I got to stay with those jobs numbers out on Friday when they cross.
I actually thought maybe they were wrong.
This is extraordinary. Five hundred seventeen thousand jobs
were adding given where we are already. It's a huge mess relative to the
consensus. It's way out of line with what you'd
have expected with ADP. The labor markets running very
differently than lots of other indicators in the economy where you see
some signs, particularly in manufacturing of real slowing.
So it's a pretty confused picture. One idea would be that people are still
worried about how much work they're going to get out of their workforces,
given people working at home, given increased absenteeism.
Given a variety of post Covid changes. And so they just feel that whenever they
can get workers, they should take the opportunity.
But it sure does seem like we have a lot of workers relative to the amount of
demand we have or matter production we have in the economy.
And the question is, is all this going to be income that's going to be spent?
That's going to lift the economy up a bunch?
Is it going to turn out that at some point people realize they've got too
much inventory and labor and we're going to see a fairly sudden stop?
I think it's as difficult an economy to read as I can remember a year ago at
this time, I was pretty confident about what the principal imbalances were and
how things were going to play out. I don't have that kind of confidence
right now. Can we have this sort of addition to the
job market and not have wages go up more than we thought?
They went up four point four percent a year over year now.
On the monthly, which was a tenth of a percent more than expected, but it
wasn't that dramatic. Are we going to have wage inflation kick
in here that will really give us problems once again on monetary policy?
David, that's a basic question. I went back and looked at the
forecasting model, emphasizing vacancies that I had used a year ago to predict
that we were headed for significant wage inflation problems.
And what I found was quite interesting to me.
What I found was that that model is predicting wage inflation right now just
about right. But it's substantially under predicted
wage inflation in the latter part of 2022.
So we saw an acceleration beyond what models would have predicted that I in
2022. We saw that.
I now realize with respect to wages, just as we saw that with respect to
prices. And the central question is we had some
easy calm. And now it's come off very quickly,
inflation. And the question now is whether that
inflation is going to continue to decline rapidly.
Continuing the trend of the last few months, or whether the inflation that
was never really predicted by models was, in a sense, ultimately transitory.
But now we're left with an underlying inflation that's going to be much more
difficult to have get out of the economy.
And if the latter is the case, we're going to have a more difficult set of
challenges in achieving the proverbial soft landing.
If the former is the case, then there may be a more natural glide
path to a soft landing. And I think it's very difficult to know.
So it's really a question about whether there's two categories of inflation.
Easy come, easy go inflation and underlying base inflation, or whether we
can infer a lot from the progress of the last few months.
And that's something that I think one has to remain agnostic about.
And the difficulty you described, Larry, sit right on the desk of Jay Powell, the
chair of the Fed, from whom we heard, of course, this week in connection with
their decision last week before we heard from him.
You were on this program saying it's what the Fed has a sort of like a car
and a foggy night. And basically you've got to keep the
foot close to the accelerator and close the brake.
And this is actually what your friend and colleague, Paul Krugman had to say,
reacting to what you had to say. This really disturbs me to say this, but
I think I agree with Larry. Yeah.
We could you know, we will get it wrong one way or the other.
And. Chance in either direction.
The salary you disturbed your friend Paul Crawford because he actually agreed
with you, but at the same time, do you think Paul did exactly what you were
describing? Did he keep his foot sort of close to
both the brake and accelerate without going too far either direction?
I think the Fed's doing a good job of portraying substantial uncertainty
in the economy, recognizing that it's going to be very hard and one's going to
have to try to interpret the data. Month by month and that there are a lot
of surprises. I think they're having a difficult time
convincing markets on their determination and with respect to the
path towards the end of the year.
I probably still think the risks that the two part theory I just laid out is
true and that the inflation reductions will be transitory.
I think that risk is greater than I think the Fed thinks it is.
I do still think there is the risk that I've talked about earlier on the show of
a kind of E. Coyote moment where firms realize
they've got too much inventory and too many too many people.
And you see a more economy wide turn to adjustments of the kind you've seen in
the relatively limited in terms of employment technology sector.
But that stopped. That's certainly anything but a
confident prediction last term from the central bank.
Actually, the executive branch and the White House where there's a big change
going on in the staff there. Ron Klain, the chief of staff, has left.
Also Brian Deese, with whom I know you've worked personally very closely.
What do you think about their tenure and as important, what is President Biden
now need going forward? I think Ron Klain is chief of staff and
Brian Deese as head of the NTC have very proud legacies.
They can look back on this administration with a very small set of
margins in the Senate and in the end in the House, probably pass more economic
legislation in its first two years than any administration in more than two
generations. There are, to be sure, real and serious
issues with inflation. But I don't think anybody would have
predicted an economy quite as strong as the one in the labor market, at least
that we are seeing. That was that we're seeing right now.
So they've got an enormous amount to be proud of, as does Treasury Secretary
Janet Yellen, who will fortunately be continuing in her position and will
provide, I think, some hugely important stability for the for the economy.
But Ron Cain and Brian Deese should be and are leaving with their heads held
very high. And, of course, one has to give enormous
credit to the president who relied on them to really push forward a set of
very bold policies. And finally, give us a minute on
antitrust. We've talked in the past about Linda
Icahn, the chair of the FTC, and her new approach that.
She tried it out in court trying to stop actually matter from making it
acquisition of a small virtual ISE startup and was rebuffed by the court.
What do you make of that? I'm worried about over ambition in
antitrust policy. This isn't the first or the second or
the third time that our antitrust authorities have lost in court for
overstepping. I've heard stories that they are trying
to ask so many questions about mergers, even when they don't think they're going
to have a strong legal argument. The deadlines are passed and the mergers
don't happen. That's not the way it should happen in a
country that's governed by the rule of law.
Now, I don't know for sure whether those stories are.
True, but I think here at halftime in the administration would be a good idea
for the antitrust authorities to step back and focus on their highest
priorities, because I think there's the real risk that excess ambition will
bring us the worst of all worlds. It will chill business confidence.
It will divert attention from cases that could be won and it will discredit
necessary steps with respect to concentration.