Latest / Stephanomics / Biden-Powell Duo’s Macro Policy Revolution

Transcript

Biden-Powell Duo’s Macro Policy Revolution · Stephanomics

• 0:06
  Speaker 1: Madam Speaker, the President of the United States. Thank you,
• 0:15
  Speaker 1: thank you, thank you, bring me back. Hello, and welcome
• 0:28
  Speaker 1: to Stephanomics, the podcast that brings the global economy to you.
• 0:31
  Speaker 1: And what we heard after that confirmed that President Joe
• 0:34
  Speaker 1: Biden wants to turn the page on four decades of
• 0:37
  Speaker 1: US tax cuts and talk of shrinking government with a
• 0:40
  Speaker 1: call for not just more government, but higher taxes to
• 0:43
  Speaker 1: pay for it. He celebrated his first hundred days in
• 0:46
  Speaker 1: office this week with yet another massive spending package, this
• 0:49
  Speaker 1: one squarely aimed at taxing the rich to give money
• 0:52
  Speaker 1: to everyone else. Or told, he's proposed nearly six trillion
• 0:56
  Speaker 1: dollars in new spending since taking office, paid for by
• 0:59
  Speaker 1: at least four trillion dollars worth of higher tax revenues
• 1:03
  Speaker 1: now as it happens. The US central Bank, the Federal Reserve,
• 1:06
  Speaker 1: also met this week to consider its next move. Its
• 1:10
  Speaker 1: policymakers looked at the ocean of new government spending coming
• 1:13
  Speaker 1: down the track, the booming stock market, and the rapidly
• 1:17
  Speaker 1: recovering US economy, and decided interest rate should stay at
• 1:21
  Speaker 1: rock bottom and that the bank should continue to push
• 1:24
  Speaker 1: money into the economy at a rate of a hundred
• 1:26
  Speaker 1: and twenty billion dollars a month. All in all, it
• 1:30
  Speaker 1: seemed like a good time to consider whether we really
• 1:32
  Speaker 1: are seeing a revolution in US economic policy under the
• 1:36
  Speaker 1: man that Donald Trump used to call Sleepy Joe. A
• 1:39
  Speaker 1: little later, will also hear why Americans rich and Paul
• 1:43
  Speaker 1: are retiring earlier these days thanks to the pandemic. And
• 1:47
  Speaker 1: that's the opposite of what we were told was going
• 1:49
  Speaker 1: to happen with the population aging and most of us
• 1:52
  Speaker 1: expecting to work a lot longer. But first, let's have
• 1:56
  Speaker 1: that talk about Biden's first hundred days and there's big
• 2:00
  Speaker 1: new plan for American families with two of Bloomberg's smartest
• 2:03
  Speaker 1: analyst of US economic policy, Federal Reserve reporter Rich Miller
• 2:08
  Speaker 1: and White House reporter Nancy Cook. Rich Nancy, thank you
• 2:18
  Speaker 1: very much for doing this in what I know has
• 2:20
  Speaker 1: been a very busy week. Nancy, maybe just kicking off
• 2:24
  Speaker 1: with you, can I ask you quickly just to tell
• 2:26
  Speaker 1: me about the plan for American families and how it
• 2:30
  Speaker 1: fits in with the president's other massive spending plans since
• 2:34
  Speaker 1: becoming president. Well, Stephanie, I think that's the key operative word,
• 2:37
  Speaker 1: massive spending plans. This latest bill that he's talking about
• 2:42
  Speaker 1: is a one point eight trillion dollar plan that includes
• 2:45
  Speaker 1: one trillion dollars of government spending and another eight hundred
• 2:49
  Speaker 1: billion dollars and tax cuts and credits for families. It's
• 2:53
  Speaker 1: a very sweeping plan that would try to expand preschool access,
• 2:58
  Speaker 1: access to community car college, set up a national paid
• 3:01
  Speaker 1: family leave program, expand and extend the child tax credit
• 3:06
  Speaker 1: through It's really a liberals wish list. And it comes
• 3:11
  Speaker 1: on top of the other two major plans that Biden
• 3:14
  Speaker 1: has proposed, the one point nine trillion dollar COVID relief bill,
• 3:18
  Speaker 1: which has past Congress, and then the infrastructure package, which
• 3:22
  Speaker 1: is two point to five trillion dollars, which Congress hasn't
• 3:25
  Speaker 1: even taken up yet. So basically, he is proposing about
• 3:28
  Speaker 1: six trillion dollars in spending um in a very short period.
• 3:33
  Speaker 1: And if you add and as you suggest, you know,
• 3:35
  Speaker 1: if you add the one point I tried in for
• 3:36
  Speaker 1: this package, and then about to each for the short
• 3:40
  Speaker 1: term stimulus and infrastructure, I mean you're talking real money.
• 3:45
  Speaker 1: I mean rich is it? Is it remotely realistic that
• 3:49
  Speaker 1: all of that spending is really going to come through?
• 3:52
  Speaker 1: I mean, where are the deficit hawks that we used
• 3:55
  Speaker 1: to hear from. Well, first of all, you got to
• 3:57
  Speaker 1: remember the different time frame from these bills. The first
• 4:00
  Speaker 1: one that Nancy was referring to is, you know, getting
• 4:03
  Speaker 1: going to get spent very quickly. We already have, you know,
• 4:05
  Speaker 1: the checks are in people's bank accounts and are being
• 4:09
  Speaker 1: spent the judging by what we've seen with the trade
• 4:12
  Speaker 1: deficit shooting up. Um. But the other other two packages
• 4:18
  Speaker 1: are more longer term. The first one, the infrastructure one,
• 4:21
  Speaker 1: is more of an eight year plan and the families
• 4:24
  Speaker 1: one is more of a ten year plan. So it's
• 4:26
  Speaker 1: not all coming all at once. And as far as
• 4:29
  Speaker 1: the deficit hawks, um, you can't see them in the markets. Uh.
• 4:33
  Speaker 1: The treasury yields went up a little bit, but now
• 4:36
  Speaker 1: I've come back down. You can't really. I mean, the
• 4:38
  Speaker 1: Republicans are grousing a little bit about this, but with
• 4:42
  Speaker 1: interest costs so low, Treasury Secretary Janet and Yellen is saying,
• 4:47
  Speaker 1: now is the time to go big and we don't
• 4:49
  Speaker 1: have to worry about the deficits. Well, and it's interesting
• 4:52
  Speaker 1: you say that. I mean, philosophically, we are that we
• 4:57
  Speaker 1: remember that the Volca Reagan paradigm we had in the eighties.
• 5:02
  Speaker 1: You know, not only the sort of tax cuts, small
• 5:05
  Speaker 1: small government philosophy of Ronald Reagan, but also Paul Veoker
• 5:10
  Speaker 1: coming in as a very muscular anti inflation central bank governor,
• 5:16
  Speaker 1: and the two of them kind of defined an era
• 5:20
  Speaker 1: for you. I guess Richard would be fair to say,
• 5:22
  Speaker 1: you don't quite go back to the Vulcar fed but
• 5:24
  Speaker 1: you certainly have. You've been around the block for for
• 5:29
  Speaker 1: a while. You know this is this is It is
• 5:32
  Speaker 1: not overstating it to say this is overturning a very
• 5:35
  Speaker 1: long time paradigm, but not just the role of the
• 5:39
  Speaker 1: government but also the central bank. Yeah, I think, I mean,
• 5:42
  Speaker 1: I think it's right Vulcar and and Reagan together. You know,
• 5:48
  Speaker 1: there was a tremendous change in in the way in
• 5:52
  Speaker 1: the economy went from the government to the markets. The
• 5:58
  Speaker 1: emphasis was on efficiency not equality, and and the power
• 6:03
  Speaker 1: also went from a labor to the owners at capital.
• 6:06
  Speaker 1: And it was monetary policy that was premier, not fiscal policy.
• 6:09
  Speaker 1: And all of that we're seeing, you know, turned on
• 6:12
  Speaker 1: its head. You know, Volker wanted to get inflation down,
• 6:15
  Speaker 1: power wants to get inflation up. I mean, and Nancy,
• 6:19
  Speaker 1: we just heard there about raising efficiency. If you look
• 6:23
  Speaker 1: at these packages together, particularly, I guess the Infrastructure and
• 6:26
  Speaker 1: the Families Act, you know how much of it is
• 6:29
  Speaker 1: about raising the growth rate, making the economy stronger, and
• 6:35
  Speaker 1: how much is just classic redistributive big government. I think
• 6:41
  Speaker 1: that the first plan, the COVID Relief Plan, was really
• 6:44
  Speaker 1: about raising the growth rate and making sure that the
• 6:47
  Speaker 1: economy could crawl out of the whole from COVID nineteen.
• 6:51
  Speaker 1: I think these next two packages, the Family's Plan and
• 6:54
  Speaker 1: the Infrastructure Plan, are really huge government programs that are
• 6:59
  Speaker 1: trying to reshape, ape and re orient the economy in
• 7:01
  Speaker 1: a completely different way. They're trying to redistribute some of
• 7:05
  Speaker 1: the wealth that we saw, you know, rich people gain
• 7:08
  Speaker 1: during the pandemic. They are trying to give money to
• 7:14
  Speaker 1: communities like African American communities that have typically had more
• 7:18
  Speaker 1: of a wealth gap. They're trying to create new jobs
• 7:21
  Speaker 1: in clean energy, raise the wages of workers for things
• 7:25
  Speaker 1: like home health care aids and childcare workers. And so
• 7:28
  Speaker 1: it really is a massive government program to try to
• 7:31
  Speaker 1: reshape the economy for what the Biden White House argues
• 7:35
  Speaker 1: is sort of the things we need to do to
• 7:37
  Speaker 1: prepare for climate change and to make sure that there's
• 7:40
  Speaker 1: a stable middle class. Of course, Republicans are very against
• 7:43
  Speaker 1: these ideas, and the two parties are interestingly sort of
• 7:47
  Speaker 1: going back to their most extreme positions, where you know,
• 7:51
  Speaker 1: Democrats are really proposing some of the most sweeping redistributive
• 7:55
  Speaker 1: policies that we've seen in decades, whereas Republicans are going
• 7:58
  Speaker 1: back to many of their all arguments, not about the deficit,
• 8:01
  Speaker 1: as you and Rich have talked about, but about the
• 8:03
  Speaker 1: need for small government, um, you know, keeping tax cuts
• 8:07
  Speaker 1: in place. Um. It just shows how polarized the politics
• 8:10
  Speaker 1: are on the future of the economy, but about the
• 8:13
  Speaker 1: politics of this though. I noticed with the infrastructure Bill
• 8:16
  Speaker 1: that you know, a lot of it's paid for in
• 8:19
  Speaker 1: theory by raising taxes on companies and business, and that
• 8:25
  Speaker 1: seemed to be quite popular with the broader public. Is
• 8:29
  Speaker 1: this can the same be said of some of these
• 8:31
  Speaker 1: efforts to increase taxes on the very wealthy. If you're
• 8:35
  Speaker 1: just fixing on how much people can inherit who are
• 8:40
  Speaker 1: in the really the highest bit of the income scale
• 8:43
  Speaker 1: and sort of closing loopholes for the super wealthy, I mean,
• 8:48
  Speaker 1: isn't that quite politically popular? That's also politically popular? There
• 8:52
  Speaker 1: has been a raft of polling done in the last
• 8:55
  Speaker 1: several months that show that, you know, raising taxes on
• 8:58
  Speaker 1: rich people, raising taxes on capital gains, these are things
• 9:02
  Speaker 1: that gains so much political traction during the presidential campaign.
• 9:07
  Speaker 1: And one thing that the Biden White House really has
• 9:09
  Speaker 1: going for them is they are proposing dramatic chat tax changes,
• 9:12
  Speaker 1: but those tax changes are not as dramatic as the
• 9:16
  Speaker 1: ideas that let's say, Senator Elizabeth Warren put out during
• 9:19
  Speaker 1: the campaign or Senator Bernie Sanders. And the White House
• 9:22
  Speaker 1: feels like they do have some political cover because they
• 9:25
  Speaker 1: can say to more moderate Democrats and Republicans, look, we're
• 9:29
  Speaker 1: not going as far as some wings of the party wanted.
• 9:33
  Speaker 1: And they're trying to make the argument that wealthy people
• 9:36
  Speaker 1: gain so much during the pandemic, you know it's time
• 9:38
  Speaker 1: to make them pay their fair share. How much of
• 9:41
  Speaker 1: this actually has any chance of becoming law, Well, I
• 9:44
  Speaker 1: think that that's the key question. People that I talked
• 9:46
  Speaker 1: to think that these two bills are huge, and uh
• 9:50
  Speaker 1: they're they're such big asks of Congress. Most people I
• 9:53
  Speaker 1: speak to think that ultimately these two packages will be
• 9:56
  Speaker 1: condensed into one package, and a lot of the things
• 9:59
  Speaker 1: will be taken out, particularly things from the American Family's Plan,
• 10:03
  Speaker 1: like potentially the paid leave aspect or um you know,
• 10:07
  Speaker 1: universal preschool. I think the there's a lot of bipartisan
• 10:11
  Speaker 1: interest in doing things like infrastructure, rebuilding roads and bridges
• 10:15
  Speaker 1: in the US and spending money that way. I think
• 10:18
  Speaker 1: some of the components of the Family's Plan or will
• 10:20
  Speaker 1: be a much tougher left politically and rich. Just thinking
• 10:24
  Speaker 1: about the economics of this, I mean, there's some bits
• 10:26
  Speaker 1: of the US tax code which to outsiders seem extraordinary.
• 10:32
  Speaker 1: I mean, the fact that when people die, when you know,
• 10:36
  Speaker 1: someone very rich dies and there as inherit, you know,
• 10:40
  Speaker 1: hundreds of millions of dollars, all of the capital gains
• 10:43
  Speaker 1: or those get kind of counted in the inheritance and
• 10:47
  Speaker 1: you can sort of start scratch if you're the person
• 10:50
  Speaker 1: inheriting it. The fact that people would just never pay
• 10:52
  Speaker 1: any tax on any of that or those capital gains
• 10:55
  Speaker 1: seems crazy to outsiders, even countries that have relatively lower
• 10:58
  Speaker 1: tax rates. I mean, do there is an economic case
• 11:01
  Speaker 1: for some of these changes? Oh, there's definitely an economic
• 11:06
  Speaker 1: case for some some of these changes. Um, not so
• 11:09
  Speaker 1: much on the inheritance tax, which of course, the Republicans
• 11:11
  Speaker 1: tried to rebrand as the death tax, and and actually
• 11:14
  Speaker 1: probably succeeded in doing But on some of the change changes,
• 11:18
  Speaker 1: like increasing educational opportunities, expanding childcare, all of that is
• 11:23
  Speaker 1: aimed at both increasing the size of the labor force
• 11:27
  Speaker 1: but also increasing the skills of the labor force, and
• 11:31
  Speaker 1: that's aimed at lifting this sort of long term potential
• 11:34
  Speaker 1: growth rate economy. Likewise, with the public infrastructure, it's it's
• 11:38
  Speaker 1: you know, improving roads, improving broadband so that you improve
• 11:42
  Speaker 1: productivity and therefore improve the potential growth rate accounty. So
• 11:46
  Speaker 1: while Nancy was right in saying, you know, a lot
• 11:49
  Speaker 1: of this focus is on redistribution, there is an argument
• 11:52
  Speaker 1: they're making, sort of a little more sot voce that
• 11:55
  Speaker 1: this is going to lift the long term potential growth
• 11:58
  Speaker 1: rate of the economy. And you have Janet Yelling there,
• 12:09
  Speaker 1: who was at the FED and is now Treasury Secretary.
• 12:13
  Speaker 1: Um she used to have to worry about inflation in theory.
• 12:17
  Speaker 1: The Treasury Secretary doesn't worry so much about inflation. But
• 12:21
  Speaker 1: this this surely has to be a concern if you're
• 12:23
  Speaker 1: looking at all of that spending and borrowing going down
• 12:26
  Speaker 1: the track Rich. Yeah. I mean the White House has
• 12:29
  Speaker 1: has gone out of its way to make clear that
• 12:32
  Speaker 1: that this is something they're watching very very carefully. The
• 12:35
  Speaker 1: the Council and Economic Advisors took the unusual step of
• 12:39
  Speaker 1: putting out a blog sort of post, sort of taking
• 12:42
  Speaker 1: apart the the arguments of people like Larry Summers are
• 12:46
  Speaker 1: about inflation. But I think in the end, you know,
• 12:50
  Speaker 1: if we do get inflation, Janet Yellen recognizes as a
• 12:53
  Speaker 1: former FED it's going to be up to the Fed
• 12:56
  Speaker 1: to control it. Fiscal policy is not nimble enough, and
• 13:00
  Speaker 1: and all these fiscal depending on how much it gets done,
• 13:03
  Speaker 1: all these fiscal policies will be in train, all the
• 13:05
  Speaker 1: spending will be in train. And if we get inflation
• 13:08
  Speaker 1: and there's there's needs to be something done about it,
• 13:11
  Speaker 1: it's going to be the Fed and j. Powell or
• 13:14
  Speaker 1: wherever his successor, is a job to make sure it
• 13:17
  Speaker 1: doesn't get out of control. And we did have we
• 13:20
  Speaker 1: had the novel backdrop for the State of the Union
• 13:23
  Speaker 1: of two women sitting behind the President, the Leader of
• 13:27
  Speaker 1: the House, Nancy Pelosi, and the Vice President. And you've
• 13:31
  Speaker 1: got a lot of chairs changing at the FED in
• 13:34
  Speaker 1: the next year or so, including the potentially the reappointment
• 13:38
  Speaker 1: or not of J. Pow as the the chairman. Do
• 13:44
  Speaker 1: you think do you think President Biden is going to
• 13:47
  Speaker 1: want to make the US Central Bank look different as well,
• 13:50
  Speaker 1: put in some different faces, maybe different color phases. Thanks
• 13:53
  Speaker 1: for putting me on the spot set for me, um,
• 13:57
  Speaker 1: I don't know. I did. On the one hand, it's
• 14:00
  Speaker 1: hard to conceive of a more dubbish Central Bank chairman
• 14:03
  Speaker 1: than we have now and J. Powell that argues for
• 14:07
  Speaker 1: for for keeping him in place. Uh. On the other hand,
• 14:12
  Speaker 1: there there's the big there's a progressive wring of the
• 14:15
  Speaker 1: Democratic Party which is going to be pushing hard for
• 14:18
  Speaker 1: someone as you say, maybe maybe you know a woman
• 14:21
  Speaker 1: or maybe African American or so that would be the
• 14:24
  Speaker 1: first the first black chairman of the FEN for sure,
• 14:28
  Speaker 1: for sure. And while Powell has you know, probably more
• 14:32
  Speaker 1: than exceeded Democrats wishes when it comes to monetary policy,
• 14:35
  Speaker 1: he's been he's been more friendly, I would say, to
• 14:40
  Speaker 1: some changes on the loosening the regulations on the banks.
• 14:45
  Speaker 1: And you know, you have people like Senator Elizabeth Warren
• 14:48
  Speaker 1: who really want to keep their thumbs on the banks
• 14:50
  Speaker 1: and maybe do even more and attack private equity, etcetera.
• 14:54
  Speaker 1: So that when I'd argue to for replacing him, But
• 14:56
  Speaker 1: I mean, it's probably gonna be come down to a
• 14:58
  Speaker 1: decision later this year. If the economy is going swimmingly
• 15:01
  Speaker 1: well as a lot of people expect, it might be
• 15:04
  Speaker 1: easier to replace him. So just stepping back. Finally, you know,
• 15:07
  Speaker 1: we always focus, rightly or wrongly on the first hundred
• 15:10
  Speaker 1: days relative to your expectations. You've both been in Washington
• 15:16
  Speaker 1: a long time. How would how would you rate President
• 15:20
  Speaker 1: Biden's first first hundred days. You certainly spend a lot
• 15:23
  Speaker 1: of money, or try to spend a lot of money,
• 15:24
  Speaker 1: but any surprises, Nancy, I think that his first one
• 15:29
  Speaker 1: hundred days have gone well. I think that even his
• 15:31
  Speaker 1: critics would say that that they have gone well because
• 15:35
  Speaker 1: he basically did two of the key things that he
• 15:37
  Speaker 1: needed to do, which is, um, you know, inject a
• 15:39
  Speaker 1: bunch of money into the economy to try to improve growth,
• 15:43
  Speaker 1: to try to improve unemployment, to make sure that you know,
• 15:45
  Speaker 1: families have stable financial footing. And then he's done a
• 15:49
  Speaker 1: good job. He and his team have done a good
• 15:50
  Speaker 1: job of getting the pandemic under control, ramping up the
• 15:53
  Speaker 1: vaccine nation rate, and so the first one hundred days
• 15:56
  Speaker 1: have really been dealing with these crises. I think what
• 15:59
  Speaker 1: has a prize me and many other political reporters is
• 16:02
  Speaker 1: just how progressive and revolutionary his agenda has been. President
• 16:08
  Speaker 1: Biden has always been seen as a real centrist, a
• 16:12
  Speaker 1: creature of the Senate, and institutionalist. He did not run
• 16:16
  Speaker 1: a campaign that anyone saw as hugely progressive, that all
• 16:21
  Speaker 1: that attention went to Senator Elizabeth Warren or Bernie Sanders.
• 16:24
  Speaker 1: And yet once he has gotten into the White House,
• 16:27
  Speaker 1: he has pursued policies that have shocked progressives and delighted them.
• 16:32
  Speaker 1: And it's just much more of an ambitious, sweeping agenda
• 16:36
  Speaker 1: in line with really the most progressive wing of the
• 16:40
  Speaker 1: party then I think Democrats thought was possible just before
• 16:44
  Speaker 1: we get to rich. I just wanted it is interesting
• 16:46
  Speaker 1: that and that's obviously it's been striking to a lot
• 16:48
  Speaker 1: of people. I guess that you could argue that if
• 16:52
  Speaker 1: it's not going to if most of it's not going
• 16:54
  Speaker 1: to get past in this Senate, that this is you
• 16:58
  Speaker 1: know that he's not he doesn't really believe this, and
• 17:00
  Speaker 1: this is all gesturing, this is all just sort of
• 17:03
  Speaker 1: getting the left off his back. I think that that
• 17:06
  Speaker 1: is there's some truth to that. With the American Family's Plan,
• 17:09
  Speaker 1: this most recent plan, I don't think that I've been
• 17:12
  Speaker 1: told that his heart is not as in this plan
• 17:15
  Speaker 1: as it is with infrastructure. But I do think that
• 17:18
  Speaker 1: he feels very strongly about the infrastructure package. I think
• 17:22
  Speaker 1: that he feels very strongly that they needed to pass
• 17:24
  Speaker 1: the one point nine trilliant dollar COVID relief plan, the
• 17:27
  Speaker 1: Family's Plan. They unveiled the third because it is the
• 17:30
  Speaker 1: last priority for the White House, and I think that
• 17:33
  Speaker 1: plan is much more of one that has less support
• 17:37
  Speaker 1: in the West wing or a bit more of a
• 17:39
  Speaker 1: divided support among his top advisors and even from the President,
• 17:42
  Speaker 1: and that is seen as something to get progressives office
• 17:45
  Speaker 1: back and rich Bella, what do you think of the
• 17:48
  Speaker 1: first hundred days and anything? Have you been surprised by
• 17:52
  Speaker 1: by Button's radicalism or or anything else. I mean, I
• 17:56
  Speaker 1: think I've been a bit surprised by his radicalism. But
• 17:59
  Speaker 1: if you go back to the actual proposals that he
• 18:01
  Speaker 1: laid out during the campaign, he is following along with
• 18:06
  Speaker 1: many of them. I mean, if you go back and
• 18:09
  Speaker 1: read the literature, what that was. You know, he was
• 18:11
  Speaker 1: putting out at the time, even though he came across
• 18:13
  Speaker 1: as as Nancy said, compared to War and and uh
• 18:16
  Speaker 1: Sanders as a centrist, his his his proposals were pretty radical.
• 18:22
  Speaker 1: I think maybe one thing that he might have learned
• 18:24
  Speaker 1: from President Trump is if you promise something, try to
• 18:28
  Speaker 1: deliver it. And I think that's what he's trying to do.
• 18:30
  Speaker 1: And that's Uh. Whether as as you and Nancy pointed out,
• 18:34
  Speaker 1: whether you know, especially with the second two packages, it
• 18:37
  Speaker 1: turns out to be more aspirational than than actual, you know,
• 18:40
  Speaker 1: remains to be seen. But I think he did. He
• 18:45
  Speaker 1: did campaign with a pretty progressive platform. Maybe the rhetoric wasn't.
• 18:50
  Speaker 1: The rhetoric was more I'm, you know, gonna cooperate with Republicans, etcetera.
• 18:55
  Speaker 1: But if you if you, if you actually read the proposals,
• 18:57
  Speaker 1: there was a hell of a lot of spending he
• 18:59
  Speaker 1: would he was, he was putting out there interesting. Well,
• 19:03
  Speaker 1: in a hundred days, maybe we'll come back and see
• 19:05
  Speaker 1: how much more money he's tried to spend in the meantime.
• 19:08
  Speaker 1: Nancy Cook, Richmond, thank you very much, Thank you, thanks
• 19:10
  Speaker 1: so much. And now I wanted to bring you a
• 19:20
  Speaker 1: different take on the recovery from US economy reporter Mike
• 19:24
  Speaker 1: Sasso in Atlanta, who, together with his colleague Alex Tanzi,
• 19:27
  Speaker 1: has been taking a look at why so many people
• 19:30
  Speaker 1: at different ends of the US labor market are deciding
• 19:34
  Speaker 1: one is a good time to retire. Economists speak for
• 19:41
  Speaker 1: K shaped recovery in the United States, so named because
• 19:45
  Speaker 1: many Americans with office jobs fared well during the COVID
• 19:48
  Speaker 1: nineteen recession, and their fates resembled the upward slope of
• 19:52
  Speaker 1: the letter K. Many others in the travel and restaurant
• 19:56
  Speaker 1: industries have faired poorly, though, and occupy the downward slope
• 20:00
  Speaker 1: that same dynamic as occurring in retirement. The pandemic has
• 20:04
  Speaker 1: sparked a retirement russia sorts in the US, at least
• 20:08
  Speaker 1: among those fortunate enough to have built up their savings
• 20:11
  Speaker 1: and investments. A soaring stock market has boosted their retirement accounts,
• 20:16
  Speaker 1: while the pandemic caused many to reevaluate their priorities in life.
• 20:20
  Speaker 1: In Massachusetts, Melissa Martini put away her business outfits for
• 20:24
  Speaker 1: good at the end of March. She's retiring five years
• 20:28
  Speaker 1: earlier than she expected from her job as an administrator
• 20:31
  Speaker 1: for the agency that oversees the Massachusetts Parks. I'm fifty
• 20:37
  Speaker 1: eight right now, and I had it not been for
• 20:42
  Speaker 1: the stresses of the pandemic and the cuts and my staff,
• 20:45
  Speaker 1: I probably would have stayed in my position another five years.
• 20:48
  Speaker 1: But I was looking at retiring, probably at sixty two
• 20:52
  Speaker 1: or sixty three. I've seen so many people who have
• 20:56
  Speaker 1: decided to wait too long to retire. And you know,
• 21:01
  Speaker 1: many of my colleagues or older family members, and they
• 21:07
  Speaker 1: get one year of retirement and then they get sick
• 21:09
  Speaker 1: and they pass on, and it's just I don't want
• 21:13
  Speaker 1: that for myself. Traditionally, Americans have waited to retire until
• 21:16
  Speaker 1: they at least reached their mid sixties. That's when most
• 21:19
  Speaker 1: are eligible for full retirement benefits from the Social Security Administration.
• 21:24
  Speaker 1: The pandemic, however, has upended that thinking for the fortunate ones.
• 21:29
  Speaker 1: After the global financial crisis of two thousand seven, the
• 21:32
  Speaker 1: US stock market took more than five years to recover
• 21:35
  Speaker 1: its losses. In this pandemic recession, it took only seven months.
• 21:40
  Speaker 1: Many are getting out while it's getting still good. While
• 21:44
  Speaker 1: the pandemic caused some Americans to delay applying for their
• 21:47
  Speaker 1: Social Security retirement benefits, overall, it cost a net increase
• 21:52
  Speaker 1: of one point seven million applications, according to the US
• 21:55
  Speaker 1: Census Bureau. Some of those people retired willingly. Others lost
• 21:59
  Speaker 1: their jobs and see little hope of getting a new one.
• 22:02
  Speaker 1: Martini chose to retire after the state in Massachusetts kept
• 22:06
  Speaker 1: cutting her subordinates during the pandemic, leaving her with too
• 22:09
  Speaker 1: much work into little time. It's just there's too much stress,
• 22:15
  Speaker 1: too much responsibility to UM to really handle without the resources.
• 22:21
  Speaker 1: So my husband and I looked at our investments and
• 22:23
  Speaker 1: our finances and UM, and we decided, you know what,
• 22:28
  Speaker 1: I can survive on my state pension of my pay
• 22:32
  Speaker 1: for the rest of my life because our investments were
• 22:36
  Speaker 1: such that we could afford for me to do that.
• 22:39
  Speaker 1: Six years ago, she and her husband bought a forty
• 22:42
  Speaker 1: two foot sailboat. He's also retiring early, and they plan
• 22:46
  Speaker 1: to put it to good use. And UM, we're hoping
• 22:50
  Speaker 1: that at some point in the future, when we're not
• 22:53
  Speaker 1: worried about aging parents, UM, we won't be able to
• 22:56
  Speaker 1: sail to the Caribbean in the intertime and live on
• 22:59
  Speaker 1: the boat or females a venture in the Virgin Islands.
• 23:03
  Speaker 1: Probably to be sure, economists will spend years researching this
• 23:07
  Speaker 1: most unusual recession and its case shaped recovery. While some
• 23:11
  Speaker 1: recent national surveys suggest people are retiring early, others are
• 23:15
  Speaker 1: being left behind. A recent survey from the Employee Benefits
• 23:19
  Speaker 1: Research Institute suggests the pandemic in net terms, prompted more
• 23:24
  Speaker 1: US workers to delay retirement than to speed it up.
• 23:28
  Speaker 1: It's cited job losses in other stresses. Ultimately, the pandemic
• 23:33
  Speaker 1: helps to shed more light on the gap between America's
• 23:36
  Speaker 1: haves and its have not. So I'm delighted to talk
• 23:48
  Speaker 1: now to Alex Tanzi, a senior editor for the Real
• 23:50
  Speaker 1: Economy Team in Washington who worked with Mike pulling together
• 23:55
  Speaker 1: some data to go with the story, but has also
• 23:57
  Speaker 1: been thinking about broader quest of generational inequality. We tend
• 24:04
  Speaker 1: to think that the last few years have not been
• 24:08
  Speaker 1: great to young people relative too old, and it was
• 24:11
  Speaker 1: sort of symbolized in that piece by the fact that
• 24:15
  Speaker 1: you have older Americans actually able to retire sooner than
• 24:19
  Speaker 1: they thought because of how well the stock market has done. Alex,
• 24:24
  Speaker 1: do you have a sense that the pandemic has worsened
• 24:29
  Speaker 1: generational inequality? The pandemic is um across the board, has
• 24:35
  Speaker 1: created this case shaped recovery. So there's millennials and younger
• 24:40
  Speaker 1: people that are doing exceptionally well, people that had a
• 24:44
  Speaker 1: job and kept their job. Um. But at the same time,
• 24:48
  Speaker 1: many people on that age cohort you know, I had
• 24:52
  Speaker 1: service sector jobs and lost their jobs. So it's it's
• 24:55
  Speaker 1: a it's a mixed picture. Um, it's very nuanced. But
• 24:59
  Speaker 1: you did you did find some interesting data that suggested
• 25:02
  Speaker 1: that the wealth gap might even be closing in some
• 25:05
  Speaker 1: parts of the labor market. That's right. So the St.
• 25:09
  Speaker 1: Louis Federal Reserve did the report, and they're showing that
• 25:12
  Speaker 1: the the wealth gap for millennials is getting a little
• 25:17
  Speaker 1: bit better. At one point they were calling it the
• 25:19
  Speaker 1: Lost generation, but now they're showing that Um, while they're
• 25:23
  Speaker 1: still less wealthy than they were expected to be at
• 25:27
  Speaker 1: this age, they're closing the gap. And the oldest millennials
• 25:31
  Speaker 1: are you know, they're approaching forty, so they're not exactly, um,
• 25:36
  Speaker 1: super young anymore, but they are gaining wealth and they
• 25:40
  Speaker 1: are um purchasing real estate, and the real estate markets
• 25:44
  Speaker 1: don't exceptionally well in the US this year, so they
• 25:47
  Speaker 1: have received equity gains and their real estate holdings and also, um,
• 25:53
  Speaker 1: the stock market obviously has done um quite well. If
• 25:57
  Speaker 1: I analyze the last three quarters of twenty twenty, people
• 26:01
  Speaker 1: under the age of forty saw their biggest wealth gained
• 26:04
  Speaker 1: ever of any cohort at any time. So they had
• 26:09
  Speaker 1: a sevent annualized increase in the last three quarters, which
• 26:14
  Speaker 1: um it was better than any other group has done
• 26:16
  Speaker 1: it any other time. Just sort of thing through the
• 26:19
  Speaker 1: logic of that, because obviously, if they have less money,
• 26:21
  Speaker 1: it's more that they were they were able to have
• 26:23
  Speaker 1: the biggest percentage increase. But in absolute terms, the older
• 26:28
  Speaker 1: generations are still really the ones who are sitting on
• 26:31
  Speaker 1: a big chunk of the wealth. Surely that's a that's
• 26:34
  Speaker 1: exactly right. Millennials did see their assets well to over
• 26:38
  Speaker 1: ten trillion dollars, but at the same time, you know,
• 26:43
  Speaker 1: for example, of baby boomers have seven times that much.
• 26:47
  Speaker 1: So millennials also hold quite a bit of debt, and
• 26:50
  Speaker 1: the type of debt they hold isn't exactly the so
• 26:54
  Speaker 1: called good debt. They are purchasing more real estate, which
• 26:57
  Speaker 1: you know, what's good debt. Remind me what good is?
• 27:00
  Speaker 1: Usually it's mortgage. Debt is considered good because it's appreciating
• 27:04
  Speaker 1: asset most of the time. But millennials tend to hold
• 27:08
  Speaker 1: quite a bit of consumer debt, which is credit card debt.
• 27:11
  Speaker 1: So for example, UM, you know, like I just mentioned,
• 27:14
  Speaker 1: baby boomers have seven times the assets as millennials, but
• 27:18
  Speaker 1: baby boomers have less debt. So millennials have more debt
• 27:23
  Speaker 1: than baby boomers. And you know, one type of that
• 27:27
  Speaker 1: debt that's been making the news quite a bit is
• 27:29
  Speaker 1: student loans, which is just um gone up by astronomical
• 27:34
  Speaker 1: amounts in the last decade or so. And we've were
• 27:38
  Speaker 1: earlier in the program, we've been touching on the potential
• 27:42
  Speaker 1: for inflation. UM, if you're if there's a younger generation,
• 27:47
  Speaker 1: as you point out, the younger generation isn't necessarily millennials anymore,
• 27:50
  Speaker 1: but it's below younger than that, UM that's sitting on
• 27:53
  Speaker 1: a lot of debt which is not tied to rising assets. Um,
• 28:00
  Speaker 1: what does what does inflation mean for them? I mean,
• 28:03
  Speaker 1: we tend to think that inflation is not so bad
• 28:05
  Speaker 1: for debt is because it sort of inflates away the
• 28:07
  Speaker 1: value of the debt. But I guess they'd also be
• 28:09
  Speaker 1: paying higher interest rates, definitely be paying higher interest rates,
• 28:14
  Speaker 1: and that's probably one of the biggest reasons for pessimism
• 28:18
  Speaker 1: because wage gains really haven't been there. So if the
• 28:22
  Speaker 1: other side of the the coin starts to increase a lot,
• 28:24
  Speaker 1: if their debt payments are debt service costs increases rapidly,
• 28:29
  Speaker 1: it's gonna put quite a bind on their disposable income.
• 28:34
  Speaker 1: One problem, you know, in the past, people have always said,
• 28:38
  Speaker 1: you know, a college education is needed and you can't
• 28:42
  Speaker 1: really succeed without it. But at the same time, more
• 28:46
  Speaker 1: and more people are receiving a degree, so that the
• 28:51
  Speaker 1: value of a college degree is going down while the
• 28:54
  Speaker 1: prices are going up. So they've gone into quite a
• 28:57
  Speaker 1: bit of debt to acquire a college to agreed that
• 29:00
  Speaker 1: appreciates and value. Well, it's one of those things that
• 29:04
  Speaker 1: raises the stakes if and when interest rates do go up,
• 29:09
  Speaker 1: because you're going to have this very disparate effects on
• 29:11
  Speaker 1: different bits of the population. Alex Tangi, that's fascinating. Thank
• 29:14
  Speaker 1: you very much, Thank you very much. So that's it
• 29:25
  Speaker 1: for this episode of Stephanomics. I'll be back next week
• 29:27
  Speaker 1: with more from around the world. In the meantime, please
• 29:30
  Speaker 1: if you can take the time to rate the show,
• 29:32
  Speaker 1: it would help us broaden our reach. For more news
• 29:35
  Speaker 1: and analysis from Bloomberg Economics during the week, follow as
• 29:39
  Speaker 1: Economics on Twitter. This episode was produced, as ever by
• 29:43
  Speaker 1: Magnus Hendrickson, with special thanks to Mike Sasso, Alex Tanzy,
• 29:47
  Speaker 1: Rich Miller, and Nancy Cook. Lucy Meekin is the executive
• 29:51
  Speaker 1: producer of Stephanomics and the head of Bloomberg Podcast This,
• 29:54
  Speaker 1: Francesca Levi