We had a lot of economic news this week. We had jobs numbers and we had fed
results, of course. Let's start with the jobs numbers
because they came in, I think at least relatively strong.
How did you interpret them? I saw it the same way.
Look, the population only grows by about 50 thousand adults a month.
So any time you have two hundred and fifty thousand
jobs, you're growing at a rate that you're not going to be ultimately able
to sustain. It shows that still the economy is
looking quite strong. No recession soon.
You saw wages tick up. So the good news is economy looking
robust. The bad news is not much evidence of
inflation restraint yet in train. Of course, when Jay Powell, the chairman
of the Federal Reserve, spoke earlier on Wednesday, he didn't know those jobs
numbers are. I don't believe same what he said
anticipated. Just what you just said is that
inflation causes. They're going to have to keep hiking.
I assume you thought what they did made sense.
Yeah, I think there was a little bit of bouncing around immediately after the
statement, but after Chairman Powells press conference, I thought the
necessary and right signal has been sent that the Fed is determined
to stay the course with respect to inflation.
That a sensible judgment of where the terminal rate, how high fed funds will
ultimately have to go has gone up. Given the strong inflation numbers, the
strong employment numbers that we've seen and that the Fed is determined.
So I thought those were very much the right kind of signals for the Fed to
send. And I think it's appropriate.
I think we are starting to get some little suggestion in the data.
We don't know yet. And we always have to remember about
lags that the effect of interest rates on slowing the economy might in toto be
somewhat less than many people supposed. And if that's right, I think it's going
to be pressure for interest rates to be pushed up further in order to get done
the necessary inflation restriction. So I'm moving upwards my view on the
possibilities for the terminal rate. It's not what I would expect, but it
would not surprise me if the terminal rate reached 6 or more.
And I think the Fed has to be noticing that there's been started to be some
upwards moves in inflation expectations, albeit from low levels.
And that's got to be a source of concern for them as well.
We're also beginning to get some suggestions, including even by some
economists like Mark Zandi, that, in fact, that the root cause of the
inflation is more a matter of supply rather than demand.
And because of that, it's not going to be really effective to just try to
curtail demand through increased rates. And therefore, by beginning in next
year, maybe they should start cutting back.
What do you make of that suggestion? I have to respectfully say that I can't
really see a lot of logic in the views that Zandi and those like him are
expressing. Look, the basic fact is that the way you
tell a supply shock from a demand shock, both of them raise prices.
But when there's a supply shock, quantity falls.
When there's a demand shock, output is strong and output has been very strong.
Employment has been very strong. The people who talk about supply shocks,
it's really just the last read out of team transitory.
First, it was a story about Covid ending quickly and it was a story about Covid
ending, slow ending. Slowly, it keeps bouncing around what
the story is. We've still got high core inflation and
gasoline prices were mostly down for a period of more than more than three
months. So I don't hear the story.
Very simple ways of looking at the data. Look at what's happening to nominal GDP,
total dollar volume of GDP if that's going up rapidly.
That tells you that demand is going up strongly.
Another issue that it's rearing its head.
You've seen this issue before and that's the debt ceiling up in Congress because
we're really pushing up against it sometime in the new year, maybe not even
too far in the new year. We're now seeing some talk on Capitol
Hill that perhaps strictly Republicans, if they come into power, will actually
hold that hostage to get some other changes they want, particularly in
things like entitlements. What's your experience with this?
And then what should we be doing? There are a lot of bad ideas in American
politics, but I think it's close to the worst idea in American politics that we
should hold hostage the credit worthiness of the country, threatening
to default for the first time in two hundred and fifty years.
And the ransom that people want is taking Social Security benefits away
from retirees, not a single one of whom gets more than forty thousand dollars
from Social Security. It is almost impossible to see a worse
idea either in terms of the hostage taking or the desired ransom.
The right thing to do is for us to raise that debt ceiling for a long time so it
won't be a political football. And I hope
that as many responsible Americans as possible can say, look, yes, yes, I am
for entitlement reform. I am for looking at the long run a
deficit picture. But hostage taking to cut Social
Security is wrong. And I hope
some of the business leaders who watch this show, whose PACs are giving money
to support the people who are advocating that will convey that as responsible
financial leaders. They know that their companies and all
our fellow citizens have a have a stake in the United States not playing games
of chicken with our country's credit worthiness.
One more here. Is important to argue arguments.
The Supreme Court this week on affirmative action.
You dealt with that not just in the comments, but also as president of
Harvard. What is the role of affirmative action,
United States within the economy? Look, I was pleased to sign
the brief that was provided on the basis of many universities.
The last time affirmative action was in the Supreme Court and fortunately at
that time, affirmative action was upheld.
Who knows what will happen this time.
But I'll tell you, David, I think what's most profoundly important for fairness
in our country is not the admissions policies of a few dozen elite
institutions. What's most important is the achievement
and the achievement of our minority citizens and the educational achievement
statistics that have come in from Covid are catastrophic.
They represent a 25 year fallback in progress.
We had been making at a time when math smart, analytic, smart workforce has
never been more important to compete with China.
And this ought to be our national preoccupation to make sure that every
kid learns everything that they can. And, you know, more people are talking
about the latest poll than our talking about these test results that are really
showing. Millions of kids are being left badly
behind in an age that's all about knowledge.