So Larry a good part of the week this week was given over to talk about recession on the one hand and inflation on the other
we heard from Fed Chair Jay Paul for two straight days up on Capitol Hill. Let me ask you the most basic question as you look
forward to the economy. What do you think the biggest risk is right now we face. Look I think David that a recession is almost
inevitable probably a 75 percent 80 percent chance within the next two years. And there's certainly a real risk that it will
come sooner. That's going to be a very difficult thing though as I say I think it may be inevitable given where we are. But I
think it's going to be very important to make sure that if we're going to go through a period of pain we do slay the inflation
dragon. You know there have been many failures particularly the 1970s are the classic example of where economic policymakers did
the equivalent of stopping their antibiotic when they felt better. But before the 10 day dose was through. And so it's a
very very difficult set of balances and challenges that the Fed's going to have. And I very much hope that they make wise
choices. So I take your point that the only thing worse than having recessions is having one without slaying the inflation
dragon is is that. But let me ask you at this point some people are predicting this will be a fairly short and shallow one. Do
we have reason to believe that. I hope they're I hope they're right.
I think the question is going to be how much recession do you how much recession is going to be part of eliminating inflation.
And that goes back to the whole debate about team transitory. If most of inflation is transitory then we're not going to have to
live with very much pain to get the inflation out of the system. If more of it is more ingrained then we're going to have to live
with more difficult. The I was mildly encouraged by the number that came out today suggesting that long term inflation
expectations as measured in Michigan had gone up a little less than people originally thought. But I still do think we have a
meaningful amount of inflation that we have to get out of the system. And I don't think we're going to do that in one or two
quarters of economic slack. But look there is no reason why this needs to resemble the recessions of the last generation. This
should not be anything like what happened after Covid. This should not be anything like what happened after the great
financial crisis. Just how deep just how long. It will be difficult to know. But most people remember the last two
recessions and I don't see any reason why we're headed for difficulties of that kind. One of the things that Chair Paul
testified about this week was neutral rate that he still thinks is about 2.5 percent. I wonder if you agree with that. And then
going on to say we may have to go somewhat over that. Some people think he has to go well over that. Were you. Look I think
that talking about the neutral rate without talking about the rate of inflation is basically illogical. And so when he says
the neutral rate is two and a half percent he's assuming that the inflation rate will be 2 percent which I don't think is to
be assumed without the right kinds of policies. So my guess is we're going
to have to go well above two and a half percent on interest rates. Ultimately in the long run what we get through this
inflation episode I think there's a substantial chance that we're going to return to the kind of secular stagnation
situation we had before Covid which could mean a neutral rate below
two and a half percent. So I think we're going to have to be very careful and monitor to track to track what's happening. But
I wish Chairman Powell would start framing the neutral rate as a real interest rate concept that at any moment is dependent on
the underlying rate of inflation and stop just using a nominal figure that assumes so much of what is at issue. Staying with
Chair Paul's testimony again. He also testified a fair amount. But on both days of the hearings actually about the housing
industry and the fact that necessarily the increased rates are hurting the housing industry even suggested that at least in
some parts of the country we may have housing prices go down. How big a threat is that to the economy. Because that is
something we saw back during the great financial crisis. I think we're in a much less precarious situation in housing than we
were during the great financial crisis. House prices have run way up and I wouldn't be surprised given what's happened to
mortgage rates. If at least in many parts of the country there was some
backtracking of house prices. My assessment is that that's not going to pose the kind of systemic financial risk that it did
during the great financial crisis. But as is always true when there's excess the people who get in last find it expensive. And
I suspect that they're going gonna be people who hit the top when they bought houses sometime in the last three to six
months. And I wouldn't be surprised if for some interval they see a decline in the price of their house. Larry Courtney
Donohoe testimony on Capitol Hill. We also had two very dramatic opinions coming out from the Supreme Court the United States. I
know that you're not a constitutional lawyer at least not that I'm aware of. At the same time I wonder what you think about
that decision with respect to second limit and guns and also then at the end of the week with respect to abortion you have
talked on this program before about your concerns about the institutions of democracy in this country. I'm worried about a
Supreme Court that's so radically breaks with its own precedent that is so fully in
the life of the country. And I wonder if that doesn't raise questions more broadly about the predictability and continuity
of policy the extent to which there are very strong checks and balances
in our democracy by my personal values. Both these decisions were appalling. But you know everyone has their values and there
are other people who would have very different values. What I think is in some ways the more fundamental issue is this
question of reversing precedent and mandating things that have really not been
acceptable for many men for many many years. I can't help but feel that the decision that it's illegal and unconstitutional to
stop people from carrying concealed weapons goes a long long way
for for me. And I think Roe v. Wade has been so much part of American life that to remove it completely in the way they did
with the divide completely divided court is a kind of fairly shocking act. And I say that as someone who believes very much
in deference to the court. I was not one of those who attacked the court for the Bush v. Gore decision though it was not a
decision I liked or supported. I was not one who was prepared to attack the court for the decision they made in Citizens United.
The case about corporate funding of politics though that was a decision that I didn't like. I think these really are quite
radical decisions of a particular kind in terms of changing longstanding
Supreme Court views. And that does concern me in very fundamental ways. All right. Let's wrap up with one of your
favorite pastimes golf. I remember you got a hole in one this year as I recall. We have this real dispute now in professional
golf between on the one hand the PGA and the other hand live golf. What do you think about what's going on with that new
upstart. You know David in some ways it's a it's a fight between the highly entitled and the highly highly
privileged. But I think it says something really quite interesting about our broader economy. When you had the PGA with
a monopoly you had a certain distribution of rewards between golfer number three and golfer number one hundred and three. Now
when the whole thing gets competitive the superstars are going to get more if they go to the alive A. And in order to keep them
they're going to get more staying with the PGA. I think that's a metaphor for a lot of what's hap.
In our economy whereas there's more and more competition more and more ability to discern who the superstars are there's some
pulling away of the superstars and some loss of solidarity not as a consequence of market forces. And that's a very difficult
thing to think about because there's a lot of efficiency coming from those market forces. It's why I think having a progressive
tax system is so much more important because I think we should be allowing the kind of competition for the greatest talent that
this thing report that this thing represents. But that at the same time we want to have a society where there's some degree of
solidarity and everybody has a chance. And so allowing market forces to operate with progressive taxation is I think the right
answer. Okay. More progressive taxation.