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Silent Kevin, Angry Canada, and the Iran Sanctions Nobody Believes — Transcript

by Platypus Economics with Justin Wolfers · 11,652 words · 1,756 segments · language en · Watch on YouTube

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0:00Boys and girls, if you want financial
0:02advice from an economist, marrying well
0:05is the it's just the easiest way to get
0:07rich.
0:07>> Oh my god, this don't don't listen to
0:10this advice. This terrible advice.
0:14[music]
0:16>> The work week may be over, but the
0:19economy never takes time off. I'm Justin
0:23Wolfers. This is Off the Clock, the
0:25podcast in which we look back at the
0:27week that was. And I am joined once
0:29again by my friend and in fact the
0:32economics journalist I admire most in
0:36the world, Stacy Vanick Smith.
0:38>> That is incredibly kind. Thank you,
0:41Justin. Uh, yes, I am a economics
0:44journalist. I work for Bloomberg
0:46Business Week and I co-host their
0:47podcast, Everybody's Business. And I am
0:49thrilled as always to be here talking
0:51with you even though this week has been
0:54a little bit It's been a lot this week.
0:56It's been a lot. Look, how long since
0:58we've actually had a chance to say that
1:00about the economic news? This week has
1:02been a lot. Hey Stacy, how was last
1:04week?
1:05>> It was also a lot.
1:07>> You know what [laughter] I about the
1:08week before?
1:09>> A lot.
1:10>> So much. That's true. August though,
1:13Justin, is supposed to be sleepy. Like
1:15that is a thing. August, like when
1:17you're a journalist, supposed to be kind
1:18of a sleepy news-wise.
1:20>> Yeah. But uh Stacy, look, this is great.
1:22This works well with my therapy cycle. I
1:25am meant to feel my feelings and we have
1:28so much to get through. So, we are going
1:30to pick through the week's headlines and
1:32we're going to tell you what you need to
1:35be concerned about, what you can safely
1:37ignore. Maybe we'll find some silver
1:40linings and if we can't find them, then
1:41we'll at least give you something to
1:43talk about with your therapist. We have
1:45got a packed episode for you today
1:48because we say every week the economy
1:50didn't take any time off. It really
1:52didn't take any time off.
1:55>> No, it really didn't. We had the central
1:58bankers from all over the world
1:59gathering in Jackson Hole, Wyoming for
2:01their big annual meeting. Lot happening
2:04there.
2:05>> I got to go to Jackson Hole a few weeks
2:07a few years ago to this big shin
2:09chinwag.
2:10>> I'm jealous.
2:11>> Well, I
2:12>> My two great loves, the West and the
2:14Federal Reserve coming together.
2:16>> Oh, yeah. Plus, honestly, the fashion is
2:18unbelievable. So good. We're also
2:23>> uh all sorts this. We've got a lot to
2:25get into. We've also got to talk about
2:26the latest news related to America's
2:30most hated enemy. I'm talking of course
2:33about Canada. And we'll also talk about
2:36Iran.
2:38We've also got another round of chart
2:41versus chart. And Stacy, I got you beat
2:44this week.
2:45>> Well, that's okay because I really did.
2:48I am very proud to say I think I won
2:50last week. I'm not sure about that, but
2:52I think I won. Although you did
2:54encourage everybody to also vote for me,
2:56which was very kind, but I it may have
2:59been pity votes, but you know what? A
3:00pity win is still a win and I'll take
3:02it.
3:02>> Yeah. And finally, at the very end of
3:04the show, if you love Dolly Parton, we
3:06love Dolly Parton because Dolly Parton
3:09was an economist and that side of her
3:11hasn't been celebrated enough. So, we
3:13are going to celebrate not the economics
3:15of Dolly Parton, how people made money
3:16off her, but the economics in her work
3:20because there's nothing that a
3:21comparative lit major, that's you,
3:24right, Stacy? Yes.
3:25>> And an economist like to talk more about
3:27than art. Um, so let's get into it.
3:31>> All right, Justin Jackson Hole. This was
3:34a big moment for uh our new Fed chair,
3:37Kevin Worsh, who I think is just at his
3:39100 day mark in his new job. And this is
3:42Jackson is always kind of a big deal to
3:44because the US chair of the Federal
3:47Reserve speaks every year and it's
3:49always kind of a big deal because it's
3:50like the one speech where to steal your
3:52words. People are sort of feeling their
3:54feelings, right? It's not there's no
3:56news event. There's no interest rate
3:58hike happening. It's the chair's chance
4:00to kind of get real. [laughter]
4:03>> I love that description. And there is
4:05nobody at the Federal Reserve who's
4:07going to admit that that happens. Um,
4:10okay. Let let me give folks just a
4:11little bit of background for what it is.
4:12So at one level it's just a conference.
4:15So it's a conference for central bankers
4:16from all around the world to fly in.
4:18They fly into Jackson Hole because this
4:20is run by the Kansas City Fed that it's
4:22in their district and it's intensely
4:24beautiful. So most of this conference is
4:27about nerds giving papers to other
4:29nerds. That's the official thing. But
4:31the first speech for many years in a row
4:33has been usually from the Fed chair. And
4:37often it's been a a moment where they've
4:39stepped back from the news cycle, but
4:41not all the way back. Not all the way
4:42back into writing papers, which is what
4:44the rest of the nerds do. It's actually
4:46quite a funny experience, which is at
4:4810:00 a.m. Walsh walks in, you know,
4:51it's a room full of maybe a hundred
4:53nerds. And nerds, to be clear, I'm
4:55saying lovingly, these are my friends.
4:58Um, all the cameras go on and there's
5:00dozens of cameras there. The Fed chair
5:02normally gives a speech about 15
5:04minutes. Then he walks off having said
5:06what feels to the economists in the room
5:08like remarkably little. We'll talk about
5:10specifically in a moment. And then the
5:13next person to give a paper stands up
5:14and says, "Today I'd like to talk about
5:17uh the optimal tailor rule and a small
5:19open economy
5:21and um we nerd out. Um but for some
5:25reason all the cameras are turned off.
5:27But that's the real business that goes
5:28on at Jackson Hole. that it's become so
5:30important for markets that they
5:32literally um Bloomberg and the like. I'm
5:35sure some of your colleagues are out
5:36there. They literally go and set up camp
5:37there for 3 days just to be there when
5:39the 15 minutes in the spotlight is
5:41happening.
5:42>> Well, yes. And I I would argue that this
5:44year was sort of especially splashy
5:47relatively speaking of course in our
5:49world very splashy but because people
5:52don't really know who Kevin Worsh is.
5:55For decades, the Federal Reserve has tra
5:57has practiced kind of uh a lot of
5:59transparency, a lot of forward guidance,
6:01a lot of this is what I'm thinking and
6:03why. And Kevin Worsh has gone really
6:05very much in another direction. So,
6:07everyone I feel like is kind of trying
6:08to get a sense of the metal of the man.
6:11>> Adding to that that he was nominated by
6:13President Trump at a time when Trump was
6:15openly attacking Federal Reserve
6:17independents. So, I think people are
6:19just very worried about how he's going
6:21to handle what's very likely to be a lot
6:23of pressure coming from the White House.
6:26>> Yeah. Let let me paint more of the
6:28background going into this and then
6:29we'll analyze the speech directly. But I
6:31think the speech is just the next
6:32chapter in a narrative and unless you're
6:35you or me, you may have missed some of
6:36the chapters. [laughter]
6:38Um, let's begin at the beginning, which
6:40is a young Kevin Walsh was appointed as
6:42a Federal Reserve governor in 2006, I
6:44believe, by President Bush. one of the
6:46youngest, maybe the youngest ever
6:48appointed to the Federal Reserve Board
6:49and he was on the board from 2006 2011.
6:53I want to be clear, this is actually
6:54worth noting, Kevin is not in fact an
6:56economist. Um, he's more of a banker
6:59finance type. Um, which partly explains
7:04how he's being received right now. Let
7:05me roll back.
7:06>> Sher Powell wasn't an economist, isn't
7:08it?
7:08>> No, he wasn't. Um, now actually, great.
7:11I'm going to comment on that. You You're
7:12going to keep knocking me off. I love
7:13this.
7:14>> Sorry. Pal was not but Powell unders
7:18very clearly understood his job as being
7:20to master the brief from the economists.
7:23He wasn't an economist but he spoke for
7:25the perspectives of economists. Worsh is
7:29trying to bend the institution to his
7:31will his will his way of seeing the
7:34world which is that of very much more a
7:35financeier Wall Street type. So I agree
7:38Pal was not an economist. In fact we
7:40learned from Jay Pal you don't need to
7:41be an economist to run the Fed. Um but I
7:45think we also learned that an openness
7:47to the ideas of economists about the
7:50economy is probably an important thing
7:53to have. Um okay so 2006 to 2011 Walsh
7:58was on the Fed throughout that period uh
8:01the economy the financial crisis started
8:03in 2008 the economy was in recession
8:07dramatic recession the and then very
8:10very slowly grew out of that recession.
8:11And it took years and years. This was a
8:13real grind. Um throughout that period,
8:17unemployment was too high and inflation,
8:19if anything, was too low.
8:21Walsh
8:23from the minutes, if you read how he
8:25voted, what his forecasts were, his
8:26speeches at the time, was always saying,
8:28"I'm worried inflation's just around the
8:30corner. I don't think we should cut
8:32interest rates." Um, now to be clear,
8:35history's shown that was a very bad
8:37judgment. Uh, the recovery was too slow.
8:40inflation in fact was too low. We could
8:43have done with a bit more of a foot on
8:44the accelerator. His foot was on the
8:46brake. That's not my point. My point
8:48though is he's what we call a hawk. A
8:51hawk is someone who has a tendency to be
8:53more worried about inflation and so
8:55therefore he's more likely to stump on
8:56the break. So that was hawkish Kevin
8:592006 to 2011.
9:02Pretty clear he'd like to become Fed
9:04chair when he grows up. That was 2011.
9:08Um, President Trump is appointed in 2016
9:11and ends up, if you remember, in 2016,
9:13Janet Yellen was fed chair. There had
9:16been a norm of reappointing Fed chairs.
9:18But President Trump in his infinite
9:19wisdom noticed that Janet Yellen was
9:21short and female and did not look like a
9:25central banker even though she'd done a
9:27fantastic job. He wanted someone who
9:30looked a little more the part. So, he
9:32actually went to Jay Pal who at the time
9:34was actually something of an unknown
9:35character. Powell had worked at the
9:37bipartisan policy institute uh center.
9:40Sorry. He'd been appointed by Obama, but
9:42not because Democrats wanted him. There
9:44was a deal done between Democrats and
9:46Republicans where they'd appoint a
9:48centrist type. Pal was a centrist. They
9:50put him on. No one thought he was be any
9:53great shakes. Um so Kevin Walsh lost the
9:57job that time. Turns out President Trump
10:00hated President Trump's appointee.
10:03Um, and so when it was when uh Jay Pal's
10:07time was up, he said, "No, I want
10:09someone from Central Casting," which is
10:11only the second time he'd said that in
10:13appointing two separate Fed chairs. Uh,
10:16he said that he thought Kevin Walsh was
10:18handsome, that he looked like he was
10:20from Central Casting. So, one other
10:22thing to notice here is Kevin Walsh had
10:25been an inflation hawk, someone who
10:26wanted typically to raise interest rates
10:28to stomp on the economy so that
10:29inflation didn't get out of hand.
10:31President Trump as a real estate
10:32developer appears to want interest rates
10:34to be low always and everywhere.
10:36>> Well, I feel like all politicians always
10:38want interest rates to be low because it
10:41gives the economy a boost and then
10:43people, you know, people hire people, it
10:46like tends to heat up the economy.
10:48>> Absolutely. Although it heats up
10:49inflation.
10:50>> Y
10:50>> if it causes the inflation after the
10:52election, then politicians really want
10:54it. They want to goose people's good
10:56feelings before, even if it comes with a
10:58hangover after. given I mean President
11:01Trump really really wanted lower rates
11:02much more than any recent president has
11:04been willing to articulate. Yet somehow
11:06he came to this Kevin Walsh character
11:08who's a hawk where the president is not
11:10just a dove but an uber dove. A dubby
11:12dove. Well, that's what we should call
11:14him. Dubby dove.
11:14>> A dubby dove. Yes. Yeah. He I mean like
11:17really it was almost like a prerequisite
11:19of the job. Like you got to get in there
11:20and cut interest rates, right?
11:22>> In fact, he said that out loud.
11:24>> Yeah, he did.
11:25>> Whoever I'm going to appoint is going to
11:27be a rate cutter. So he then a dubby
11:29dabber appoints a hawky hawk and then
11:32people are wondering is there some
11:34backroom deal like so one possibility is
11:37the president doesn't know what he's
11:38doing.
11:39>> Another possibility is he cares more
11:41about the boyish good looks than he does
11:44about hawk versus dove and also Kevin
11:47Walsh is the son-in-law of the lorders
11:50Estee Lau the Estee Lauder money. Um,
11:52>> yes, he married well.
11:54>> I Which by the way, boys and girls, if
11:58you want financial advice from an
11:59economist, marrying well is the it's
12:02just the easiest way to get rich.
12:04>> Oh my god, this don't don't listen to
12:06this advice. It's terrible advice.
12:08>> It might be, but if you can fall in love
12:11and get rich, that beats just falling in
12:13love, doesn't it?
12:14>> Well, yeah. If you can pull in Elizabeth
12:15Bennett, do it. I Yeah, agreed.
12:18>> Absolutely. Um, I'm gonna pretend I know
12:21who Elizabeth Baron is. Pride and
12:22Prejudice. I know. Pride and Prejudice.
12:24You can't fool me.
12:26>> I thought you knew, but
12:27>> I was just playing dumb. Shame in that.
12:30>> I actually And Pride and Prejudice. She
12:32was writ that was written by um
12:33>> Jane Austin.
12:35>> Jane.
12:36>> Yeah.
12:36>> Friend of mine taught a whole course on
12:38the economics of Jane Austin.
12:40>> Oh, awesome.
12:40>> So, if anyone's interested, you can
12:43Google it and um, you know, get the
12:45readings, which I suspect involves a lot
12:47of Jane Austin. Actually,
12:48>> I probably am going to do exactly that
12:50[laughter] right after we record.
12:53>> Oh, yeah. No. So, great. Um, that course
12:55came about. Oh, no. Do you want to stay
12:57on topic or not?
12:59>> No, we should stay on topic. Although, I
13:01definitely want to have a J. We'll
13:02figure out when her birthday is and and
13:03I'll make you do a Jane Austin show.
13:05>> Oh, fantastic. I love it. And I can
13:07bring all the knowledge I've brought to
13:08bear from reading her fierce. People say
13:11men don't read Jane Austin, but that's a
13:13lie. Um,
13:15>> men should read J. Everyone should read
13:17Jan Austin.
13:18>> Absolutely. Uh where were we? Oh yeah.
13:21So the president appoint the Dubyd
13:23appoints the hawky hawk. People are
13:25worried that there's been a backroom
13:26deal.
13:27>> Then in his Senate confirmation that the
13:30hawky hawk is going to pretend to be a d
13:32he's going to act like a dubby dub
13:33because that's what the president wants.
13:35Senate confirmation. Elizabeth Warren
13:37says if you and the president never
13:38disagreed on anything.
13:41The president said by the way just
13:42before this he wanted interest rates to
13:44be cut by 3%. Yeah.
13:46>> And Kevin Walsh says, "Yes, the
13:49president thinks I'm handsome, but I
13:51don't think I am."
13:53Which means he basically said, "I've
13:55never disagreed with the president." And
13:56the president recently said he wants
13:58absurdly low interest rates. So people
13:59are really worried. The question here
14:02is, is this hyhawk Kevin or is this MAGA
14:05Kevin?
14:06>> Right. Yeah. He was asked in the
14:08confirmation hearings if he was a quote
14:10human sock puppet. And I think this was
14:12exactly the worry that he was going to
14:15changes
14:17because of
14:19the president like you said
14:21>> right now we get to the present moment.
14:23Wow, there was a lot of background but
14:24we love this stuff. Um Jane Austin would
14:26have loved this stuff, wouldn't she?
14:27>> Oh my god. Yes. She would have been a
14:30fed watcher. I know it.
14:32>> Yes, she would. Um
14:35>> Fed and Prejudice.
14:37>> I love that.
14:38>> It's pretty good.
14:39>> Um
14:41yeah. Wow. Um that that is going to be a
14:44ripper of an episode. Stay [laughter]
14:45tuned, folks.
14:46>> Fed and Prejudice. We'll make it happen.
14:48We can do that.
14:49>> We've got Dolly Parton coming later in
14:50the show.
14:51>> Just trying to keep people tuned in
14:53while we're mucking about
14:54>> talking about central banking. I think
14:55that's fair.
14:56>> Yep. Um okay. So the question is, is it
14:59hawky hawk Kevin or is it sock puppet
15:02Kevin? The Fed has its first meeting and
15:05it does not raise rates, but it doesn't
15:07lower rates. and handsome Kevin comes
15:11out and he says, "I really care about
15:14inflation." So he sounds like hyhawk
15:17Kevin and everyone breathes a big sigh
15:19of relief and says, "At least he didn't
15:21do something absurd and stupid and, you
15:23know, didn't trip over his shoelaces and
15:26people, including me, honestly, it's
15:27been such an emotional roller coaster."
15:29And I felt really good and I thought,
15:30"Oh, good on you, Kevin.
15:31>> Me, too.
15:31>> I really appreciate you that you're
15:33going to bring your best self to this
15:35job, not your lesser self."
15:38Then they had their second meeting.
15:40Their second meeting, inflation's high.
15:43There's a pretty strong argument for
15:45raising rates given that inflation is
15:47high. And the Fed doesn't raise rates.
15:51>> The job market, we should say, also
15:53looking tepid at that moment. So that's
15:56true. It was a mixed it was a mixed
15:57picture. It wasn't like all the signs
15:59were saying raise rates. So, but you're
16:01right. I mean, yes, inflation had was
16:03continuing to be hot. I love how you
16:05build the narrative of this so people
16:06can understand the excitement that we've
16:08been through over the past few weeks.
16:10[laughter]
16:10>> It's a roller coaster.
16:11>> So the Fed says, "We're not going to
16:13cut. We're not going to raise rates."
16:15And then handsome Kevin comes out and he
16:17says, "I really am going to beat up on
16:20inflation."
16:21And then people say, "Hey, you know
16:23what? I care more about what you do than
16:25what you think."
16:27[clears throat]
16:28>> And you've had two chances to do
16:29something about it and you've done
16:30nothing. That's the simple version.
16:32There's a more complex version in which
16:35he brought a new approach to the Fed. He
16:37says, "The Fed's not going to talk as
16:40much as it used to. It's not going to be
16:41transparent. I'm not going to tell you
16:42what's on my mind. I'm not going to tell
16:43you what I'm going to do next." So, this
16:45was the emergence of silent Kevin. The
16:48problem with silent Kevin is when he
16:51made his argument for why he shouldn't
16:54tell people what he's thinking, he
16:56basically sounded incoherent.
16:59He said,
16:59>> "I disagree, but go on. Really? Tell me
17:02more.
17:02>> Yeah. Yeah. No, no, go on. I want to
17:04hear I I want to hear this.
17:05>> Okay. So, he said basically the Fed
17:07wants to listen to what markets are
17:09seeing. And if I'm quiet, if I zip it
17:12up, then instead of the markets looking
17:15at the Fed, they'll look at the economy
17:17and then the markets will help tell me
17:19what's going on in the economy.
17:21That's completely wrong-headed. It's
17:24wrong-headed because no matter how much
17:26he speaks, the markets depend enormously
17:29on what the Fed does. You can't change
17:32that reality. The price, so the Fed
17:36changes an interest rate called the
17:37federal funds rate, which is an
17:38overnight loan.
17:40The price of a 30-day loan, you can
17:42think about it as being the average of
17:44all the overnight loans. So, if you
17:46wanted to think about how to price a
17:4730-day loan, what the interest rate
17:49would be, you'd have to think about what
17:50will the Fed rate be today, tomorrow,
17:52the next day, and so on for each of the
17:53next 30 days.
17:55That logic goes all the way out to a a
17:57one-year loan, a two-year loan.
17:58>> We should say the Fed funds rates,
18:00that's the rate at which like basically
18:02that's the bank's lending rate. So then
18:04that gets passed down to us.
18:06>> Exactly. But notice if you're a bank
18:09that can borrow at the federal funds
18:10rate, the most important thing for
18:12thinking about an interest rate in the
18:13future is what you think the Fed's going
18:16to do each and every day between now and
18:17the end of that. That logic can't
18:20change. Zipping it up doesn't change a
18:22darn thing. I checked my thinking on
18:25this with a bunch of monetary economists
18:27because I'm like, uh, I'm sure people at
18:29the Fed are smarter than I am. And I
18:31checked it out and they were all just
18:32puzzled. every monetary policy nerd and
18:36I'm talking to the academics was like
18:39this is weird and I read a lot of the
18:41Wall Street notes and they're like
18:44silent Kevin doesn't want to speak but
18:45silent Kevin's not sure why and so
18:48that's the stakes that bring us into
18:50today we know he's not sock puppet Kevin
18:53he might be hawky hawk Kevin but is
18:55silent Kevin coherent and so he had a
18:58chance today to rewrite his narrative
19:00that's where we got it feels like I've
19:02been filibustering trying to get to I
19:04haven't. I just think the whole story is
19:05fascinating.
19:06>> No, it is. And I I have to say I I was a
19:10big fan of of Bernani, of Yellen, of
19:13Powell, and how transparent they were.
19:15But I actually thought that Worsh gave a
19:17pretty solid argument for
19:21against transparency, essentially
19:23against what they call forward guidance,
19:24which is sort of telling people where
19:26you're headed in the next 3 months, 6
19:28months, all that. So he gave two
19:29reasons,
19:31and I thought they were pretty good.
19:32Number one was risk. He was like, if we
19:36give all this forward guidance to banks
19:38and financial institutions, they feel
19:40pretty confident that they know where
19:43interest rates are going. So then they
19:45feel comfortable taking more risk. They
19:47will take risks, lend money based on
19:50what they think and they can ignore real
19:54potential, you know, red flags in the
19:57market. They can get over their skis.
19:58They can over lend which can cause
20:00bubbles which can cause bubbles to
20:02burst. I thought that was fair. And
20:04argument number two,
20:06>> can we pause on one? I love the fact
20:08that you bring the arguments because you
20:10teach them much better than I did. But I
20:11thought risk
20:12>> take this one because there's the second
20:13one I thought was most compelling. But
20:15yeah, tell me about the risk thing.
20:16>> Okay. I thought risk was the thing we
20:18wanted less of.
20:20>> Exactly. Well, that's what he says. Less
20:21forward guidance then then lenders have
20:24to price in the risk that the Fed could
20:26move in either direction. So they hold
20:28on to a little more money.
20:29>> If I told you at the start of this
20:31podcast how I was feeling and how my day
20:33was going,
20:34>> does that increase or reduce the risk of
20:36the conversation going well?
20:39>> I mean it increases it
20:43and
20:44>> so therefore it reduces communication
20:46reduces risk. If you go into your job
20:49negotiation and you're asking for a
20:51raise and you say, "Hey, I just want you
20:53to know I'm really happy with my salary
20:55as it is and I am not trying out with
20:58any other jobs. I wouldn't even think
21:00about applying for another job. I don't
21:01have time, but I would like a raise."
21:04Versus if you go in and you're a little
21:06secretive, a little mysterious, and
21:08you're just like, "Oh, I've been having
21:09a good time." And your employer's like,
21:11"Oh, is this person talking to other
21:13places? She's really good. Maybe we
21:15might lose her." Then see there I mean I
21:18feel like there are advantages to both.
21:20>> I can see some Jane Austin influence
21:22here.
21:22>> See she knew about mystery.
21:25>> She did.
21:25>> But do you think I mean obviously there
21:27are risks both ways. There are risks to
21:29being transparent. There are risks to
21:30not being transparent. But you think
21:31there's a bigger risk. It see I'm
21:34extrapolating but it seems like you
21:35think there's a bigger risk to
21:36non-transparency. What is that?
21:39>> It's it's as simple as this. When you
21:40know more stuff you're uncertain about
21:42less.
21:44>> I mean
21:45>> that's true. Just as a matter of fact,
21:47that's true. Yeah.
21:48>> Um, look, you gave I think I was really
21:50annoyed. You gave such a terrific
21:52response that you sounded compelling to
21:54me. There was a second argument you
21:55wanted to raise.
21:56>> Okay, this is I think the most
21:57compelling one. It's the glass
21:59handcuffs. I just made that up, but
22:01>> I love that.
22:02>> Uh, essentially he said, you know,
22:04>> chapter three in Pride and Prejudice, if
22:05I recall, that was a different Jane
22:08Austin book. Um,
22:10so glass handcuffs are sort of like when
22:13the Fed is very committed to forward
22:15guidance and transparency. If new
22:16information comes up, it can't pivot.
22:19And in his speech, Wars gave the example
22:21of 2021 inflation prices. I mean, this
22:24was a time of so much uncertainty, it
22:26was just impossible. The Feds kept
22:28trying to give forward guidance the best
22:30it could, but who even knew what was
22:32happening at that moment. At that time,
22:34prices were rising and the Fed looked at
22:36the situation was like, I think this is
22:38because of supply chain snags and all of
22:40this craziness. I don't think there's an
22:42underlying inflation problem. And it
22:44didn't it didn't raise rates. And it it
22:47turned out it was inflation was not
22:49transitory. It hung around. But even
22:51once they realized that the Fed waited
22:53about 6 months before it started to
22:56address the inflation because the idea
22:59is or according to Worsh they were kind
23:02of trying to like position everyone warn
23:04everyone be transparent be like hey
23:06listen we're going to raise rates brace
23:08yourselves and that six months may have
23:10cost us a lot may have made inflation a
23:12lot worse
23:13>> Stacy Vanic Smith you are a genius that
23:16term glass handcuffs
23:18that's the term for the day which is
23:20we're stuck on something
23:22and we can pivot, but it's going to
23:24smash something our credibility
23:27>> that we value. Um, honestly, word for
23:31the day, glass handcuffs. Handsome
23:33Kevin, silent Kevin, as we've been
23:35calling you. Silent Kevin, if you want a
23:38rationale for your silence, if you speak
23:41at all, you should use Stacy Vanick
23:43Smith's term glass handcuffs. I I really
23:46honestly I'm blown away by how brilliant
23:47that is. Okay, here's the problem with
23:51everything Silent Kevin hasn't said. See
23:54what I did there?
23:55>> Um,
23:57oh, you weren't very impressed by it.
23:59>> No, no, no. I'm just I'm on tens hooks.
24:01Tell me.
24:01>> Okay, great. Silent Kevin says, "I'm
24:04going to communicate less, so markets
24:06have to take their cues elsewhere." Do
24:07you know what happened today?
24:10>> Uh, interest rates on short-term bonds
24:12went way up. Wait, it sounds like
24:15expectations of future interest rates
24:18depend a lot on what the Federal Reserve
24:19chair says, even when he's trying to be
24:22silent.
24:23>> Was he trying to be silent?
24:25>> I mean, he literally defended silence.
24:28>> He did.
24:29>> Like, I'm not going to tell you anything
24:31at all.
24:32>> He was so hawkish.
24:34>> I'm not going to tell you anything at
24:35all, but
24:37>> I really worried about inflation, and
24:39normally we raise interest rates when
24:41that happens.
24:42Silent Kevin learned today if he's if
24:44he's if he's got it all figured out.
24:46He's learned today you can't be silent
24:50that
24:51>> even if you want to be silent,
24:52everyone's going to pause everything you
24:54say to try to figure out what you mean
24:58because the most important factor
25:00setting interest rates is the Fed. Going
25:02silent doesn't change that reality. So
25:05if silent Kevin meant to move interest
25:08rate expectations up and therefore
25:10actually interest rates the interest
25:11rates you'll be paying tomorrow rose
25:13because he shaped expectations. If
25:15that's what he meant to do terrific job
25:17well done excellent central banking
25:19that's called forward guidance. If it's
25:21not what he meant to do then he added
25:23risk nonsense and noise to everyone's
25:26life for no reason whatsoever.
25:29>> Well let me counter with this Justin. So
25:32worse says he's modeling himself off of
25:34Alan Greenspan who chaired the Fed from
25:3787 to 2006.
25:40Greenspan was not a transparent person.
25:42In fact, he used to raise interest rates
25:43without even telling anybody about it.
25:45Bond traders would have to figure it
25:46out. People used to look at his tie
25:49colors and like how much paper was in
25:51his briefcase and his micro expressions
25:52and try to figure out what he was doing.
25:54The markets loved him. the economy did
25:56quite well in a I mean it was it you
25:59know there was some just tough times but
26:01he did get inflation from 4% to 2%. He
26:05used a different model of transparency.
26:07He loved saying nothing. I think
26:09famously he said to a Senate committee
26:11if I seem unduly clear you have not
26:13understood what I said or something like
26:14that.
26:14>> Yes. That's right.
26:15>> So why did that work under Greenspan?
26:19Was that a different time? Like why do
26:20you think that worked? And you don't I
26:23don't think you think this is going to
26:24work for WSH.
26:25>> Okay. So, it's a it's a great question.
26:28The question here isn't did Greenspan do
26:30better than Bernanki or Pal. The
26:32question is which is going to be better.
26:34Could Greenspan have been even greater.
26:37>> Um
26:37>> good question.
26:38>> Do you think that and so the question is
26:40and really I think today is the perfect
26:42case study and so this is we are really
26:44talking about the heart of the matter.
26:45Silent Kevin stood up and defended not
26:47providing guidance to markets and
26:49markets inferred from that guidance that
26:51interest rates were going to go up.
26:53So either he is providing guidance or
26:56he's providing noise and I reckon it's
26:59better to provide guidance than noise.
27:02You know
27:03>> he did get rates up without having to
27:06raise rates.
27:07>> That's right. Isn't that amazing how
27:09forward guidance works?
27:10>> Clever. But
27:11>> yeah, that's right.
27:12>> Absolutely. It's called forward
27:14guidance. the very thing he spent the
27:15first half of the speech saying he would
27:17never do.
27:18>> He did say he would give us a trail map.
27:21[laughter]
27:22>> Yeah. That interest rates are going up.
27:23Thanks. Hey, like I'm going to end with
27:26one final funny story.
27:27>> Yeah.
27:28>> So, I went to Jackson Hole a couple of
27:30years ago and a week before I'd been
27:34hanging out with my nephew and I said,
27:36"Hey, let's do something crazy. I want
27:38you to take a Tik Tok video of me where
27:41I'm going to talk about the economy
27:42while doing a cold plunge. Don't ask me
27:44why I thought that was a good idea. I'm
27:46a middle-aged dad. That's what they do.
27:48>> Cold plunges.
27:49>> Yeah, that's just, you know, by the How
27:52can you tell a middle-aged man cold
27:53plunges?
27:54>> He just told you. [laughter]
27:56>> Um,
27:58>> and I did this morning. Anyway, so my
28:00nephew Henry and my daughter Matilda
28:02have their cameras and they're taking
28:03this video of me and I jump in the cold
28:04plunge and I talk about the economy and
28:06then 5 days later I'm in Jackson Hole
28:09and the number of people who came up to
28:11me and said, "I saw from your video that
28:13you pierced your left nipple
28:16is higher than you could possibly
28:19imagine." So central bankers care about
28:22nipples, too. That's the whole story.
28:24>> Well, my takeaway is that they they see
28:26details, right? These are detail-
28:28oriented people. And so if you say
28:30something like trail map and wow, it
28:33seems like inflation's high. You know,
28:35that may be the equivalent of like a
28:38nipple ring.
28:39>> Yeah.
28:40>> By the way, last week we talked about my
28:42belly ring. I want people to understand
28:43they're completely different with
28:44different different backstories.
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30:30Stacy, I know that there is one country
30:35that you hate most in the world and you
30:37want to cause them to suffer. Who is it?
30:40>> I think it's the country that borders
30:42Lake America, Justin.
30:45[laughter]
30:48>> Canada. How are we in a trade war with
30:50Canada? This blows my mind. I don't
30:54understand. Well, I mean, I do
30:55understand, but
30:58I it's I I was shocked to see how this
31:02unfolded,
31:03>> you know. I mean, it's it's one of our
31:05biggest trading partners. I think our
31:08second biggest trading partner after
31:09Mexico.
31:10>> Yep. Yep. Um there's so much news that
31:14happened. So, let me get the facts out
31:15then, Stacy. Let's try to make sense of
31:17them. So, here's the facts. In 1989, the
31:22United States and Canada formed a free
31:23trade agreement. It was called the No,
31:26>> I looked this up this week. I was so
31:27excited. That's why I said '89. That was
31:29a little hidden one there for you.
31:31>> In [snorts] '89, it was the US Canada
31:33free trade agreement.
31:34>> In ' 94, they upgraded and they added
31:37Mexico and that was NAFTA, which was
31:40negotiated by President Bush. President
31:41Clinton got it through Congress.
31:44Uh candidate Trump in 2016 runs on I
31:49hate NAFTA.
31:51>> He wins the election. uh rips up NAFTA
31:55despite the fact it literally was a law
31:57passed by the Congress and insists that
32:00we need to renegotiate with Canada. He
32:03basically rips the agreement up and then
32:04gets all the pieces and tapes them back
32:06together again because writing a whole
32:07new agreement would be a lot of work but
32:09he did think it was important to rebrand
32:11it. So we basically have the same NAFTA
32:13we had few tiny changes
32:15>> except now it's called the US MCA the US
32:18Mexico Canada agreement.
32:20>> What do you love most about that? I love
32:22the fact it makes me think of YMCA.
32:25>> Oh, I I actually love that he taped it
32:29back together.
32:30>> Yeah.
32:30>> You know, I mean, like my favorite part
32:31is that that it didn't it wasn't totally
32:34undone because it they are so important
32:36and so many industries depend on them
32:38and jobs and I was glad it got taped
32:41back together. He can call it whatever
32:42he wants. He can call it the Trump deal.
32:44I don't care. I just want I just I I
32:47think it's an important deal.
32:49>> Absolutely. So therefore we have it and
32:52then um terrific we move on and like who
32:55among us doesn't need a branding refresh
32:57from time to time right like handsome
33:00Kevin who decided to become silent Kevin
33:02NAFTA became the USMCA USMCA can you not
33:06hear the rhythm there it always anyway
33:10>> yeah we can figure it out it'll be a
33:12good dance
33:13>> it really good um okay so um then the
33:17second President Trump comes along and
33:20assumes power but and says which idiot
33:22negotiated this trade agreement with
33:24Canada it's terrible
33:27and he rips it up again [laughter]
33:31and he then imposes tariffs on you know
33:33we had this whole crazy dance which was
33:35he actually he did run on imposing
33:38tariffs but in reality he never once
33:40said the word Canada during the election
33:41campaign because I think even President
33:43Trump understands that running against
33:45Canada isn't a great idea they're nice
33:47people the first country imposes tariffs
33:50on it. Canada, China, and Mexico because
33:53of fentanyl, which by the way doesn't
33:54come from Canada.
33:55>> Oh, I remember that. Yeah.
33:57>> Aren't this I mean, the greatest hits
33:58here, it's make me excited about the
34:00Dolly Parton moment that's coming up.
34:02>> Um, we need it.
34:03>> So many great hits. Um, so, uh, he
34:07imposed really high tariffs on Canada
34:08and then cuts them right down. And then
34:10they came out with this delicious
34:11compromise which was that President
34:14Trump would impose really high tariffs
34:15on Canada and announce them but there
34:17would always be an asterisk and the
34:19asterisk is does not apply to goods
34:22covered by the US MCA
34:26which by the way other free trade
34:27agreements didn't get that Korea didn't
34:29get it. Australia didn't get it and so
34:30on which meant he could bellow like
34:32crazy but would actually do nothing
34:34because almost because 90% of goods are
34:35covered by the free trade agreement. So,
34:38what actually turned out for much of the
34:40past year, Canada had the lowest tariffs
34:41of anyone.
34:43>> What President Trump has done most
34:45recently is he's imposed tariffs of um
34:4950% on a weird list of goods. You might
34:52say, "Well, how much of the economy does
34:53it cover?" What we have to do is take
34:55that weird list of goods and calculate
34:56how much America imports at that weird
34:59list of goods. The answer is
35:02>> it's not that weird. It's like paper was
35:03one of them. Um, I think they're
35:05threatening 50% tariffs on auto parts,
35:07which would be pretty major.
35:10Auto parts is a step ahead, but paper,
35:12absolutely. Hockey sticks. Um, it's like
35:143,000 items. When you list 3,000 items,
35:17you start to feel like
35:18>> cars, full cars. I think
35:21>> you are a chapter ahead still.
35:24>> Okay,
35:24>> there's been two rounds of this. So, the
35:25first round, this is important. The
35:27first round is uh so $20 billion worth
35:29of stuff he imposed for 50% tariff. Is
35:31that a big deal? First answer is no.
35:33That is 4% of Canadian exports. So
35:37Canada's going to be okay and it's a
35:39small share of America, even smaller
35:40share of the American economy. [snorts]
35:43Then the Canadians say, "Hey, you can't
35:46do that." And they retaliate with an
35:48equal and opposite set of tariffs,
35:50roughly worth $20 billion, but $20
35:52billion is a tiny fraction of America's
35:54exports. So again, the United States
35:56will be okay. Along the way, the
35:59president renamed a lake, miscounted the
36:01number of states, and forgot that a
36:03prime minister shouldn't be called a
36:04governor or he taunted rather than
36:07engaging in good faith negotiations.
36:09And then the president counted again,
36:12this was your point, Stacy, on orders.
36:14So basically another ups the ante again.
36:18And so now we're in a t tariff
36:20retaliation cycle. And the question is,
36:22how far will this go? So there's two
36:24perspectives I want you to draw from
36:26this. One, in terms of shortrun economic
36:29impact, this is quite small. It's gotten
36:31a lot of newspaper headlines. Partly
36:32because
36:33>> it's small for us, for the US.
36:35>> It's small for them. Remember, 20
36:37billion,
36:37>> their biggest trading partner.
36:39>> I understand. But we only did it on
36:41three on a weird set of goods. We
36:43There's a whole bunch of stuff.
36:45>> Yes, but if that if those goods came
36:47into the mix, it could be real bad.
36:50>> Great. Now you've got exactly the point.
36:52There was a weird list of goods. roughly
36:544% of Canadian exports.
36:57If he incl enhanced the list to
36:59everything, that would be 72% of
37:01Canadian exports. So at the M. So now
37:04you've got exactly the right point. What
37:06is done so far is small. Now Stacy, I
37:10apologize for the following cheap shot.
37:12Hasn't been reported that way because
37:14journalists don't know whether 20
37:15billion is a lot or a little.
37:17>> You know, Justin. [laughter]
37:19>> Oh, did that sting a little? I didn't
37:23mean you.
37:24>> I appreciate that. I appreciate that. I
37:26know I think I don't think that's the
37:28reason why I think Well, go on. Go on.
37:31>> Okay. So, in reality, it's small. Your
37:35point that Trump has now opened the door
37:37to a trade war. Last time he did this,
37:39got into a tariff escalation cycle with
37:41with China, he got tariffs up to 145%.
37:44On everything. If we were to open the
37:47door to that, then this is a very big
37:49deal. So I think the defense of
37:50journalists is they understood today's
37:53news was small, but they're worried
37:54about this creating something much much
37:56bigger.
37:57>> Yes. Because not only is there car
37:59parts, the United Auto Workers actually
38:01came out like waving their hands being
38:03like, "Don't do this." Um, but oil and
38:07gas, we import almost
38:10natural gas and oil from Canada. And
38:12although we are a big producer, I think
38:14the biggest producer of natural gas in
38:15the world, we don't produce as much as
38:17we consume. So if Canada cuts us off
38:20from oil and gas like that which is not
38:23being tariffed to be clear but that I
38:26mean maybe that's their straight of
38:27hormuz which brings me to this really
38:30interesting thing I wanted to run by you
38:32Justin about all this
38:34>> economically speaking
38:36there's just no contest like if trade
38:40with Canada blew up tomorrow like all of
38:42it would be hard for us it would be
38:45devastating for Canada.
38:47>> Yep.
38:48But
38:50I feel like somehow this is sort of
38:53potentially mirrors the situation in
38:55Iran where the same thing if you look at
38:57the two countries on paper it's there's
38:59no contest like the US is just
39:02outmatches Iran in every possible way
39:04except that somehow Iran is kind of
39:08winning right now because of political
39:11will and I think Canada Canadians even
39:15though this could potentially really
39:16economically hard on the country. They
39:18are like there's a lot of political
39:21support for this and I wonder if we're
39:24just getting into another one of these
39:25situations. But I want to hear what you
39:27think because I feel like the economics
39:30and politics of this are sort of it's an
39:32interesting mix and it does kind of
39:34remind me of Iran early days.
39:36>> Yeah, absolutely. I think you've raised
39:38it in exactly the right way. And then I
39:40want to distinguish between how foreign
39:42policy people use language and how
39:44economists use language. So, if I were a
39:47foreign policy person, first of all, I'd
39:49have to wear a sports jacket with le
39:51leather elbow patches and smoke a pipe.
39:54>> I mean, are economists fashionable
39:56people? Justin, where why are you
39:58throwing shade at the at the poor
39:59foreign policy analyst?
40:00>> Come on, Stacy. You can see me right
40:02now. [laughter]
40:03Um, the question answers itself. Um, the
40:07foreign policy folks will say might say
40:09use language similar to what you just
40:10used, which is Iran is winning or if
40:12it's not winning, Iran is doing better
40:14than you might expect. The problem is in
40:17war, the following is obvious the moment
40:18you think about it. Everyone's losing.
40:22>> This is really bad for the Iranian
40:24people. It's really bad for America and
40:25it's really bad for folks in the region.
40:28And the moment you understand that,
40:31that's when it shapes how you think
40:33about both of these conflicts, which is
40:37sure these other countries are winning
40:38in the foreign policy sense, but in
40:40reality, our failure to be able to
40:42figure out how to cooperate
40:47is hurting folks on both sides.
40:51I I that's the special source economics
40:53gives you. And the habit that I want
40:55folks at home to get into is every time
40:57you hear thoughts about trade, what I
41:00want you to do is the very natural thing
41:01when you think about economics is to
41:02think about competition. I'm trying to
41:04beat you. But actually, all of economics
41:07is about cooperation. In fact, much of
41:10human life is. You and I right now are
41:12cooperating and together we're producing
41:14something more beautiful than we could
41:16apart. This conversation would be dull
41:17without you, Stacy.
41:19>> Well, I appreciate that. I mean, I do I
41:22love the way that you're looking at
41:23economics right now. There is also like
41:26I feel like there's always a natural
41:27tension between the advantages of
41:29cooperation but also the drive to
41:33compete and win. I feel like those are
41:35both there.
41:37>> I don't I really and truly disagree
41:39>> really.
41:40>> Anytime two people get together to do
41:42commerce,
41:45the idea is I want to give something to
41:48you and you'll give something to me. so
41:50that we both end up better off.
41:52>> Yes. And I feel like different groups of
41:55people will experience gains and losses.
41:57I feel like this was the big issue with
41:59NAFTA. As a matter of fact, like the
42:01textile industry in the US
42:03>> pretty much totally decimated. Y
42:05>> in the end, quality of like prices for
42:09clothing in the US fell. Quality of life
42:12overall increased.
42:14But for people working in the textile
42:17industry, that was devastating. Like I
42:19feel like there's always a trade-off and
42:21I feel like that tension is always what
42:24makes economics so compelling for me
42:27that it it sort of looks very honestly
42:29at these things. But I don't think you
42:30can say that like when free trade
42:33happens everybody wins.
42:35>> I think I think a lot of people win but
42:37I do think there are losses.
42:39>> Okay. I shouldn't have said that. And
42:40Stacy I really do learn so much speaking
42:42with you.
42:43>> That's probably untrue but thank you and
42:46likewise. So I'm going to meet you
42:48halfway with a compromise which is
42:51>> I the observation that I want to make is
42:53that when people think about commerce
42:56economics they very naturally fit into
42:59the competition frame. When people think
43:01about international relations they often
43:03think about if you're if you're winning
43:05I'm losing.
43:06>> Yeah. And as and our thoughts would be
43:11smarter, our discourse more accurate,
43:13and our decisions better if we also
43:16pushed ourselves to think about the fact
43:19the underlying cooperative side more
43:21frequently.
43:23>> I agree. I think that's well said. Well
43:25said.
43:26>> Having said that, we're going to talk
43:28about Iran and Operation Economic
43:31Outcast, which I mean, I just love this.
43:34I I joked earlier this week, that's
43:35actually my porn name.
43:39>> Justin,
43:41>> sorry. Was your dad listening again?
43:43>> I don't Oh, okay. No, but go go on.
43:46Economic outcast. I I'm [laughter]
43:50>> Don't you want to be Imagine being
43:51economic outcast? I think you're right.
43:53It's more of a world.
43:54>> It would be a very niche film, but go
43:57on.
43:58>> But I know all the people who'd watch
44:00it. I am going to go with we're going to
44:01keep this clean. That's
44:02>> the numbers would be big in Jackson
44:04Hole.
44:05>> They would be huge. Pay-per-view of
44:08people just nervously checking out at
44:10Jackson Hole
44:11>> as they've got a 1999
44:14>> video crossover with your Cold Plunge
44:16video.
44:17>> I Well, anyway, I think Economic Outcast
44:20is actually my professional wrestling
44:22name. I take it all back. Um,
44:24>> professional wrestling. I like that.
44:25It's cleaner for the kids.
44:26>> It is. Okay. So, um, look, the most
44:29striking thing that happened, I think,
44:31was on the day that Treasury Secretary
44:33Scott Bass announced economic D-Day,
44:37President Trump, which, by the way, is
44:39against Iran, President Trump forgot to
44:42talk about Iran and spent the day
44:43railing against Canada.
44:46>> Forgot?
44:48>> I don't know what. Maybe his heart's not
44:49in it.
44:51>> Well, maybe it's not looking good. That
44:53was my thought. But do you maybe not. So
44:56the I the logic of operation
45:00economic outcast love that um is we're
45:05finding it hard to win on the
45:06battlefield. So what we're going to do
45:08is move to using our economic rather
45:10than our military strength. Our being
45:12the United States.
45:14Let me say something really positive. I
45:17think it's terrific to use economic
45:18power rather than bullets and bombs.
45:21I applaud the administration for doing
45:23that. And my the only bone that I have
45:27to pick with this, well, I have quite a
45:28few. Um, but the biggest one is actually
45:31the diplomacy handbook says on page one,
45:35before you bomb people, try everything
45:36else.
45:38>> Um, and that includes trying economic
45:41sanctions first.
45:42>> We were already
45:44economic sanctioning the be Jesus out of
45:47Iran.
45:48>> That's right. That's right. I saw an
45:50estimate somewhere we had 6,000 separate
45:52sanctions. I don't know if it's
45:53accurate.
45:53>> Yeah. How much more sanctioning can
45:56happen?
45:56>> Right. So sanctions typically refers to
45:58international trade stuff getting on
46:00boats or planes and moving. A lot of
46:02what they're trying to do this time is
46:04the financial pipes that lead money to
46:06move around the world.
46:07>> Swift Bank at all.
46:09>> Exactly. Um and so that the two big
46:12changes here are one we're going to try
46:13and cut off the financial plumbing and
46:16the second one is um that we're going to
46:19use economic power to get everyone else
46:21to do this.
46:23Um there was exactly one problem with
46:27how this plan got rolled out. Treasury
46:29Secretary Scott Bassan stands up and
46:31says economic D-Day and honestly his
46:34pectorals were
46:36puffed. He looked incredible. He looked
46:38strong.
46:40um really puffed himself up.
46:41>> Maybe Economic D-Day is his professional
46:43wrestling name.
46:44>> I think it is actually. Um so, Economic
46:47D-Day says that and then one of the
46:49journalist says, "I got a problem with
46:50this." The journalist who had a deep
46:52knowledge of history, he said, "You
46:54know, economic D-Day wasn't a press
46:56conference.
46:57>> We just bombed him.
46:59Why are you holding a press conference?"
47:01and Secretary D-Day said,
47:05um, well, I don't want to blow up the
47:08global economy.
47:11>> H,
47:11>> the whole thing he was doing was
47:13threatening a set of actions that he
47:15then said, I don't want to take those
47:17actions.
47:18>> Forward guidance.
47:19>> That's [laughter] right.
47:22It's all in jail,
47:22>> not just for central banks.
47:24>> No, that's right. Um, but he basically
47:27made the case that this would be so
47:29painful for the US to follow through on,
47:31he doesn't want to follow through.
47:33That's not how threats work. For a
47:35threat to work, you have to believe that
47:37I'm going to follow through. You want to
47:38make the case that I'm going to follow
47:39through. You want to say something like,
47:42"I wish I was doing it last week. It's
47:44so fun to cut it off." And so, he
47:47immediately showed, puffed up his chest,
47:50said it was a big, you know, it was a
47:51big day, but immediately showed actually
47:53his heart wasn't in it. doesn't want to
47:54cut Iran off or he doesn't want to cut
47:56off American trading or financial
47:58partners if they do business with Iran.
48:00And I think the rest of the world heard
48:02that which means they're I think pretty
48:04unlikely to go along. Don't be
48:06surprised. I'm just going to lay down a
48:07marker here. Don't be surprised if
48:09that's the last we hear about Operation
48:12Economic Outcast. And I'm going to feel
48:15sad to have to retire my wrestling name
48:16like that.
48:18>> Well, we can use it in other Yeah, we
48:20can we can bring it up. It doesn't have
48:21to be the end of of economic outcast.
48:25>> All right, Stacey, have you been keeping
48:26track of all the nicknames? We got
48:28D-Day. We got silent.
48:30>> Glass handcuffs.
48:31>> Oh, golden hand glass handcuffs. That
48:34was extraordinary. Okay, let's bring it
48:36home with chart versus chart. Stacy, I
48:39believe last time
48:43>> you treated the rules elastically, but
48:46with a degree of pache and insight
48:49>> that honestly an economist couldn't
48:51match. And so you won. And so Stacy,
48:53this look at this gusty platypus is on
48:57his way to your right.
48:59>> I didn't know you had a platypus shaped
49:01pillow. This is thrilling.
49:03>> I didn't until you beat me in chart
49:05versus chart and I'm have to take the
49:07loss. This is a bespoke pillow.
49:09>> Absolutely.
49:09>> Oh my gosh.
49:10>> I mean, define bespoke. How would John
49:13Jane Austin define bespoke?
49:15>> Like one of a kind.
49:17>> At the moment, it's one of a kind. But,
49:20you know, if we get a lot of interest
49:21and people want to buy gusty platypuses,
49:23maybe you'll just get the first of
49:24thousands.
49:25>> I feel like who doesn't want a platypus
49:27pillow?
49:28>> Honestly, I have no idea. Or I think,
49:32you know, by the way, Operation D-Day
49:34would not want to be seen cuddling a
49:36pillow.
49:37Fair. Fair.
49:39>> Okay. All right. So, um, who's going
49:43first? By the way, I think I've got it
49:44this time. I I'm going I've gone with
49:46simplicity again,
49:48>> but I've got the economic story of the
49:49day and all its contradictions in a
49:52single chart.
49:52>> All right.
49:53>> Penetrating inside. Kevin Walsh said, "I
49:57don't do forward guidance."
49:59>> Okay.
49:59>> Is that true or false? Well, this chart
50:03shows you federal funds futures. This is
50:06basically a betting market where people
50:07bet money on the future of the interest
50:10rate set by the Fed. So what I show is
50:13that um over time people had expected
50:15interest rates to be rising over the
50:17next year or so. That's as of the prices
50:20last night. Let's update that the prices
50:23today. They jumped. It turns out that
50:27silent Kevin tried as hard as he could
50:30to be deadly quiet, but it turns out
50:32people listen. And the man who doesn't
50:34do forward guidance managed to guide
50:36market expectations for future Federal
50:39Reserve interest rates up a whole heck
50:41of a lot. Silent Kevin, I hope you're
50:44watching. The ability to not speak
50:48doesn't add clarity. People are
50:50listening. Either way, if people are
50:52listening, what I taught was taught by
50:53my high school English teacher is it's
50:56better to be clear.
50:58>> Did you see what color tie he wore while
51:00he was giving the speech? By the way,
51:02Justin, tie color, if you don't know, is
51:04looms very large in Federal Reserve
51:05chairs because everyone's always looking
51:07for hints. Did you see the Did you see
51:08the tie color?
51:10>> Now you've caught me out. I was staring
51:11into those beautiful eyes of his and I
51:14my eyes did not
51:16>> go down to the tie gray.
51:18>> Gray,
51:18>> like a misty mountain gray.
51:21>> That is the silent color of ties. I love
51:24tie that says nothing. It's the beige of
51:27ties.
51:27>> Comparative literature major could not
51:28have done better.
51:29>> No. Incredible. [snorts] So Stacy, at
51:32this point I've shown you my chart. I
51:34assume you just want to give up and I
51:36get the win.
51:38>> Well, I'll just throw out mine just in
51:41case. So [clears throat] this week, like
51:45we talked about at the top of the show,
51:46we lost a real icon, Dolly Parton. I
51:49loved her. I saw her in concert. She was
51:51one of the artists that would come to
51:52Idaho. She would come through Idaho. So
51:54I saw her multiple times like to small
51:56venues in small states like and she was
52:01wonderful. I remember seeing her. I
52:03don't know. I just admire her in many
52:05many ways. And so in honor of her I
52:07wanted to look at something that has
52:09been going on in the economy for a
52:10little while. Uh it is so this is my
52:13chart. It is the female labor force
52:16participation rate. M
52:18>> so this is essentially the sh of all the
52:21women in the economy uh the number of
52:25them who are working in the formal
52:26economy. So this doesn't count like if
52:28you're you know obviously child care,
52:30elder care is an enormous amount of work
52:33but it's not you don't get you're not
52:35getting necessarily a paycheck from
52:36that. So this is the the share of women
52:39who are in the workforce. So this was
52:41climbing climbing climbing uh since 194
52:46uh8 when this they started collecting
52:48data on this uh climbing climbing
52:50climbing all the way up and you can see
52:51a covid it it hit 58% the covid it just
52:55plunged um this was a time when a lot of
52:58a lot of especially women were dropping
53:00out of the workforce for child care then
53:02after covid you see the numbers start to
53:04climb climb climb climb again now what I
53:07think is especially interesting is
53:09starting like just before 2025 through
53:122025 and now the number starts coming
53:15down which is interesting for a couple
53:17of reasons to me. One, the cost of child
53:20care is apparently looming very large.
53:22Just the cost of child care is going up.
53:24The availability of child care is going
53:26down. That's just one uh factor. About
53:2960% of the women uh in a there was a
53:32large survey of women why they were
53:33leaving the workforce. 60% said they
53:35were just dropping out, choosing to drop
53:37out, not layoffs or something like that.
53:39The other interesting factor of this is
53:41work from home flexibility. A lot of
53:43that flexibility has been going away and
53:45that is the other big reason that people
53:47say we're starting to see women drop out
53:49of the workforce again. Um this makes me
53:52very sad.
53:54>> Well, the flip side of that sadness is
53:56it says there's a lot of work to be done
53:58and a lot of serious economics to be
53:59done. So, I'm going to choose to be
54:01optimistic. We're going to do that work
54:02and we're going to figure things out.
54:04>> Wait, wait. As long as we're being
54:06optimistic, I wanted to give an homage
54:10to Dolly Parton who always put such an
54:12optimistic spin on everything and was
54:14born just two years before they started
54:18collecting this data. So this
54:21>> is my Dolly Parton bedazzled because you
54:25know she was a woman of substance and a
54:27woman of wisdom but she put on all this
54:30pink and all these sparkles. So I took
54:32the chart the very serious female labor
54:35force participation a chart and I Dolly
54:37Partoned it up Dolly Charton
54:40and this is the bigger perspective when
54:44Dolly Parton was two years old the
54:47female labor force participation rate
54:48was was under was about 30%. And now
54:51look at it it has climbed so much and
54:53although in the last 10 years it has
54:55been a rockier road than we would like I
54:57feel like Dolly would look at the big
54:59picture. I I just want to tell folks who
55:02are listening because this is also an
55:03audio only podcast. What Stacy just
55:06threw up was not just a chart of women's
55:09labor force participation. It's a
55:11bedazzled chart and in the best of Dolly
55:14Parton.
55:15>> It's bedazzled in both colors, pink and
55:18really really pink.
55:19>> Deep pink.
55:20>> It is the most extraordinary chart that
55:23has been created in the history of
55:26economics. And it's got that pun, that
55:28dad joke energy dolly chart on.
55:32Stacy, we're not even going to go to a
55:34vote. I give up. [laughter] You won.
55:36>> No, people should vote. I think people
55:38are into the Fed.
55:40>> Um, I [clears throat] thought they were,
55:42but you connect economics to people's
55:45lives and you make it sparkle. That
55:47chart is all Stacy Vanic Smith and it's
55:50everything I love about you.
55:53>> Thank you. Well, I I I did feel like it
55:55was in the vein of our 50-year
55:57newspaper. You know, it's like when you
55:58back up, the data can get look so dark,
56:00but when you back up, sometimes you can
56:02see you can see some sparkles.
56:05>> Well, that's beautiful, Stacy. And I do
56:07want us to before we go, really
56:10acknowledge Dolly Partners. I'm sure
56:11you're aware we lost Dolly Parton this
56:13week. She's one of the very few people
56:15that nearly all Americans could actually
56:18agree on. She's the If you want people
56:21to remember you folks, the the the job's
56:23very simple. Wake up every day and be a
56:24terrific person. She was universally
56:27adored. And I've even got data to back
56:29that up. There was a Yugov poll that
56:31said she had Dolly Parton had the
56:33highest approval rating of any public
56:35figure in America. She was plus 65. And
56:38there they found five pe 5% who had an
56:41unfavorable view. [snorts]
56:43For context, Dolly Parton was plus 65.
56:45The next highest was Barack Obama at
56:47plus 14.
56:49>> And I think of course part of it is
56:53about who and what Dolly is. But the
56:54other is that Dolly was always singing
56:56about economics. And so I thought we
56:58could end today, Stacy.
56:59>> She was
57:00>> each of us with a song or two reflecting
57:02on the economics that Dolly Parton
57:05brought to bear. So do you want to go
57:08first or is it my turn?
57:10>> Yes. Well, um I'm happy to go first. So,
57:15well, I would just first of all, this is
57:18the obvious one. I I do want to to pay
57:21homage to just the amazing workplace
57:23anthem that is 9 to5. I love that song.
57:27Sometimes when my commute feels very
57:29long because it is 45 minutes on the
57:31subway, which stops and starts a lot. I
57:33put that song on Spotify. I always feel
57:36so much better.
57:37>> Oh,
57:37>> but for economics, my song is Jolene.
57:42>> Jolene. So, if you aren't familiar with
57:45the song, it is a from a this woman's
57:48perspective singing to Jolene
57:52not to take her man. She's like
57:54basically you don't take him just
57:56because you can. This is a competitive
57:58market,
58:00>> I think. Right. It's a competitive
58:02market with a scarce resource, which is
58:04this man.
58:05>> And they're both It's a competitive
58:08market. And Jolene has a competitive
58:10market advantage being her fiery locks
58:12of auburn hair.
58:14>> And it is a plea to overcome this
58:18competitive market advantage that the
58:20singer perceives Jolene to have. So I
58:22kind of love this like the market of
58:24this man and the competition over him.
58:28Perfect free market love story.
58:30>> I Perfect Free Market Love Story sounds
58:33like that might be your memoir title.
58:35>> Maybe that's my professional wrestling
58:37name. they might well be. Um I I love
58:40that and um actually I've spent much of
58:43my career writing about um marriage and
58:46divorce and relationships and how there
58:49are very strong analogies between how we
58:51think about the workforce that's a
58:53worker trying to find the perfect job
58:54where they can get together and create
58:56beautiful things and um in the romantic
58:59domain and so I am really taken by that.
59:03Um, my Dolly Parton song is Code of Many
59:07Colors.
59:08>> Oh,
59:08>> I was listening to it last night and
59:11it's so beautiful. Um, the story begins
59:14that uh Dolly Part first of all, Dolly
59:16Parton was born into extreme poverty.
59:18Um,
59:20that her mother was given a a box of
59:22rags, couldn't afford to buy her a coat.
59:24So, her mother took those rags and
59:26created a coat for her. Um, that she
59:29calls that her coat of many colors,
59:31hence it's called that. And I'm just
59:32going to share with folks at home a
59:35couple of a couple of the lyrics that
59:38really touched my heart. Um, so this I
59:41think it's the third verse. My coat of
59:43many colors that my mama made for me
59:46made only from rags, but I wore it so
59:48proudly. Although we had no money, I was
59:52rich as I could be in my coat of many
59:56colors my mama made for me. Um, and then
1:00:00she went off to school and the other
1:00:02kids made fun of her for being in
1:00:04raggedy clothes. Um,
1:00:07uh, you know, she says, "With patches on
1:00:09my britches and holes in both my shoes,
1:00:11in my coat of many colors, I hurried off
1:00:13to school just to find the others
1:00:14laughing and making fun of me. In my
1:00:16coat of many colors my mama made for
1:00:18me." And then comes the beautiful
1:00:20refrain, "Oh, I couldn't understand it
1:00:22for I felt I was rich. And I told him of
1:00:26the love my mama sewed in every stitch.
1:00:29And I told him all the story mama told
1:00:32me while she sewed how my coat of many
1:00:34colors was worth more than all their
1:00:37clothes. And actually, Stacy, that
1:00:40reminded me of a conversation that you
1:00:41kicked off in our last session where we
1:00:43talked about um diamonds and now we've
1:00:46got lab grown diamonds versus mind
1:00:48diamonds. And what is value and what is
1:00:53a coat worth and what does economics
1:00:55have to say about that? And actually,
1:00:57after our last episode, I hope some
1:00:58other listeners had the same reaction. I
1:01:01spent a whole day talking with my
1:01:02friends and my family about what we can
1:01:04learn about what matters and what's
1:01:06value and where economics stands on all
1:01:08of these questions based on you know a
1:01:10lab grun diamond is this is chemically
1:01:13the same create creature as a mind
1:01:16diamond but they sell at different
1:01:17prices a coat of many colors is it a
1:01:20more sparkling jewel
1:01:23or is it the lab grown ugly steps sister
1:01:26um and there's just maybe it's not
1:01:30economic Maybe it's poetry, but maybe
1:01:31economics needs a bit more poetry.
1:01:33Thanks, Dolly.
1:01:34>> Thank you, Dolly.
1:01:36>> Uh, so folks, this has been Off the
1:01:39Clock, the economics podcast in which we
1:01:41slow down, review the week that was, and
1:01:44try to sort out what really mattered
1:01:46with some stops with Jane Austin and
1:01:49Dolly Partner.
1:01:50>> It's a very sentimental week, honestly.
1:01:52>> They're all sentimental.
1:01:53>> A very sentimental show.
1:01:54>> We only get one life, Stacy, and
1:01:56economics. And this show is about making
1:01:58it making it sparkle the way your chart
1:02:01is uh did and does. Stacy and I are
1:02:04going to be back for our next
1:02:05installment in the next couple of weeks.
1:02:07In the meantime,
1:02:09please subscribe on YouTube on Substack.
1:02:12And if you want to make sure that you
1:02:13never miss it, add it to your podcast
1:02:15app so you can listen to us in the car.
1:02:18If you've come away feeling a little bit
1:02:19smarter, a little bit entertained, or a
1:02:22little bit more prepared, I'm just going
1:02:23to ask you, tell a friend, share this
1:02:25podcast. We we want to create a real
1:02:27community here. Uh don't forget to vote.
1:02:32I guess I am going to say don't forget
1:02:33to vote for your favorite chart. Mine is
1:02:36Stacy's rhinestone sparkling chart in
1:02:40two shades of pink. Uh and in the
1:02:43meantime, stay curious.
1:02:48[music]
1:02:54>> [music]

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