Start at the end of the week Larry we've got the jobs numbers at the United States better than expected pretty robust not just
for last month but also revising for the prior month. What do you make in these jobs numbers. Look at it fits the what I
thought for a while now. David we've got a very very strong economy on the demand side and not a very strong economy on the
supply side. And that's risking an overheating. You saw a lot of job creation. You didn't see an increase in labor force
participation. You saw a rapid average hourly earnings figure. But if you adjusted for the fact that most of the people coming
back were in leisure and hospitality where wages are relatively low it was an even stronger wage figure. I think we're still not
running policies that are consistent with the reality of the economy. The reality of the economy is that we've got a interest
rate far below the neutral interest rate and we've got a tight labor market. And that's a prescription for rising inflation not
a prescription for falling inflation. So I could continue to be very concerned about the outlook going out a year or so as the
economy starts hitting supply constraints and hitting them hard. Given all the pressure on demand Larry I wonder if there's a
connection between to the things you referred to the participation rate on the one hand and the increase in average
hourly earnings on the other because we've been saying well the partisan pacing rate went down from the pandemic. It's come back
some but it's not nearly where it was before. At what point is that continues out. Does that become a structural change that
actually could have longer term effects on inflation particularly wage inflation. So I think the two points David the
first is that until 2017 the Fed thought the normal unemployment rate the natural unemployment rate was four point seven percent
or more. So we may well just be there looking at the level of unemployment. And it's clearly headed down from here not up from
here. With respect to participation I don't think anybody can gauge it. But if you take more mental illness if you take some
concerns as people reassess their lives as you take super high level of structural change in the economy as you take some
people because of their fears of Covid or their distaste for mandates moving away from war. If you take the early retirements
that probably aren't going to be reversed if you take the more not more generous childcare
benefits and apply the estimates the progressives have traditionally used that's likely to have some discouraging
effect on employment. If you take all that together I don't think we've got a strong basis for thinking that participation
is going to rally in a major way. It might not. It might happen. But for that to be the major planning assumption seems to me to
be taking a big risk. Look that up if you can with what we heard from the Federal
Reserve this week in particular from the chair Jay Powell he certainly seemed to say in the news conference that really when
it comes to the question of tapering has begun but particularly rate hikes that's going to be determined by what happens with
the labor force. Is he right about that. Is it possible for him actually to be too gentle in the messages he's sending to the
markets. Because certainly the financial conditions did not tighten at all. Look what the Fed controls is financial
conditions. You look at financial conditions as measured by real interest rates. If you look at financial conditions as measured
by asset prices they are looser than they were before Jay spoke on Wednesday. They are looser than they were a month or two
ago. We've got rising inflation and we're not tightening financial conditions. That's why I fear that we are on a risky
course. Now the argument that thoughtful people like my friend former classmate Paul Krugman make is that there's some
risk aversion principle that we've got to do this because it would be so catastrophic to
run a recession and inflation is a manageable problem. I agree that we've got to guard against risks. But here's my
view. My view is if we let inflation accelerate there's almost no proven ability of the central bank to engineer a soft
landing. And so in order to squeeze out an extra bit of hope for labor market tightness I think we're taking a real risk that
we're setting up for a very serious problem. You know if you'll look ahead of you and you see that there
might be all the traffic stopped you start breaking your car as early as you can. Even if it means that it's going to slow you
down in the event that there is no traffic jam. And that's I think the right way to think about the central bank's problem
right now. Learn another big development through the course of the week was with respect to the infrastructure bipartisan
infrastructure bill as well as the so-called build back better plan. It's not quite there yet. It's not finalized but we have a
pretty good sense of where it's going. What do you make of what we're seeing both on the what we're spending side and how we're
paying for it side. Look I hope we get this done. I hope both bills pass the bipartisan infrastructure bill and some version
of the so-called reconciliation bill. Sure. A lot of effort going into building better build back build back better. And I
hope it works out. I also hope people are going to keep a very very close eye on this since at the very last stage that's when
abusive provisions or miss provisions or sometimes put it. I'm glad to see that the provisions on assault deductions look like
they're being modified somewhat. It would have been a real tragedy gave it I think if the provisions ended up being written
in a way where people in the top tenth of a percent of the income distribution got a substantial tax cut. I think we're
moving towards fixing that. But look these are investments that our country should be making. It's also not too early to say
that it's not the amount of money you spend and the nobility of the cause you spend it on.
But it's how well you spend the money that matters. Our infrastructure projects going to produce a better
infrastructure. Or are they just going to help the businesses that provide infrastructure services. It's going to be really
important both in terms of the effectiveness of the investments and in terms of the American people's confidence in government
that this money be spent well as well as being spent on a significant scale.
Larry one last one. Last week you and I talked about the Cop 26 talks which were upcoming Gaza. We've now had them. You
expressed some concern even doubt last week that they would be able to do enough to really get us on the course we need to go.
Did they. I'm still I'm still worries. David you know I I learned
as a fundraiser that when people wanted to say a really polite. No what they would do is talk about a much longer horizon and a
much more ambitious goal. And I felt like there was a fair amount of that going on in Glasgow. And I'd like to judge things
a little more by what people are actually going to get done and committed in the next five years rather than the aspirations
they're going to set for decades from now. It's such an important lesson. Just briefly at the end what do we need to do
to have concrete things to be done in the near future. I think how rapidly we move we're moving to
a very supportive way replace coal fired power plants with renewables is going to be an absolutely critical task. I think
globally we are still spending trillions of dollars on fossil fuel subsidies. And the single most important thing I would be
looking at is not the credits that we give to renewables not the penalties we impose on fossil fuels but just the pace at which
we reduce those fossil fuel subsidies.