How Is The Economy Really Doing?

hey everybody welcome back to the find out podcast you've got tim rich and zach today and we're going to take a little bit of a break talking about uh you know ice going into all of our communities and uh you know shooting people and everything but we're going to talk about something they're done they're done right oh they're done now that's all over i heard they were done well we're going to move we're going to move to the state of the economy because we've actually got one of the top economists in the united states we have justin wolfers with us who is an australian economist and public policy scholar and he is a professor of economics and Public Policy at the Gerald R. Ford School of Public Policy at the University of Michigan. Justin, thanks for joining us today. Good to be here. I'm also an American, by the way. Oh, you are? Oh, I'm sorry. I was reading your Wikipedia page, so I'm going to have to... Great research being done on our side. Oh, God, yeah, we go real deep here. I was reading the first paragraph off. But anyway, so Justin, tell us, just generally speaking, I saw you gave a grade for the U.S. economy recently and i think it was a b minus uh so we are hearing everything from the economy is amazing it's great it's never been better to we are basically on the precipice of a recession where like in your opinion generally at the 10 000 foot level where are we economically like what's working and what's not yeah let me start you just said i've heard this enormous range of commentary i don't think that's true actually you've heard the president say well we're off the charts great. When lying liars lie, I tend to think, you know, I'm just going to like pretend you never spoke because when you don't speak truth, you don't deserve a seat at my table. Yep. So what we have is a range from people who really believe it's quite healthy to people who believe are on the cusp of a recession. All of those things might be true. Let me give you a few ways of thinking about this. So first of all, the economy at the beginning of 2025, beginning of the Trump term was in pretty good shape. To be clear that this is not a partisan remark, the economy in 2019 on the eve of the pandemic, so during the first Trump term, was in pretty good shape. So in each case, you know, things can go okay. Unemployment was low. Inflation was a bit high and we might want it, but was edging back down to where the Fed wanted it. So that's what the president inherited. And the good thing about economies is they move slowly. Economic news, like the talking heads on CNBC and so on, don't. But actual economies move slowly. And so you heard a lot of doom and gloom, but actually the economy kept on keeping on. Now, when I say it kept on keeping on, we didn't enter recession, things didn't turn south, The world is still here. But it's also been a year in which the unemployment rate has continued to rise. You know, what do we want? We want to get the unemployment rate as low as we can get it. And then we just want it steady. So anytime it's rising, we must be doing worse than what we can do. So that says we're not producing as much stuff. We're not employing as many people as we might otherwise. That's one part of the economy. I think it's the most important. Jobs are a big part of how we define ourselves. They have an important social meaning. They're how we look after ourselves and our families. Being unemployed sucks. And when there's not enough jobs, it's not just a question of those who lose their jobs. People stay in their jobs, but they can't find new opportunities. They can't get pay rises and so on. So slowly rising unemployment is worse than it ought to be. The word slowly there gives you some wiggle room. inflation hasn't come down as quickly as we might have hoped and folks i'm sure have noticed prices continuing to rise the president relentlessly lies about this he lies that he's gotten prices down it's an absurd lie because unlike him the rest of us go to the store right the rest of us know what groceries it's a crazy well and you know he was in iowa the other day and he's been lying for months saying gas is a buck 99 and every time he says that it gets fact checked so he went to iowa where it's not true still not true it's still never been true and he's got even better it's now down to a buck 85 oh um great so the imaginary economy is doing terrific um the one we live in a little less so um and then i want to bore everyone with that sort of stuff economists are forced to talk about um the budget deficit um look here's the simple logic of budgets, what you want to do is stash some extra money away during good times so you can have a cash splash, help people out when times are bad. If you thought times were really, really, really bad right now, you might think it's okay to have a deficit as big as we do. If you thought that things were kind of okay, maybe we should be at roundabout neutral. We're miles from that. And so what we have is a huge amount of money, government money, supporting what at the moment is, you know, a B minus economy. You know, when I say B minus, let me be clear. To those of you who earned your degrees years or decades ago, a B minus wasn't a bad grade for some of us. I've got kids in the American school system right now. Everyone gets an A. It's just lovely. So when I say B minus, I mean taking full account of American grade inflation and the fact that we're all special today. um i was never special i clearly wasn't either but yeah yeah sees get degrees was like you guys will be straight-eye students these days oh i don't know he's he's he's not wrong in that like my my daughter is in seventh grade and uh she gets multiple chances to do all of her work like you can just be bad at it and get it wrong and you can just come back like usually within two weeks but it's like a rolling two weeks for every assignment so you can always come back and and bring back a new version of the thing and then they will just change the grade on it until you learn it which like is a better way of teaching someone something but like are are you are you grading for the test in that sense no absolutely not but are you making sure kids learn shit yeah so like i actually like so b minus is terrible then so yeah i was gonna say you you say you gotta give up to leave to land at a b so all of a sudden i thought you were kind of lukewarm on the on the economy but now the b minus feels feels more like a c minus in like 1997 terms or something like that or is that is that fair to say no your age in your age you might have called it the gentleman c but we called it a gentleman c because gentlemen got them sure it was sort of like coasting and you know okay that was me actually that was me so that's fair my mom is nodding her head wherever she's listening she's like this is this is Tim and she's a teacher so if you applied yourself Tim um if you applied yourself oh my god the amount of times I heard that uh but but so so just so let me ask you this so with the prices going up uh are you to suggest that a giant tax increase on the American consumers in the terms of a tariff is not the best way to lower prices Oh, mate. Because, I mean, I'm being told it is. Yeah. So let me put this directly in the political context. The political context is the president ran on lower prices. Yeah. He said on day one he was going to work to get prices down. What has he subsequently done? He imposes tariffs, taxes on goods that Americans import. Now, lots of people might think that's okay. the easy way to avoid paying that tax is don't buy the import. But guess what? You might say, I'm not going to buy the Samsung washing machine. I'm going to buy the GE one. It's made in America. But guess what? The moment GE's competitors raise their prices, guess what GE does? Yep. Turns out Americans raise their prices to match those of their foreign competitors. It's also the case that a lot of American firms use inputs, for instance, steel, where there's very high tariffs, taxes. And so they're passing those along. So one, he's bunged on tariffs. Two, we've still got a complete lack of clarity about what's going to happen to health insurance. And it looks like a lot of people's premiums might rise quite substantially. Three, he's relentlessly attacked the Federal Reserve. Now, you might say, why does that matter? Well, if the Federal Reserve can be independent and be left alone to do its job, it can more effectively bring inflation down. And if you undermine it, you lead people to believe that inflation might be higher in the future. And that in itself is enough to actually cause inflation. And that, by the way, also raises interest rates. And there goes your mortgage payment up, up, up. And so pretty much everything this bloke has done is it ended up being something that would raise prices rather than lowering them. Yeah, that's not surprising. I'm curious because I know from an economic perspective, you look at a lot of the metrics and you can go, all right, this is a B minus economy because some of the metrics that don't really affect the average American are okay and always really stable with America. But what would your grade be for the average American who's struggling just like to living paycheck to paycheck? Because the economy does not feel like a B minus to them. It feels very different. So if you strip out all the traditional economic metrics that economists look at and just look at it to the eyes of like an average American, what would you grade it at right now? So one way we could do that is we could just ask typical Americans. And so that's what's called a measure of consumer confidence. In fact, my university, the University of Michigan surveys hundreds of people every month asking them, how do you feel about the future of the economy? Consumer confidence right now is at the lowest level it's ever been. Yeah. Worse. I mean, actually, Zach, it's stunning because I want you to think about how bad things have been at certain moments. Do you remember the terror of 2000? Sorry, 2020? Oh, yeah. Like we're sitting at home, we can't do work, and we don't know if this virus is ever going to go away. And we're more miserable. Right. And I'm old enough to remember when Lehman Brothers collapsed, triggering a financial crisis that meant we didn't know if we'd wake up and have a banking system. Right. And people feel more miserable. Man, that's crazy. We had a leader who was at least capable of getting, like, I had confidence in our leaders getting us out, at least in 2009. It was like we're on the early edge of a smart guy being in charge or a smart president being in charge. But we had to wait. We had to rely on George W. Bush there, the guy who destroyed our surpluses and lied us into a war and then did a massive tax cut. So, like, I was pretty scared, I will say. That was 2008, though. But that was like the worst of it was 2008. Right. Right. But even that it's worse now than it was September or August or September when that when Lehman crashed. Like that was literally a like, are we going to end up in a depression? And the fact that it's worse now is is is telling. It's yeah, it's extremely. I mean, we have three years of Trump ahead of us still. Let's let's stick with Rich's comment for a moment. So Rich says he thinks it's because of the quality of leadership. So I'm just going to throw on another statistic for you. This same survey asks, what do you think about the quality of our macroeconomic policy? And the share of Americans who rate it as poor has never been higher. Right. Of course. We have lost trust in our leadership. And that, you know, as a matter of civics and blah, blah, blah, you guys talk about that all the time. I'm sure it might worry you. But as a matter of economics is really quite problematic because am I going to invest in an education? Am I willing to buy a house? Does it make sense to get an education? Does it make sense? These are very long run decisions. And if people feel they can't plan, they may be less likely to make those investments. right that makes sense well let me ask you this then because here is another thing that we have seen over and over again i assume that you do not agree that when you give massive tax cuts to millionaires and billionaires that that then because you're giving these people all this extra money that it doesn't come raining down on the rest of us and lift us all back up as we've been told since the 80s, I believe. Tim, you're actually making, I think, a really fundamentally important point. And I want to step even further back before we step into it. Every day we wake up to a new news cycle, a new outrage of the day, a new kerfuffle. There's all sorts of bullshit nonsense going on. What we have to do is step back from what he says and look at what he does. That's actually a very important exercise when it comes to economics because every day there's a new debate. Should we do this? He called that person fat. He called that person ugly. Whatever, right? Totally unlike my middle school experience. What has he actually done? Well, I can think of two things. One is his tax bill is the budget. The Trump budget was the single biggest redistribution from poor to rich in a single bill in American history. It was the anti-Robin Hood. Yeah. Take from the poor, give to the rich. The largest redistribution in American history. Separate from that, you add tariffs. And the thing about tariffs is tariffs are like a sales tax. Well, the higher your income, the lesser your money is spent. So therefore, the less a sales tax hits you. So tariffs are what we call a regressive tax. If you want simpler language, it's called a screw the poor tax. It's a larger chunk of the paycheck of low and middle income Americans than for the wealthy. So what has he actually done? He's found he finds the wealthy when it comes to tax cuts. He finds middle and low income Americans when it comes to tariff hikes. And when it comes to cutting government programs, the only ones he cuts, Medicaid, for instance, those that affect low-income Americans. So we spend less to help low-income folks, tax them more, and give bigger tax cuts to the top end. Now, here's an interesting question for you because I have struggled with this for a long time because we saw Ronald Reagan do this. We saw George W. Bush do this. Now we've seen Donald Trump do it twice. Like I guess what confusing to me is like first of all it very clear it doesn work economically But like how do we convince people of that Because this seems to me like we done it like four or five six times now And it never has the stimulative effect that they claim. So I guess, one, how do we explain this to people? And two, I assume they know this and just don't care. But they say the trickle down thing because it sounds good. Am I on to something? Seal the rest of the audience in on what you just said. So what we've had is folks giving tax cuts to the rich now for several generations. This was the heart of Reagan and the heart of Thatcher, if you want to sound very fancy British. Back then, they justified it. They said what will happen is this will stimulate investment, employment, growth. It will trickle down from the rich to the poor. We tried it. It turns out when you find ways for the rich to get rich, the rich get rich. turns out when sharing is optional, they often choose not to do it. Right. The question that I want to ask you, Tim, is you said, I think that's the economic theory again this time. I'm not sure they even bothered, to be honest. I don't think they even went out and really said, you know what we can do? We can help working in middle-class Americans by providing new opportunities for investments among the rich. I think we have a billionaire president who's beholden to the billionaire class who just did this as a reflex. And I don't think he actually really tried to win the argument at all. I think they've given up on the theory and it's just like, we're in control. We take the big heart. I might be wrong about that, but it didn't... You're the first person who asked me that question in a long time. Isn't that crazy? Because it is all in the open. He wants to... Sorry, I've just like kind of... Yeah. Go ahead. Well, I was just sorry. I don't mean to cut you off, Rich, but I'm just like, to me, it just seems like the ground truth here that, like you were saying, there are different political parties who have different philosophies of how to stimulate the economy. And I think this is, I would say, a blame for people on the left, not economists or politicians, but like this, it's been proven to not work like over and over. Tax cuts for the rich make rich people rich. Right. It's been proven to work. Yes. On that part, yes. Here's the important thing. Like the question becomes how much of this is the economic lag, right? Because so much of the effect of this is not seen instantaneously take years and years to develop. And how much of it is luck too? Because when you look at the last democratic presidents, you have Obama and Biden, both inheriting a disastrous situation that they work their way out of effectively, but they're not, you know, people are still sort of reeling from the initial effect, you know, one was COVID, one was 2008. How much of it is just really bad luck in terms of timing for Democrats where they can't message their way out because it seems as if they've been bad, where in reality, they've been the one digging people out of the mistakes of the right. Does that play the role? I think it does. So there's a story people on the left like to tell. It is that left wing presidents are good for the economy and right wing presidents are bad. It does turn out, by the way, most right-wing presidents in recent decades have managed to have a healthy recession under their watch. Equally, I don't think blaming Donald Trump for a virus coming over from Wuhan is clearly an outcome of economic policy. There's a story on the right they like to tell, which is Republicans are good for economic policy and Democrats are bad. So the problem is much simpler than that, which is when you only get one new observation every four years, we don't have enough data to say anything particularly clear about this. Right. You know, because how far back in history do you want to go? Do you want to look over the entire last century? Does it make sense to include the Great Depression? Right. Who do you want to score the Depression against? On and on it goes. So you can have a different way of looking at this, which is what are some of the other stereotypes that people carry around in their head? So one that's really important is people carry around the stereotype that Republicans are the party of fiscal responsibility. So this is a case where the budget balance is literally the result of the decisions of the president and Congress. Like there's no luck. There's no China. There's no virus. There's no financial crisis. They're like, this is what we're doing. Yeah. Reagan blew out the deficit. Bush blew out the deficit. Trump blew out the deficit. Trump came back and blew out the deficit again. Did I leave out one of the bushes? There's so many of them. I'm sure they both fucked up royally. Obama reigned it in. Biden didn't really, but was in the middle of a once-in-a-century crisis. The idea that Republicans are the party of fiscal responsibility has not been true for a single day of my life, and I was born in December 1972. Only because you mentioned it. I went and looked it up. When Ronald Reagan took office, does anyone not named Justin want to guess what the national debt was? Not the deficit, but the actual national debt. Oh, God. When he took office, tiny. 1980. Small. I don't know. Millions? 20 billion. 16% of GDP is my guess. 908 billion. That was the whole national debt. That is less than the deficit in one year before the pandemic took hold. Well, that's the defense budget. That's essentially the defense budget. Yeah. And our interest payment. Under one trillion. And so. What is it now? It's so. 32 trillion. It goes up by like two trillion a year. Right. It's it's absolutely mind boggling. But no, like Justin's point. This is like put on a fucking hat. Like, you know, what's the make America great again version of this? Since Ronald Reagan took office, we went from one trillion to 33 or whatever. God awful trillion in national debt. and before that it was relatively flat the whole time so the second somebody came around with this supply side reaganomics trickle down bullshit that is literally the spark that started 30 plus trillion dollars in in debt and they're still telling us it's gonna it's gonna trickle down on us and the maga is like but like justin to your point i think that we they finally stopped making that argument so maybe we should stop trying to refute it because trump is building a 400 million dollar ballroom right he wants to build like a 250 foot fucking golden arch or something now across the river like um he's just doing like saddam hussein shit like he's just building golden shrines everywhere that he looks where there's empty grass and and meanwhile he's you know he's amassed what three trillion three billion in extra wealth in in a calendar year uh personally so maybe like what's the next way that we talk about this since we're not like to your point nobody's even talking about supplies i'd trickle down anymore they're just like oh yeah trump is god and he builds golden castles like that's what we do now rich what's most amazing to me is that none of these amazing things that the president is building a phallic it's been quite striking i was expecting something you know where's the golden dick rocket yeah we already got one though right i mean there's already one yeah that's true he could Wouldn't you expect a few hundred feet right up in the air? I would think so. There's a KFC inside of it. If you're the architect, what would you make the bull sack out of, mate? Probably something I scraped out of the grease traps. Oh, God. All right. It has the bumpy chicken skin. I'm going to do the worst transition of all time. so dick cheney once said that's a pretty good transition that's the best transition i've ever so dick just slid right into that thank you thank you oh come on dick cheney once said this was during iraq so he said deficits don't matter uh and we are now at a 33 32 33 trillion dollar deficit and we have heard people uh non-politicians i should say mostly screaming and yelling about the debt and how dangerous it is how dangerous is it and how close are we to a real catastrophe if we don't start addressing this 33 trillion dollar debt that we've got 38 and a half trillion is what it's at right now holy fuck it'll be 39 by the end of this paragraph yeah right 38 fucking trillion let me come back and try and address rich's question which is what's going on what's our theory of what what's going on because i think we can use that to frame the answer to your question, Tim. So I'm going to do a horrible job answering your question, but I'm going to invite you to ask it again. So look, first go around, Reagan says, cut taxes, people will work so hard, will actually raise money. May have believed it. It's possible. Clearly not true. Fast forward though, and we've played this game enough times, and I think there's actually a very different story, but it's one that may be more worrying for the future. So look, what if the story is this? I'm currently in power, but the other guys are going to be in power, maybe, in four years' time. Every dollar I spend is a dollar less for them to spend. I think I'm a good guy. I think they're bad guys. Therefore, my job as a responsible Republican is to spend all the money before a Democrat gets elected. You actually hear a lot of this rhetoric actually coming out of Republican think tanks, and you have more or less since the Bush era. So once they understood that Reagan's, it'll all take care of itself, isn't true, we have a completely different purely political rationale. Now here's the problem, right? So you run up a big deficit, Clinton solves it, right? Then we have another go at it and then Obama solves it. And so what you've got time and again is clean up on aisle three and a Democrat advised by centrist Wall Street, responsible, care about the budget types, and you may or may not like that, but that's just been the case, says, we're the grownups in the room, let's fix this. So here's, I think in any sense, any way of trying to make sense of what Trump's doing, he's just trying to make sure there's no money left with the next Democrat. Here's the problem. If you're advising the next Democrat, are you going to advise him to be the fool yet again right no no the answer is it's a hard question well i don't think i know that there's no one else in the room right well i i just think that like you know democrats are going to be out for vengeance right like and and for somebody to come in and say yeah yeah yeah like you know trump was bad but like we can't you know we can't give you universal health care we can't give you for the debt i think they i while that may financially and fiscally make a lot of sense i just don't see them doing it because well i mean from a political always want to do what we know we know we we know what needs to happen which is we've never raised as much money as the u.s government likes to spend right so we need tax hikes somewhere or we need to reinvent our notion of government to fit into the very small bathtub we're drowning it in right now right the uh and Likewise, we don't raise enough money for our current social security system. What everyone's trying to do is make it the next guy's job to fix. Right. Because those fixes are unpopular. Right. That's true. And I mean it as a literal and serious question. If you're advising the next president, we know it needs to be fixed. Would you advise the next Democratic president to fix it, Or would you advise them to play chicken and let the next Republican take the unpopular action? I mean, this is the problem, right? Because I was I was on the Obama campaign and I was in the Obama administration. And like we talked a lot about that stuff. Like, you know, every cabinet agency like being being the adults. But I think the challenge politically is that being the adults doesn't have any rewards. Right. Right. I mean, I mean, I don't want to see a depression. don't get me wrong and i know like it can get really bad but like you know it's like trump gets to come in or bush gets to come in and cut taxes and look like a hero and then we have to like roll the back and you don't get anything in return but you get a more fiscally sound base but like then the far lefts for example are like well you're just as bad as the republicans and our coalition is not as uh airtight as i think the republican coalition so from a practical matter i would very much be like, yes, let's be the adults and do that. But like, it's getting harder and harder to tell Democrats to, to push for that. Cause what is like, you know, we don't want Trump anymore. And then we're going to bring you stability and people are going to go yawn. You know, it's a hard problem. So like, I don't, I actually don't know how to do it because Dems do care about policy and they look at the numbers and, you know, and they like are trying to help as many people as possible but like the reward we get is basically a double middle finger every four to eight years and now we've ended up with a guy who bankrupted casinos and has convinced you know tens of millions of americans he's a good businessman so i i don't actually know the answer to this it's a it's a really hard one i don't think anybody does so just well just let me ask i'm gonna i am good you rich gonna fix it okay i got a fit no i have a fix i got a fix what's your fix i've seen those those smash rooms where you like break things with a bat for like fifty dollars whatever um the next president auctions off or not even auctions off just like for five dollars a hit you can go to that ballroom with a hammer oh and you just get one swing oh i would so then you got right 90 million americans like like five six hits each boom we just close the deficit and the tours of all that money. Going to DC. Right, right. Stimulus. So, can we ask the economics professor if he thinks that that is a sound approach to solving our deficit? He's not even going to do. Nah. You don't have an answer to that. There's two parts here, man. One, I want to line up and take a swing and then the other part of me remembers that that is not the model of masculinity I want to bring into the world. and that violence solves nothing yeah yeah think of all the jobs we create here's my counter policy okay rich sets up in the ballroom a hug stand you can come in and hug rich for five bucks a piece rich how's your hugging going mate no one's gonna pay that i'm i'm a i'm a very good hugger you know i've got i've got kids i'm a soy boy um you look like a ferociously good hugger very very good my beard always smells nice. Like I know exactly what I'm in it for. So what are you, what are you putting in there to make it smell nice, mate? Uh geez What do I have right now It a cheese It like oh geez oh geez i think it like tobacco and mahogany or something it like this i never smoked tobacco but are you wrong burgundy like what is this you have many leather-bound books behind you there and the the blur or what let's let's not pretend that that we didn't hug when i was in we did hug we did hug you are you are a good hug come on well all right back to uh reality here for a second though that was a nice nice trip so just to tell us so how this is a hard this is about kind of the question but i've changed it a little bit like what would happen if the debt right got to this unsystem like what what happens if let's i don't know what the number is right i do nobody probably knows, but like there is a tipping point, right, where it becomes too much for us to be able to sustain. So if we don't deal with this, like what what's going to happen? Great question. Oh, thank you. And the answer is I have two or three lectures in my class where we talk about this. So you want two or three minutes on this? Terrific. Thanks. Look, one answer is nothing immediately. Another answer is no one really knows. So we've got examples of countries like Japan. Japan's debt is basically double ours. Nothing bad's happened to Japan. Japan had a few wobbles last week, but that's not a big deal. Japan has managed to borrow much, much more than us in his look at AOK. A different answer is lots of things turn to shit. We've seen this happen in countries like Greece and countries like Argentina and so on. Let me just explain the basic macro we can watch the dynamics of it all. So it's actually, here's the world we're currently in. Everyone believes the US government can pay our debt, right? So therefore they charge us low interest rates. Because they're charging us low interest rates, we can make the monthly payments. Not a problem. What happens though if the world wakes up one day and is worried we can't pay our debt? This is what happened to Greece. Well, then they're going to jack up the interest rates. Right. When you owe a lot of money, if the interest rates go up, it becomes really hard to make your monthly payment, in which case we can't repay, in which case they jack up the interest rates, in which case we can't repay, in which case then we're shut out of global markets, which means we have no ability to borrow from the future. Whether we here as the US government narrowly or whether that spreads to state and local governments and whether that spreads to American businesses depends on which crisis we get to have. so I want you to notice though that there's sort of what economists call equilibria which just means two things that could happen everything's good because everything's good and because everything's good everything keeps being good people worry that things are bad because things are bad things become bad and if you keep your debt low even if the rest of the world wakes up worried about you if they jack up the interest rates you can still pay it the higher you get your debt, the bigger the problems that causes. And so therefore the more susceptible you are to this. So that's the first order of economics. It could one day cause an economic crisis. Or it might not. Ask Japan. Yeah. I mean, that's the part where I'm like, because right now it's what, a trillion dollars a year paying the interest on this, right? Just the, yeah. Just the interest of the debt. Just validate 970 billion in annuals. That's the part where I'm like, just an interest. And what number in interest payments per year does it become literally impossible to make either payments on that or meet the demands of the other giant buckets of expenses? We're miles away from that being a problem. Okay, that's good. The thing is, it's a multi-layer problem. Let me give you some other ways of thinking about this. What do we want to do on average? What we want to do is sock away money when times are bad. So we've got more money to spend when times are good. So we've got more money to spend when times are bad. The more we're in debt, the harder it's going to be for us to splash money out next time. So basically what we're doing today is we're spending money in 2026 instead of during the next pandemic, instead of during the next financial crisis, instead of during the next war. That's fair. And then the question is, is that a good trade-off? Right. I reckon the answer is no. I would rather have another trillion or so for the next pandemic, the next recession, the next war, the next crisis of some form. Right. Then there's the microeconomics of it all, which is in some sense just code for common sense. Look, debt's not necessarily a bad thing. I say to my students all the time, go and get a student loan, go to college, get an education. Here's why. The average college graduate over the course of their lifetime will earn more than a high school graduate by more than a million dollars. So if college costs you less than a million, it sounds like a good deal. and it costs a lot less than a million. So borrowing today to boost your future purchasing, future incomes, which will make it easy to repay those student loans. Now, it doesn't work for everyone. We have to acknowledge that. And there are predators in this space, and there are shitty colleges and so on, and those are all really big problems. But socking away money for an investment that's likely to pay off is a good idea. I mean, borrowing money for investment will pay off. Now, also Michigan has, we have frat houses, and we have some people, some students who come here and never leave their frat house. They never come to my lectures, which are, my lectures are insightful, interesting. Well, you have students to sign up and they don't show up? Some of them. Yes. And realize they're borrowing 40 grand a year for this. Right. And they're staying for a kegger. Now, borrowing $40,000 to spend on beer while doing nothing to raise your futures. Purchasing future income is a really bad idea. It's a way of screwing up middle age. You're going to be hungover and broke. One of those is hard. Both of them is terrible. Well, I have an important question. So would you say that if you were a student at Trump University, would that be a good investment? Student is a bold word. Wait, wait, I want to hear his answer. Trump University, surprisingly enough, is no longer accredited. True. Gee, I wonder why. Was it? Witch hunt. He might be about to reopen. Who knows? But look, the point is the logic of borrowing for student loan is no different than the logic of borrowing for anything. And the question is, are we running up this debt because we are enhancing our earnings potential for the future and it'll be easy to pay off these debts once we're rich? And you could imagine things like government investments and research and development that look like that. Government spending on early childhood education has a huge payoff. And in fact, we end up making money out of that. So if we were going into debt to do that, or are we doing the equivalent of drinking beer at the frat house? Right. Now, you know, we can be glib. We can say, well, the ballroom is a little bit like drinking beer at the flat frat house. This is what I have to remind you. Four hundred million dollars is a large amount of money for a person and a tiny amount of money for a country. And so you have to dig a little deeper than that. But I'm not really confident that we're making a bunch of great investments right now. No, I mean, that's that's obvious. But I have a question because I'm going to make an admission that's not fun to make, but I've made it multiple times on the show. I'm a former Republican. So a lot of that was faulty economic theories that I had that were proven to be incorrect. But there are still some I carry with me. And it sort of falls into the talk we're having about like why people vote for Republicans in general, because they look at this like, like you said, common sense sort of things. Some of them still stick with me. And I have to since I have you, I have to see if I'm right to hang on to some of these things. An example would be I like lower corporate taxes because I do think that it does stimulate their ability to actually be more active in the marketplace. I could be wrong, but also I like tactical tariffs. I think they make sense if you're going to, you know, you could dominate markets with it. You can even certain places push and make revenue. I mean, you know, Trump's tariffs are not great, but he's making a shit ton of money. It was almost like half a trillion dollars a year. I also like lower spending. I'm going to pause you on that. Yeah. If you want to say this is clearly business expertise, that when you tax people, you raise revenue. Right. I just want to point out that's arithmetic right but the point that what i'm making money is the most absurd fucking thing i've ever heard right no i do you know how much he makes out of the income tax yeah a lot i mean what a great business model send people a tax invoice and make them pay it right but the question is is it better with it or without it like even with like tariffs we've all thought it would be this highly inflationary disastrous thing it's turned out to be a low level of inflation compared to what we thought so these are the things where i look at and go economically, it sounds easy to criticize some of this stuff, but then you go, well, what's the truth of it? Do these things actually end up being somewhat beneficial, but they're buried under the rest of it, which is a giant pile of bullshit, but there's like useful nuggets that aren't being used. That's sort of where I personally stand in my own politics now, where it's like, overall, this trickle down bullshit doesn't work, but there are pieces within it that actually could if they were within a better system. That's sort of my question. Great. Great question. And actually, I think a really important one, and I think it really clarifies the current moment. I can't give you an across the board, but let's take them one at a time. Yeah. Tactical tariffs. It's going to give you my top one. I disagree with you and it doesn't matter. You might be right. And that's fine. It's true. When you're saying tactical tariffs, you're saying in this specific industry where there is a specific need, we have a bunch of nerds study it and they think if we did this for a couple of years, we could get an American company that would be dominant and blah, blah, blah, blah, blah. We do chips and things like that, you know, that kind of stuff. Right. Does that look like what we're doing right now? Oh, definitely not. This is not. So the point is the only thing that the thing you believe in and we're not arguing about tactical tariffs has in common with what the president's doing is the word tariff. Right. Right. He did actually do tactical tariffs in his first term. His second term, he just did blanket tariffs. I mean, OK, well, let's go back to the first term and we'll have a look at what the washing machine tariffs did. Yeah, they were washing machine tariffs raise the price of washing machines. They raise the price of American made washing machines as well as foreign made washing machines. they had a very, very small impact on employment. And so basically the American consumer was paying, I have to try and remember the number, I think something like $3 million more in washing machine costs per job created. That's not correct. You can just give that person some cash. It's not a good one for you, Zach. Well, it depends on the market. You can silo that out, that's true. We don't need to beat Zach up here, which is- No, no, no, we can, we can. Let me say, Biden tried this as well. Let's not forget that. Biden tried this as well. He left in place a lot of these tariffs. Yeah, a lot of them. So-called tactical. But let's just leave it aside. It doesn't matter because what the president has done is not a tactical tariff. No, no, no. I'm not moralizing. There's some chaos around the world. Yeah. If, and by the way, here's, if you want a tariff to work, here's at least one thing you have to do. The idea is you make it more profitable to business in America than elsewhere, and then I'll build a factory. Okay. If I'm thinking about building a factory in America, what I care about is not the current tariff rate. No. What I care about is the future tariff rates over the next 50 years in which my factory will be up. Yes. Has Trump convinced you that any tariff rate will be higher in 2029 than it was in 2024? No. He can't convince you that the ones he announces on Monday will be there on Tuesday. No. That's incoherent. Right. So there is literally no way. There is no way we can get the upside of Trump's tariffs because they're on again, off again. Right. Of course. No, that makes sense. Yeah. So if you took the exact, because yes, 100%, I love it. And I love being told that my inner dialogue is not incorrect when I think about this by somebody who's significantly smarter than me. But when he started rolling out. You smell better, Rich. I smelled delightful. Tobacco and mahogany. I smelled delightful. If you took the exact opposite approach and you said in 10 years, tariffs on these things are going to be fucking ridiculous. Therefore, if you want to make a shit ton of money at that point, hire the workers, build the factories. We are we are internalizing this. Here's the plan. You work with the business leaders. You secure the property. You give them tax. You know, you give them stimulus to build the factories like there. I mean, that's kind of what the Chips Act was. there's a smart way to do this and then there's the complete opposite which is everything is terrible now and then i'm going to slowly whittle it back which only that's why the corporations are eating it right now i think they showed that something like 70 or 80 percent of tariffs right now or for 2025 were absorbed by corporations because they didn't believe they were going to last long enough for it to fuck up their value uh delivery with their customers and so they were like we're just going to eat it now they're running out of those margins that can absorb all those tariffs. And so even if they change nothing, I think it's expected to get significantly worse in 2026 if he doesn't start cutting. They also raise those margins during COVID too. So they're just like kind of trimming back to pre-COVID margins in a lot of cases. Let me take this point one step further, which is if you want a policy to stimulate investment, it has to be seen as more than temporary. Right. It's actually really easy to do that. The way you do it is you pass it through Congress. Yes. Because what do we know about Congress? Congress can't get anything done. So once it's through, we'll never undo it. Right. and the president has shown no interest in that everything's through executive order which means literally day one of the next president could all go away right right it will there's no question about that well let me ask you most of his bullshit in the first term so to compare the two you know rich mentioned the chips act which i think is a is a woefully under discussed uh policy that i think we've already seen results from so so basically through congress the chips act essentially gave billions of dollars of tax credits and incentives for businesses to move from other countries here. And I think, correct me if I'm wrong, but we have seen movement of some businesses. I knew there's at least a couple in Germany that are moving to the U.S. because of the Chips Act. Incentivizing people seems like a much better way to encourage them to come here rather than to basically threaten to destroy them right if they don't come but then i also don't have a lever of like i could hold these for five years so like doesn't it strike you oh i'm gonna give me a loaded question here but wouldn't you say that carrots are better than sticks when you are trying to move businesses internationally to the united states i don't know both could work like if you leave a stick out in the if you leave a carrot out in the sun long enough it becomes like a stick you can hit people with it That true Yeah That true It depends on carrot um look let me go back i am not a fan of what is commonly called industrial policy now that puts me at odds with many people on the left who sort of um think what we need to do is have some clever nerds in government reinvent manufacturing and we'll create blue collar jobs yeah that was sort of the biden thing and trump has got the same rhetoric but he wants to do it with tariffs and all of this is I'm going to save factories. Yes. Um, let me tell you the first thing. I think that factory jobs are what rich people think. Poor people want. Yeah. Yes. I don't want a factory job. And I've been to factories. They don't look that great. Um, and every factory, if you look at surveys of factory workers, their ambitions for their kids are not walk in to do monotonous, heavy, loud work. They want their kids to have more creative, higher paying, less physically painful jobs than they did. So I have literally no, this makes me deeply unpopular, but I have no particular sympathy for saying we need to save these jobs rather than others. Right. I also think, you know, there's a long economic history. The U.S. used to be predominantly an agricultural economy. We all lived on farms. We'd grow food for ourselves. Then we lived on farms when we grew food for each other. Then we invented factories and people left the land for the factories. And do you know what the populace back then used to say? We've got to look after the American farm because all these people are moving to these highfalutin, fancy factories. Now, what's happened is we've moved up the value chain and we're now in the service sector. And what we have is these people who remember the 1960s who are like, well, that was the path to the American middle class. We've got to stop this move out of the factories into the service sector. But I happen to think that service sector work is noble. I happen to think, no, that it pays well. I know that it can indulge many people's passions. I, you know, I'm just okay with, you know, all jobs matter. It also, a thousand percent, I love that so much because I don't, yeah, I don't want to work in a factory making iPhones. Like, I don't want to do that. Like, if that's the only option for a person to make a living and provide for their family, yes, let's make sure that jobs exist for people. Like, yes, as a baseline. But I heard a roofer a long time ago. They said, like, what would you give to, what advice would you give to somebody getting into roofing? And he just said, don't get into roofing. And that was the whole, that was all of the advice. Like my kids, they love like painting and music. The idea of them trading in these things that bring them so much joy and no pain at all, like no physical pain and lasting damage and going to, you know, well, I had to give up art because I'm making bumpers now. That would kind of break my heart because my kids aren't passionate about making things with their hands. I do know people who do love making things with their hands. They should be able to do that by choice and make a good living. So I think that's I think that's a really good, healthy perspective, honestly, for everybody to have and also understand, like, this is a big country. We need jobs everywhere. But let's stop romanticizing shit from 20, 30, 50 years ago, just because, like, that meant something back then. Well, we're in the information economy now. We have the Internet now. We didn't have the Internet when when people were making stuff in factories in the 60s. this is a different world. And that means that, you know, a happy future has to look a little bit different than maybe even we can imagine. Yeah. I mean, I'm a perfect example of that. I grew up in a, in a shipbuilding community in Bath, Maine, that the largest private employer in Maine is Bath Ironworks. My dad worked there. My grandfather worked there. And the thing that my dad always told me, and he's, he's passed away, so I'm not giving any secrets away, but he was like, don't work here get out explore but seriously but that i mean it's it's basically a factory they're building aegis class destroyers for the for the navy they get contracts for it and these are well-paying jobs with health care and all these benefits but like every most people that you talk to that work there not just my dad who had a white collar job there by the way they all say the same thing so it is very true um so we have very limited time left i want to ask you a very difficult question. If you were the next president of the United States, President Wolfers, because you are a United States citizen, what economic policies would you institute to grow the economy? Yeah. First of all, I'd check in on the Constitution because you have to be American. Yeah, sorry. Or the prime minister of Australia. Same idea, right? So let me speak to, I think the economic issue no one speaks enough about. You might think I'm going to say inequality, but I'm not. We are very well equipped to talk about some issues because they're on the news. The latest GDP report comes out, CNN calls me, I say blah, blah, blah. They say blah, blah, blah. We blah, blah, blah about it. We even did it at the start of this podcast. I want you to step back and ask a deeper question. And that question is, why are some countries rich and some poor? The United States is rich. I was born in Papua New Guinea. Papua New Guinea is a country of grinding poverty. Low literacy rates, very high rates of maternal mortality. Kids die in childbirth. People sometimes are hungry. High murder rate. and economists have asked versions of this question now for decades and sometimes we'll look at the experience over as long as a million years sometimes a hundred years sometimes a thousand years sometimes the last few decades sometimes we look at every country sometimes we look at specific case studies sometimes we're doing quantitative analysis sometimes we're telling histories the answer appears to be that what matters is what we call institutions institutions are the rules of the game so the rules of the game in the united states are we respect contracts we respect the rule of law if you happen to own something i'm not allowed to steal it and the state will help enforce those property rights they're the incentives for research and development which could part of our intellectual property laws and on and on it goes It's an independent central bank. It's a functional democracy that means that when the leadership pursues their own self-interest rather than those of the rest of us, we kick the bums out. And my greatest fear is that what has been undermined more than any news story we've talked about is those foundations in the United States. In fact, by this telling of the story, perhaps the greatest economic flaw of the current president is an attempt to overturn an election. Because nothing does more to undermine the quality of our governance than not being accountable to the people. And there are deep questions whether he has undermined democracy. I'm just going to put it out there that we shouldn't even be at a point where that's a question. Right. difference um and so then we've been talking more recently about the independence of the central bank um if we think about the public service um to cite lots of people think of public servants as bums i happen to think of them as noble people these many of my students who want to make a difference in public life um and so you think about if at the and if you think about what the president's undermined the president has systematically tried to enrich himself and his family, has invited foreign countries to essentially bribe him in a variety of ways that yield payoffs for him. And in return, he's enriching folks elsewhere. What is done is he's got a system of some people call it crony capitalism, but basically he's the king. And if you come and compliment him and you give him a nice bar of gold or you bow or you kiss the ring, then you get blessed. And if not, he'll come after your company. And what that does is it moves competition between companies from being something they fight in the marketplace, right? Fighting in the marketplace is how you ensure the best companies survive, the best products survive. It's what ensures the prices go down and quality goes up. We're moving competition from that to who can best kiss the ring. And the thing is a shitty product can kiss the ring, a shitty product at a high price. And so this is the foundation of what foundations of American capitalism. And I think the foundations of our prosperity. and so look that was a long fancy self in self-important academic answer to your question but i think rebuilding those institutions and fortifying them and understanding how important they are and making them so that they're going to be completely resistant to attack in the future that's how we take american prosperity and lock it in the box and say you're here to stay that's great i heard rich has got a very important question for you so are you going to double i'm gonna i have to plus one on that because all right all right um i think it's it's such i'm going to be thinking about that response for a while um but i because i i think i love that it's not a political response in in in like what is wrong with what's happening because I think we all see it. And this is what we hear from magas. I know that we can look at the magas and be like, yeah, well, they're secretly racist or they're secretly sexist. Those things might also be true. And I think in a lot of cases they are. But it's also not insane to assume that they are not lying when they look around the world or they look around the country and they say, I feel like I've been lied to. I feel like I was told if I was Christian, if I got married, if I worked hard, that I would have a house and a wife and kids and a middle-class life. And they understand that the rules that needed to be in place, especially like to our conversation earlier, you know, since the 80s, the rules that had to be in place for those things to be true, especially around union work and fair pay, have broken and they're falling apart. And we know who broke them, but the people in charge of the MAGA side are saying it's because of refugees and it's because of immigrants and it's because women and black people and gay people are taking you know from you in this zero-sum game where we know that that's all bullshit but they have observed that the rules have been broken and they are being and and they're eating it on behalf uh you know of somebody else they just don't know exactly who that is um keeping it focused on that core working class argument is so i think insanely important if we're going to get through this absolute fucking dystopian hellscape that we found ourselves in and i have a question tim but it's unrelated to that topic go ahead go ahead justin then we'll go back i know we're out of time but what i want to do actually is try and give an intellectual framework that gives birth to what you just said so a very natural way of thinking about an economy is that it's all about competition and if i win you lose and so if i felt that me and my people are not getting what we feel we deserve There's that primal roar and I want to take it back from someone else. That's the competition view. In reality, and I mean when you bring it back to its barest essentials, economic life is about cooperation, not competition. I came on your podcast today because I wanted to enrich your conversation. You make your podcast because you want your listeners to think. They listen to the ads because that's a price that they're willing to pay you to get to be a part of that. And what you're doing is you're enriching their lives. And by listening to the advertising, they're getting you paid. They're enriching your lives. Economics is fundamentally about how can I make you better off in a way where you swap and you find a way to make me better off. and so what that means is if I'm feeling like I'm not getting what I deserve I need to figure out ways to find and give voice new opportunities for cooperation it's not that I want to tariff China to hell I want to trade with China I want to use their strengths and make them mine I want us to work together to be more productive and if we're talking in particular about China are there ways that we can build better working-class jobs and there are right so if they're going to screw in the tiny screws on the phone we're going to write the software right and that's a job i bet you want your kids to do and that's cooperation yes well that so good luck rich topping that to end the show i have a very quick i have to because i've talked to economists i've talked to australians but i've never talked to australian economists um and so i have to ask this question if we talked about recessions and everything if if the economy like the global economy really starts to go down the toilet does it spin the opposite direction in australia perfect yeah that's a great that was great to end i'm sorry i'm sorry i thought of that like half an hour ago and i was like i can't even i can't even just he actually texted us and he was like i've got the i've got the most important question to end on. And that is what he came up with. That is our show in a nutshell. I told you I'm a dad, right? Yeah. Well, Justin, thank you. Thank you very much. I will give you better than a B minus on this. And I'm not grading on a curve here. I wish we had curves in college. I never had any of that. But Justin, thank you very much. This is actually, you know, like sometimes people say that the economic stuff is maybe not the most exciting. You know, you're an economist, so you probably think it's all exciting. But I thought this was a really great conversation. I learned a lot from it. And especially thinking about the sort of like, you know, we can all be in this together. We don't have to separate people in order to have an economy that works, which is really important. And I hope a lot of people on the left have been listening to this because I think there is stuff with, you know, hopefully a couple of the 3000 candidates for president that we're going to see on the Democratic side will pick up this messaging because I think it's a I think it's a winner. So, Justin, thank you very much. And everybody, where do you want to plug while you're on here? I know you said you're a YouTube channel. You want to focus more on that. But where can people connect with you? You can find me on all the socials. It's at Justin Wolfers. I'm trying to launch my YouTube right now and we'll see if it's up there. But otherwise, you know, I think economics is a wonderful conversation to be part of, and I'm always talking about it. So whether it's Instagram or Twitter or Blue Sky or Threads or TikTok or whatever the hell it is, I'll be over there talking about it. Great. All right. Well, everybody go follow Justin. Thank you very much. Justin Wolfer's economic professor at the Ford School at the University of Michigan. Thank you very much. And everybody, we will be back on Thursday. Have a great week, everybody.