0:01

Yo, Rob, our Villa from 60 songs that explain the 90s here to inform you that we are back with 30 more songs because the 90s were super long and had a ton of read music, please join us every Wednesday for more 60 songs.

That explain the 90s only on Spotify.

0:17

Today’s episode economic mystery hour.

Three biggest mysteries in finance and econ.

Today.

Number one, what the hell happened to stocks in 2022?

Number two.

What are the chances of an imminent recession in the US economy?

0:33

And number three.

What’s Joe Biden going to do about student loans?

Morgan housel is back on the Pod.

He’s a partner at collaborative fund and the author of the psychology of money.

We will answer all of those questions.

But before we do, please remember, I am not a financial advisor.

0:51

Do not treat me like one this advice is worth what you’re paying for it.

And unless I’m mistaken what you’re paying for.

It is zero.

But before we get to Morgan, let me set the table for finance and econ news.

In Sixty Seconds stocks have been in the toilet this year in April.

1:07

NASDAQ had its worst month since 2008.

So if you’re 35 or younger, or if you weren’t investing for whatever reason, during the George W Bush Administration, this is the worst quarter for tech stocks you have ever seen.

1:24

And this is happening as some Economist are warning of a recession.

Now, understand why they’re warning of a recession quick.

Reminder about the Federal Reserve.

The Federal Reserve controls monetary policy in the u.s.

Its goal is to keep the u.s.

Pitched in a narrow band of low unemployment and low inflation.

1:41

Low unemployment check.

We got that.

The labor market is on fire, low inflation.

Not even close.

The feds inflation.

Target is 2%, Our inflation rate is over eight percent.

So the FED is trying to execute what I guess the term is now a soft.

2:00

Landing raise interest rates just enough to pull down in flames.

Russian without pulling economic growth below zero percent.

That’s not easy to do in normal times.

It’s only happened a few times in the last 70 years.

It’s definitely hard to do with.

Russia’s invasion of Ukraine messing up, Global Commodities markets.

2:18

It’s sending commodity prices higher, which makes it harder to pull down inflation.

And number two.

You’ve got the Chinese economy sputtering, like it is, which might pull down overall us growth.

That’s why a lot of economists who have been Right, about the last 18 months are predicting a recession in the next 18 months.

2:40

Before I give you Morgan one, very last thing, it has been a huge honor to do this podcast.

I’ve Loved listening to people, giving me feedback on Twitter or via email.

Honestly, the positive stuff, the negative stuff.

It’s all useful.

I’d like to hear more.

So we’ve set up an email, if you to reach me.

2:58

It’s plain English at Spotify.com.

That’s plain English no period at Spotify.com.

What I’d really like to do is add a segment on this show.

Where I answer your questions about anything the world, the news your life.

3:16

I think this show runs on curiosity and I would love to have a segment that’s like curiosity corner where I take time to deeply answer questions that you listeners are most curious about, so send them my way.

Plain English at Spotify.com., I’m Derek Thompson.

3:37

This is plain English.

4:01

Morgan, welcome back to the podcast.

Thanks for having me Derek.

Happy to be here.

I want to start with stocks at the S&P. 500 is down 14 percent this year.

Here, the NASDAQ is down 22% and I wanted to bring you on to be the show’s stock doctor, diagnose.

4:16

What exactly is happening here, but also our stock psychologists.

Like, how should we think about what’s happening in the markets today?

So first, let’s have you placed doc doctor.

What do you think is happening in the markets in 2022?

Well, I think, I think stock doctor and Stark, you know, practitioner is almost the same thing right here, because you mentioned earlier, the S&P 500 is down 40%.

4:39

Percent year-to-date, which is a really actually important number.

Because if you look at the last 100 years, in stock market history, the average year, not the average bad year, just the average of all years, the peak to trough in any of those individual years on average is 13 and a half percent.

4:55

So literally, what we have experienced so far this year, that feels so bad, and feels like it’s the end of the world.

Is literally the average year over the last 100 years.

And so, in many ways, what we’re dealing with is completely normal, completely expected, completely inevitable.

Edible, I think it feels worse for two reasons.

5:12

One is that we’ve just had a two-year period when the markets effectively.

Just went straight up.

And not only that.

But you had literally tens of millions of investors who are participating in the stock market for the first time Robin Hood.

The, the trading at that is primarily geared towards young investors in March of 2020.

5:30

When the pandemic began, they had 7 million customers. 7 million accounts by the end of last year.

They had 24 million accounts.

So you have Literally tens of millions investors who got in our Investing.

For the First Time In all they’ve known is not only a market that goes up, but in Market, in which it is normal to double your money, every six months, which a lot of them in meme stocks were and that’s their Baseline for normal.

5:53

So, now that you experienced a 14% decline, even if historically it is.

So benign and expected for that cohort of investors.

It’s like the end of the world.

The other point here is that most of those investors were in high-growth tech stocks and those stocks Are not down 14% 11 or down, 80% 70%, are the ETF mutual fund.

6:15

That’s that gained so much prominence was kind of like the face of the bull market is down 70% from its high.

Now, one point that I make here is that this is theory that I like it’s not.

It’s not analytical.

This is very like, just rule of thumb but like how fast a stock goes up.

6:31

That’s the half life or how much it can go down.

So if you are investing in stocks, that can double in one year or did double in one year, you should That they could also lose half their value in one year as well, which is exactly what has happened.

You said, two things that I definitely want to talk about.

The second being that tech stocks are down a lot.

6:50

And I think a lot of investors have come to expect that a lot of these tech stocks do not apply to the rules of gravity.

Like the Fang stocks the software Giants.

They just go up.

And this year has falsified that thesis, but I’m really glad that you mentioned the fact that just doing the quick numbers here, 15. 220 million retail investors came online in 2020 and 2021 and all they know is a stock market that since March. 20 20 has gone up and up and up and up in like basically kind of like an exponential style curve.

7:24

I remember seeing a viral Tick, Tock with this Tick, Tock, investor influencer, who said here’s how I make fifteen thousand dollars a month.

Ready.

Here we go.

When a stock is going up, I And when a stock is going down, I sell it.

7:43

That’s it.

That’s how I’m going to make six hundred thousand dollars this year and it was like, oh, you sweet summer child.

Like yes, that is a sensational strategy for this moment.

But oh my god, when the stock market does what it will inevitably do, and start to come down that strategy will not work at all.

8:01

Here’s what’s crazy about that to two things.

A he was not being sarcastic.

He was being totally has been, just realizing that is stock advice.

Yeah, but be Be that strategy worked really well for like two years.

So as easy as this to poke fun at that and we should and I don’t I don’t necessarily blame literally 20 million new investors for thinking that’s how it works.

8:23

And it just makes this new bath of reality that we’re in right now feel that much, that, that much worse than it would be.

Whereas, if you are kind of a student of stock market history, you will understand what’s going on right now is completely benign.

So let’s talk about that reality bath.

8:39

I want to look at the tech stocks specifically because I think a lot of people who are witnessing Mayhem in their portfolios, are witnessing Mayhem because of what’s happening in tech stocks.

So Amazon, year-to-date is down 25% alphabet.

8:54

Google is down, 20% meta, that’s Facebook down 38%, Netflix down, 70%.

And then you have Robin Hood, Peloton affirm.

All these tech companies that are down 75% or more.

What’s Inning in Tech.

9:10

What?

What is your explanation for?

Why Tech particularly has gotten slammed this year?

Well, my explanation might be completely wrong because everyone loves to kind of, you know, get attached to their own narratives, but my own narrative would be this when interest rates are zero.

9:27

All that matters for the valuation of a company is the story that you can tell about what it’s going to do tomorrow, what it might be able to become when there is no interest rates, anchoring you to results this year.

Your competition for your money.

This year.

All that matters is the story that we can tell ourselves about next year.

9:44

And that’s really what pushed these tech stocks up as high as they got over the last two years.

Was that I think when interest rates are that low, it just comes down to what is the most appealing narrative that you can come up with?

And if investors anchor onto that, then the question of how much is this company worth is as much as people want to believe it’s worth.

10:01

And that’s why you got all of these.

What look like crazy evaluations.

Whether it was riveting was worth 150 billion dollars, and they had never sold a car.

But Before or this is an electric car company and let your car company that went to the moon before it is sold as a single vehicle.

Yes, go ahead before the souls and it can do that because people like to the story about it.

10:20

Now when interest rates rise as they have very dramatically over the last six months or so, then you just start bringing back little portions of reality that start entering the situation.

The start entering the narrative and it’s less about what what might you be able to do over the next 10 years and the question starts to become.

10:39

Or what have you done this year?

What are your actual business results?

We also just lived through a period of over a decade where you had all these tech stocks that it didn’t necessarily matter if they made money because you are so focused on the story about what they might be able to become.

10:54

So you had all these businesses that were losing money with every transaction.

Every time they interact with the customer.

They lose money, the more customers they have the more money they lose and by and large that was okay with investors because they’re saying, oh we’re in for the high growth over the next 10, 20 years.

That idea only works if those companies eventually become profitable, like focus on your growth, get as many customers as you want and then we’ll make the profits down the road, but down the road.

11:18

Eventually comes like, like, at some point.

We are at the point where these companies have to start showing that they can actually earn real money and I think that abruptly hit over the last 12 months and a lot of these companies that are not profitable that have very poor economics.

11:34

That are don’t really have a sustainable business model are being priced appropriately.

Now, I think The way to sum up summarize, all of this is there’s this quote from from nothing Talib who says, and this is tongue and cheek.

He says, when most people when someone dies, most people ask ask what was the cause of death?

11:50

When actually, what you should be asking was what was the cause of Life beforehand?

Like what was actually keeping them alive beforehand.

I think there’s some analogy with that with tech stocks as well.

The question is, not why did they fall 70%?

The question is?

Why were they valued so crazy beforehand.

That’s the bigger mystery to solve for any one answer to that.

12:08

Is that in a Low interest rate environment People BET on stories, but in a higher interest rate environment People BET on earnings.

That’s and what we’re seeing right now is people making that shift their listing to Jerome Powell.

They’re taking him seriously.

They’re listening to the FED which says, we are going to raise interest rates alert alert and they are shifting their portfolio from stories to earnings.

12:30

I think it’s important to say that the story that you just gave about essentially, you know, narratives versus earnings.

It is a story but it also has a lot of economic sense to it.

Like let’s say you’re a company that did really well in the pandemic.

12:46

Let’s say your Peloton right now to typical tech company because they sell bikes, but I think the example holds you invest in Peloton because you say, okay not profitable.

Now, maybe but money is going to be cheap for a while.

They’re going to be able to spend and spend and get to scale.

They’ll flip the prophet switch and boom.

It’ll rain earnings.

13:02

Because people are spending all this money, every single month to get their favorite instructor telling them to Pedal harder, but as interest rates, rise, Rise, which is happening now, borrowing and spending becomes more expensive in those companies face a much steeper incline to grow.

So suddenly, you’re like wait Peloton is not going to make it up the hill.

13:18

I did wasn’t any for this metaphor but like 30, the the Riders going to fall off before the bike, gets the top of the hill.

So it’s time for me to Pivot.

I’m gonna move my money from the pellet times and move it toward, you know, whatever bonds and Walmart.

And that’s what’s happening is that people are drawing their money from the pellets on to the world.

13:34

And they’re moving it to safer Investments.

And We value companies that have shown year after year decade after decade that they’ve been able to to spin off prophets.

It is that, is that a decent summary of your point?

I think you’re, I think that’s totally it.

13:51

And the way that you can kind of show how strong that is, is you just kind of hinted that this a company like Berkshire Hathaway, which is Warren Buffett’s company that invests in, you know, underwear and and Coca-Cola and apple.

I companies that actually make real good products that are profitable Berkshire.

14:07

Hathaway stock is done very well.

Over the last 12 months, so it is kind of like this changing of a guard of companies that are very sexy and exciting but not profitable did really well in 2020 and 2021.

And now those companies are falling off a cliff and the boring basic companies that are like quote-unquote owed world, but they make money oil companies.

14:27

Big industrial companies, have actually done very well over the last 12 months because they are real businesses.

That generate real profits, you would agree.

It’s also fair to say that speaking of History Amazon.

Barely made it through the.com, bust in 2000 2001.

14:43

And then they sort of hung around for a few years and people thought.

Oh, maybe they’re just a part of that crop that died off when everything went bust in the NASDAQ, but they kept going, kept going kept going and they became one of the largest companies in the world.

Despite the fact that we are now in a transition from say narratives to earnings that pendulum will swing back eventually, right?

15:03

Like in the long run, the narratives will have the day again, and there are probably companies.

Right now that are maybe 60, 70, 80 percent off their highs.

In terms of valuation that are still going to potentially be like the Amazons of twenty years from now.

15:19

It’s just really really hard to understand which of these companies has the leaders that are going to be able to sort of pull them through this trough and which them aren’t right.

Like eventually you’re not saying earnings of the story forever.

You’re saying like earnings are where money is going right now, and we don’t know which narratives will emerge from this moment as carrying today.

15:39

That’s not only right but there’s and so you are 100%, right?

But there’s this cork on that which is that people have no idea how long those Cycles between narratives and earnings can.

Last, we were talking about we in the industry in the investing media.

We’re talking about a tech bubble in 2011, and 2014, and 2018.

15:58

And I point that out, not to make fun of the people who said that, because their arguments made a lot of sense, but just because you see something that looks unsustainable.

Does not mean, you know, when it’s going.

To end.

And the other example that I like, is that by any metric tech stocks were a bubble by 1996, 1995 1996.

16:17

It was looking crazy, but the market kept going for another five years and when you say by any metric, you’re talking Civic a like earnings per share.

Just like a really classic EPS calculation.

You’re not profitable, but you’re extremely valuable.

So your EPS is just crazy out of whack.

16:32

It’s basically Infinity, you’re saying that since the late 90s people were, we’re making these kind of dire predictions from that standpoint.

Yeah.

Yes, but like, but like Biometrics evaluation like the standard textbook spreadsheet valuation.

Metrics.

You can make a rational argument that tech stocks were a bubble in 2011, or 2014 or 2018.

16:52

But I think those kind of metrics don’t like, don’t have that much usefulness in the real world because those narratives can last so much longer than people think, which is just to say, if we are in this new world of earnings matter, way more than narratives that might last one year.

17:09

Or it might last 15 years and I don’t think there’s anyone in the world who knows how long that might last.

It’s just so much harder to do in practice and you would think did little bit of research last night.

I was like, you know, what, stocks are up this year.

What stocks are up here.

Today?

Us Steel Corporation is up.

17:25

Tyson Foods is up.

They sell a bunch of meet.

John Deere has up.

Caterpillar is up companies that dig stuff out of the earth.

Nutrient the largest fertilizer company their up bear.

The German conglomerate that owns Monsanto their up 27%.

Here, I was like, is this like the medieval economy is coming back in the stock market.

17:43

I went about, I was like, I wonder what?

Like the biggest like publicly traded Timber companies are I found weyerhaeuser’s, it’s up.

Have you ever played Catan?

Settlers of Catan?

No, I don’t think I have.

Okay, well for all that, all those who have placed at Settlers of Catan out there.

It’s basically you you roll this Dice and you try to acquire the following materials to essentially build roads, and towns and and cities would brick sheep.

18:08

We Eat and or that’s what you need, guess what?

Stocks are up wood, brick, sheep Wheaton, or I was like wait, maybe like you and I should have launched an ETF like cata n, you know and just like we are invested in the medieval economy.

This is our ETF.

We’re going to take Arc down.

18:24

We’re going to take Berkshire Hathaway down you and I Catan the, the medieval ETF.

Are we doing this?

Where we not doing this?

I’ll I’m down.

We’re gonna watch you too soon as this recording is over.

But here’s what’s really interesting about that in 2020.

I Exact the exact and pretty sure is 20/20.

18:40

Maybe as early 2021 Arc.

The ETF that has been kind of the poster child of the tech.

Boom.

They put out this video that was poking fun at Old World Companies and it was done in the, in the format of like a pharmaceutical video.

Like you might be suffering from value, itís, or whatever they call it.

18:58

If you’re investing in oil companies and, and, and manufacturing companies and typewriter companies and they’re really making fun of the people who invested in those kind of companies.

And that came At the exact moment when Ark was about to fall 70% and the oil and Industrial, the medieval companies are up 20 to 50%.

19:16

So I think that, you know, that pendulum is, is really classic and investing.

We see it happens so many times and it breaks away from what seems reasonable.

I had.

I had dinner with with a friend of very smart friend, two or three months ago, and he just casually said, he said, it’s so obvious to me that tech stocks are going to outperform everything else for the indefinite future and I didn’t push back.

19:37

I didn’t want to get into a bay into any Eight, but Ami, it’s not to me.

It’s not that obvious at all.

It’s not obvious in the slightest that a basket of the top tech stocks are going to outperform the quote-unquote medieval stocks over the next five or ten years and it would not surprise me in the slightest if it was the other way around.

19:54

And there’s a lot of precedent for that in history.

I think one big takeaway from this segment in particular.

It’s just history, is long history, is really, really long.

And we cycle between extremely different periods.

Where, certain narrative seem obvious.

Oh, it’s the 21st century saw.

After was eating the world, of course, Arc is going to go to the moon.

20:12

Of course.

The future is in software stocks.

And then if you looked only at 2022, you would say, you know by their very nature.

So offer stocks declined by 80%, every single year and the things that you can really count on our steel.

Meet things that, you know, machines that dick shit out of the earth.

20:29

And and what was the last thing I do grain and Timber.

Yeah, but narratives, keep keep spinning and history keeps going.

I want to move on to the overall economy here, which definitely has a lot to do with where stocks will go in the next 12 to 18 months.

20:47

So here as I see it, our four stories that you could tell about the US economy right now, in our sort of Battle Royale of narratives store.

Number one is the job story and that says, the economy is booming unemployment under 4%, We have added.

So so many jobs in the last 12 months.

21:04

Story, number two is the consumer spending story and that story also says that the economy is booming.

Spending is just absolutely on a rampage store.

Number three is the real wage growth story.

That is wage growth adjusted for inflation.

21:21

And this is a, this is a Mercury story.

It shows that the economy is in a weird place because wages are up, but inflation is up for many people even more.

And then number four is the consumer sentiment story.

And this is just a disaster index of consumer sentiment is a pole, the University of Michigan’s been doing for 60 years and consumer, sentiment is now hovering near its lowest point in 60 years.

21:43

So, the job story consumer story.

Real wage growth story and sentiment story.

Pointing in four different directions Morgan.

You walk up to the economic narrative Buffet.

You’ve got an empty plate, make your selection.

What is your narrative selection for what’s going on in the economy right now?

22:00

I think what’s most interesting is the consumer sentiment part.

Because as you mentioned by any virtually, any statistic, we are in like the Golden Age of middle-class Prosperity today at, Moment, the lowest unemployment, the highest wage growth, etc.

Etc.

Etc.

It’s so good.

And everyone is so pissed off its like, the Louis CK’s.

22:18

Get everything is amazing, and nobody is happy.

And here’s, here’s what I think, is injured.

Most, I think most of the consumer sentiment is driven by inflation, but it tends to be is inflation, the stock market and politics.

That’s what really moves, consumers opinion of the economy.

And what’s interesting to me is that if we had gone back to March of 2020 and the policymakers at the fed and the White House and the treasury, Had said, look, we are about to enter the Second Great Depression.

22:44

It is that bad.

If not worse.

Now.

We have all of these policies that we can bring about that will prevent that.

It’s going to prevent the Second, Great Depression.

However, in the year 2022, there’s going to be ten percent inflation as a as a consequence of those actions that we take to prevent 30%.

23:03

Unemployment.

If you if you had given people that option, I think 90% of Americans would have said I will take it.

I will take it.

It to me, but we were kind of accustomed.

I think because of what happened after 2008 of having the medicine and having no side effects.

Because after 2008, we had a big stimulus package and there was by and large, no inflation that came with it pretty much and I think people got the results, a very slow growth right?

23:27

There are threats, low GDP growth and there was slow employment growth.

And so we had not a lost decade but like a semi lost half decade.

We had a period of five years after that stimulus where it was a period of low inflation.

It was a period of low growth.

23:42

It was a period of just sort of doldrum Enos, you know, like just not a lot was happening.

It wasn’t a lot of dynamism in the economy.

And now suddenly there’s dynamism, like look pit, take your pick, you want entrepreneurship business formation is up.

You want wage growth.

Nominal, wage growth is up.

23:57

You want to hiring Bonanza hiring cannot go, any faster.

People are quitting their jobs left and right sometimes to get new jobs.

Sometimes to start companies, people are moving more than they were five years ago.

Dynamism is way, way up over, where it was hit.

Years ago, but you are totally right.

24:13

What’s the side effect that came with that medicine.

The side effect is, you know may contain you were talking about the pharmaceutical ads just like 10 minutes ago, you know, may produce side effects of a point five percent inflation.

That’s what we’re getting.

And so it’s tough because I don’t want to be in the position of saying.

24:29

People shouldn’t be upset about 8.5 percent inflation.

This is a surprise.

It’s a shock but it’s a shock that’s happening in the context of a kind of growth and dynamism that we really haven’t seen in.

The last 20 years, totally.

I just think too that if you would give people the choice and said what do you want?

24:45

Do you want 30% unemployment or eight and a half percent inflation.

It’s so obvious what people would have taken and should have taken.

But the problem is that you can’t like prove a counterfactual.

So the the quote-unquote 30% unemployment, that would have stuck around for Great Depression to that, didn’t happen.

25:01

So you can’t take credit for preventing it.

You don’t get credit for preventing the economic crisis, that never happened.

So I think it’s almost inevitable that we’re good, that we’re going to be here.

It’s like, you know, if If your doctor gives you a pill, that that 100% guarantees, you’re never going to get cancer, but that pill has enormous side effects.

25:18

You should probably take that that pill that seems great but the side effects are going to piss you off and you’re going to the doctor.

So I think it’s that’s that’s where we are right now.

I understand it.

I don’t push back to the people who are upset right now.

I just think it’s an interesting Quirk of how people of what people expect from their policy makers.

25:34

I think, I think it’s fair to say, however, and I say this as a liberal, I think people listen to show know that.

I’m a Liberal Liberal.

Barrels were the pharmaceutical company that in March 20 21 said, take this pill it’ll cure cancer and there are no side effects, right?

25:49

Yes.

Yes.

We’re saying here are the stimulus checks from President, Joe Biden, enjoy the stimulus checks and don’t pay attention to those people who say that inflation is coming, right?

Listen to Jason Furman, repeat catch the show, don’t listen to Larry Summers.

Don’t listen to these people telling you that this growth pill has side effects.

26:08

It turns out however that the Side effects were innately contained within that pill looking back.

It’s like, how did we not think that that pill was going to cause like, you know, you both like curing male pattern baldness and also cause weird hair growth like all over the body.

26:24

Like that’s what the pill does.

It just makes hair grow.

So I think I think it’s important to say that you know to a large extent.

People are upset because they somewhat feel lied to actually what a take that bit and spin it forward a little.

There are a lot of people who predicted inflation Like Larry Summers who are now saying that we’re not just going to get inflation because growth.

26:45

We’re going to get inflation plus stagnation famous stagflation of the 1970s.

Larry Summers has said, the probability of recession is close to 100%.

There’s other analysts like Moody’s or Goldman Sachs, who put the chance of a near-term.

Accession at about one in three.

27:02

What is your recession outlook here?

Because the Federal Reserve has a hard job.

They have to keep the economy.

Humming.

Welcome.

Strict in demand just enough.

That inflation comes down without growth turning - do you think they can pull off that trick?

27:20

I think the odds of a recession are either 0% or 100%.

That’s my, that’s my view of this and I decide.

Here’s here’s, here’s the analogy that I use.

I brought up 2011 a couple times during our conversation because if you go back to 2011, but black people don’t remember this.

But the odds of a quote-unquote double-dip recession, the odds of stagflation in 2011, seems so obvious.

27:40

Obvious to so many smart people and of course, it did not happen.

And so I think whether is that going to happen this time, I think it’s I don’t think, I don’t think anyone knows there’s a Buffett quote where he says, I don’t take anyone’s forecast seriously, including my own and so, I just think look, no one could have foreseen how the last two years played out.

28:00

It was if you would see what happened in the stock market, what happened with with unemployment growth?

What happened with Josh new job formation.

Everything kind of is a surprise.

So the takeaway from that is like Have some humility with what’s going to happen next and it would not surprise me in the slightest.

28:15

If we went, if we are about to enter a five-year period of stagflation, that one surprise me, it would not surprise me if inflation collapses.

And we are about to resume kind of the path of low inflation growth that we had been on for a lot of that last decade, that would not surprise me, either.

This is whatever you’re in, such an extreme environment.

28:32

Like we are right now.

All the historical precedents and all of the logical academic models, get thrown out the window.

They get thrown out that we are in such an extreme scenario right now of so much money printing so much stimulus.

So much record, this record that that I think the only rational response is to say nobody understands what’s going to happen next.

28:52

And that’s that’s disheartening for people to hear because we all want to know what’s going to happen.

There’s such a strong appetite for accurate forecast.

I just think the only way to really deal with the reality that we don’t know, add a personal finance level.

It’s just have enough room for error, and, and margin of safety.

29:10

The in your finances that you can absorb a big variety, a big range of outcomes because that’s the best that any of us can do right now.

I think you’re totally right.

That the Federal Reserve could pull this off.

They could reduce inflation without reducing growth below zero.

What’s really, really hard to read is the global supply side aspect of American growth?

29:30

So you already, I think we’ve already seen ways in which Russia’s invasion of Ukraine and chaos.

And Global Commodities markets have already proved a threat to the US economy.

The other one that I I’m watching and I wonder very quickly before I move on to our final segment whether you agree that this is a big flashing red sign.

29:48

The Chinese economy is looking wonky as hell right now.

Oh, yeah Beijing Zero Tolerance of covid is absolutely shutting down cities like Beijing and Shanghai, which if they’re shutdown is going to dramatically pulldown China’s potential growth, real estate already had a terrible 18-24 months in China business.

30:10

Office in China’s down Imports have plummeted.

I was reading in the Wall Street Journal sales of excavators those big construction equipment, thingies with the bucket and the big metal arm that operates it.

Those are down 61 percent in April compared with the previous year 61 percent down and this is a country that still digging a lot.

30:29

It’s not very good.

When the thing that is doing the digging is down 60% year every year and then the final statistic to put on top of the, sundae Shauna was projected to account for a quarter.

Of global economic growth in the five years between 2021 and 2026.

30:45

If that 25% is dinged.

Then of course, the u.s.

Is going to feel it because we are exclusively relying on on exports to grow.

But we rely on the global economy to continue growing and on top of everything else, in China falls apart.

31:01

That would concern me just really quickly.

How are you looking at China?

How worried are you about the situation there?

I don’t necessarily worry about if my own personal Investments, but I Say look, China also has a long history of putting out economic statistics that most, that are not very believable doing this for a very long time.

31:19

So, whatever the statistics are that show how much the Chinese economy is slowing.

It’s probably worse.

It’s true for the covid statistics that come out as well.

So there’s that aspect of it.

And the other thing is just left.

Of course.

I have no idea what I’m talking about when I speak about the pandemic itself, but everyone’s experience with Omicron is like, it cannot be contained.

31:37

It cannot, it’s going to get out.

There it is.

So damn.

Contagious.

That once it’s out, it is out and you’re not putting that back in the jar.

So to speak.

So to the extent that China maintains a zero covid policy with the reality of Omicron.

It just seems completely fanciful to me and that and then if if they’re gonna hard line on that, we’re going to shut the economy down until there is no more Omicron.

31:58

That’s a pretty daunting future that we’re looking at one more topic that I want to get it.

Get your brain on before you leave a student debt.

Forgiveness.

This is all over my Twitter.

I Certain extent.

It could be one of the most important decisions that by demonstration makes the touches the economy before the midterms.

32:17

Just, I’m not going to set this up.

I want you.

I want you to have an open table here.

What is your attitude on the economics of student debt?

Forgiveness?

I think on one hand, it does seem completely reasonable that.

There is an entire generation that is just overwhelmed with student debt and it’s impacting their ability to buy a house, start a family etcetera Etc.

32:37

And to the extent that the federal government has the ability to take some of that weight.

It off, I think that’s great.

But this is a big but I actually don’t think that there is a student debt problem per se.

I think there is a tuition problem.

That’s the root of what is going on here.

Is that it can cost 300,000 dollars to get a degree from a private university and tens and tens of thousand dollars from a public university.

32:57

That’s the issue.

And if we are going to forgive student debt, but not fix the tuition problem.

Then this just keeps manifesting.

Not only that.

But let’s say there is a world in which and not only this is proposed but let’s say it’s the case.

That Every four years we are going to forgive ten thousand dollars of student debt.

33:15

Let’s say that’s the world that we’re going into.

If you are a university looking at that, the completely reasonable thing that you are going to do is to raise your tuition by ten thousand dollars until the students.

Don’t worry.

This is all going to be forgiven.

Yep.

That’s that would be the reasonable thing to do.

And by the way, if you are a student, the reason and you do have the means to pay for tuition, out-of-pocket, your parents are helping you whatever it might be.

33:36

The reasonable thing to do, would be to go and more debt and expect it to be forgiven.

So I think, I think fixing the debt problem.

Great.

I agree with that.

Totally.

I’m on board with that fixing the debt problem.

Without fixing the quote-unquote tuition problem disaster, complete disaster that’s going to brew.

33:51

You brought up the moral hazard of forgiving student debt.

Once in say, July of 2022 and then never doing it again.

Raising a generation of people to believe that student get, forget student debt forgiveness.

It’s just something that happens every decade, and it doesn’t happen.

So they go into more debt and it doesn’t get forgiven.

34:07

I think, I think, the moral hazard situation is one to look at, It’s funny.

I wrote down to good things, too.

Bad.

Things about this policy to good things.

One student.

That sucks.

It really sucks.

The u.s.

Education system is a debt machine and it would be nice to give some benefit to people that have gone through it.

34:23

Number two, you are rewarding people.

There’s a good thing your warning people who have done the quote unquote, right thing.

This isn’t, you know, forgiving student debt would be like bailing out a bank that made a bunch of bad loans like you’re bailing out people in their 20s 30s and 40s who went to college, right?

That that’s that that’s rewarding pretty, you know, beneficial behavior in terms of the bat.

34:40

Things, I guess just adding on to the moral hazard point.

You just made number one, especially in an inflationary environment where we’re worried about too much demand.

It’s a pretty wonky distribution of income.

Like if you divide the US and 25 quartiles of income shooting quintiles of income the, the bottom to only get about 23% of a student debt Jubilee.

35:01

The top 40 percent of earners get just over 50% of the benefit.

So the the richest 40% And if it twice as much from this policy as the poorest forty percent, that’s not ideal.

If you’re doing income redistribution in an inflationary period and the final thing like just to put one more note on this people have been going to college for 100 years, and it will keep going to college for hundred years.

35:25

If we do student debt, forgiveness, one time in the middle of that.

That’s very odd.

It does nothing for 17 year olds, Who start college this this fall.

It does nothing for 27 year olds who started, who stopped paying off their student loans or finished paying off there?

Student loans two years ago.

35:42

I think it’s very hard to keep in my head.

On the one hand that I get the virtue of this policy and also that it is an extremely random bail out if what you’re trying to do to your point.

Morgan is fix the education.

Financing problem for the foreseeable future, right?

35:58

It’s like there’s two ways to do it.

You can do it once in which it is incredibly unfair for that generation that got the benefit or you can do it in perpetuity.

You can do it forever in which case tuition is almost certainly is going to rise by a On a mount and we’re in the same spot it all over again.

Yeah, it’s a really, really difficult spot and the body ministration stuff because I think the the political element you have to add to this is that the Democrats are polling so poorly across the board.

36:22

Like the only demographic that supports the Democratic party and the generic ballot are people that went to college.

And so if you are just a politician, you’re not looking at economics, you’re just a politician.

You’re saying, how do I get college graduates to just absolutely come out in droves for me at the polls.

36:40

All’s.

Well, you have a multibillion-dollar student debt.

Jubilee six months earlier to push them out of their homes.

Morgan.

Thank you so much for joining.

I really appreciate it.

We’ll talk to you soon.

Thanks are planning this with Derek Thompson is produced by Devon.

36:56

Manzi.

Thank you so much for listening this show.

If you like us, follow us on Spotify rate and review on a podcast.

We will be back on Friday.

We will see you then.