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Moody's Talks - Inside Economics
Neon and Not Equal
Mark, Cris, and Ryan discuss Russia's invasion of Ukraine and the economic outlook surrounding the conflict. They also welcome Diane Lim, Policy Director for the U.S. House Select Committee on Economic Disparity and Fairness in Growth to focus on the big topic, income and wealth distribution in the U.S.
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. And it's a sober day here with the Russian invasion of Ukraine. A lot to talk about. We also have a great guest, Diane Lim. Diane is the policy director for a select committee that's focused on income and wealth inequality. And we'll talk about that in a bit.
I think it's important that we dive in a bit on the Russia/Ukraine events and what it means for the economic outlook. And to help me with that, I have my two co-hosts, Cris deRitis. Cris is the deputy chief economist. And Ryan Sweet, Ryan is the director of real-time economics. So, thank you both for joining.
So, where should we begin, guys? What do you think? Cris, why don't I turn to you? How would you characterize the state of affairs and what does it mean for the economic outlook? Have you changed anything in terms of your perspective on where the economy is headed?
Cris deRitis: Yes. So, in terms of where we are, as everyone knows, Russia has invaded Ukraine. Our baseline view had been that Russia would only take the Donbas region and stop there, but obviously that is not the case. The full scale invasion is on, the fall of Kiev is imminent as well. So, certainly things have gotten much more pessimistic relative to our baseline, oil prices have risen. Although they've come back a little bit now in the last day, at least looking at the prices this morning. I think we're around $92, $93, but still elevated certainly to just a few weeks ago.
And there's still a lot of uncertainty. Prices could certainly rise back up in an instant. From my own perspective, I certainly have grown much more pessimistic overall in terms of the political situation. I think everyone still assumes that the invasion will stop at the Ukrainian border, certainly at the NATO nations, but there are certainly downside scenarios, right? Is Moldova the next? There are certainly other possibilities here.
And politically, the risks are certainly way to the downside. Economically, I would say so far the impact has been more or less what we assumed. U.S consumers, U.S economy's relatively insulated from the effects, at least the direct effects of the invasion, but oil prices remain a risk. Financial markets also certainly a risk.
We've seen a lot of volatility, certainly in the stock market, as investors are trying to understand what exactly is going to happen next. Yeah, I think there's still a lot of script to be written. At this point though, my interpretation is that the oil prices are likely to remain high for an extended period of time and that will weigh on growth throughout this year.
Mark Zandi: Yeah, it makes sense.
Cris deRitis: I'm going to stop there.
Mark Zandi: So, the way I think about this is consistent with yours, but just to reiterate. I think the most likely scenario, and obviously there's a million different ways this thing could go. Each one feels darker than the other, but the most likely is that the Russians stop at the Ukrainian border and don't go beyond that.
If that's the case, the sanctions that president Biden and other Western leaders announced are significant proportionate but they haven't gone all the way. They haven't thrown the Russian banking system out of the SWIFT system as an example.
Cris deRitis: Right. Right.
Mark Zandi: Russian oil is going to flow, Russian natural gas is going to flow, the metals they produce are going to be shipped. Wheat's going to continue to be shipped from the ports of Ukraine, that kind of thing. So, this really all in probably adds, what, $15, $20 of barrel risk premia into oil.
So, instead of you mentioned $92 a barrel, that's on West Texas Intermediate. Without Russia and their behavior, we might be sitting at, let's just say, $72 a barrel. So, 20 bucks a barrel. And let's just say we stay there for the first half of this year, because at some point we're going to see a lot more supply coming from North American frackers and from perhaps even the Saudis, because you make a lot of money at these prices.
But let's say that's the case. My kind of rule of thumb is for every $10 per barrel increase in oil is sustained, that'll subtract a 10th, at most two tenths of a percent off of U.S GDP. Now, obviously I'm focused on the U.S. This is going to do a lot more damage to Europe and obviously really hurt Russia.
But for the U.S, it's a 10th or two. Obviously that adds to inflation because you're paying higher for gasoline prices. The 20 bucks a barrel translates into maybe 50 cents on a gallon of regular unleaded. So, we go from $340 on a price of regular unleaded to, say, 390, something like that at the peak.
And it dings the economy, but it doesn't certainly derail the economy. We'll be okay here. And I think that's what markets are saying at the moment. And obviously, they can say something very different five minutes from now. But at the moment, they've come all the way back from the lows they hit yesterday when Russia invaded. And now they're up again quite significantly.
Things seem to be settling and people are thinking, "Okay, this is awful." Certainly for the Ukrainian people, this is just catastrophic. But from a macroeconomic perspective, particularly for the PRISM of the United States of America is relatively small. I'll stop.
Ryan. Does those rules of thumb work in your mind? Is that roughly right? Is that consistent with what you're thinking?
Ryan Sweet: Yeah. It's consistent with, when we run these scenarios through our global macro model, the hit to GDP growth that we see is that every $10 is, it dings the economy but doesn't derail it. But I think to your point, markets are really sensitive to oil.
So, yesterday the stock market was deeply in the red, and then as soon as oil prices started to fall, the stock market just rallied. And it's rallying today on Friday and oil prices are down.
Mark Zandi: All right. So Cris, would you push back on... I mean, I pretty much paraphrase what you said, but just in case I mischaracterized or I didn't say quite what you said, would you push back on it?
Cris deRitis: Well, that's okay. Yeah, I think there perhaps are contentions around the speed of the frackers or the market response. Right? There's a lot of uncertainty there. So, I certainly wouldn't.
Mark Zandi: Yeah, for sure.
Ryan Sweet: Yeah, Rig Counts in the U.S were up, so we should see them continue to climb over the next few weeks with oil trading this high.
Mark Zandi: Yeah. Correct me if I'm wrong, Ryan. But I thought the number of rigs in operation in North America have doubled over the past year. They're still low, they're below pre-pandemic. They're definitely moving in the right direction here.
Ryan Sweet: Yeah, and they still have plenty of room to increase further.
Mark Zandi: Right. Okay. And I guess there's other ways this can really be disruptive in terms of metals, and I mentioned wheat. Ukraine is very important in terms of the global wheat production and exports, but that also feels like more on the margin in terms of broader macroeconomic growth, particularly, again, through our PRISM, the United States of America. Does that sound right?
Cris deRitis: Yeah.
Ryan Sweet: Yeah, and the banking exposure is really low. So, anytime we have geopolitical events, first thing I go to is look for contagion risk. What are U.S bank's exposure to Ukraine or Russia, and it's really low.
Mark Zandi: Yeah. But of course, we're all assuming that Putin stops at the border.
Ryan Sweet: Right. Right.
Mark Zandi: And this guy is hard to, he's a little bit crazy. I mean, hard to gauge. If he decides to take a step over the Polish border or into the Baltics, then we're in a different universe altogether, I would think, right?
Ryan Sweet: Yes.
Mark Zandi: President Biden pretty much said that means military action and we're in a whole different level of hurt here. We're assuming that he's not going to do that. Putin's not going to do that.
Cris deRitis: Yeah, it's extremely volatile, all right? You have weaponry people, one accidents here or there, one misplaced missile, right? Things can happen. So, certainly I would say the downside risks are elevated here.
Mark Zandi: Yeah. Okay.
Ryan Sweet: And to your point, you're right. On the margin, we should be, but supply chains were already quite stretched here. Right? So, any little additional issue when it comes to wheat exports or any other commodity, I think, again, the risks are high that things could take on a life of their own.
Mark Zandi: Right. Right. Of course, we have run this scenario I just described to our models, Ryan described that. But we've also run these downside scenarios where Putin takes another step, goes further past Ukraine and have produced these forecasts and put them in databases for clients that will become available, I think, later today or maybe even on Monday. So, people could take a look at what the darker scenarios might look like.
Okay. Anything else on this? Let's talk about monetary policy for a second. The one worry I have is because pretty much everything I just said is pretty, I would characterize as sanguine. It's not great, but it's not catastrophic around what the higher gasoline prices. And it feels like that's the key link between Russia and here in the U.S.
What that means for inflation expectations because gas prices are front and center in people's thinking, particularly lower and middle income households. And that'll be a segue into the broader discussion around income inequality is low income households, a much larger share of their budget goes to gas, and of course, food.
Food prices also go up with gas prices because a big chunk of food prices is just the transportation cost involved. And that may be 20% of the typical American budgets, but for folks in the bottom half of the distribution or the bottom third of the distribution, that's probably closer to a third of their budget. So, this is a big deal. And it really affects people's inflation expectations.
And of course, if it does and people start to believe inflation is going to be higher, then we're in a different kind of ballgame with regard to monetary policy too. Right? Would you concur with that, Ryan? Is that reasonable?
Ryan Sweet: Yeah. I mean, there was never a good time for this, but this is an absolute horrible timing from-
Mark Zandi: Horrible.
Ryan Sweet: ... a U.S inflation perspective. Inflation expectations, I mean, market base ones, five-year, five-year forwards, they track oil prices very, very closely, so they're going to move higher. U Mich, University of Michigan Consumer Survey, their one year in longer term inflation expectations dipped in February. But that was before what happened recently.
So, yeah, I think the fed, they're in a tough spot. I think they're still going to raise rates in March. I don't think it's going to be 50 basis points anymore. I think it's going to be 25. But in the past, when you have oil supply disruptions or a supply shock, the fed eases into it because they were worried about the destruction of demand. This time they're going to be tightening.
Mark Zandi: Right. So, we have had, in our baseline outlook, the most likely scenario before Russia invaded, that we'd have four quarter percentage point rate increases this year. One at the March meeting, then one in June, one in September, one in December, which was a little less aggressive than market expectations. If you look at what global investors think, they were looking for six, seven rate increases from Russia.
Ryan Sweet: Right.
Mark Zandi: So, given what's happened here, do we think four rate increases this year still makes the most sense, quarter point each or something different than that? Ryan?
Ryan Sweet: I'm still with four.
Mark Zandi: You're still with four.
Ryan Sweet: I mean, the timing might be a little bit, they might just do it every couple of meetings. They might go consecutive meetings then pause and we still will get four this year. I think that's the most likely scenario.
Mark Zandi: Cris.
Cris deRitis: Yeah, I'd agree with that.
Mark Zandi: You would.
Cris deRitis: At this time, given the growth outlook, I don't think they'll need to go as fast.
Mark Zandi: Okay. Okay.
Ryan Sweet: And also, no matter what the fed does with interest rates this year, it's not going to affect inflation this year.
Mark Zandi: That's right.
Ryan Sweet: It's going to be, they're tightening to manage expectations, make sure they don't become dislodged.
Mark Zandi: Right. Okay. Okay, very good. Anything else on the Russia invasion that you think I missed that we need to focus on? Any other issues there? Cris, Ryan? No. Okay.
Cris deRitis: I think we'll cover it next. The distributional effects are really important. Right? We're talking at the macro level, modest impacts, but certainly some parts of the economy, some households are going to be hit much more close.
Mark Zandi: Great point. I mean, I'm painting with a broad brush here just for the discussion. But obviously there's a lot going on underneath all that. A lot of people are suffering here, so this is not a good thing. I mean, it's a bad thing. Okay. I think this is a good time to bring in Diane. Diane, hi. Welcome. How are you?
Diane Lim: Thanks. I'm great. I'm just a little jet-lagged. I just came back-
Mark Zandi: I heard-
Diane Lim: ... from San Francisco.
Mark Zandi: Congratulations are in order.
Diane Lim: Yes, thank you. My daughter just got married in San Francisco, but also I was there for a work trip with the committee-
Mark Zandi: Oh, is that right?
Diane Lim: ... after the wedding. So, I stayed for a few more days and just flew back last night.
Mark Zandi: Well, which came first, the committee or your daughter?
Diane Lim: The wedding came first and then the committee.
Mark Zandi: Okay. Very good.
Diane Lim: And then the committee trip. Yes.
Mark Zandi: I can imagine. Hey, daughter, could we maybe schedule the wedding around this meeting I have? So yeah, I could see that. Well, I'm so happy for you and really thank you because I know you're a bit tired. But you don't look it, you look fantastic, but thank you for... Ryan, on the other hand-
Ryan Sweet: Here we go.
Mark Zandi: ... I don't know what's going on with him.
Diane Lim: Here you go, yeah.
Mark Zandi: Yeah. Yeah. But with you, you look fantastic.
Ryan Sweet: This is how my day starts off. I get an email from Mark comparing Cris and I to The Odd Couple and now I just can't...
Mark Zandi: Hey, that wasn't me. That was one of our clients.
Ryan Sweet: Yeah, you forwarded it on.
Mark Zandi: I just forwarded along.
Ryan Sweet: Yeah, you agreed.
Mark Zandi: Hey listener, can you guess who's Felix and who's Oscar?
Ryan Sweet: Oh my God.
Mark Zandi: Let us know, please. What do you think? Yeah, I thought that was pretty cool. So, just Diane, it's a bit of an inside joke. One of our clients just wrote an email saying he loves The Odd Couple, Ryan and Cris. And I'm not going to tell who's who, but one's Oscar and one's Felix. Do you remember? You remember The Odd Couple.
Diane Lim: Oh, of course. Yes.
Mark Zandi: Yeah. Ryan doesn't. Cris, do you remember The Odd Couple?
Cris deRitis: I had to look it up.
Mark Zandi: Oh my gosh.
Ryan Sweet: I was watching clips of it this morning.
Mark Zandi: It's pretty good.
Ryan Sweet: No, it's really good. The descriptions fit perfectly.
Mark Zandi: Yeah. Oh, yeah. I thought they were really-
Ryan Sweet: Yeah, they're pretty good.
Cris deRitis: Reluctantly, I have to agree.
Mark Zandi: You'd have to agree.
Cris deRitis: Yeah, very good.
Mark Zandi: Well, maybe we should ask Diane. Diane who's... Oh, you don't know these guys yet. You've got to pay... I'll ask you at the end.
Ryan Sweet: At the end.
Diane Lim: Yeah.
Mark Zandi: I'll ask you at the end. Okay. Very good. Hey, so Diane, you have maybe the coolest career of anyone on the planet.
Diane Lim: You mean because I've had so many different jobs.
Mark Zandi: You've done so many things. My points of contact with you, I've had a lot of points of contact with you over the years.
Diane Lim: Yeah, that's true.
Mark Zandi: And every time that point of contact occurs, you're doing something else. I mean, I think it's-
Diane Lim: I know.
Mark Zandi: I'm always doing the same thing. I never change. You'll know exactly what I'm doing.
Diane Lim: Yes. People always say I can't hold down a job, so yeah.
Mark Zandi: Oh, yeah. Yeah. Well, no, I'm sure it's just a wonderful career. So maybe, can you just give us a sense of a your-
Diane Lim: A quick-
Mark Zandi: Yeah, I'm really curious, yeah.
Diane Lim: A quick tour.
Mark Zandi: Quick tour.
Diane Lim: So, when I first finished my PhD in economics, which is from UVA, I started out in academia. So, I was an assistant professor in a real economics department at Penn State University. I then-
Mark Zandi: Great university, by the way. Penn State's great.
Diane Lim: Yeah.
Cris deRitis: We hired-
Mark Zandi: A lot of Penn State folks they're very empirical, very practical. Very, very grounded. Yeah.
Diane Lim: So, when I first came to DC post PhD, it was to spend a year working at CBO, at the Congressional Budget Office, as a visiting scholar. And so, I just took leave from Penn State and then I ended up staying on at CBO. My then husband actually got tenure from Penn State on our second year of leave.
And we didn't go back because by then he was happy at the Federal Reserve Board, I was very happy at CBO, and CBO had given me a permanent position within the tax analysis division, which was my area of expertise. So, that's when I started my DC career. I've been in DC continuously since 1994, continuously working full-time in DC. So, I went from CBO to the-
Mark Zandi: Even you can't remember.
Diane Lim: I can't remember.
Mark Zandi: You can't even remember.
Diane Lim: I know. I went from CBO to the Council of Economic Advisors at the end of the Clinton administration for his final year. So, I was one of the senior economists who put together his legacy report basically, his final economic report of the president. And then I went from there to The Hill.
So, I went to Joint Economic Committee, then from JEC, I went to House Ways and Means Committee where I was chief economist for the democratic staff for Charlie Rangel. And then I went to Brookings for a year to work with [inaudible 00:18:53] and Alice Rivlin on a fiscal responsibility project.
And then I went back to The Hill to work for The House Budget Committee as John Spratt's chief economist when the Democrats had taken over the house. And now I can't remember after that. Let's see, I went to-
Mark Zandi: That's great.
Diane Lim: Yeah, I went to Pew Charitable Trust for a while-
Mark Zandi: Oh, that's right. That's right.
Diane Lim: That's when, I think I worked very closely with you, Mark, because-
Mark Zandi: We talked about data.
Diane Lim: ... Pew worked a lot with Moody's.
Mark Zandi: Yeah.
Diane Lim: And spent a few years also at The Conference Board, The Committee for Economic Development of The Conference Board, which is the policy arm of The Conference Board. I joined them right when CED merged with The Conference Board in 2015. And then I've been doing... I even worked for Penn Wharton Budget Model for a year, or a little less than a year, helping them with outreach stuff.
And then I took a buyout offer from Penn Wharton Budget Model thinking that I wanted a job in DC again. I took that buyout in the summer of 2020 and it turned out it wasn't so easy to get a job in the summer of 2020.
So then I was unemployed for over a year. So, that was the first string of unemployment that I had. I was not collecting unemployment benefits obviously because I voluntarily quit and had a severance package that was only a couple months long.
Mark Zandi: Did you enjoy that period? I mean, just to get away from things or not so much.
Diane Lim: Yes. So, that is when I started doing my own research into the pandemic economy. And I did all this stuff, hunting down data on Asian women because it was not produced regularly by the BLS in their monthly employment report, because they don't have a large enough sample of Asians to split Asians into women versus men.
So, that really opened my eyes to a lot of the work that I'm doing right now on the committee. So, it led me to this job that I have now, which is, I'm policy director for the select committee on economic disparity and fairness and growth. It's a select committee that's very short lived because it's only for this Congress. So, I'll only be in this job for another year. And then the committee just is supposed to go poof.
Mark Zandi: I see.
Diane Lim: To go away. It was created by speaker Pelosi. And a lot of us are expecting that the Republicans might take over the house the next election or that at least speaker Pelosi won't be speaker anymore, so this is her legacy. This is her legacy committee. Similar to when I was working for president Clinton and I felt like I was writing his legacy economic report, I feel like I'm going to be writing Pelosi's legacy committee report.
Mark Zandi: Oh, very cool. Did I tell you, I'm sure I didn't tell you. I got a call from her one day when she was thinking about putting the committee together-
Diane Lim: Really?
Mark Zandi: ... and just wanted to... Yeah. She just wanted to chat about, I think, what I thought of the idea. Whether it was a good idea in which she should be focused on. It's funny because she'll call and... Her phone number obviously doesn't say Nancy Pelosi, it says 2-0-2 something. And every time now I've learned that if I see a 2-0-2 number, I just pick it up because it could be her.
Diane Lim: Oh, really?
Mark Zandi: Yeah.
Cris deRitis: That's good to know.
Mark Zandi: So, if it's 2-0-2, I'll pick it up. And yeah, she wanted to chat about it. And of course, I thought it was a fantastic idea. I think very important. After 30 years of the income and wealth distribution becoming more and more skewed, I mean we really... There was a lot more work being done on connecting the dots back to what it meant for, obviously the folks that are being left behind, but also for the broader economy. I thought this was a really great idea. So, thank goodness they got you. You're perfect for that job. Do you want to give us a sense of how the committee works and what you've been doing so far?
Diane Lim: Yeah. So, I just started with the committee. The committee was basically not constituted even though Nancy Pelosi conceived of the idea and put up the committee back in, I want to say it was December of 2020 or January of 2021. The committee wasn't formed in terms of membership until the summer of 2021.
And they had their first hearing in July of 2021 with only democratic members and only two staff, which did not include me yet. I started on September 1st of 2021, so I've only been on the job for a few months now. And yet we managed to hire the rest of the democratic staff, which has about 10 of us.
And then the Republican members did not join us until, I think it was our second hearing in the fall, which was because our Republican members were held up with the other Republican members of the other select committee known as the January 6th Select Committee, which is way better known than our select committee.
So McCarthy, when he pulled off the January 6th appointed members, he also pulled off, even though it had nothing to do with our committee, he pulled off all his previously named Republican members to our committee. So, for a while we were a democratic only select committee. And then a little later in the fall, we got our Republican members and the Republican staff to come on board.
So, we're trying to work in a bipartisan way. We are tasked by the speaker to study the root causes, the drivers of economic disparity and inequality and to develop solutions to reduce disparity and promote inclusive growth that would ideally not just get the buy-in, the support of Democrats across our own ideological spectrum, but also get some Republican support. So, because-
Mark Zandi: Makes sense.
Diane Lim: ... it's very clear that you can't pass a major legislation that would move the needle on this huge problem without bipartisan support for policies. So, we are holding a bunch of hearings this year, hearings and round tables. We're traveling the country, we've had two field hearings already or two field visits.
We had a field hearing in Lorain, Ohio in the fall. We just came back from San Francisco where we were focused on the effects of technology and artificial intelligence on economic disparity and we're going to be going to Milwaukee, Wisconsin. We're going to be going to Seattle, we're probably going to be going to New York City to AOC is one of our members. So we're probably going to going to New York for a field hearing.
Mark Zandi: Very cool.
Diane Lim: Yeah. So, we go across the country, we talk to real people. We're trying to be a little nontraditional in how we do our policy research. I am the only PhD economist on staff as was often true of me when I worked on other committees on The Hill. But I very consciously chose to hire my policy team who aren't PhD level economists, but are more applied policy people.
Mark Zandi: Makes sense. Makes sense. Well, it sounds like a great committee. And I want to dive into the substance of your work, but I have a question. So, I want to accomplish two things in the remainder of the podcast. First is I want to talk about the substance of your work. Second is, I want to play this statistics game that we play that people really love. And I'd love for you to participate. I'm going to let Ryan choose. What should we do first, Ryan? Should we do the statistics game and then go back to the-
Ryan Sweet: When you gave me the choice last time, I picked the wrong one.
Mark Zandi: That's true, you did.
Ryan Sweet: Yeah. So Cris, what do you say?
Mark Zandi: So, what do you say?
Ryan Sweet: I say we do the stack game.
Mark Zandi: Okay. What do you think, Cris? Probably.
Cris deRitis: Yeah, I second that. Yeah.
Mark Zandi: Okay. Seconded. Okay.
Ryan Sweet: Kind of keeps with tradition.
Mark Zandi: Yeah. It kind of mixes things up a little bit as well. So, it's okay.
Ryan Sweet: Yeah, exactly. Exactly.
Mark Zandi: So Diane, we're going to come back to the substance of the work that you're doing, but before we do that, we do play the statistics game. And just to give you a sense of it, just to remind the listener, the best statistic, and this doesn't apply to you.
This applies to the three of us. You can pick any statistic you want, but the three of us, the best statistic is one that is related to what's going on in the economy, what came out this week, it has to be not so hard that it's impossible to get, not too easy that it's a slam dunk. Did I ger the rules right, Ryan?
Ryan Sweet: Yes.
Mark Zandi: Roughly speaking. Okay. Very good. Okay. So, we're going to start with you, Ryan. So what's your statistic?
Ryan Sweet: All right. So, I got a twofer.
Mark Zandi: What do you mean a twofer?
Ryan Sweet: Same report. You have two numbers.
Mark Zandi: Two numbers. Okay.
Cris deRitis: Related.
Ryan Sweet: Yes, they're related. Same survey.
Mark Zandi: Okay. Oh, same survey. Okay.
Cris deRitis: Okay.
Ryan Sweet: Same survey. 42 and 3.6.
Mark Zandi: 42. Does this goes back to the Conference Board Survey?
Ryan Sweet: Oh, wow. You're on fire.
Cris deRitis: Yeah.
Ryan Sweet: That's Conference Board.
Mark Zandi: That is the differential between jobs hard and easy to get.
Ryan Sweet: All right. What's the 3.6?
Mark Zandi: Diane, hold on. Wait, wait. Diane, are you impressed?
Diane Lim: I am impressed.
Mark Zandi: Okay. Okay. Listener, are you impressed? Now I'm going to get emails. Oh, he was given that blah, blah, blah.
Ryan Sweet: No, no. No, there's no sharing.
Mark Zandi: Okay. Where's my cowbell?
Cris deRitis: Right here.
Mark Zandi: Where is my cowbell? Okay. There you go. Okay.
Ryan Sweet: This is very competitive. So, I'll be more impressed if you get the 3.6.
Mark Zandi: Yeah, but it's in the same report?
Cris deRitis: Same survey.
Ryan Sweet: Same report.
Mark Zandi: That's the percent of people that think it's a good time to buy a home.
Ryan Sweet: No.
Mark Zandi: Buy an appliance, buy a car.
Ryan Sweet: No, you can just keep rattling off numbers, no.
Mark Zandi: Okay.
Cris deRitis: This is a fascinating-
Mark Zandi: Okay. Well, hey, I bet you that is the right answer though. I mean, I bet you, if you go look.
Ryan Sweet: Well, that's not the 3.6 I'm thinking of.
Mark Zandi: Okay. I'm just saying that, but I'm [crosstalk 00:29:48].
Ryan Sweet: Yeah, I'll check right now.
Mark Zandi: You can check right now. Yeah. If it's not the right number, it's pretty darn close, I venture to guess.
Ryan Sweet: Plans to buy a new home is 3.2.
Diane Lim: Oh, wow.
Cris deRitis: That's pretty good.
Diane Lim: Mark, that is good.
Mark Zandi: That's pretty good. That's good.
Cris deRitis: That's half a cowbell.
Mark Zandi: That's good.
Cris deRitis: Half a cowbell.
Mark Zandi: But what's this 3.6?
Ryan Sweet: Need your appliances?
Mark Zandi: What's this three six?
Ryan Sweet: So, my 3.6 is the difference between the share consumers that expect their incomes to go up in six months minus the share that expect it to go down. So, we have this enormous divergence. And I'll send you and Cris the chart, labor market differential versus income expectations. So, people are very upbeat on the labor market, but are very pessimistic about their incomes going forward.
Mark Zandi: Okay. So, square that circle. What's going on there?
Ryan Sweet: Inflation. I think inflation's too high where people just, they're no longer thinking of their incomes in nominal terms, they're thinking about it in adjusted for inflation.
Mark Zandi: Oh, interesting.
Ryan Sweet: I mean, that's my hypothesis.
Mark Zandi: Yeah.
Ryan Sweet: I mean, when you look historically, they track each other, which makes sense. When you're more upbeat about the labor market, you're expecting higher wages, now wages are just eroding wages. So, I think we have very optimistic about the labor market, and pessimistic about the-
Diane Lim: So Ryan, you think people are making that calculation, you're saying they think their wages are going to go up but not enough.
Ryan Sweet: Not enough to keep up with inflation. You can see that in some surveys. They ask if you think your incomes are going to outpace inflation and people are not optimistic that that's going to occur.
Diane Lim: Yeah.
Mark Zandi: Hey, that does remind me. In these surveys of sentiment, they do it by income group. Right?
Ryan Sweet: Mm-hmm (affirmative).
Mark Zandi: Have you looked at that recently, Ryan?
Ryan Sweet: I have.
Mark Zandi: Yeah. Traditionally, as you would expect, folks that are of lower income have less confidence. And it's rank ordered by income. But has that grown wider, you haven't taken a look?
Ryan Sweet: I haven't taken a look. That's a great question.
Mark Zandi: Yeah.
Diane Lim: Is that over the next three months, did you say?
Ryan Sweet: Six months.
Diane Lim: Six months.
Ryan Sweet: Six months.
Diane Lim: Okay. Well, the good thing about wages is typically if they go up, they keep going up. Whereas prices, if they go up, they don't keep going up.
Ryan Sweet: So we should see that gap close as inflation begins to moderate.
Mark Zandi: So, you're saying the wage gains, employers can't take those back.
Diane Lim: Yeah. Wages, don't go back down.
Mark Zandi: Yeah. But prices can fall.
Diane Lim: Right.
Mark Zandi: Yeah. And that's true.
Diane Lim: Or inflation can slow at least.
Mark Zandi: Yeah, that's a good point. Like vehicle prices are going to come back down to earth. That kind of thing.
Diane Lim: Yeah.
Mark Zandi: Yeah. Right. That's an interesting point. All right, Cris, you're up. What's your number?
Cris deRitis: All right. 5.7%.
Ryan Sweet: Is this house prices?
Cris deRitis: No, not house prices.
Mark Zandi: That's too low. No-no. Actually, the FHSA came out with its price series. I think we're up like 17% or something year over year.
Cris deRitis: 17.6.
Ryan Sweet: I was thinking quarter to quarter.
Mark Zandi: Oh, is it housing related though?
Cris deRitis: It is housing related.
Mark Zandi: Okay. Is it the percent of people buying second home? No. Something to do with the investor share or?
Cris deRitis: Nope.
Mark Zandi: No. Okay.
Ryan Sweet: Is this new home sales? Is it in the new home sales report?
Cris deRitis: No.
Ryan Sweet: No.
Mark Zandi: Oh, is it in the House Price Report?
Cris deRitis: It's related. You're getting very close though-
Ryan Sweet: Is it homes or house prices?
Cris deRitis: It is home sales.
Mark Zandi: Existing.
Ryan Sweet: Home sales.
Cris deRitis: Nope.
Mark Zandi: Not existing home sales. Oh, 5.7. I know what it is.
Cris deRitis: You got it.
Mark Zandi: The share of the down payment that's coming from crypto.
Cris deRitis: That would be a good answer if it was relevant to our topic.
Mark Zandi: Look it up. I better try. I better try.
Cris deRitis: Let's look it up.
Mark Zandi: There's no way.
Ryan Sweet: Is it the increase in the number of homes that are not started?
Cris deRitis: Nope.
Ryan Sweet: Sold but not started?
Cris deRitis: It came out this morning, as in earlier.
Mark Zandi: Oh, this morning. What came out this morning on housing?
Ryan Sweet: Is this one of your surveys that-
Mark Zandi: Oh, no. I know what it is. It's the NAHB buyer intention came out or the home builder-
Ryan Sweet: No.
Cris deRitis: That didn't come out today.
Mark Zandi: No? Didn't come out today?
Cris deRitis: No.
Mark Zandi: Okay. Pending home sales.
Ryan Sweet: Personal income [crosstalk 00:34:02].
Cris deRitis: Pending home sales. You got it.
Mark Zandi: Pending home sales.
Cris deRitis: Month of month decline in pending home sales.
Diane Lim: Oh, decline.
Mark Zandi: Diane, let me tell you, that's a bad statistic.
Diane Lim: Why?
Cris deRitis: No, I'll tell you why it's a good one.
Mark Zandi: Okay, tell me why.
Cris deRitis: So, the level is 109.5. That's index level. That is now below what it was in February of 2020.
Mark Zandi: Oh, okay. Oh, so you're saying the housing market is starting to cool off really significantly here.
Cris deRitis: Yes.
Diane Lim: Oh, I see.
Mark Zandi: Yeah.
Ryan Sweet: So, pending leads existing home sales by one to two months. So, we're going to see existing home sales drop off pretty quickly.
Mark Zandi: Oh, that's interesting. So, affordability is a real issue here now with fixed mortgage rate. What are fixed mortgage rates now? Cris, do you know?
Cris deRitis: They were four. I think they might be back down with the latest rate movements, but right around 4%.
Mark Zandi: They're down to four? I missed that.
Cris deRitis: Yeah, they're, I think was 4.05.
Mark Zandi: Oh, really?
Cris deRitis: Yeah.
Mark Zandi: I didn't realize it had gotten that high. Okay.
Cris deRitis: Yeah. They were hovering around there. So, even if they're re-trading, it's not that much money.
Mark Zandi: Yeah.
Ryan Sweet: Even if the sales are moderate, residential investment is going to be, there's a lot homes in the pipeline. 160,000 homes were sold but not started in January.
Cris deRitis: Yeah.
Mark Zandi: Yeah.
Cris deRitis: Yeah, yeah.
Mark Zandi: Yeah.
Ryan Sweet: It's not collapsing.
Mark Zandi: No, that's not what it is.
Cris deRitis: No, no, but some slowing [crosstalk 00:35:17].
Mark Zandi: That's because the builders can't get product, can't get their homes across the finish line because of the supply chain issues. Right?
Ryan Sweet: Yeah. They don't want to start and be left holding the bag when-
Mark Zandi: High and dry.
Ryan Sweet: ... they can't get a refrigerator or [crosstalk 00:35:29] and stuff. Yeah, exactly.
Mark Zandi: Oh, okay. That was good. That was good. Because it is very-
Cris deRitis: [crosstalk 00:35:36].
Mark Zandi: ... informative. It gives us a real sense of interest rates are starting to bite here where you'd expect it in the housing market, which is the most great sensitive part of the economy. Okay. Very good. Diane, do you want to go or you up for this or?
Diane Lim: Yeah. Okay. So, I'm going to throw a totally different kind of statistic. It's not right out of this morning's news releases, so that's the first hint.
Mark Zandi: That's a good thing.
Diane Lim: I'm going to give you two numbers.
Cris deRitis: Okay.
Diane Lim: Okay. The first is 122.5% and the second is 96.1%.
Mark Zandi: Those are good statistics, but Diane.
Diane Lim: Yes.
Mark Zandi: Was it truth in podcasting?
Diane Lim: Yes, truth in podcasting.
Mark Zandi: We came up with that number before the podcast.
Diane Lim: I know. I know. Okay, good. I just didn't know how much you wanted me to-
Mark Zandi: I could have taken advantage of the situation and show everyone how brilliant I was, but.
Diane Lim: Yeah. Yes, you guys helped me look it up. Okay.
Mark Zandi: Well, that's a good statistic. Do you want to explain it?
Diane Lim: Yes. 122.5% is the amount of gross federal government debt as a share of GDP as of the latest reading we have on Fred or from third quarter of 2021. 122.5% so that. And the second number, 96.1%, the smaller share of GDP is because that's debt held by the public, which is what economists care about.
Gross debt matters because that's what the federal debt limit is tied to is gross levels of debt. And the net number matters more from an economic standpoint, of course, because it's what we actually owe the rest of the world's economy is the net debt.
Mark Zandi: So Diane, is that high, too high, low?
Diane Lim: Yeah.
Mark Zandi: What do you think of that number?
Diane Lim: So, my answer is the reason why I had to have you guys help me look it up is because I haven't been keeping track of it because who cares right now? And my point in bringing up that statistic and who cares is because I used to work for places like... Oh, I totally forgot to mention I was at Concord Coalition for years.
Mark Zandi: Oh, that's right. Yeah.
Diane Lim: Mark, when I was with you in my history, it's like, yeah, I blanked out the whole Concord Coalition years. And when I was at the Brookings Institution, I was traveling around with the Fiscal Wake-Up Tour as it was called.
Mark Zandi: That was Bixby.
Diane Lim: Bixby and [inaudible 00:38:18].
Mark Zandi: [inaudible 00:38:19], yeah.
Diane Lim: And the former comptroller general of the U.S David Walker.
Mark Zandi: Oh, that's right. Yeah, exactly.
Diane Lim: And then we'd always have one person from Brookings and one person from Heritage go on this tour.
Mark Zandi: I see.
Diane Lim: And the idea was like, we could all agree that the federal debt was a big problem and that we needed to do something about it before it became economically unsustainable for us to carry those levels of debt. But we might disagree, the Democrats versus the Republicans, on solutions. Right?
Mark Zandi: Right.
Diane Lim: It's a little bit like our committee, my select committee trying to come up with bipartisan solutions when we can only agree on the problem and not really agree on the solution. So, it's a similar kind of motivation. Yet back then, at the end of the Clinton administration, when I was working on fiscal responsibility issues, interest rates were really high, we really thought that there was a negative relationship between high debt and deficits and economic performance.
And now interest rates are still very low and we haven't seen as close a relationship between debt and interest rates over the years and over the past 20 years or so. I have become much more concerned about how the government spends its money and whether it's spending it wisely rather than how the government is financing its spending. Okay. So it's sort of, yeah.
Mark Zandi: Yeah. I wonder, I mean, because I would be full-throated in that perspective before the pandemic, because inflation was too low and the Fed's been struggling to get it up. Interest rates were incredibly low and been very low for a long time. I don't know that now I feel a little less comfortable with that.
Inflation's definitely too high. An underlying inflation is not going back to where it was pre-pandemic because of rank growth and everything else. And interest rates are still low, but they are definitely moving higher.
Diane Lim: That's right.
Mark Zandi: I wonder if this view, this perspective around deficit and debt might not switch again to back-
Diane Lim: Switch again.
Mark Zandi: Yeah, switch again.
Diane Lim: No, I agree.
Mark Zandi: Yeah.
Diane Lim: I agree. It'll switch again. But in the meantime, I think that our biggest concern should be, what are we spending? What is the federal government spending money on? And to not forget that there's a lot of stuff we're spending money on that we didn't seem to have a problem with the deficit financing of those types of spending in the past. And yet there's reluctance now to keep spending and keep investing because of the level of debt.
Mark Zandi: Yeah.
Diane Lim: And I just think that we shouldn't give a pass to all the policy that's already in place. We should be looking at policies that cost a lot of money but don't provide much economic benefit. And I mean macroeconomic benefit, not just benefits to the people who need the benefit.
Mark Zandi: Point well taken. Yeah, I think that makes a lot of sense. Hey, should I just give you my statistic real quick and then we move into income.
Ryan Sweet: Oh, yeah. Of course.
Diane Lim: Yeah.
Cris deRitis: Yeah. Yeah.
Mark Zandi: I might violate one of the rules here.
Ryan Sweet: So it was released last week?
Mark Zandi: No, not... Well...
Cris deRitis: Last year.
Mark Zandi: Well, you got to think broadly about statistics, more [inaudible 00:42:04]. Think about events, where we are. That's a big hint. This is Russia/Ukraine, so that's a big hint.
Diane Lim: Oh.
Mark Zandi: Okay? 70%. 70%.
Ryan Sweet: Is this natural gas-related?
Mark Zandi: It's not, but you're in the right genre of thinking. Because natural gas, Russia produces 17% of the globe's natural gas. Just to give you a sense of.
Ryan Sweet: Right. I was wondering if it's higher for Europe.
Mark Zandi: Oh. Well, Europe gets about a third of its natural gas from Russia, about a third. Germany gets about 50% of natural gas from-
Ryan Sweet: 70%.
Mark Zandi: So, you're thinking in the right ballpark.
Ryan Sweet: Oil?
Mark Zandi: Oil, they produce 12% of the world's oil. 12%. By the way, the U.S, I think is now, I think Saudi is the biggest producer, U.S is two and Russia is number three in terms of oil production. So, 12% of the world's oil. I'll help you out.
Cris deRitis: One of the minerals that goes into auto-production or?
Mark Zandi: You're moving in the right direction.
Cris deRitis: We're going into minerals?
Mark Zandi: Well, you said natural gas, you said oil. I'll give you another one. Titanium. The Russians produce 13% of the world's titanium, which by the way, for those who don't know-
Cris deRitis: Cobalt.
Mark Zandi: That's a good one. Titanium is-
Ryan Sweet: Palladium.
Mark Zandi: Not palladium. I know palladium, hold on. Palladium is 30% of the world's [crosstalk 00:43:34].
Ryan Sweet: So, we're getting there.
Diane Lim: Wow.
Mark Zandi: 30% on the world's-
Ryan Sweet: Rhodium?
Mark Zandi: ... Palladium. I'll give you another statistic. They produce 30% of the world's helium, world's helium which, that's key to rocket proportion and lots of things. Okay. What is it? 70%. This is really important to supply chains. Oh, you guys don't-
Cris deRitis: Containers. Containers.
Mark Zandi: No. You won't get it.
Cris deRitis: Magnesium
Mark Zandi: Neon.
Ryan Sweet: Neon?
Diane Lim: Neon?
Mark Zandi: Neon. You know why neon's important? Neon is critical to chips.
Diane Lim: Really?
Mark Zandi: Yeah. Interestingly, you take the silicon wafer and then you have to essentially etch in the wafer the circuit, and they use neon gas to do the etching.
Diane Lim: Oh my God. I had no idea.
Mark Zandi: Yeah, right?
Ryan Sweet: Well, you violated two of the rules.
Mark Zandi: Oh, really?
Ryan Sweet: That one's impossible.
Mark Zandi: All right. Let's turn to income and wealth inequality. And there's a lot of different ways we can go here, but Diane, can you give us a sense of, well, the way I would frame it is, the nation's income and wealth has become more skewed, significantly more skewed, really over the past two generations. I mean, if you go back into the late '70s, early '80s, that's a time when the income and wealth distribution was probably at its most evenly distributed.
And since then, it's been steadily becoming more skewed. The wealthy are doing really, really well, high income households doing really, really well, low income households, not so much. And in fact, if you look, it's a real problem. I mean, a very large proportion of the population, a third of the population has no savings really.
So, if something just goes a little off in their life, like they have a flat tire or they have a leak in the roof, they don't have the savings to be able to cover that. That's a problem, I think. So, that's the frame. Is that a good characterization of things and can you just give a sense of what you think is behind what's been driving this skewing of the income and wealth distribution?
Diane Lim: Yeah. Well, the problem with inequality or disparity is it compounds over time. It just gets worse over time if you let it go on autopilot. If you keep continuing business and the economy as usual, that inequality just compounds over time because people who are doing well already will keep doing better and people who are doing poorly, they're sometimes not even seen.
There was a lot of talk during the rescue packages of overheating the economy with the rescue packages. Right? And I was arguing, "How can we overheat the parts of the economy that haven't even made it to the stove top?" They're not even on the back burner, they're just not on the stovetop at all. So, it's like, if you think about how we're used to thinking about promoting economic growth, we start by looking at what are the fastest growing parts of the economy? Let's give more money to those parts of the economy, right? Who are the successful people? Let's make sure they have no constraints on them continuing to be successful.
And a lot of the parts of the economy, the people in the economy that aren't doing well, they don't even register in our datasets because they're not in the economy right now. Right? So, when we look at things like the Employment Report and we look at things like income tax data, we don't see a lot of parts of the economy. We don't see the majority of the people in the economy. We see something that's weighted by income, right?
So, the most that we see in terms of looking at economic data when we look at the macroeconomic statistics, we're seeing an over-representation of, frankly, a lot of white men. I think I've said this before, Mark, on a podcast we were on together for [inaudible 00:47:46]. But I think of-
Mark Zandi: That's right. Yeah, I forgot about that.
Diane Lim: ... the macro data as telling us how white men are doing more than it tells us how anyone else is doing because white men contribute the most to market measure GDP. Right? So, I think of it as, are any of you guys runners?
Mark Zandi: I am.
Ryan Sweet: Mark's a big runner.
Mark Zandi: I love running. I run every day.
Diane Lim: Do you run half marathons?
Mark Zandi: Oh no, no, no. I don't do, no-no. I'm not that kind of runner.
Diane Lim: No, you don't do that.
Mark Zandi: Are you a runner? You look like you're a runner.
Diane Lim: No, I used to be a runner.
Mark Zandi: Yeah.
Diane Lim: I haven't run in a long time. But back when I used to run a half marathon occasionally, maybe they do this at shorter races too. I can't remember, the 5Ks, the 10Ks. They would start you in corrals based on how fast you've run before. Right? And if you're one of those elite runners, you get to start right at the start. Right?
And if you don't have a record, it's honor system, you say, "I think I can run in this range of pace." And then you go into a corral further back, right? And I think of economic disparity as being a lot like that running race. Where the runners that are established as being fast, they get to go at the start and they get to run freely.
There's no bottlenecks in their way. They get the nice car showing them the way, they get the fresh water tables where there's no cups to run over and stuff. They have everyone cheering them at the start line. And I view that as a lot like how the economy works for people who have already succeeded and already established as, oh, these are the most important. These are the successful people. Put them at the front of the line and give them the royal treatment.
People toward the back who haven't yet proved themselves are stuck in the bottlenecks. They get to the table and there's no more Gatorade and they're stepping over all the cups. And they face more obstacles along the way. It's challenging to get from the back to the front, even if you're inherently a faster runner, a fast enough runner.
Mark Zandi: That's interesting. I mean, so I ask the question, what's behind the skewing of the income and wealth distribution? And you go to, it's just not fair. The system is unfair. That's what it sounds like.
Diane Lim: It's not fair, right.
Mark Zandi: That's not what an economist generally would say. The economists would say, okay. Globalization, technological change, decline in immunization. I mean, that those things that we can prove. I mean, there are studies and I've actually done the studies and I can show that that's the case. But this question of fairness, I mean, maybe. It sounds right. The metaphor you use is compelling, but how do you show that? How do you prove that?
Diane Lim: Well, I think you prove that by looking at the effects of these economic forces, like globalization, like automation, right? Like technological progress and consider how it affects people's lives at different levels of the income distribution. And you see that it's really hard for working class manufacturing worker to bounce back from globalization, offshoring production to another country and decimating the industrial base of their hometown. Right?
It's harder for that worker to move to another industry, to move to another line of work right away. You look at automation, right? And how automation has been, technological progress more generally, has been really good for most of us who can more easily do our work, especially during the pandemic. But it's been hard for people that do not have, are not in a line of work that can be automated or are not in a line of work that can be automated in a complimentary way to their human capital, or that cannot work remotely during the pandemic.
It's a benefit to some people, the people that are generally most successful already, and it's a cost or a burden or a further obstacle to people who can't work, can't work with that technology. So, during the pandemic, I think we've experienced a lot of the un-levelness of the playing field, the economic playing field. And we've also seen the effective policy that was designed to be an emergency measure to lift up people that were hurt the most during the pandemic.
And yet I think that some of that is not just an emergency, a crisis management situation, but it tells us something about how we can keep the playing field more level going forward. So, women in the pandemic, right, the fact that we saw so many women drop out of the labor force or lose their jobs and having trouble coming back into work.
Women are still, there's still a deficit, a hole of employment, an H-O-L-E of employment that women haven't come out of as quickly as men have because of the nature-
Mark Zandi: But can I point out though, in the financial crisis, that recession, that hit men a lot harder, right?
Diane Lim: It did.
Mark Zandi: It was manufacturing, it was construction that was male-dominated industries. Whereas the pandemic, because that hit healthcare, that hit education, hit retail, that hit women harder. So, it's just the nature of the shock, right?
Diane Lim: That's right.
Mark Zandi: That has nothing to do with fairness or anything other than that. Right.
Diane Lim: Right. But it's like, think about the parts of the economy that were the most damaged during the great recession, that were the most damaged during this pandemic recession and think about why it's difficult for those types of workers to get back into the economy. And then you start to think about what policy has to do with it and what the market economy, what the market has to do with it.
The fact that care work is not valued in the U.S economy, and so it tends to be unpaid or underpaid. The fact that manufacturing workers have a hard time getting into other lines of work because there isn't a lot of support for labor in those industries. Right? I think that if you think about all of our federal level policy, certainly, we designed our federal fiscal policy system in order to encourage and promote economic growth that comes primarily through capital income.
And we've been less inclined to subsidize or support labor income. We tax labor income at a higher effective rate than capital income, we provide benefits that are conditional on your household structure and your employment relationship rather than more universal benefits. And those have an effect of continuing to reward people who are doing well. Right? So, people who have jobs, who are working in traditional employment roles, who have investment in capital income. Right?
We hand out a lot of benefits through our income tax system, which doesn't end up reaching people that have lower incomes because they don't interact with the federal income tax system. So, I think there's just a lot that our economy was founded and our government was-
Mark Zandi: But can I ask, Diane, on this issue?
Diane Lim: Yeah. Yeah.
Mark Zandi: It's an interesting point you make in terms of your thinking about what's driving this income and wealth inequality. And I keep going back to the fact that between World War II and 1980, that 30 year, 40 year period, income and wealth inequality was not an issue. I mean, everything felt like it certainly was distributed evenly enough that it wasn't really top of mind in terms of the way people were thinking about things.
This has become a problem since then. And these questions of fairness and your metaphor about having opportunity at the front of the line, that's always been there. In fact, it probably was even greater back in the years after World War II. So, it doesn't feel like to me, you can go to that as an explanation for what has happened over the last two generations. That doesn't feel like something has changed inherently in the way the system works or the fairness of the system or the way policy works or all the things you... To me, what changed was globalization. That changed.
China entered into the WTO and that made a big difference. Technology changed and labor-saving technology that reduced demand for low wage work. Manufacturing, construction, which was exacerbated by the declining unionization. Every study that looks at this says, the work I've done says the declining unionization has played a very significant role in all this.
So to me, those are the things that are, what the issues are. I mean, and this is important because, depending on how you diagnose the problem is critical to how you address the problem. So, if it's a matter of fairness, that's one thing. Which by the way, is going to be pretty difficult to address.
And I get it. Better measurement. We want to have broader measurement, those kinds of things all makes absolute perfect sense, but that's a much more thorny, very, very difficult thing than saying, okay, if globalization is the issue, if technology is the issue, if unionization is the issue, let's focus on, how do we address those things or at least make it easier for people to come back into the economy after they get nailed by those things.
Diane Lim: Right. No, I agree with that. I think there's been a shift in the balance of economic power over the past several decades. And more power going to employers and less going to workers, more economic power concentrated in a few large, very successful and profitable companies and less in the hands of smaller businesses. And I think all of that unfortunately has filtered down to the household level such that when you shift power from workers to employers and when you shift power from small companies to big companies, you're also shifting economic wellbeing from lower income, lower wage workers to high income. [crosstalk 00:59:19].
Mark Zandi: Okay. That's fair. That's fair. You're saying-
Diane Lim: ... and investors.
Mark Zandi: But to put what you said into Zandi terms, you're saying, look, these other things I just mentioned, globalization, technology, whatever, started the train rolling. And then it takes on life of its own because people are in a position of power and therefore they can start changing the rules of the game, meaning tax code, meaning government spending, meaning regulation. All those kinds of things. And it just becomes self-reinforcing. And that's what makes sense.
Diane Lim: Even a business that's selling hiring practices, right? Why are we still having trouble getting more women of color into leadership positions at corporations? It's because a lot of people instinctively like to hire people that remind them of younger versions of themselves.
Mark Zandi: By the way, I can attest because I am on a board and very, very different perspectives on that in boardrooms today. Just the opposite of what you just said.
Diane Lim: Really?
Mark Zandi: Absolutely opposite. That now any new board opening that opens, we need to find women, we need to find women of color. And in fact, it's difficult to find folks. So, I would say actually, because of this whole ESG movement, which again, by the way, don't get me wrong. I think this is a great thing, but I do not think that that's the case anymore, or at least not... I mean, I paint with a broad brush and I'm looking at it from my own perspective. I don't have a broad set of data here, but I don't feel that in boardrooms today. I feel very different attitude towards this.t Things are changing.
Diane Lim: Well, it's moving in the right direction. But it's coming from way back in the race. I mean-
Mark Zandi: Oh, that's true. No doubt about that. Yeah. Yeah.
Diane Lim: I mean, for a long time, we have not had good female representation at the top of major corporations.
Mark Zandi: No, I agree with that. That's very true. And it's still the case. So, it's not well represented. So, a lot of work to be done here. No doubt about it. But I just feel like, I don't know, there's definitely a change in corporate America with regard to this particular issue.
Climate change, big change in people's perspectives in the last 10 years. And I'd say also in terms of a diversified group of individuals that are helping these organizations operate, very different attitude than it was the case 10 years ago. And as you can tell, I've gotten a little older. I have a little bit of historical perspective now to bring to bear. And I think that has changed, all for the good. Believe me, I think this is a really good thing.
I'd love to see more data on that, and I'm sure there is. We should take a look. Hey, I want to move the conversation along a little bit because we are running out of time. And I do want to talk about the kinds of things you think we should be doing to address this. What is at the top of your list of things that if you were queen for the day, I don't know if that's what I should say there, leader of the day.
Diane Lim: Yeah.
Mark Zandi: So, what would you do?
Diane Lim: So, I think our committee is studying a lot of policies that help to level the playing field, to help to bring people that are in the back of the line closer to the middle of the pack, at least. And that means more support for families. A lot of the fiscal policy that was designed to rescue people from the COVID pandemic is really a good pilot program for things that could go on in the future.
So, for example, they expanded child tax credit. You can think of it as a smaller version of a more universal family benefit. Getting more support for workers who aren't in traditional employment relationships, helping people get the education and training they need to find the jobs that are more resilient to changes in the economy like automation. Supporting care work more, because whether it's unpaid care of that family members provide or currently unpaid care.
Or the caregiving industry, there are a lot of people getting old right now, the baby boomers are getting old and almost fully into retirement. And there's a terrible shortage of care for elder people. And so, more support for the assisted-living communities.
I think we're also recognizing that a lot of what has already been passed in this Congress and in this administration has been good for the economy for the longer term, not just as a recessionary counter. So, infrastructure spending, we had a hearing on infrastructure and how important that is for economic opportunity, right? To create connection for people to the economy.
So, how important it is for people to have safe and reliable trans public transportation, how important it is for broadband access, especially given how much is done remotely these days, safe, clean water. We're having a housing hearing next week, which deals with safe and affordable housing. I think that a lot of our policy recommendations are going to be things that are not necessarily federal policy, but may be state and local policy that can be supported, funded by the federal government. Investments in communities, providing more access to capital to communities that need it, to access to resources.
So, we're going to be studying and talking about place-based policies like local economic development policy and how that could be encouraged to be more productive for communities, more inclusive to entire communities, rather than just subsidizing the investors that put money into the community. Actually having communities play a bigger role in shaping how those funds are invested in their own communities.
Mark Zandi: Makes sense.
Diane Lim: Yeah.
Mark Zandi: I was going to say, we've done some work looking at racial integration across the country and relating that to growth and found in our work that more racially integrated communities have stronger economies. They grow more quickly. We can't quite prove or connect the dots as to exactly why that is. It's very difficult because of all kinds of data and issues and the debates in economics communities about causation versus correlation and all those kinds of things.
But the one thing I've come to the conclusion based on that work. And I still can't quite, quite prove it econometrically but it's my sense of it. That credit really matters. Credit availability.
Diane Lim: Yes.
Mark Zandi: In those racially-integrated communities, you just find credit availability is greater and that helps to support small business formation, entrepreneurship, allows households to become homeowners and drives... They can get student loan debt so they can go get a higher level of education. And that drives lot of economic growth.
And in my mind that seems to be an area where, it feels like we should be able to do something there, right? Policy makers. Because a lot of that credit comes from institutions that are regulated by the federal and state local governments. We should be able to do something about that. I don't know if you have any thoughts about that.
Diane Lim: Yeah. I think there needs to be a lot more work on outreach and administration of these programs that are designed to help local communities, even if they're federal programs. Like I'm thinking about the Paycheck Protection Program Loans.
Mark Zandi: Yeah. Mm-hmm (affirmative).
Diane Lim: And how at the start of the pandemic, we saw that despite those loans that a lot of immigrant small businesses were most likely to be closed down. And I know from Asian communities and Asian culture, that a lot of Asian family businesses, they're very reluctant to apply for a government loan. Because it sounded like a loan and not a grant as well.
Mark Zandi: That's true.
Diane Lim: They don't like to borrow money. They don't like to borrow money. And then some of them do, they just had language barriers and they didn't have regular relationships with a bank. Like a Chinese restaurant did not have a regular relationship-
Mark Zandi: Yeah, good point.
Diane Lim: ... with a bank. And so, they had trouble even being aware of the fact that that program was a good program to participate in, would have saved the business, because they just didn't want to owe money to the government.
Mark Zandi: Oh, you know, I'm-
Diane Lim: They didn't have anyone to help them through it.
Mark Zandi: That's a great point. I mean, I do think the program got a little bit better as it went because it got CDFIs involved, CDs. Like I'm on the board of a CDFI, and we got involved in helping those kinds of businesses that don't have banking access-
Diane Lim: Yeah. Relationships, yeah.
Mark Zandi: ... to navigate through the SBA to get those loans. But you're absolutely right, that is a big deal. We should be able to think about them more carefully. Hey, this is obviously a very pernicious problem. And if we don't address it from a policy perspective, in my view, that you're right, I think this only will get worse. So, we really need to think about this.
And thank goodness that we have people like you who are on the case because you are really good, and obviously very committed and devoted to this as an issue. And I think we owe you a debt of gratitude for your service to the country. So, thank you for all the work that you're doing here on this issue.
Diane Lim: Well, I would urge your listeners to follow our committee's work. If you just Google... Well, Google Fair Growth Committee, because that's our shorthand term, and you should be able to find our website. We've got a bunch of hearings coming up that are just really going to be fascinating. We always feature real people and not just experts.
Mark Zandi: Not the eggheads, not likely, not the eggheads.
Diane Lim: We have some eggheads, but we're limited. I'm given a quota on how many eggheads I can invite to testify.
Mark Zandi: Totally get it.
Diane Lim: Which is why, Mark, you haven't testified yet because I've been told too many eggheads.
Mark Zandi: I'm definitely an egghead. I'm definitely, definitely egghead. But again, thank you so much for coming on. I really appreciate it and I think we'll call it a podcast. Do you have a Twitter handle, Diane? Do you tweet?
Diane Lim: I'm @economistmom. Yes.
Mark Zandi: Oh, that's right. I knew that.
Ryan Sweet: Oh, that's a great one.
Mark Zandi: That's a great one. Yeah, @economistmom.
Diane Lim: I used to write a blog. Actually, my blog still exists online, economistmom.com.
Mark Zandi: Excellent.
Diane Lim: It's just, I haven't written on it since I started this job. But yeah, there's some perspective there. I've written a lot about Asian women during the pandemic, especially.
Mark Zandi: Yeah. So everyone, we should take a look at that and follow you. And Mr. Sweet, what's your handle?
Ryan Sweet: @realtime. Yeah, @realtime_econ.
Mark Zandi: That's a bad sign, Ryan. That's a bad sign.
Ryan Sweet: I know. I do too.
Mark Zandi: Dr. deRitis won't even tell us where he is, because he's a LinkedIn fellow.
Diane Lim: Oh, I see.
Mark Zandi: I'm not on LinkedIn so I don't know, but I heard that he dominates LinkedIn.
Cris deRitis: And I'm not on Twitter, so there you go.
Diane Lim: Wow.
Cris deRitis: Two ships that pass in the night.
Mark Zandi: And for everyone, @markzandy.
Ryan Sweet: There it is.
Mark Zandi: There it is. There it is. Hey, I want to thank everyone for participating. And listener, any suggestions. And actually, I do get a fair amount of suggestions from listeners and I really take them to heart and we try to adapt and adjust to the things that you're asking for. So please, fire away. Very interested in what you have to say. And with that, we will call this a podcast. Thank you, everyone.
