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Moody's Talks - Inside Economics

Episode 100
February 24, 2023

Be Patient and Beer Inflation

Bill Spriggs, Chief Economist of AFL-CIO, joins the podcast and shares his views that we need to be patient on inflation, it's not the result of an overly tight labor market but to temporary forces, and thus does not require aggressive Fed rate hikes. He also dissects President Biden's industrial policy.

For more on Bill Spriggs, click here

Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight

Mark Zandi:                     Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by Cris deRitis. Hi Cris, how are you?

Cris deRitis:                      Doing well, Mark. How are you?

Mark Zandi:                     Good. Of course, Cris is one of my co-hosts. Where's our other co-host, Cris? Where's Marisa today?

Cris deRitis:                      I think she's preparing for the blizzard.

Mark Zandi:                     Oh yeah.

Cris deRitis:                      LA.

Mark Zandi:                     LA's getting hit by a blizzard, right?

Cris deRitis:                      Yeah, but it's not downtown, I understand.

Mark Zandi:                     Oh, it's not. What, where is it?

Cris deRitis:                      No.

Mark Zandi:                     It's more in the mountains or something?

Cris deRitis:                      Yeah, yeah.

Mark Zandi:                     Wow. But she's buckling in for that, or getting under a blanket or something.

Cris deRitis:                      I suspect. I don't know where, she's just not here today.

Mark Zandi:                     She's a softie. She's just a softie. And also Dante, Dante DeAntonio. We asked Dante to join, a regular here on Inside Economics. Good to see you, Dante.

Dante DeAntonio:          Good to see you too.

Mark Zandi:                     How you faring?

Dante DeAntonio:          I'm doing pretty well. I'm leaving for vacation tomorrow, so it's a good day.

Mark Zandi:                     Ooh, that sounds nice. Are you going anywhere?

Dante DeAntonio:          Antigua.

Mark Zandi:                     Antigua. I've been. I've been, Antigua's nice. Yeah, yeah. Have you been?

Dante DeAntonio:          I have not, no. Looking forward to it.

Mark Zandi:                     Yeah. When I was your age and I had young kids, we would, when we could afford it, fly down to a Caribbean Island and hang out for a while, and Antigua was one of those places.

Dante DeAntonio:          The nice thing though, my kids, they're not coming. They're staying.

Mark Zandi:                     Oh. Well, I think that's a grave error, frankly. Well, I don't know your relationship with your wife, so I probably shouldn't say that. But some of my fondest memories with my kids are on those trips, but I'm sure you got many other fond memories, so I don't mean to get into your stuff there, Dante.

Dante DeAntonio:          That's okay.

Mark Zandi:                     That's okay. I do that all the time. And we've got Bill Spriggs. Bill, good to see you. You're on mute. We'll get you on there.

Bill Spriggs:                       Sorry, I thought my space bar was supposed to unmute me. It didn't.

Mark Zandi:                     Does that work? I never heard of that before, the space bar.

Bill Spriggs:                       Yeah. It's so that you don't have to go hunt for your mouse.

Mark Zandi:                     Oh, that sounds convenient.

Bill Spriggs:                       But it didn't work.

Mark Zandi:                     Oh, it didn't work, so forget about it. Well, it's good to have you on, Bill.

Bill Spriggs:                       Thanks for having me. Good to see you.

Mark Zandi:                     And just to formally introduce you, you are a professor at Howard University, an econ professor, and also the chief economist of the AFL-CIOs. Is that fair to say? Is that official title, chief economist of AFL-CIO?

Bill Spriggs:                       That's the official title.

Mark Zandi:                     And how long have you been the chief economist for AFL-CIO?

Bill Spriggs:                       11 years now.

Mark Zandi:                     Oh, I did not know that. Wow. Okay. How do you do double duty like that? What's the deal?

Bill Spriggs:                       The AFL-CIO gives a grant to Howard. It buys out part of my time.

Mark Zandi:                     Oh, I see. Very interesting. And of course you were-

Bill Spriggs:                       My check says Howard University.

Mark Zandi:                     Oh, the check comes from Howard. I see. Got it. Got it. And of course, you were in the Obama administration as well, in the Labor Department.

Bill Spriggs:                       Correct. I was Assistant Secretary for Policy.

Mark Zandi:                     I bet that was a cool experience.

Bill Spriggs:                       It was a fascinating experience. It was sort of life comes full circle. In the Clinton administration, I headed what was the National Commission for Employment Policy, and when the Republicans came in the early nineties, they got rid of that. They didn't think it was necessary for us to evaluate our job training programs. Fortunately, I had left there to join the Joint Economic Committee when that happened, but then I landed the Department of Labor and the Obama administration wanted to make sure that there was evaluation of all federal programs, and part of the legislation they put in place then recreated an evaluation for the Department of Labor. So as assistant secretary, I got to recreate my old job.

Mark Zandi:                     Oh, that's cool. So you had implemented this oversight, it got torn down, and then you had to resurrect it again. Is it still in place now in the Biden administration?

Bill Spriggs:                       Yes. There's still a chief evaluation officer and an officer policy now.

Mark Zandi:                     Very cool. And you've been a fixture in DC for a long time, I was looking at your bio. You mentioned the Joint Economic Committee. You're also at the Economic Policy Institute, very well-known. It's fair to say it's a think tank, right? That's Larry Mishel. I know Larry. That's who I go to immediately.

Bill Spriggs:                       Larry was my office mate in graduate school.

Mark Zandi:                     Oh, good luck with that. I bet that was a real trip.

Bill Spriggs:                       Oh, we were a rocking office.

Mark Zandi:                     I bet. You guys were firing each other up, I bet.

Bill Spriggs:                       We did. Yeah.

Mark Zandi:                     He's a good guy.

Bill Spriggs:                       He was research director when I worked with EPI. I came back later when he was president as a senior person for a brief stint before I went to Howard.

Mark Zandi:                     Got it. I follow him on Twitter. Are you on Twitter, Bill?

Bill Spriggs:                       I used to be very active on Twitter. It gives me funny feelings, so now I don't tweet as often. I will do it on Jobs Day, and I used to do it on Jobs Day for half an hour. I haven't done as much.

Mark Zandi:                     I'm @markzandi, I advertise that any chance I get. But I got a little annoyed this past week because it turns out someone had gotten @markzandii with two Is and was impersonating me and copying my tweets and tweeting them out, and also talking to people who I know and saying stuff. And they'd come back to me and say, "Mark, what are you saying?" So I go, "What are you talking about?" And so here's a real thing that irritated me. I said to the Twitter, "Look, someone's impersonating me," and they sent back an email saying, "Well, they don't really violate our rules." I go, "What? Are you kidding me? Are you kidding?" They're finally relented and so this impersonator has been blocked, but highly irritating. Anyway.

Bill Spriggs:                       Well, I think that's the secret of where did all those Twitter employees go? Why is Twitter still [inaudible 00:06:55]? And so it's things like that, that people who use Twitter a lot would notice, but a lot of people wouldn't necessarily notice. There was a piece of the Post yesterday saying, "Oh, so they really were redundant because Twitter's still doing well."

Mark Zandi:                     Oh, I saw that. I saw that.

Bill Spriggs:                       Yeah. And so I think that a lot of technology is lowering the quality of-

Mark Zandi:                     I agree with you. It's more of a corrosive. It's not like a cliff event, it's like a corrosive on the quality of what's being provided. And you don't notice it immediately, but over time, stuff like that, what I just described happens, and I totally agree. I think that's what's going to happen here. Well, let's dive into the meat of the matter. We got a lot of ground to cover. And today, this is what, Friday, February 24th, we got a lot of economic data from the Bureau of Economic Analysis, and it's causing a little bit of agita. Well, I'd say a fair amount of agita in markets, financial markets, stock bond markets, foreign exchange, so let's just talk about that a little bit. I'm sure I'm feeling Cris, looking at him, he might be gloating at the moment. I'm not sure. No? Okay. All right. Dante-

Cris deRitis:                      It's one data point.

Mark Zandi:                     Oh, you're right. It's one data. That was going to be what I said, but okay. Thank you. Dante, you want to give us a bit of a rundown on the data?

Dante DeAntonio:          Sure. We got big readings in terms of month-over-month changes in personal income and real personal spending. Those numbers were driven in large part by end of year changes. You got cost of living adjustments for social security that went into effect in January, you had a host of minimum wage increases across the country, so certainly some one-off beginning of the year events that were causing some of that spike in income and spending. And then we also got the PC deflator for January, which was 0.6% both top line and core-

Mark Zandi:                     Just to stop you for a second, the consumer expenditure deflator. So it's the core, which is excluding food and energy, is the favored measure that the Fed looks at for engaging inflation. And their so-called target is 2% for core CPI inflation, which means monthly 0.1, 0.2, that's the gains you'd like to see.

Dante DeAntonio:          Yeah. And so certainly, the January reading was up a little bit from prior months, although the year-over-year numbers are still coming down, maybe a bit's more slowly than people would like to see, but I think it's a similar message from what we got from CPI earlier in the month that the moderation in inflation's going to be probably a little bit of a bumpy road.

Mark Zandi:                     Yeah. Hey Cris, did you look at those data at all? Was that something on your radar screen this morning?

Cris deRitis:                      Yeah, a little bit. I haven't gone deeply into it.

Mark Zandi:                     What's your take?

Cris deRitis:                      Well, I think you're right, the market interprets it certainly as a hot number. I think they may be reading it very closely, and assuming that the Fed is going to be very aggressive, maybe a 50 basis point rate hike is back on the table now.

Mark Zandi:                     Oh, is it?

Cris deRitis:                      Yeah. To some degree. It's certainly not a done deal, but that is certainly in the zeitgeist here after the number came out.

Mark Zandi:                     So your view is well, it's hot, meaning the inflation-

Cris deRitis:                      The spending number was hot too that Dante mentioned, so it seems putting it all together, if you believe the labor market report as well, that was hot, so everything seems a little bit frothy at the moment, at least at face value.

Mark Zandi:                     If you take it at face value. But as you said, never put too much weight on any one month's worth of data.

Cris deRitis:                      That's right. One data point, we've been talking a lot about the seasonal adjustment issues, the measurement issues. Dante referenced some of the changes in the data as well, so you need to take it with a grain of salt.

Mark Zandi:                     Yeah. Hey Bill, do you watch these data? You can see we're pretty nerdy here. We're in the bowels of these data. Do you follow the statistics like that? Like today's numbers, were you following them or have a view on them, on personal income and spending and inflation?

Bill Spriggs:                       Yes I do, and I am irritated at my profession. I think the economists should have well-expected that if you blow up markets the way that we did, that you're going to have long-running ripple effects. And to think that the markets will calm down after an unprecedented series of shocks in two years is unrealistic. I don't think we have been helping the American people understand the situation at all. And the fact that we got the labor market back, that was really a miracle policy that we decided that we would be aggressive in making sure people came back to work. But for prices to settle, when we've disrupted the markets in terms of supply, in terms of fulfilling demand as we did during the pandemic when we couldn't go certain places, couldn't buy certain things, you cannot disrupt the markets and then send out these ripple effects and then think that you reach equilibrium, boom, like that because it's just not possible.

Mark Zandi:                     So just to paraphrase what you said, just to make sure I got it right, you're saying, "Hey, look. We got hit hard by some massive shocks." The obvious, the pandemic and the Russian invasion of Ukraine. This created massive dislocations in the global economy. Labor markets, product markets, supply chains, you name it, everything got turned on its head. And of course, dramatic policy response from central banks, the Fed, from fiscal policymakers, administration and Congress. And to think that this economy is going to settle down, get back to let's call it normal quickly, right now, that just doesn't make any sense. That's what you're saying.

Bill Spriggs:                       Right. And so I think people need to pay attention to direction. Are prices coming back down? That's the key element. And for me, this is where I get more upset at the Fed because at least in labor, our big concern had been the lack of chips because in the auto industry, finished product was at the level of the Great Recession, but the data was very misleading on autos because that was the finished product. They had hundreds of thousands of cars sitting in warehouses and parking lots throughout Detroit waiting for the chips. You cannot take auto production to Great Recession levels and then think oh, nothing else will happen.

                                           So when everybody was astonished, whatever, that used car prices would go up it, this is Econ 1. That's a question on Econ 1. Lowest auto production to the lowest level of the 21st century, lower than even numbers from the 20th century, so what's going to happen? And so of course, if somebody comes to the auto lot and they see that they can't get a car, they're told, "We can get you a car in eight months," then of course I'm going to say, "Well, what do you have on the line?" So course the used car prices are going to go through the roof. This is to be expected.

                                           So what bothers me is you look at the CPI and the price of used cars year-over-year are down 11.6%. So the concerns from the Fed have been, "Well, no, you shouldn't look at it as this is a one-time shock. Expectations will build in. People are going to demand the used prices, stable level and blah, blah, blah, blah, blah, blah, blah." But the prices are falling 11% over the year, so it's not like they're rising at a slower rate, the things that were actually impacted by some of these shock that we said were temporary. The prices are falling. The price of smartphones year-over-year, down 23.9%. That's not in the news.

                                           I don't understand why that's not in the news. You can't tell me we have a problem with huge demand over supply and the price of smartphones is down 23.9%, but this is what we say. Unlike autos. You can complete an automobile up to a point and then you got to put in the chip. A telephone is nothing but smart chips. You're up the creek. You can't do anything. So secondly, production is back, the price has falling by a lot. So this is all temporary. The other things we have, we still have the shocks from it. We still have huge disruptions to food production, and food goes into a lot of things. It just isn't possible to have the other things fall as dramatically as smartphones. Major appliances. You got to have chips for major appliances. That's down 3.9%.

Mark Zandi:                     Well, let me unpack-

Bill Spriggs:                       All of these prices are falling, not rising at a slow rate. They're falling totally consistent with that shock is over, so these other shocks which we're still suffering from, I think we should similarly feel that because the overall price trend is coming down, that in fact we don't have this inflation is out control situation. We have these disruptions that are slowly easing, but we're going to have to continue to deal with them because of this weird weather. Who knew it would snow in LA in March?

Mark Zandi:                     And 80 degrees in DC, as you were pointing out before the call. Hey, you said a lot. Let me unpack a little bit of that. First off, Econ 1? In my day, it was Econ 101. What, has that changed to Econ 1?

Bill Spriggs:                       Oh, at Howard it's Econ 001.

Mark Zandi:                     Oh, 001. Okay.

Bill Spriggs:                       It depends upon the college. Yes, at my undergrad it was Econ 101.

Mark Zandi:                     101. Cris, was yours 101 or were you 1?

Cris deRitis:                      101.

Mark Zandi:                     101. And Dante? Well, Dante skipped 101. He didn't even need to do 101.

Dante DeAntonio:          No, I think at Penn State it was Econ 2 and 4, which was micro and macro, which made no sense to me. Where's 1 and 3? So I don't know.

Mark Zandi:                     Right. All right. Okay. Well, now that we got that settled, let me push back. First of all, Bill, let me say I'm very sympathetic to your perspective, but I'm going to push back and then I'm going to let the other two guys weigh in as well. I think the concern is not at this point, when we were talking about inflation and monetary policy and what the Fed should be doing or not doing, which is obviously critical to the economic outlook, whether we go in a recession or not because that depends on how aggressive the Fed needs to be here to quell the inflation, it's not so much goods prices anymore. I think most people would say, "Yeah, you're right, Bill. Good prices are falling. That was disrupted by the supply shocks created by the pandemic and perhaps the Russian invasion."

                                           Chips is the poster child of the COVID disruptions, and the vehicle industry is the prime example of the disruptions. So no argument there, but I think the concern at this point is that the increase in inflation due to these supply shocks has affected inflation expectations, particularly among workers and consumers. So if you go look at the University of Michigan survey of consumer expectations, they're coming down, but they're still pretty elevated. Or look at the New York Federal Reserve survey of consumer expectations. They're coming down, but they're still pretty elevated, and that's gotten into wages. And then once it gets into wages, it feels like inflation potentially gets into the service side of the economy, it metastasizes in a sense and that's much more difficult to ring out, and right now that's the concern.

                                           So if you look at today's inflation numbers, the consumer expenditure, the core PCE, and you look at the so-called super core, this is now J. Powell, the fed of the chair has pointed this as the statistic he's most focused on. That's services X housing, that that actually remains stubbornly high and it actually jumped again in the month of January. It could be warm weather, which juiced up demand, and of course we got all this income flowing into the economy because of big in hike and social security payments. That juiced up demand, which could result in higher prices. And we've got seasonal adjustment issues, both in terms of the warm weather and just so-called residual seasonality because the pandemic messed with all the statistical techniques to tease out the seasonality. But nonetheless, that's where the problem lies. What do you think? Is that you're saying we shouldn't be worried about that, nervous about it, hair on fire? That's just the wrong perspective to have on that?

Bill Spriggs:                       It gets a yawn from me.

Mark Zandi:                     Oh, it's a yawn. Okay. Oh, interesting. Okay.

Bill Spriggs:                       I find it poorly informed.

Mark Zandi:                     Okay, so explain.

Bill Spriggs:                       Dante went over this, and it's very key to understand. We are in a process of raising our minimum wage in the states where the majority of Americans live, and that started pre-pandemic when we were in the final stages of recovery, but wages at the bottom had not responded. It's very hard to understand how we had several years of lower unemployment in 2019 and 2020 and wages weren't responding. And most states then stepped in and raised their minimum wage because we hadn't raised it in over a decade. It was at its lowest real level almost ever, and it is in the states that haven't raised it. So now if you go from $7.25 to $15, you have to bake in huge increases, right? Because you go $7.25, the next step in some states was $9. Well, that's a huge percentage increase. And so even the states that didn't go to $15, like Missouri that only went to $12, they went from $7.25 to $10. These are huge increases.

                                           All of the wage increase, when you look at the data, is coming in those industries that are dominated by low wage workers. So the biggest industry where that's true is food services. So if you look at their increases, they were getting 10, 12% increases because the minimum wage was going up 10, 12%. And as a result, those wages made the distribution look pretty potent because our wage distribution is so skewed towards low wage workers and it did need a correction, but it wasn't the rest of the labor work. If you looked at other workers, it was 3%, 4%, excuse me, very modest wage increases that were taking place.

                                           And when you look at what unions were able to negotiate, it's not like employers were out there going, "Oh yes, we want to give big raises." We see the incident now with the train wreck involving Norfolk Southern, we have to remember how the rail industry responded. They didn't respond in this moment with big wage increases with what ended up being negotiated through Congress and the White House to reach that resolution. It had nothing to do with inflation. Their wage was way below the inflation rate with that. And the companies, even with the little tiny wage increase that they gave, they still refused to give workers time off.

                                           So you cannot point to a single labor contract that's been negotiated where workers have been saying, "Oh wow, we got to get a 10% increase or 8% increase or a 7% increase." That's not where it's going, where workers actually get to bargain. And the companies are not responding with the sense that we have to give in, this is a really terrible laborer type. That's not how they've been responding. So what has been happening is as we slowly get to the $15 or $12 or whatever the states set, those wage increases at the bottom are moderated greatly. And so we're seeing the bottom slowly pull down what are the wage increases that we see reported, and wages are coming back in. There is no market. There is no labor market in America where this gets baked in. It's impossible to bake in inflation. It's impossible. It's not on the map, it's impossible.

Mark Zandi:                     Okay. So you're saying the strong wage growth we've observed over the last couple, three years or so is largely the result of state minimum wage increases across the country. And they're being phased in over time, obviously, and so that's stepping up wages particularly and obviously this would affect low wage workers. Beyond that, you don't see significant wage pressures, at least not pressures that would result in gaining higher rates of inflation. That's what you're saying.

Bill Spriggs:                       That's correct, because what you have to remember is we have star wages at the bottom, and only when you have a good, tight label market and a minimum wage do you get anything happening at the bottom. We've mandated wage increases, but when the label market is tight, you get one more boost, which is because firms are hiring at the same time we're raising the minimum wage, then if I'm a worker, any job I get is going to be a wage increase because I have to get the minimum wage increase. But those employers that are slightly above the minimum wage, those employers who are doing more to protect their wage structure, because there's the issue of wage compression.

                                           If I'm currently making 20 cents more than the minimum, is my company only going to say, "Okay, well you just get the minimum wage. We're just going to have wage compression. You will now make as much as anybody I hire off the street," or will my company say, "I got to pay you 20 cents more than the minimum"? And because any other employer is doing the same thing, it's easy for me to switch and get a higher wage job. And you saw this in the recent report from the Fed, the large number of workers who are switching jobs and getting significant wage increases. And that's because no matter what, if the minimum was going to $10, I'm going to get $10 an hour. But because I was already above the minimum, there are going to be employers out there going to respect that wage gap and I'm going to-

Mark Zandi:                     Preserve it.

Bill Spriggs:                       ... get an even bigger wage increase. That is what has been going on.

Mark Zandi:                     And so to your optimism, this is temporary because we're coming to the end of these minimum wage hikes and as that comes to an end, we'll see wage growth let's say normalize, get back to something that's more consistent with the Fed's target. That's your optimism.

Bill Spriggs:                       That's right, because many people overestimate the power of a low unemployment rate on wages. This is why the-

Mark Zandi:                     Overestimate you said, Bill? Overestimate?

Bill Spriggs:                       Overestimate because the current interpretation is these wage increases are from a low unemployment rate. They're not from a low unemployment rate, they're from we raised the minimum wage and we have a low unemployment rate.

Mark Zandi:                     Oh, okay. And I'm sorry guys, I'm going to turn it back to you in one second, but I just want to ask one other follow-on question that seems to be a natural result of what you're saying, or maybe you've already said it and I missed it. The 3.4% unemployment rate, which I don't know, you got to go back to 1969 to find that unemployment rate, is not consistent with an economy that's operating beyond full employment. That's pretty consistent with... Well, you characterize it. Is it full employment? Are awe not at full employment, or do you disregard any that concept altogether?

Bill Spriggs:                       No, we have a whole lot of space left.

Mark Zandi:                     Whole lot of space left. Okay.

Bill Spriggs:                       Yeah, because labor force participation is endogenous to the labor market, and so we cheat if we only look at the unemployment rate and don't consider where we are in labor force participation. Black and brown workers are used to lower wages, they disproportionately work in lower wage industries, and the labor force response so far has been among those marginalized workers. So the labor force participation of Blacks and Hispanic workers has been growing much faster than for whites, it continues to grow. There's a lot of room left to grow. If we finally get broader wage growth, then we're going to see white labor force participation start to respond as well. So far, white labor force participation has still been unimpressed by these wages, which again for me is another indication that the wage growth really isn't all that, that it's not pulling in white workers.

Mark Zandi:                     Hey Cris, let me turn to you. What do you think of this argument? Usually I'm kind of, sort of over where Bill is, but Bill's even further over than I am. So what do you think of what Bill is saying?

Cris deRitis:                      I guess I'm trying to connect the dots to the overall inflation picture here. Dante started off saying, "Oh, the PC is up," and now we're going through trying to understand what the components are. So clearly, the overall wage component is still high. The wages are rising 5%, and I see that as a driver certainly of the overall inflation picture. Are you suggesting that's not the case or that it's not important? I guess I'm trying to square the circle here in terms of if we keep saying inflation's a problem-

Mark Zandi:                     Well, I think he's saying it's temporary. It's temporary.

Cris deRitis:                      It's temporary.

Mark Zandi:                     The wage growth is not the result of an overly tight labor market. That's not it. You got that wrong. What it's about is-

Cris deRitis:                      Just the minimum wage.

Mark Zandi:                     Yeah. And when I say temporary, it's over a period of several years because most states phase these increases in over a period of time, but we're getting close to the end of that. Wage growth is actually moderating now. It went from 5 to closer to 4 most recently, and that would be consistent with that observation, and therefore maybe it helped to support inflation, but that's temporary. It's going to come back in. Did I get that right, Bill? Sorry, I didn't mean to-

Bill Spriggs:                       That is exactly my point. We totally underestimated how many people make less than $15 an hour. When we were arguing for this it was one of President Biden's initial things, and so back in '21 we wanted this $15, it was astounding the share of American workers under $15 an hour. It's a huge number of people. And because their wages are so low and we're raising them so much, it's going to show up in the average, even if people at the top and in the middle aren't getting very many gains.

                                           If it was the case that it was really being driven by labor shortages, you would think it should really show in manufacturing, where manufacturing employment was totally recovered from the dip that took place during the pandemic, and it's rising and it's back on track to continue its recovery from the Great Recession. And then construction, we're at record levels in terms of construction. These are skilled workers. So you would think if you're talking about a tight labor market, it ought to really show up with these skilled workers where we're suddenly seeing this demand go up, and their wages are not going up 6 and 7%. They're not going up 5%.

Mark Zandi:                     Dante, what do you think? Dante actually, he came from BLS so he's a great labor market economist, and unlike me, he actually runs a lot of regressions. I've gotten out of that habit. I kind of just say stuff and then I go, "Dante, did I get this right? Let's go prove it," and Dante is in the business of proving it. So what do you think? And I know you've done a lot of work around the minimum wage too, I think, and participation. Let me throw it back to you.

Dante DeAntonio:          Yeah, I would say I buy the argument. I think the big question in my mind is if we believe that the labor market today isn't really fundamentally tighter than it was in 2019, which by most measures it's not. It's about at the same place that we were pre-pandemic wage growth. Pre-pandemic, we struggled to get to 3%. So if the labor market's just as tight today as it was then, how do we have wage growth that's significantly higher? And the minimum wage story is a piece that would add to that, help figure that puzzle out. That's the new thing that's happened. So we've got a labor market that's roughly as tight as it was in 2019, but we've got all of these 25, 30 states that are still in the process of hiking minimum wages.

                                           And so I certainly think that contributes to the elevated rate of wage growth that we're seeing today relative to the 3% we were seeing at the end of last cycle. Whether it accounts for the entire gap between 3% and where we are right now, I think that may be up for debate, but I certainly think that as you see those wage increases start to slow, as the pace of those increases and the number of states increasing minimum wages, I think assuming everything else stayed the same, you'd see wage growth start to come in as a result of that. So I certainly think it is a component of that gap in wage growth that we're seeing today versus a few years ago.

Mark Zandi:                     Let me say two things. One, my working hypothesis, Bill, wasn't around the minimum wage as to why wage growth jumped and why it's starting to come back in, it goes to my point about inflation expectations. They jumped when Russia invaded and oil prices, gas prices, which is so key to people's thinking about future inflation jumped, and now that oil and gas prices are back in, inflation expectations are coming back in. Again, you can see it in the surveys, and wage growth is moderating. I didn't consider what you're pointing out here around the minimum wage. And the second thing I'd say is Dante, we should be able to figure this out. We've got controlled experiments. We've got different states raising minimum wages at different times in different amounts, so that's a perfect set of data for regression analysis to tease this out. So Bill, you just made me assign a project for Dante. I gave him some work to do.

Bill Spriggs:                       Sorry, Dante.

Dante DeAntonio:          That's all right. We had looked at it a little while back, but I think it's worth dusting off.

Mark Zandi:                     I thought we had. We should resurrect that. Right.

Bill Spriggs:                       I'll share with you, Dante, one of the best dissertations I supervised, which was last year. One of my students did the whole job search model with the minimum wage. Before, it had been so long since we raised the minimum wage that the ability we have to look at job to job switches versus unemployment flows into employment, that data was over a horizon where the minimum wage hadn't done anything, so she benefited from the fact that because she finished the dissertation last year, she had a couple of years where there aren't minimum wage increases going on across the states. And it is so telling that the wage pressure does not come from unemployment to employment. We already kind of knew that before. We knew it came from job to job. But when you throw in the minimum wage, even the job to job becomes less important.

                                           It is so important, particularly at the bottom 60% of the wage distribution. It's not very important. It's not significant above that, and when you get to that middle quintile, it's not so big. It's really huge for the bottom 40%, and that's where the wage growth has been the biggest. Then wage growth at the top, again for these skilled workers, because we're at construction levels that are historic, so this isn't like all the construction workers have come back home from pre-pandemic. These are new construction workers, so construction firms are desperate for people with skills. So you would think if it happens, it has to be these manufacturing and these construction workers who would drive wages, not these workers at the bottom, but it's the workers at the bottom.

Mark Zandi:                     Well, I have one question and then we're going to go play the game, the statistics game, and then we're going to come back and talk about a couple of other issues that I'd like to tackle with you, Bill. With regard to wage growth, you've mentioned this a few times that it's mostly at the bottom part of the distribution of wages, and you certainly can see that at least it seems intuitive if you look at wage growth by industry. So we've got leisure, hospitality, low paying, you can see the wage growth. Retailing, low wage, you can see the growth. But are you looking at something else? Are you looking at other data when you say skilled workers are not getting big pay increases? I tend to go right to the Atlanta Fed's Wage Tracker as a measure. Is that what you focus on or is there something else you're focusing on when you say that?

Bill Spriggs:                       No, I look at industry and then I look at this distribution analysis that has been done. Upjohn does a great job at this as well. And the growth has really created a wage compression, mostly because for the first time, people at the bottom are really gaining relative to everyone else, and again, at very large amounts. This is not typical. We did see it pre-pandemic because pre-pandemic, some of the states had started to raise their minimum wages. So even pre-pandemic, we were seeing the wage growth at the bottom faster than in the middle and the top. And again, as Dante pointed out, had similar levels of unemployment, but higher levels of employment to population ratio. So the labor market was a little tighter then than now.

Mark Zandi:                     You didn't have the wage growth.

Bill Spriggs:                       What people still have to explain is why is the labor force participation for Black and Latino workers rising at such a fast rate relative to whites? And again, it's just those wages are much more for them, so you're getting a bigger labor force participation response than you are among whites, who make significantly more.

Mark Zandi:                     Yeah, it's interesting. I hadn't noticed that about the racial differences between participation. I need to go look at that. Well, let's play the game, the statistics game. And just to remind the listener, the game is we each put forward a number, a statistic. The rest of the group tries to figure that out through questions, clues, deductive reasoning. The best statistic is one that's not so easy that we all get it immediately and not so hard that we never get it, and if it's apropos to the topic at hand, bonus. So Dante, I'm going to begin with you. I think I warned you I was going to come to you first, didn't I? I believe I did.

Dante DeAntonio:          You did.

Mark Zandi:                     Okay. So this better be a good statistic, Dante. Fire away.

Dante DeAntonio:          I'm going to go with 0.16%.

Mark Zandi:                     0.16. Is it in today's data dump from the Bureau of Economic Analysis on spending income and inflation?

Dante DeAntonio:          It is.

Mark Zandi:                     It is. Okay. It's a month-to-month percent change.

Dante DeAntonio:          Yes.

Mark Zandi:                     Yes. Is it related to income?

Dante DeAntonio:          No.

Mark Zandi:                     Is it related to spending?

Dante DeAntonio:          Yes.

Mark Zandi:                     You see how you do this, Bill? I'm going to wear him down, baby.

Bill Spriggs:                       I see, I see.

Mark Zandi:                     Is it a category of spending?

Dante DeAntonio:          It is not a category of spending, no.

Mark Zandi:                     Oh, okay. Now I'm stumped.

Dante DeAntonio:          I'm glad you, clearly you were not a careful reader of your email right before the podcast. I was hoping I didn't give this one away.

Mark Zandi:                     Oh, because I was firing all kinds of questions at these guys. 0.16. The spending number, but it's not a category of spending. Gee whiz. If it's in the spending data and it's not a category of spending, then what the heck is it? Is it a drive measure or something?

Dante DeAntonio:          It has to do with the top line spending number. Right? It was 1.1%, right? That was the top line month-over-month change. 0.16 is related to that number.

Mark Zandi:                     Oh. I think both goods and services spending were up. Oh, is it real? Is it the real spending up? No, it could be real spending was up 0.1. No, no, because the real spending was up 1.1, so I don't know. I'm foundering here. Cris, what do you think?

Cris deRitis:                      That's a tough one. It was as reported. It's not a derived number.

Dante DeAntonio:          It's an average, so it's not directly reported, I don't think.

Mark Zandi:                     Oh, you averaged it. And I should know this because I wrote about this in my email to you?

Dante DeAntonio:          No, somebody emailed it to you this morning.

Mark Zandi:                     Oh, Bernard. Bernard Yaros, our other colleague. I don't know. Some type of-

Bill Spriggs:                       Is it an average over more than one month?

Dante DeAntonio:          It is an average over more than one month. Yeah.

Mark Zandi:                     Oh. It's the past three months.

Dante DeAntonio:          Correct, right. Spending's at 1.1%.

Mark Zandi:                     Bill deserves credit for that. Bill deserves credit for that. Yeah. Explain, explain.

Dante DeAntonio:          So real spending was up 1.1% in January, which was artificially inflated by the changes that happened with social security, with minimum wages. But spending had been down in November and December, so the average increase in spending over the last three months is only 0.16%. That's actually less than half the rate of growth compared to the three months prior. So spending is not as strong as this number today signals. It's certainly seems to be weakening from the end of 2022. I think it just adds to that same storyline that the economy is likely headed for slower times ahead. Spending is not nearly as strong as that 1.1% suggests.

Mark Zandi:                     Here's the thing that really strikes me about the real consumer spending. This is after-inflation consumer spending. The growth in that real consumer spending is incredibly stable. If you look year-over-year, because that cuts through the ups and downs and all arounds in the monthly data, we're a little over 2% real. Last month we were a little bit below 2%, and if you take a step back, it's been hovering around 2%, which by the way is exactly the spending growth you want to see. It's not too hot, not too cold. It's kind of right down the fairway spending for more than a year. It's just what seems to be happening is consumers, households are calibrating their spending, drawing down their excess, saving and calibrating their spend, the drawdown to get the typical spending. Nothing out of bounds, people aren't spending with abandon, they're just doing what they typically do. Dante, is that a fair characterization?

Dante DeAntonio:          It certainly seems what's happening in the data. Yes, it seems like people are trying to keep their spending levels relatively stable.

Bill Spriggs:                       And I think that's a good way to look at it. What bothered me when we had that disruption and all of us knew doing year-over-year is going to be a big problem because consumption had been down so much is again, figuring out what do you consider to be demand? People were screaming about the demand for autos is what was driving up prices, not the fact that we couldn't make autos faster than we could in the Great Recession. And it's like the autos you have to think of as a flow. Is it a year or is it per two years?

                                           What do you really want to have as a measure? This longer term view that the growth is pretty consistent, I think is what we are supposed to be paying attention to. It's the way of smoothing over an unprecedented period that has I think challenged us on these notions about what's the proper measure for the demand. When you don't have these kind of disruptions, then you can get used to it. It's 2%, it's always 2%. Right. But what happens when one year it drops 4%? Then what do you do?

Mark Zandi:                     Right, right. Oh, very good. Well, that was a good one, Dante. I'm a little ashamed. We should have gotten that more quickly. That was a really good one. And you're right, Bernard Yaros, our other colleague in an email exchange actually said 0.16. You're right. You're right. Cris, let me go to you next. What's your statistic?

Cris deRitis:                      Okay. Down, so -25.9% and up 7.2%. Two statistics somewhat related.

Mark Zandi:                     Somewhat related. Oh geez.

Cris deRitis:                      Well, they're not from the same release, but they are related conceptually.

Mark Zandi:                     Okay. Well, standard set of questions. Are they from today's BEA data dump?

Cris deRitis:                      No.

Mark Zandi:                     They're not. Okay.

Cris deRitis:                      No. So I'm not keeping with the... they're not labor market related either.

Dante DeAntonio:          Is it housing?

Mark Zandi:                     Housing?

Cris deRitis:                      It's housing. Housing-related.

Mark Zandi:                     Bill, you got to know Cris. He's a houser. He just loves the housing data, and with good reason. He's a really good housing economist. Is it related to house prices?

Cris deRitis:                      No.

Mark Zandi:                     Oh, okay.

Bill Spriggs:                       Is it related to housing starts?

Cris deRitis:                      Nope.

Dante DeAntonio:          Home sales.

Cris deRitis:                      One of them is home new home sales.

Dante DeAntonio:          New home sales, so just today.

Cris deRitis:                      Yep. So it's the 7.2% is the increase in new home sales released today.

Mark Zandi:                     Oh, I missed that. I didn't-

Cris deRitis:                      Year-over-year?

Mark Zandi:                     What's the level, do you know offhand, Cris?

Cris deRitis:                      670.

Mark Zandi:                     Okay. That's not bad, actually.

Cris deRitis:                      No. It's stronger than we anticipated, and we were on the high end of consensus.

Mark Zandi:                     Existing home sales are down 25.9%?

Cris deRitis:                      No.

Mark Zandi:                     Nope. They're down a lot though, because year-over-year they're down a lot.

Cris deRitis:                      They are.

Mark Zandi:                     It might be close-

Cris deRitis:                      That's not the number in mind.

Mark Zandi:                     That's not the number you had in mind.

Cris deRitis:                      No.

Bill Spriggs:                       The rent offers has dropped dramatically since summer. Is it that-

Mark Zandi:                     That would be a big decline, 25%.

Cris deRitis:                      Came out yesterday.

Mark Zandi:                     It came out yesterday.

Cris deRitis:                      Part of a bigger report.

Bill Spriggs:                       [inaudible 00:50:39] income spent on housing?

Cris deRitis:                      Nope. It came from the BEA.

Mark Zandi:                     It came from the BEA. What came out yesterday? GDP came out yesterday. Oh, residential investment was down-

Cris deRitis:                      25.9% in-

Mark Zandi:                     Single family I would assume, or is it total resident-

Cris deRitis:                      Well, it's residential investment.

Mark Zandi:                     All in, residential is down 25%? Oh, okay.

Cris deRitis:                      On a annualized basis in the fourth quarter.

Mark Zandi:                     Oh, in the fourth. Oh, okay. Okay.

Cris deRitis:                      The idea is that that's the backward-looking number. Q4 was weak, but forward-looking perhaps-

Mark Zandi:                     Oh, you see how he does this now? He's trying to make sense out of these crazy numbers he picks. The monthly increase in new home sales versus the quarterly annualized decline in residential investment. Okay. We're going to connect those dots. The way I connect it is backward-looking, forward-looking. Okay.

Cris deRitis:                      There you go. There you go.

Mark Zandi:                     All right. Well, there's a lot of messages there, but what do you want to point out with the statistics?

Cris deRitis:                      Oh, just that consistent with some of the other hot statistics, housing also seems to be perhaps turning the corner, at least based on this new home sales number.

Mark Zandi:                     Do you believe that?

Cris deRitis:                      I think bottoming. I don't see another leg down unless something else major happens.

Mark Zandi:                     In sales, you don't expect it.

Cris deRitis:                      In sales, correct. Yeah.

Mark Zandi:                     Right. Do you think that the drag from housing, and this is really single family housing, that minus 25% analyze decline is probably bulk of that, vast majority of that's probably single family, do you think we're finished with that drag or are we pretty close to it? Are we going to see more declines in single family construction here or are we pretty close to the end of the drag?

Cris deRitis:                      I expect that we're closer to the end. Completions will continue throughout the year. So permits and starts we know are down and they're going to take a while to pick back up, although you're seeing some signs of life there too. But the completions, the construction, home building continues because there's such a pipeline on both the single family and multi-family side, so I expect that to continue to contribute.

Bill Spriggs:                       And you're not worried about the mortgage rate chasing away that?

Cris deRitis:                      Certainly, possibly, but at least our forecast calls for mortgage rate to be relatively flat because we have such a large spread right now between the 30 year and the 10 year, as the Fed has gone from-

Mark Zandi:                     30 year fixed and the 10 year treasury.

Cris deRitis:                      Yeah, sorry.

Mark Zandi:                     Right.

Cris deRitis:                      ... As the Fed has gone from quantitatively easing to tightening, but I do expect to see investors coming back in and narrowing that spread. So even though the 10 year treasury might be rising here, the mortgage rate may not go up by a similar degree, but it's definitely a risk. So if mortgage rates do rise appreciably, then that would put cold water on the market.

Mark Zandi:                     One thing I learned at the Joint Center for Housing Studies conference, we had Chris Herbert, who was the executive, I think the managing director of the Harvard Center for Housing, and he asked me to speak at the conference, I think we had him on a couple weeks ago. One thing I learned at the conference is that new home builders have effectively cut price dramatically. They're saying, and these are CEOs of major home builders, down 10% from the peak.

                                           And that goes to various concessions including so-called interest rate buy downs, where the builder will effectively lower the rate for the buyer to get them into that home. And so we've already seen a pretty significant adjustment in new home prices, if you believe that, not yet in existing price. Right? Cris, do you want to just mention quickly our own house price index that we construct? We just published the January number for HPI, House Price Index, yesterday.

Cris deRitis:                      That's right. So Moody's Analytics House Price Index was down 1% in the month of January from December. That's significant. It had been pretty flat for the last few months. Basically, we had a decline in the second quarter of last year, we plateaued for a bit in the fall and now we're seeing another leg down, so we're down about 2% I would say. So we are seeing those price adjustments occurring in the existing family side, but it's going to be a bit of a tug of war zigzag across here. It's significant-

Mark Zandi:                     Did you notice that the Bay Area California prices are down over 10? Did you see that though, from the peak?

Cris deRitis:                      Yeah, yeah. So you're definitely seeing some markets that are.

Mark Zandi:                     My home in Philly is fine. Just saying, I'm okay in Philly. Of course, the prices never rose, so-

Cris deRitis:                      That helps.

Mark Zandi:                     That helps. They don't go up, they don't go down. Hey Bill, do you want to play this game?

Bill Spriggs:                       That was the fascinating thing. This was so uneven with the house crisis because the national level, it averaged out to this higher number that I always felt that was a misleading part of the story. And ironically, for those of us who worry about gentrification, it tended to slow gentrification what was going on.

Mark Zandi:                     Yeah. Hey, do you want to play the game, Bill?

Bill Spriggs:                       Well, I will play the game. I have two numbers, but in fairness, you warned me it can't be too obscure, so I will-

Mark Zandi:                     It's okay. You can do whatever you're comfortable with.

Bill Spriggs:                       Okay. Well, it comes from the CPI. So my two numbers are 1.3 and 9.

Mark Zandi:                     All positive, 1.3 and nine. It comes from the consumer price index.

Bill Spriggs:                       Yes.

Cris deRitis:                      Are they categories?

Bill Spriggs:                       Yes, categories.

Mark Zandi:                     And is it month-to-month or year-over-year?

Bill Spriggs:                       Year-over-year.

Mark Zandi:                     So it's two different categories of CPI. One's up you said 1.3, the other is 9. Boy, that's interesting because he's picked two categories that there's some meaning to them, some deep meaning. Some deep, deep meaning. 9% feels like food prices.

Cris deRitis:                      That's what I was thinking. Is that right, Bill?

Bill Spriggs:                       It is something people consume, yes.

Mark Zandi:                     Oh. Are both things people consume, 1.3 and-

Bill Spriggs:                       Yes.

Mark Zandi:                     9 can't be egg prices, can it?

Bill Spriggs:                       No.

Mark Zandi:                     No, because it'll be higher than that I think. 1.3 is like, chicken wings. The only reason I know that is because the Super Bowl, Philly was all into the Super Bowl, so all we were doing was eating wings and actually, we've got a lot of wings. The avian flu has really hurt chickens that lay eggs, but apparently, I'm learning all this stuff about chicken.

Bill Spriggs:                       It left them with wings, yes.

Mark Zandi:                     Exactly. Oh, that sounds really morbid somehow, but okay.

Bill Spriggs:                       Well, I did give you a little bit of a warning because I hesitated on the you consume it, but food...

Mark Zandi:                     Oh. Now, that is really perplexing, what he just said. It's food, you consume it, but it's not really food.

Bill Spriggs:                       Some people wouldn't say it's food. It is something you consume, but it's in a broad sense, food.

Mark Zandi:                     Was it a beverage?

Bill Spriggs:                       A beverage, exactly.

Mark Zandi:                     Oh, I see. Alcoholic beverage?

Bill Spriggs:                       It's in the alcoholic beverage category, yes.

Mark Zandi:                     Beer?

Cris deRitis:                      Beer?

Bill Spriggs:                       Beer is 9.

Mark Zandi:                     Okay. Beer is 9.

Bill Spriggs:                       Beer at home. Beer bought is 9.

Mark Zandi:                     Okay. Oh, okay. Interesting.

Cris deRitis:                      And hard liquor is 1.3. Whiskey.

Bill Spriggs:                       And hard liquor is 1.3. this I posit as the true what's the counterfactual to understand price movement because the supply of whiskey is practically vertical. Unless you're cheating and you're labeling and you hope that no one pays attention, but it's practically vertical. So why would whiskey be up 1.3 but beer up 9? 9 because you have to have grains all the time, and the price of grains have been up.

Mark Zandi:                     Oh. It depends on the whiskey, but doesn't it depend on-

Bill Spriggs:                       Well, but you could get one year aged whiskey-

Mark Zandi:                     Oh, I see. I see.

Bill Spriggs:                       ... but that is one year.

Mark Zandi:                     Oh, I see. I see.

Bill Spriggs:                       It's not [inaudible 00:59:57] whiskey.

Mark Zandi:                     You're saying in the here and now, the beer relies on the here and now grain supply and that's problematic, grains prices, because of the Russian invasion and everything else. But for the whiskey and other hard liquors that mature over time, the supply here and now isn't as big a deal, therefore the price isn't up as much. Because I thought it would-

Bill Spriggs:                       Well, no, but if you're telling a demand story, and alcohol is very much a normal good Contrary to what people think, higher income, you spend more money on alcohol.

Mark Zandi:                     Oh, I see. I see.

Bill Spriggs:                       And so why isn't whiskey being bid up? It has this vertical supply curve. The price of whiskey should be moving, but it's not doing very much, and beer is doing about what I would expect given that they have to get barley and hops, and hops was hurt greatly by the heat wave in Europe.

Mark Zandi:                     I bet you're a great professor. I bet kids love you. This whole beer whiskey thing, they're all over that. Right, Dante? At Penn State, when you want Bill to be there teaching you know about the beer and the whiskey? I would.

Dante DeAntonio:          Yes. It's a better way to frame it. Yeah.

Mark Zandi:                     Anyway. All right.

Cris deRitis:                      You're not switching over to beer Mark, are you? That could be a factor.

Mark Zandi:                     That's too personal a question, Cris. That is over the line.

Dante DeAntonio:          He only dishes out the tough questions, Cris. He doesn't care.

Mark Zandi:                     Exactly. No, wait. That's not fair. People that listen to this podcast know way more about me than they know about you guys, but that's over the line. But anyway, we got to move on because we're running out of time and I promised Bill we'd only take an hour. But I want to come back to another quick topic around policy, and it goes almost all the way back to the discussion we had around chips and the Biden administration's really interesting focus on let's call it industrial policy, policies that are implemented to help support some aspect of the US economy. It's not focused on broadly helping the economy, but certain sectors of the economy, like the CHIPS Act that was passed last year. That's obviously for the chip industry, which is now just being rolled out.

                                           The Inflation Reduction Act, which was passed at the end of last year, was really focused on incenting green energy production and investment. Even the infrastructure bill, to some degree, is kind of designed to help US industry, transportation, distribution, manufacturing. And the interesting thing to me is when I first was coming up as a professional economist and in graduate school, industrial policy kind of sort of was verboten, right? No one liked the idea of industrial policy. You can't pick winners and losers. But here we are, it feels like the administration going down that path and everyone seems to be on board. There seems some bipartisan support because the president got Republican votes certainly for the infrastructure legislation and the CHIPS Act, not the IRA the Inflation Reduction Act. But nonetheless, what do you think of that? Did I characterize that, Bill, correctly? And what do you think of that policy initiative and change that the administration's engaged in?

Bill Spriggs:                       I think that's a very accurate characterization. I think as typical economists put their blinders on, it is impossible to have a neutral set of policies. It's just not possible. There is a reality. We had an industrial policy. We favored certain activities over others. Nobody ever complained about the huge one, what the United States spends on military. That created a kind of sick economy. Going all the way back to Bill Clinton, one of his top advisors I remember noted that almost 90%, it's some huge number, I don't remember whether it was 90, but it was some improbable, huge number of American manufacturing and electronics was defense. That American manufacturers had given up consumer electronics because the margins were so high on defense, they had all sorts of protections from competition in so many ways, so they gave up consumer electronics even though we're the ones who practically invented so much of it.

                                           Whether we invented the stereo system, because we invented the Gramophone, the record player. We invented the television and we played a very hard and huge role in the radio, and we invented the telephone. So in terms of consumer electronics, we had this natural advantage, but we had given it up because hidden in all the policies was, "Do it for defense, but worrying a 1% or 2% margin, we're not going to worry about a 1 or 2% margin. We won't do it." We let other countries get away with all sorts of subsidies because other countries have industrial policy. They understood, for instance, you want to control flat screens. We gave up televisions, and yet flat screen technology is really important. So the reality is that there never was this level playing field and it was just people just compete, and we are not favoring anything either.

                                           By not responding to what other countries were doing on labor standards, on wages, on forest labor, you name it, if you're going to let the wild wild west go on outside the US in terms of all of that, the WTO it turns out is not really an enforcer or a solution to making all of that neutral, then you have a default industrial policy which did not favor American manufacturing. And so this I think was a final response that we've grown up. We've taken the blinders off and we realize that our policies got us what we got because implicitly, I would say explicitly, we've favored certain activities on a relative sense, and this is a simple recalibration. And we saw that it hurt us because we had built supply chains that were way too thin that did not incorporate the real risks involved, and that going forward, that wouldn't be a good position. So absent what the president was doing, there are a number of companies that were reshoring some activities with that realization.

                                           But what the president is doing is simply making those decisions even easier in a way, if you will, and it is in our interest. We should not have totally given up a lot. The new technology that's going on in manufacturing, which is going to increase productivity even more, is all process technology. And one thing that I think is a realization in American manufacturing is when you do give up production, when you think all I do is just design the product, you give up on the process technology because your engineers aren't on the floor every day trying to figure out, "How can I make a television," because you don't make them. So all of that process technology, that's the smart technology that's being put in place, has also signaled to many companies you got to onshore because if you are not actively making the product, there are huge elements of new technological advances that are taking place you don't get to participate in it because you've taking yourself out of the game.

                                           So I think part of this is a realization from companies partly because of smart technology and manufacturing, partly because they saw how exposed they were that these supply chains were way too thin and didn't have nearly enough redundancies built in, and then this incentive by the president. And all of this gets back to why I was so upset with the Fed, because while these companies are trying their best to make adoption to the risks the world will face going forward, disruptions are going to increase. Global warming is going to continue to wreak havoc on food production and because of floods and severe storms on the production of goods. And as we saw from the pandemic, even if it's not a global pandemic, the risk of a country having a severe health disruption can make us vulnerable.

                                           And as we found out from the chips, it turns out there's like, three companies that are doing everything. So I think all of this requires us to think anew about ensuring that companies can respond. If I'm trying to respond to a chip shortage, as the auto industry was, and you have all your buyers out beating every door they can to get chips, the last thing I want is for the Fed to say, "Oh no, we don't want to sell cars." How can I solve this problem? And you're trying to destroy my market. This is not complimentary of what needs to take place, and going forward, we need that flexibility. We need companies to know there's still going to be demand on the other side in the supply shop, and there are going to be more supply shops. We just have to get used to that.

Mark Zandi:                     Yeah. Well, that's a interesting point. You're saying, "Look, we've always had an industrial policy, but before now it was really not by design, it was de facto. It just happened with no deliberation, no thought. We did it because there's winners and losers with any tax policy or spending policy. So if that's the case then and we've always had industrial policy, let's just be more deliberate about it and think about it and design it so that at least we have a fighting chance of making it more effective." There will always be cases where we picked the wrong winners and fail to help the winners. You know what I'm trying to say. We didn't get the winners and the losers, but that's better than just throwing up your hands and just letting industrial policy run amuck. That makes a lot of sense to me.

                                           And you keep coming back to the Fed. You're saying there that, "Look, the reason why inflation is high is just give it time. It'll settle in. No reason to slam this economy into the ground. And by the way, by slamming the economy into the ground, you're making it more difficult for these companies to execute on taking advantage of what the administration is doing here with regard to industrial policy." Very interesting. Okay. Well we've covered a lot of ground and taken a lot of your time and really appreciate it, and I want to thank you for spending over an hour with us. Any last words, guys? Anything else you want to say or should we call this a podcast?

                                           Bill, we were joking last podcast that they always end up being an hour and 10 minutes, and I think this is going to be an hour and 10 minutes. And the thinking was that's when we run out of juice, so I think that's right. I've run out of juice. I think we've all run out of juice. We need to go get some lunch. So with that, any last words? Hearing none? Okay. We're going to call this a podcast.

Bill Spriggs:                       Thanks for including me.

Mark Zandi:                     Pardon me?

Bill Spriggs:                       Thanks for including me.

Mark Zandi:                     Oh, absolutely. Anytime. You come back anytime.

Bill Spriggs:                       Okay.

Mark Zandi:                     And you got to come back with another example, a beer whiskey example. When you've got that, we'll have you back on. But with that, we're going to call it a podcast. Thank you, everyone. Take care now.