assuming interest rates stay
28:35
where they are, we end up with $90 trillion in debt by 203545
28:42
cents out of every tax dollar will be going to pay interest,
28:46
not to pay down the debt to pay interest on the debt, $0.45 out
28:50
of every tax dollar. And we've said this before and I
28:53
think people kind of giggle when we say I don't think they
28:56
believe us. We will never pay our debt.
29:00
No, that has been the case for a long time.
29:02
What's becoming new is we're not going to be able to service it.
29:07
That is OK. Roll it over.
29:09
So long as you make the minimum monthly payment, you're good.
29:12
That's the interest. We're going to get to the point
29:15
here where we can't afford the interest either.
29:18
How long you figure that takes? I figured that it's already come
29:24
to pass, but the numbers aren't big enough for it to be obvious
29:30
to everybody. Just say more words.
29:33
Well, let's see. We're currently at $32 trillion
29:37
and at $32 trillion and the average interest on the debt is
29:45
3%. We're at almost $1 trillion a
29:50
year in interest, and our deficit is larger than that.
29:58
In other words, if we could cut the deficit all the way down to
30:02
0, if we could have a balanced budget today, we still wouldn't
30:06
be able to afford the interest on the debt.
30:10
Oh man, that's even worse than we've been saying.
30:14
Yeah, except we've been seeing this.
30:16
I mean, you and I have talked about this.
30:18
We've said this is coming, this is coming, this is coming.
30:20
And well, no, here it is. It's it's just, it showed up in
30:23
the numbers. Just not bad enough to show up
30:25
in the media. It's arrived, it's been coming,
30:28
and now it's arrived. Now let me give you another
30:31
interesting factoid I ran across the other day.
30:35
All the money that's borrowed per year on the planet.
30:40
And so this is all of the governments that are borrowing,
30:42
all the corporations that are borrowing.
30:45
Of all the money that's borrowed on the planet in a given year,
30:49
our federal government borrows 10%.
30:53
By 2035, that number is going to be around 25%.
30:58
Of all the money borrowed on the planet, our federal government
31:02
will be borrowing 25% of it. And this really starts to hit
31:07
home at this thing that you and I have said, and we've been
31:09
excoriated for saying it, that we're reaching a point where the
31:13
federal government is running out of places on planet Earth to
31:16
borrow money. And when that happens, as that
31:22
happens, I should say it pushes interest rates up because you've
31:27
got this gargantuan appetite for borrowing money.
31:31
So of course, anytime you have the gargantuan appetite for
31:33
anything, it's going to drive the price of the thing up, In
31:36
this case, the interest rate. As luck would have an Ant,
31:40
interest rates are at historic lows.
31:43
No they aren't. Oh, wait, no.
31:45
Wait, they're not. Oh wait, they're not.
31:47
That's going to that's going to cause even.
31:49
More problems. Yeah, not only are they not, but
31:51
you look at all of the forecasters and none of them,
31:56
even the optimistic forecasters, are not forecasting that
32:00
interest rates will fall back to where they were prior to COVID,
32:05
which interestingly is the same story that you hear for forecast
32:08
about inflation. And these two things are
32:11
related. As the federal government
32:13
borrows more and more, one of two things has got to happen.
32:16
Either it goes to markets to borrow, driving up the interest
32:20
rate, or the Federal Reserve prints money to help finance.
32:24
But that drives up inflation. And so now we're seeing it in
32:28
forecasters across the country. Even the optimist don't see us
32:32
returning either on inflation or interest rates back to where we
32:36
were prior to COVID. Right.
32:38
And what we end up with is you're damned if you do and
32:40
you're damned if you don't. Now there's nothing we can do.
32:44
It's akin to a death spiral. Right.
32:47
Yes. Well, ain't that a kick in the
32:52
pants? So you and I said, and it was
32:56
many years ago when we only said it once, I was kind of
32:59
embarrassed to say it, but I'm getting less embarrassed to say
33:02
it now. We predicted maybe five years
33:06
ago, seven years ago, that this ends with a new dollar.
33:13
You know, I'm going to go further than that.
33:15
Yeah. At some point we throw up our
33:16
hands and we say, OK, we're going to create the new US
33:20
dollar bill that's going to have some official exchange rate.
33:22
You have so long to trade in your old dollars for the new
33:25
dollars. But what all of that magic does
33:28
in effect is give you a one shot massive inflation which reduces
33:34
the purchasing power of your dollars.
33:36
The point being to relieve the pressure on this debt.
33:43
We're in real trouble here. Yeah.
33:47
The only reason I hesitate is because there's a wild card, and
33:51
the wild card is technology. It's possible that something
33:56
comes along, maybe it's AI, maybe it's something else we
33:59
haven't even thought of that gives us a massive boost to our
34:03
economy and in so doing, a massive boost to tax revenue.
34:10
Interesting. I can't imagine what that thing
34:15
would be, but that's the very nature of the thing.
34:17
Right. Yeah, You can't imagine it.
34:19
Yeah, you can't imagine what it would be.
34:22
So on how to put this, I could hear the howls of laughter
34:29
before I even say this. I'm generally an optimist
34:34
generally, but not over this. I don't think anything gets us
34:42
out of this pit that we're in now.
34:46
Having said that, the Japanese have been doing a pretty nice
34:51
job of living in this zip code for quite some time, right?
34:56
There's all kinds of mathematical difficulties when
34:59
you look at what's going on in Japan, and yet they're still
35:03
getting on. Yeah, I think there's some
35:05
differences with Japan in terms of how their debt is structured.
35:12
Putting the details aside, Japan hasn't been doing that great.
35:16
And by not doing that great, remember these are the guys that
35:19
went through at least 10 years of the doldrums of sub 1%
35:25
economic growth. Their population is declining.
35:29
It was dreadful and continues in many respects to be dreadful.
35:33
And when you look at their debt versus GDP, it's way out of
35:36
hand. Oh yeah, it is.
35:38
It's way worse than ours. Now having said that, their debt
35:41
to GDP is worse than ours, but it's also their debts, a
35:44
fraction of ours. Yeah, that's right.
35:47
So you you wonder how that shakes out in the end.
35:50
I don't know. It's just a counter example to
35:53
what I'm saying about our inability to claw back from
35:58
where we are. Yeah.
36:00
There may be a way that I'm just not thinking of, but I don't
36:03
know, man, It's pretty grim. Yeah, on the face of it, it's
36:11
grim. As an economist, I have to say,
36:14
look, something's going to change out there and it's going
36:16
to change for the better. I have no idea what that is.
36:19
But every piece of history I look at from now, going
36:23
backwards to the dawn of the Industrial Revolution, tells me
36:28
that there's something that's going to happen that's going to
36:30
make this better. Do you even have an inkling as
36:33
to what it might be? No, other than to say it's going
36:37
to be technology. You know, people are concerned
36:40
about AI taking jobs and all of that.
36:43
We may well end up in a space where AI or something like it
36:47
makes us so productive that most of us don't have to work at all.
36:52
Well, that's interesting you would say that.
36:54
And all I'm going to say right now is stay tuned until next
36:58
week because we're right back at something kind of like that.
37:03
And that's all the time we've got this week on words and
37:05
numbers. Until next time.
37:07
Send us e-mail wordsandnumberspodcast@gmail.com.
37:11
Try to be nice to one person who doesn't deserve it till next
37:14
week. Can't take it easy.
37:15
See you next week, James.