The erosion of the American tax base

What happens though if it's robots and AI that are being productive?

“From American public media, this is Marketplace.”

In Los Angeles, I'm Kyle Rizal, it is Thursday, today's 7th May, it is always heavy along

everybody. It doesn't get a whole lot of headline love, work or productivity doesn't. It's not one of the A-listers, like jobs or GDP, though it probably ought to be given as critical as it is to the growth of this economy. We learned this morning productivity growth slowed a bit in the first quarter, it increased

just eight tenths of one percent growth did. That's going to the Bureau of Labor Statistics. Year on year, though, growth comes in at a set as finally more robust at 2.9 percent. And that's happening. As Marketplace Elizabeth Betrove all reports to get us going at a time of massive investment

in AI and accompanying massive productivity promises. Trying to understand productivity using quarterly data is kind of like using a weather report to understand the climate, says Gerald Cohen with UNC. It's hard to discern even trends with a few years of data. He says US productivity isn't as bad or as good as today's quarter on quarter or year on

year numbers say it is. But the fact that we continue to see stronger productivity growth, you know, me and the twos is suggestive of a pickup.

He says annualized productivity growth since 2019 is around 2.1 percent, better than the last

decade or so, but it could be higher. So how much of today's gains are coming from AI?

“I think AI, all, you know, story of AI driven productivity is still a few years away from”

us. That's Yelena Schlechewa with the conference board, who thinks productivity growth today is more about automation coming out of the pandemic. Companies had to invest a lot into automation because labor was not available and it was so expensive.

Think of self-checkout at the supermarket. Another sector that's made gains because of the pandemic, restaurants. It's pretty much driven by Door Dash. That's Erica McIntyre for with Stanford. So lots of people developed Door Dash habits during the pandemic that they have not given

up and it has expanded the revenue potential for many restaurants. She says there's also been a productivity boom in the gambling industry. It is now much easier to gamble on your phone so that obviously means more profit for gambling companies. They are doing very well.

Well, it is too soon to extrapolate much about AI in this current productivity data, Chapman University Seth Benzel says, "In the medium and long term, the productivity story is about AI, it is about automation, it is about, you know, increasing output with fewer workers." So when it comes to productivity gains, don't worry.

The robots are coming. I'm Elizabeth Troval from Marketplace. Oh, I feel much better now. Wall Street on this Thursday, the robots that is the algorithms that do so much of the trading. Well, they were a tad pessimistic.

We will have the details when we do the numbers.

This is not generally speaking a program about math, but bear with me for a second here

while I spend a little time on two numbers, the gap between them and why it matters. This week we got the early estimate of gross domestic product for the first quarter of the year. That's January through March.

“2% even is what GDP came in at, you might remember that.”

Buried in that report, that was another number that grew at 2.5% in the first quarter. That category, that number is final sales to private domestic purchasers. It's quite a mouthful. I know. It sounds like the most technical confusing thing.

I'll be honest, it kind of does. But I promise you'll only hear me say that whole mouthful a couple more times. That was Menzy Chin, by the way. He's a professor of economics at the University of Wisconsin, Madison, and Kerry Freestone. She's a senior U.S. economist at RBC.

Basically, we're talking here about a measure of American demand.

it's actually much easier to think about it.

It is.

“That's true, but to understand it and why we want to know it, you've got to know the formula”

for GDP. Yes, it's math. Truly, I'm sorry. Say it with me now. We've been over this a couple of times.

GDP is C, that's consumer spending, plus I, investment spending, plus G, government spending, plus X, exports minus M, imports, net exports, in other words, that is the equation for GDP. Now, final sales to private domestic purchasers, and let me say that again, real slow.

Final sales to private domestic purchasers, zeroes out three categories in GDP, so that

we can get a better sense of how the domestic economy is going, core GDP, you might call it. Category number one, subtracted from GDP, we get rid of it because net exports is about the man from other countries. What we want to measure is demand from American businesses and consumers.

All right, expendable category number two, inventories. Here's why. If you had a whole bunch of the unsold cars, do you really want that in your measure of what people want to buy? Well, no, because you remember last year when companies were stockpiling goods to get ahead

of tariffs, you definitely do not want all that unsold stuff that's just sitting there in your calculations for sales, that might not come until six months later. Category three, that we subtract from GDP. Government consumption.

“At the end of last year, there was that government shutdown, you remember that, right?”

And GDP grew at a measly 0.5%. But if you look at consumer and business demand back then, which ignores all the government spending that didn't happen, growth was actually close to 2%. So it gives us an idea of the underlying health of the economy as far as consumers are concerned and businesses.

Which is why, soon to be former Fed Chair J. Powell always talks about the central bank

watching this as a better sign of where the economy might be going than headline GDP. You know, at the end of the day, we'll continue to be up rich at down. So it'll continue to be trade distortions. So it's really, you know, we strip out all of that noise and we look beneath the hood, you know, how healthy is the U.S. economy?

How healthy, indeed, because the calendar is kind of interesting here. We're going to get two more updates on first quarter GDP, and obviously, along with it, final domestic demand, only one month of which March will have included elevated government spending on the war. But then, in the late July, we'll get an early whack at second quarter data, which will,

as things look now, have lots of government war spending, and we will turn to final domestic demand to know what's really going on here. [Music] I haven't actually counted, but I would guess that I have said the market is an idiot. This may be half a dozen times on this program the last two months.

The price of a gallon of gas in this country is up by more than half since the war started. Natural gas prices are squeezing Europe and Asia really hard. Estimates by people whose job it is to study and predict this stuff say it could be years, literally years before things are back to something even resembling normal. And yet, the S&P 500 yesterday hit another all-time high.

Brian Walsh is senior editorial director at Vox, where he wrote the other day about why markets are so bad at pricing in reality. Brian, welcome to the program. It's good to have you on. It's good to be here.

“Take us back, would you as you're doing this piece to the closest analog, I think, that”

applies here, COVID, and the way the market's reacted. So with COVID, all through January 2020, you were seeing cases grow in China, you started to see huge lockdowns and going into February, you started to see sort of cases popping up elsewhere, Italy, and yet the markets didn't really respond. In fact, February 19th, 2020, the S&P 500 hit what was then an all-time high, even as

looking back, we were clearly already in a pandemic situation. And here now, we have the straight of our moves closed, there's a war, all those things are slowly piling up, and yet the market seems, this is pretty hard, perhaps, but untethered from reality. What in your mind is going on here?

It seems as if the markets are pricing piece, where the oil system, the one that actually

gap that hasn't closed yet, even oil prices themselves are not pricing in the physical

“reality of oil, and what this huge disruption means, yeah, so I think not connected to reality”

is a pretty good description of the situation. You describe it as economic blindness in this piece, I wonder if one might also say, will full endurance. It does feel that way, I think there might be a going on here with the markets where they're not seeing the reality in front of them, I think they also assume that everything will

work out, they've seen Trump back down in the past with things like tariffs, but they don't seem to realize that unlike tariffs, he does not have the unilateral power to simply make this situation go away. What happens when a major U.S. airline says that it has to cancel thousands of flight the way that European airline, like Lutans, already has.

What happens when you see farmers really grapple the fact that fertilizer prices are much higher and scarce or that has an impact on crop prices, which then has an impact on food prices. I'm not sure what the actual triggering event would be if I could break that. I would be a lot richer than I am right now, certainly.

But what I know is that you can only ignore reality for so long. So there is that line, I'm going to say it was Hemingway, but somebody else is going to hear it and say, no, no, no, no, you're attributing it wrong. It's that whole thing about things happening very slowly and then happening all at once.

“And as you point out in the beginning of this piece, this is what happened with COVID, right?”

We finally clue it in and everything fell apart.

Do you fear that this time? Yes, exactly what happened with COVID, I mean, you know, you had what was the fastest mark contraction ever in the weeks of fall of that February 19th, all the time, I think that's entirely possible. I think it doesn't seem very likely to me that this problem will simply go away.

But the longer this continues, the more that will reality will serve itself. Not to anthropomorphize this thing at all, but human beings, you know, we'd be back the wolf closest to the sled and whatever happened 10 miles down the trail, that's not our problem right now. This is a very human reaction.

It is absolutely. I mean, that is what we are very good at looking at threats, right in front of us, I guess you could say evolutionary speaking, we would not have been around very long if that had been the case. But when it comes to those slower moving, more disparate threats, where you're getting

a drip drip drip, a bad news, that's easy for us to miss. I think you can look at it with other longer term threats like climate change or even what would happen with AI. It's just very hard for us to, for you, those is actually happening and certainly to respond them often until it becomes unignorable and then that response sends the app in all at once.

Do you suppose we can get better at this? Is this a thing we can learn how not to do the next time does happen? I'd love to say that's the case, and yet we keep doing it over and over again and make you think it's something that's very deeply rooted in human nature and probably serves us the time, right?

It would not be great if we were jumping at every shadow on the cave wall, so to speak. I hope you can learn from history.

“That's what I was trying to do with this piece, honestly.”

It was trying to think back to COVID, it's something I understood a lot more than I do well markets, and yet even in a moment, really couldn't make myself believe it was happening when it was happening until, honestly, it was a bit too late, so I'd love to say that we can get better at this, but I know human beings too well to think that's like real. Brian Walsh, senior editorial director at Vox, also worse on Future Perfect, then Brian,

thanks a lot, I appreciate your time. Thank you. Coming up! We want big government and big deficits, right? We do, first though, let's do the numbers.

proud Jones industrial average down 313 today, 6,499,596, and as Dex subtracted 32.010 percent, 25,866, yes and be 500 down 28.410 percent, 73 and 37, and a whole bunch of food and restaurant companies reported today McDonald's beat expectations, but missed a sales production, thanks to increased fuel and grocery prices, increasing consumers, leather, rinse and beat, making these cool to 10th of 1% shake-shack reported a loss for the quarter, that

pushed its shares to a 2 year low shake-shack gave back more than 28 percent, pop a Jones international, a sort of revenue and profit projections for the quarter, the pizza's hand-trank, strength, rather, 2 and 3/4 of 1 percent, crispy cream, just wrap things up, beat the streets, estimates for the quarter, and yet declined 1 percent. Jones down yule on the 10 year t-note up 4.38 percent, your low standard marketplace.

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“Here is a phrase you do not want to hear when a major American manufacturer reports earnings.”

Their North American sales, world pool, said this morning, are near, and this is a quote, "recession level industry decline." We are not repeat, not in a recession, adding the obligatory yet here, but when a company that makes things like fridges and dishwashers tells you that sales of same were often at least 7.5% last quarter amid soring energy costs and falling consumer confidence, it does tend to concentrate the mind, then you'll

recommend taking it from there. Recession is not too strong a term for the drop in sales at world pool, says David McGregor, an analyst at Longbow Research. The last time we saw numbers down this much was back in the great financial recession. This time around, the Iran War has led to higher energy costs that have stressed consumer budgets, and world pool has had an especially strange time with all the tariff back and

forth. It makes more of its appliances in the US than competitors do, so McGregor says the IEPA tariffs last year were actually good for world pool. But in February, the Supreme Court struck down those tariffs as a legal. At that point, a lot of the competitors turned much more promotional and anticipating refunds.

Refunds that mostly won't be going to world pool. There are also broader challenges facing the industry. Neil Saunders, managing director of global data, says there are a few main drivers of demand for appliances. One of them is repair and replacement, so when things break, you can either replace or you can buy new. On that front, we do see more people repairing because it is often more cost effective. That means parts might be selling okay, but shiny

new appliances not so much. Saunders says the next driver of demand is upgrading. So it's saying, well look, my product isn't broken, but I'd quite like a new one with new features and that demand has been very stuggish.

A smart oven in this economy. And finally, there's one of the biggest drivers of appliance sales.

Every new home that gets built needs a washer and dryer. They need a refrigerator. Ali Wolfe is cheap economist with Saunder. She says the housing market is sagging in both the US and Canada. So they're getting the one-two punch of two very large economies having slower housing markets. And with interest rates still elevated, Robert Dietz, chief economist with the National Association of Home Builders, says the situation may not improve soon.

We expect single family home construction in 2026 to be down about three to four percent. And Dietz says for every home that doesn't get built, means around $12,000 that don't get spent on appliances. I'm Daniel Akerman for Marketplace. The tax policy center says the GOP's big tax and spending law from last year cut the tax liability

of 85 percent of US households. This proportionally, yes, favoring a higher income households.

At the same time, data from the Institute on taxation and economic policy tells us 88 of the biggest companies paid no federal corporate income taxes in their most recent fiscal year. So, if most of us are paying less in taxes and a whole lot of big companies are paying

“nothing in income taxes, who is footing the National Bill?”

Any Larry is a staff writer at the Atlantic where she wrote about our tax, you know, challenges the other day. Any welcome back to the program. Good to have you on. Thank you for having me. I'm going to steal a line from you, early in this piece, where you say basically it kind of looks like we're having a tax revolt now. How did we get here? We got here right slowly and then all at once as feels kind of classic. So, you know, I know

reducing rates. And really, over time, both parties have completely abandoned that position for

sort of different reasons. Donald Trump's second-term tax bill really lords the tax code up with a

lot of provisions that don't just reduce the amount of revenue that the government is taking in. They make the tax code much more complicated. So, a really good example of this is the no tax on tips provision. At the same time, Democrats have become much more enamored of using things like tax credits in terms of social welfare policy. And now you're starting to see this huge movement that's really, really taking over in the States. There's been now for several years, a real

revolt against property taxes. And it just feels like this ball is rolling down the hill now and and we're really not talking about either tax simplification or even just raising enough tax

revenue because we're running a really big deficit right now. This is going to sound like a

“facetious question, but does nobody understand that we need a tax base in this economy?”

I worry that, you know, members of both parties really aren't incentivized to see it that way. We were told by deficit hawks for decades now that if our deficits ran for long enough and our debt got big enough, we would be punished by the bond market and it just has not happened. Nevertheless, we're currently running a deficit of roughly $1.5 to $1.8 trillion a year. It's huge. It's enormous. And that's contributing to some of the economic problems that we're

having right now. Inflation comes directly downstream from that, right? And I'm not talking about balancing the budget or eliminating the debt or paying for every little thing. But it is true that at some point, the balance is going to have to be different because our economy is changing as the population ages and is population gross to lows down. There will be people screaming at their radios or at their streaming devices right now saying, oh, it's all the Republicans all they

want to do is tax cuts. And on the other hand, it will be odds and Democrats all they want to do is spend money. We should be clear here that that both parties don't like to pay for what they want to do. Yes? Absolutely. And at least on the Democratic side, they have said that they will not raise taxes on anybody who could conceivably describe themselves as middle class, right? People in the 97s, perhaps even the 98th income percentile. And what that means is for Democrats that really

limits the possible in terms of policy making. And then Republicans have shifted from sort of a,

“we want small government and small deficits to we want big government and big deficits, right?”

And so no, neither party wants to be the one who's left holding the bag on this. And like at some point, I think that we're going to face some kind of issue here. Well, keep going, some point is not today. And if it ain't today, man, it's not my problem, right? Absolutely. But the US population is aging, right? And essentially, since we have taken a turn against immigration, so we're not welcoming in new younger people, you're going to have fewer workers,

relative to people not working in the economy. And spending will go up because people will need Medicare. They'll need social security. They'll need long-term care. And at that point, you could be forced by the bond market to do something like implementing austerity budgeting. I think that that is truly a possibility. And part of the reason that economists suggest raising

“more tax revenue now, not in the future, is just a void dramatic policy making in general,”

as that we don't have to jolt the economy or make things different, it doesn't need to be because the bond catastrophe is suddenly on our door. Right. With the understanding that this economy

has always been a full-crum of politics in this country, it does sort of seem like it's kind of

become a plaything now. Oh, certainly. And the place where I start to get really, really worried is at the state and local level where states and cities and towns largely need to balance their budgets, like by law they have to. Yeah, by law. And so for them, if they're starting to say, hey, we're not going to ever raise taxes on anybody and also we're going to examine people making overtime. People with tipped income retirees who own their homes from property taxes.

For states and cities, there's just real question of like, okay, well, where's the money going to come from? Any library is a staff writer at the Atlantic. This is a beast. You ought to read after you have this interview. Any thanks a lot, I really appreciate it. Thanks for having me.

get recently, the Department of Transportation said this week that US Airlines spent 56% more

“on jet fuel and march than they did in February. Straight of our moves, by the way, last time I checked,”

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“Well, story is the supervising senior producer, Lamb Kai Rizdall, we will see you tomorrow with”

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