Larry, let's talk about the Fed meeting. More importantly, that Fed pause, not
necessarily a surprise, but do you think it was appropriate?
I'm not sure I found the Fed's action a little bit confusing.
I understand the arguments for not hiking on this at this meeting, but
those arguments wouldn't point towards signaling to further rate increases.
They wouldn't point towards significantly revising the forecasts
towards a stronger economy and more inflation.
I understand the arguments for having gone the other way, but I
don't really understand the internal consistency of an approach of pausing at
this meeting, but then signaling to further
rate hikes down the road and signaling that they no longer expect unemployment
to increase nearly as much as they used to expect it.
So this meeting felt like it was driven as much by the internal political
dynamics of the Fed as by any consistent and coherent reading of the economic
situation. And that was a bit disturbing to me.
They raised some of their economic projections, or at least they improved a
little bit here. But you still have a market that seems
to be betting on this idea of a recession.
The idea that the Fed itself may have actually over tightened or at least is
on its way to doing that. That would not be my best guess.
I think it's very hard to read, but my best guess is that the consumer, which
is 70 percent of the economy, appears to be running really quite strong at this
point. We've got very strong employment data
much faster than population growth. The indicators on wages are a bit mixed,
but the ones that seem most reliable to me that adjust for changes in the
composition of the labor force are showing substantial strength.
So I don't see the idea that we've got a durable reduction in inflation.
Clearly established. Nor do I see clear evidence of a slowing
coming. So in that context, I think the Fed has
probably got to maintain a posture of moving towards restraint.
I don't think it's very serious what the precise timing is.
And so if they don't move this time and they end up lifting rates 50 basis
points at the next two meetings, that's going to be okay
as an outcome. But I think that they ought to decide
what their balancing of risks is. And I was struck that the balancing of
risks that was implicit in not moving today at this time was kind of
inconsistent with the balancing of risks that we've seen.
That was signaled by the two tightening. And by the forecast revisions.
I want to go overseas to China. They had a much different policy meeting
coming out at the People's Bank of China.
Cut. And there's been a lot of discussion
here, Larry, about the health of the Chinese economy in light of the data
we've gotten and a lot of some of the reports by Bloomberg and others that
they are considering fiscal or at least some sort of economic stimulus measures
to get that economy back, going back again.
You know, I I think the Chinese have a very difficult set of challenges ahead
of them. There are very serious financial
overhangs coming out of what's happening in real estate.
I take a somewhat more medium term view of it.
What's an economy about economies? About people, and it's about capital.
And what we know is that the number of births in China has fallen by almost 50
percent in the last six years. Even though they eliminated the one
child policy, number of births has kept really falling.
And we know that Bloomberg reported that the number of millionaires leaving China
was kind of high, high by historical standards and high by global standards.
Now, that's a funny measure and a lot of ways.
But if you look at measures of attempted capital flight from China, they look to
be pretty strong. And if you look at measures of capital
inflow, what you saw from Sequoia, where they were splitting off their China
China business a week or two ago, is indicative of a lot of things that are
happening. So whether it's supply of people,
investment in new capital, I think you've got some fundamental bats that
aren't running that positive in China. And that's going to be a challenge along
with the nearer term issues for the Chinese economy.
And so that's something that for them I'm worried about.
I think that's something that's going to point towards there being more softness
in commodity prices globally than many might have expected.
And we've seen a certain amount of that in the oil market.
Let's move over to the Europe, to the European Union, Larry.
We got the ECB rate decision, a hike as expected, and discussion from Christine
Legarde that the market should expect additional hikes here.
When you look at economic conditions over there and you look at monetary
policy here, are they in sync? You know, I don't think the objective
really is to have policies in sync. I think the objective is to have
policies appropriate to particular circumstances and then to let exchange
rates adjust. I think the inflation issue is probably
a more severe one in terms of Europe. They haven't moved nearly as far as we
have in the face of somewhat greater threats.
So I think the European actions were broadly appropriate.
And I think they're going to very likely need to continue acting, especially
given that I think that monetary policy in the United States is more likely to
surprise in terms of tighter rates than it is to surprise in terms of greater
ease. Before I let you go, Larry, I mean, I
was just trolling through your Twitter feed here, and I saw you tweeted out
something related to a paper on the IRS. There's been a lot of discussion here
about the funding for the IRS, about the funding and its capability of auditing
folks. And more importantly, the return that it
gets off of those audits. Look, we don't have many better
investments in government. What this study, which is the most
careful one done today by my colleagues at Harvard, Nathan Hendren and Ben
Sprung Kaiser, along with government officials, finds is that a dollar
invested in increased revenues, increased enforcement with respect to
top one percent taxpayers, people who were ordered at a rate of only a little
more than 1 percent, people who in some cases file returns and the statute of
limitations runs. And the IRS doesn't even notice that a
greater investment in those that area of tax audits can pay off
twelve dollars, that every CAC in extra revenue for every dollar that is
invested. And it's got to be in that context.
Penny, penny wise and ton foolish to be underfunding
the IRS.