So, Laurie, welcome back, great to have you.
Let's start with those U.S. GDP numbers came in, showed we were back
into growth, modest growth. What did you see in those numbers that
would indicate where we're headed? I think it's hard to know.
It confirmed what I think we knew that despite two negative quarters, the
economy was not in any real sense in recession at this point.
But if you look through the numbers to private domestic demand, which is
probably the best indicator of economic strength, it really wasn't very strong.
Well below 1 percent for the third quarter.
And so I think what we've now had for nine months is essentially no GDP growth
and inflation on core measures, probably stronger than it was at the beginning of
the nine months suggesting that we've got real challenges ahead.
There continue to be arguments that inflation rates are going to come down,
but we haven't yet seen them come down. So I don't think the fundamental picture
that a soft landing remains an enormous and unlikely challenge is very different
than it was before we got these numbers. Well, we're getting some political
blowback now. As you know, Sherrod Brown, the senator
from Ohio, wrote a letter to Jay Powell, followed by Mr.
Hickenlooper, senator from Colorado, saying, you know, we shouldn't give up
these gains we've had in employment and progress we made in the name of fighting
inflation. We're going to see more and more of that
political pressure, do you think? So I threw two points.
The first is that the political pressure is a counterproductive strategy from the
point of view of those who launch it. Frankly, the Fed doesn't listen and if
anything, feels more pressure to prove its independence so they don't influence
short term rates and what the Fed actually does.
But they do raise questions in the mind of market participants and they raise
long term rates. So political pressure is a fool's game
and actually probably makes financial conditions tighter than they otherwise
would be. And that's entirely apart from the
merits of the argument being made. I yield to no one in how much I loathe
unemployment and want unemployment to be as low as it possibly can be over time.
The concern is that as in the 1970s, if we don't contain inflation, we set the
stage for much more financial instability and unemployment.
And that is the argument that has to be made by those who are on the dovish
side. They say that the Fed is going to be
counterproductive and overdo it. A choral area of that view is that they
should think either that the Fed should abandon its 2 percent target or that
they're going to push inflation below 2. And I think that would be helpful if
every critic of the Fed were asked exactly that question.
Are they really saying that 2 percent inflation should not be the goal, in
which case they should describe what their attitude is towards inflation and
how they expect it to work out over time?
Or are they expressing the view that the Fed is acting so strongly that it's
going to produce so large a recession that inflation is going to fall below to
learn to take a bit of a longer view, as you did this week and some of your
tweets, actually. And we had a study out showing how much
we lost in our children's education because of the pandemic, something like
six months. And you translated that actually into
what that really means for the economy. Tell us about that problem.
Look, we talk on this show about financial capital, and it's very
important, but human capital is even more important.
And what a generation of economic research has now shown is the human
capital is the most important determinant of our economy's long term
growth. And most important determinant of the
fairness and equity with which incomes are distributed in our society.
And so when we see six months or a year loss in children's achievement, that's a
five to 10 percent decline in the value of human capital for tens of millions of
children. And if you add up what that value is in
terms of the lost earnings down the road, it's comfortably into the
trillions of dollars and not just a few trillion.
So we've gotten some really very, very discouraging news.
And it points out the importance of our. Doing much more and much better on
what we're doing in the whole education system.
We can't fix what happened. We can't fix the non learning that took
place when kids were at home during Covid.
We can do everything we can to double down on learning going forward.
And that's about how our schools are organized.
That's about who's staffing and teaching in our schools.
That's about making sure they're adequately resourced.
And in my view, that's absolutely critically about accountability for
everyone. Accountability for those teaching and
administering in the system and also accountability for the kids.
Whether it's the fact that close to 50 percent of all the grades in the Ivy
League are a straight-A, not a minus, or whether it's social promotion in too
many of our schools or whether it's the move away from testing because we don't
like the messages that tests send relative to our social aspiration.
We have got to get more serious about actual knowledge acquisition in our
education system at every level. Larry started the week with President Xi
coming out and unveiling his senior management team.
If I can put it that way, I might surprise some because there were no
perceived as moderates at all. They were really people who are very
much aligned with him. He also had a fairly aggressive speech
on his economic policy in China. What did you make of where China is
headed? Certainly the markets didn't like it
very much. I think anybody who thought that the
posture of Chinese policy was politicized before the party Congress,
but would be reformist after the party, Congress got absolutely nothing to make
their views confirmed. They didn't get it.
With respect to Covid, they didn't get it.
With respect to personnel in in it. With respect to rhetoric on the policy
substance. So given what happened, I wasn't
surprised to see markets respond with disappointment.
Now, ultimately, what happens is going to depend not on what was sad and just
which personnel appointments took place at this party.
Congress ultimately is going to depend on how things in the Chinese economy
play out, and it's going to depend on the judgments that President Xi
makes. I'm not optimistic for China's economy,
for reasons we've discussed in either the short run or the long run.
But we will have to we will have to say and I think what we can hope for at this
point is not any kind of friendship or partnership, but a kind of cold detente
in which the US and China recognize that they have to manage their coexistence in
their mutual interest. Whatever the depths of their hostile
feelings or sense of antipathy. And finally, let's end up on golf.
Something that you are very devoted to. I dabble in a little bit.
Augusta National here, it appears that the Department Justice is now
investigating along with the PGA. I don't know that we know what the
merits of the case. But what was your reaction?
I've got no idea what the merits of any of it are.
But I have to wonder, at a time when the Justice Department, the president, are
claiming that we've got massive problems of monopoly and concentration in our
economy, and when inevitably legal resources are finite, whether protecting
millionaire multimillionaire PGA players from some kind of exploitation is a
sensible allocation of resources and a sensible judicial priority, even on the
worst view of what is happening. I see a lot of other abuses in our
country that seem a lot more serious. And so I wonder about this choice and I
wonder whether there isn't some headline seeking element in it.
But again, I'm not aware of any details on the merits.