The Economy Looks Fine. Why Doesn’t It Feel Fine?

telling us how much do people hate inflation and they really hate it.

“And we had not had a big economy-wide test of this in a really long time.”

We weren't quite sure, right? It's a very different economy than the last time then we had this kind of like runaway prices. Plus what's worse now is the price of housing, of childcare, you know, they're nuts. And people just despise it.

Hi everyone, from New York Magazine in the Vox Media podcast network. This is on with Kara Swisher and I'm Kara Swisher. Today we're talking about the state of the U.S. economy. Relations remain stubbornly high, above the Federal Reserve's 2% target since March of 2021,

rising costs for basic necessities like housing, food, and energy have led to what

many Americans feel is in affordability crisis. The AI boom is fueling mass gains for a handful of tech companies while nearly three quarters of Americans worry that AI will eliminate jobs in some industries, according to a recent Reuters Ipsos poll, add to that the likely expansion of the Iran War and President Trump's renewed trade war and it's no surprise that American economic outlook is somewhat pessimistic.

I've gathered a panel of experts to break down some of the biggest issues facing our economy right now. Any loury is a staff writer at the Atlantic and the author of "Give People Money." Katherine Rampell is an MSNow contributor and the economics editor for The Bull Work. Body Assum is the Chief Economist at New Century Advisors and the founder of Assum Consulting.

She previously spent 12 years at the Federal Reserve Board where she developed what is known as the "Som Rule" a way to identify recessions in real time.

“I think it's really important to talk about the economy.”

Obviously, it's going to be the biggest deal in the election and it's what people are worried about right now. Given all the various forces at work at the economy from the war to AI to just a feeling that something is off, so it's important to get some clarity here. Our expert question today comes from Ariana Matsukato, an economist, author and professor

at the University College in London, so stick around. The report for this show comes from Odu, running a business shouldn't feel like surviving a software group project. One app for accounting and other for inventory and other for sales and somehow none of them ever talk to each other.

That's where Odu comes in and at all in one business management software that brings every part of your business together from sales and accounting to inventory and marketing

all in one powerful platform.

No messy integrations, no bouncing between tabs and best of all, no spreadsheets. Stop managing software and start managing your business with one unified system. Try it today for free at Odu.com/carah. That's Odu.com/carah. Annie, Catherine and Claudia, thanks for coming on on.

Thank you for having me. Yeah, great to be here. So before we get to the data, let's start about how Americans are feeling about the economy now, a new Washington Post Ipsos poll found that people are generally pessimistic with one in five saying they think the economy will improve in the next year.

That's not very good. What each of you just overall, what do you think the biggest factor of driving economic pessimism is right now, Catherine, Annie and Claudia?

“I think people have kind of been soured on the economy for years at this point and in some”

ways that make sense and in some ways that do seem out of whack with the data like prices have been elevated, wages have not been depending on which measure you have not been keeping up, particularly since the Iran War started, but obviously the elevated prices elevated inflation predate that. We've been dealing with about target inflation for over six years at this point.

So there are a lot of things to be cranky about. That said, the degree of crankiness does seem a little bit outsized relative to the amount of crisis, if crisis is a quantifiable term in the economy, it's a combination of high inflation, kind of stagnant economy and frankly, a lot of political discussed that sort of ends up as referred pain towards the economy.

I think Catherine is completely right. There's a lot to not like about this economy, even relatively high income families that are making in the low six figures families, which you know, we don't generally worry about them a lot versus a family that's making $40,000 a year are really squeezed by price pressures.

are no longer exactly reflecting just economic and consumer sentiment.

“I think that they have to do with our media and political environment.”

And so I think that those numbers essentially are not exactly telling you a lot about real economic conditions versus 20 years ago. But I think that the sense that we are in a declining democracy that we have complete lack of trust in institutions and one another, some horrible hangover from the trauma of COVID and everything that came out of it and also the media environment that were in where

the media itself has gotten more negative and also people are getting their news now from short form video from these sources that I think can really color your perception of what you should have and what you do have. I think that those numbers now we should think of them as a more generalized sentiment number, not like how much money do I have in my bank account right and how do I feel.

Yeah, and we could see gains in the economy and they would show up in the numbers or depressions in the economy and they would show up. They would just become a different measure in my mind. So we should include more measures, yeah Claudia. So I would add one more thing to the mix in terms of the uncertainty, the insecurity

that people feel. So a few years ago inflation had come down some from his pandemic highs and on the employment rate was low. I'm an economist. I was looking at all this data and it really looked like things were at least improving,

not great all around but improving and yet these consumer sentiment measures were still really negative and I was trying to talk to people and be like help me put the pieces together and one woman point out to me, she's like you know on paper we do look better than we were a few years ago like coming out of the pandemic but she's like I don't feel it because it feels like the next shoe could drop, whether it's AI or whatever it happens to

it.

“Right and I think that I really trace a lot of this back to the pandemic which was a huge”

out of nowhere, just upended people's lives and frankly between policy decisions and other of it just feels like we're in this rolling mess of uncertainty and that I think weighs on people and also as they try to navigate prices go up or there's tariffs or there's this and the job like it takes a lot of effort to go do the bargain shopping, to go do you know try to figure out the way to deal with this you go get a new job,

do not, it's like attacks on people. They don't pay it necessarily directly but it just weighs on them.

So I've come to understand like as always said like those measures are picking up more

than economics but I think it is relevant still to policy more of a vibe thing like in that way. So recent labor department data show that inflation did cool in June, the brief around more ceasefire gave America the break on gas prices that's not expected to be the case this month.

Katherine after several years of rising consumer prices are America's just more price sensitive or how is it showing up in spending behavior when it comes to persistently high food prices. I have noticed that I've never noticed food prices and you see them everywhere you go and you don't know why, I mean I think that there's some cognitive dissonance in all of this which is one of the underlying themes that we've been talking about which is that prices

are high, people are cranky but people are still spending and I know Annie's written in quite a bit about this as well and so people are like mad that they're having to spend more money but they're still spending the money as opposed to pulling back on their spending in response to those higher prices but I think to Claudia's point about that mental tax, that is something that I have been hearing from consumers for a while so like they're spending

money but they have to think more about each decision that they make it's not like you go to the grocery store and you just have your list and you go down the aisles and you get the peanut butter and you get the eggs and whatever like maybe you're not going to get the fancy

“peanut butter this time maybe you have to like price compare and you're going to get the private”

label peanut butter and so people are spending but there's more exertion that goes into every choice that they make and that is exhausting but as long as people continue to have jobs and unemployment is still relatively low by historical terms that means that they are able to keep spending. So Annie and one of the good things about what Katherine mentioned is that by some measures people are less price sensitive they are emotionally they're feeling is more

price sensitive but say that we have like a coupon and we give 50% off it doesn't have the effect that it might have had 20 years ago but I really think of you know the past six seven years

as basically being an experiment telling us how much to people hate inflation and they really

hate it and we had not had a big economy wide test of this in a really long time we weren't quite sure right it's a very different economy than the last time then we had this kind of like runaway prices plus what's worse now is the price of housing of child care you know they're nuts and people just despise it right so you wrote about the greater affordability crisis back in February

six years of US housing market still feels broken there's more sellers than buyers at this point

the new Minneapolis Fed research found that only 53% of American adults own homes they live in they're not buying and at the same time the market seems very flat for a lot of people I've talked to so what's the what is the underlying problem of probably people's biggest cost that they would pay for far in a way housing even if you are a person who is paying in your mortgage or in rent an amount that an economist would say you're doing okay you still might not be happy and it

might not be easy to see that because like let's say that you're paying an amount you can afford 1,800 dollars in rent or something like that but you're still living with remates or you're living in a neighborhood that you don't like or you're putting off you know proposing to your partner

“that's not going to show up except an assentment figure and I think that's part of what we're seeing”

but the housing there's not an easy answer here some places are really building but I think the

truth is that you know the housing market is in a really tough place and it's going to be for a long time and I think if we saw interest rates come down which would help with affordability and help with building we have so much pent-up demand that you might not see prices fall which is a really tough thing right so but the 21st century road to housing act became a lot earlier this month the package of provisions aimed at increasing the housing supply and making homes more affordable

what is that actually of accomplish I don't think it's going to accomplish a tremendous amount look I think that there's not a lot of federal policy on the table that can affect this because overwhelmingly this is a local concern and so we can incentivize local places to allow more construction but you still have a lot of homeowners who say hey I don't want that giant thing in my neighborhood you're still going through the more than 10,000 US jurisdictions that are in control of this

“and asking them to go one by one I think actually the best policies that we've seen have been”

state and local so California for instance has had a number of policies to induce building but still right like timber is really expensive labor is really expensive this isn't a situation that we got into quickly right really I think the roots go back to the housing crisis before the bubble popped it's not something we're going to get out of fast either so of course the job keeping crisis inflation is under control belongs to the federal reserve and it is a new chairman Kevin Marsh

we're now taping this on the day before the July meeting and it'll come out the day after but let's zoom out Claudia I know you've expressed some skepticism about wars in particular how he sometimes uses standard economic language and non-standard ways what do you make of him so far and his efforts to I assume get inflation in check so that he can lower those rates that Annie talked about it's really too soon to have a firm opinion on Kevin Wars I mean that's also partly by his

design he's been pretty quiet about yeah his views on the economy his views on what should be done he's made very clear we're going to have price stability he's going to get inflation down but but you guys we talked about with housing you have a problem that it took years to build it's going to take some time to bring it back to to be fixed and inflation has been running higher than what the Fed puts as its target of 2% for several years now so it's not going to turn on a dime with a new

person in charge I think you know the Fed is really aware of the inflation problem thank clear we are at a moment right now where the labor market if nothing else appears very stable so the Fed can kind of focus its attention on inflation but it still has a tough decision to make should we stop in and raise interest rates because that's creating more cost for people and if you don't need

“to do that to get inflation down well then maybe you should hold off and stay on the sidelines so”

it's hard to tell where where the Fed is headed at this moment and that's really going to be the judgment in the end on on worship's leadership is going to deliver on getting inflation down and Trump doesn't want interest rates to rise so there's political pressure yeah I mean I think

I think that's the big challenge for the Fed right now like it's always hard to be a

Fed official and try to like make sense of all of the data some of which is conflicting it's especially hard when you have some messiness in the data today but it's especially hard when you have Donald Trump basically trying to screw up your job which is what has been happening right that Donald Trump does not understand or is unwilling to learn that the Fed in order to be effective needs to be politically independent because if people don't believe that the Fed

isn't independent if they believe that politicians are in control the money supply and are just like willing to print money whenever then they don't believe that inflation can ever get under control it becomes sort of like a self-fulfilling prophecy and Donald Trump by very loudly leaning on the Fed saying that he wants you know his new man at the Eccles building to to cut interest rates actually undermines their ability to cut interest rates in a way. Yes Cody is he his man

Trump. So I take that is there was some alignment the the President's on Kevin Worsh someone he wanted to

“have at the Fed do I think that he's taking orders directly from the President? No I don't but he”

has an alignment and I think one thing that's been unfortunate to what Kevin is talking about there's some discussion of well the Worsh Fed they need to raise rates just to prove he's independent it's like no we should not be doing monetary policy to like satisfy some political statement either direction right either direction so every episode we get a question from an outside expert here's yours. Hi Cara I panel I'm Mediana Matsukato I'm a professor at University College London currently

Italy I am Italian so my question to use the following you're talking about the state of the economy housing cost of living so I've written quite a few books the reason one called the common good economy on how it's actually impossible to solve any problem with the current way

we think about government is just you know a best fixing a market failure always reactive to little

to late and I'm just wondering from your own experiences maybe the cities you live in where you've seen government of any type you know city level regional level national level global level actually get stuff done and do it through objectives you know there's so many different ways to do capitalism and if you look at Vienna if you look at Copenhagen how they do housing and social

“housing is so different from American cities but I think it is important to give people hope that”

there's different ways of doing things and by looking actually some positive examples where the way that we governed went after the source of the problem instead of you know the symptom at the end thanks so Katherine you go first and then Annie and Claudia I will talk about something it's actually not where I live but that I've reported on before so there is this sort of pilot program I don't even know if you could call it a pilot since it's been around for a little while now that started

in Flint Michigan to give cash to pregnant moms basically to address poverty and the various ancillary consequences of poverty at the source that basically the idea was that they were prescribing cash as a way to deal with a number of public health issues it's called RX kids and so the started in Flint Michigan it turns out that it you know based on the data that they have available where they were giving cash to everyone and everyone within the city limits who once they were

“pregnant they were eligible and they continued to be eligible I believe for a year postpartum anyway”

that they determined that it resulted in much better outcomes in terms of higher birth weights and lower maternal depression rates things like that this is top of mind for me I think because I got a press release today saying that they are expanding it to part of Ohio. I think this is such a fascinating question and I love that it was posed by the person that it was posed for

I'm such a big fan of her work you know in the last 10 years I think the most amazing governmental

innovation that I can think of was in project warp speed right we got a COVID vaccine far faster than we expected it saved a ton of lives and the material good that it did I think was really significant but it didn't build trust in government right in fact I think the vaccines were part of this broader collapse in trust in institutions and it's something that I think about a lot right how do you have a good program that also creates these benefits that people can recognize it's a good program

that people can feel some trust in government like how do we create these systems such that we're all in the same universe and pulling towards the same goal it's been such a long time since I've seen that and felt that right right Claudia right so it inverts the positive spirit of the question but one thing that I've spent a lot of time watching Reese is just the effects of downsizing the federal government federal employment is lowest level in decades and yet it does affect the

government services like I see it a lot in terms of the statistics you know they don't have as many staff like 20% less staff less resources collect data but also this came up in this EDC outbreak they didn't have their communication staff it's just hard to do these services and I think it's in the spirit of you don't miss something until it's gone and it's important to really underscore like the quality of the services we had and they've really slipped and that can be fixed so that's

you don't kind of what I would focus on don't always seem to go you don't know what you got till it's gone

kind of thing and now we have you know exploding diarrhea and measles at this point among other horrors yes we'll be back in a minute

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tariffs of 10% to 12.5% on goods from more than 80 countries. Trump said he has additional terrorist plan including duties of up to 200% on generic drugs to stream court struck down most of his global tariffs in February and Katherine let me just how is the administration legally justifying the latest round. So there are different tariff authorities that the president can use and they have every one of them tends to have like pre-constrained rationals and so they're kind of cobbling together

any sort of pretext that they can for for tariffing other countries in ways that are you know I'm not a lawyer so I can't speak to the legality of all of this but at least very intellectually

inconsistent. The first round terrorist sent shockwaves to businesses and splagging and you described

Trump's economic abuse are they more prepared given all these hijinks that he's attempting to impose more of them on them. They being the administration the businesses. No you know it's just like we were talking before about how it is a tax on consumers to have to deal with inflation it is absolutely a tax on businesses to have to deal with you know basically having to watch and have to have someone full-time monitoring Trump's Twitter feed or his truth social feed

“because that's how policy is being made it's not being made through the normal administrative”

procedure act processes it's being made by Trump's itchy twitter finger and as a result

on calibrating like do we send the shipment now do we keep it on the boat do we keep it on

at the dock do we keep it at the port do we try to put it in this warehouse you know it's just just such a tremendous inefficient waste of time in resources not just the actual cost of the tariffs but it's like managing all of these logistics they did not have to think about before and not only managing that but like managing relationships with the administration right this is the reason why corrupt governments non-democratic governments tend to have in general

worse economic outcomes because businesses have to spend a lot of time like figuring out how to like appease the authoritarian rather than what makes the most business sense so the economy obviously dealing with the war and the affordability crisis inflation we talked about and it would have the short term in long term consequences of Trump continuing his borderline obsession with tariffs.

“This is bad this is really bad and I think that in some ways when the original large”

tariffs got pulled back people stopped paying attention but businesses did not businesses on the margin especially small businesses right like a four to a Google probably has hundreds of lawyers dealing with this stuff where they can bring in legal counsel still money if you're like a four person business you're not going to be able to do that you could be bankrupted right and we actually saw that happen and so I think it's one of these things like it's it's just why and I

think he'll just continue doing it for as long as he's an office he really cares about it sincerely he does not care about a lot of policies sincerely this he cares about since he does but to quantify the strain on the economy of these compounding sources is also difficult very hard to do so defense secretary Pete hexeth told lawmakers last week that he estimated the Iran war

to cost 37.5 billion dollars and just the past few days the war has escalated and oil prices have

“shot back up so far the U.S. economy has been pretty resilient Claudia at what point will”

Americans feel the broad impact of the war beyond food and gas prices and what are the potential economic consequence of yet another extended war in the Middle East so as the as a conflict drags on it it has effects on energy a food it can potentially seep into a lot of other goods and services I mean energy is really a cost that isn't a lot of what we are spending our money on so a lot of it depends on how long the conflict lasts and how bad it gets right in terms of disruptions

in like the straight of four moves in the Middle East so it's all pointing in the wrong direction it's you know without knowing how long it lasts how bad it gets it's hard to quantify impossible to quantify what the effects would be on people but it goes in the direction of cost and it's just the war in the Middle East is another example of the administration pushing forward policies that unleash a whole set of costs in the economy just like the tariffs unleashed a whole set of

costs on the economy and that is really we can see that in the inflation day the broad based increase in the price level over the last year and a half really does tie to some policies to tariffs they may be justified in other like outcomes but like immediate they are cost and another thing you see for the administration they really don't recognize that they're creating those costs are it tariffs they're still like foreigners are paying them like there's

really good right to say foreigners are not paying them we know they've been corrected many times they've been corrected many times on that topic and even some who does know Scott Besson

“pretends otherwise which is I think that's what they do on a lot of issues it feels like”

the economy is kind of factor in though it trumps erratic decision making the taco as it came to be known when could that shift where they just assume erratic decision making correct I think that they absolutely already do I think that if you are talking about financiers in Wall Street they have proven remarkably adept at making money off of not a rising tide lifting all boats but chaos right so you have people that are algorithmically trading off of you know

truth social posts I think that there is a fair amount of right just kind of like guessing

where he's going trump has always been quite suggestible to the people that he's talking to

and so I think that that has become another source of kind of like betting around this and I note that there's a lot of things coming down the pike for the Trump administration that I think it's going to prove really hard biggest one of which is in my mind the Medicaid cuts in terms of people seeing effects yes in terms of people literally losing their insurance and literally not being able to afford cancer treatment I mean we've already seen millions of people lose

snap that is at this point as well and that coinciding with rising food costs because of the war because of some things that are not Donald Trump's fault including like a drought in the Midwest and El Nino this year you know I I don't know that we can lay all of that at the president's feet but you do have all of these other factors pushing up prices at the exact same time that support for people to absorb those costs has been declining and so those those things coinciding

that's that I don't think it's going to result in some sort of taco where they somehow try to

“beef up the safety net or right no or otherwise no back after that one he's not going to do”

let's shift to the US labor market and jobs last month the Supreme Court upheld the Trump administration's authority to end temporary protected status of Haitian and Syrian immigrants the ruling effects hundreds of thousands of forward workers who will be let go by their employers this month the healthcare industry in particular an elder care rely on this labor pool we're seeing the impact of Trump's immigration enforcement across the industries including healthcare agriculture

construction and hospitality Claudia first what point do worker shortages start to become untenable

for employers and consumers so at this point we haven't seen like in an aggregate level much evidence of the worker shortages you in certain industries say like in construction there's more pressure which shows up often in terms of like wages going more quickly but there's also a lot of demand building out AI data center so it's hard to piece out like is it actually a supply issue versus more demand but but that's where we would look first industries that are very

a lot of native foreign employment in them we do see a big drop in the growth of the labor force I mean it's really striking house I mean basically labor force is not growing which is anomaly we just haven't seen that right and so even if we don't end up with shortages and real pressure points that could end up in higher prices things are slowing down in the labor market overall and we don't see a lot of dynamism we don't see people moving around in different jobs so there

there's something under the hood kind of fundamental shifting in the labor market according to the Labor Department's June jobs report the labor market appears to be in better shape than it was this time last year job growth has picked up long-term unemployment means people are out of work six months or more is near it's highest level in years I didn't agree with former commerce secretary Gina

“Romando and she made the point you have to look deeper as you were noting in the top line stats to”

see whether the labor market is healthy and she's suggest by the way it's not first Annie what's

hiding underneath these numbers and then Katherine there's a lot of weirdness being hidden under there so I think that you are seeing we haven't had growth in the white collar labor market in fact it's shrinking a little bit not hugely right we're not seeing mass layoffs but I think that plus all of the talk about AI is really really really freaking people out young college graduates are in many ways having a little bit of a tough time in the labor market they AI build out is having

some positive effects in some places so you can see like rising land values for certain farmers who are selling their land for AI and I think that there's this question of fragility if you have consumers that are very tapped out if you have businesses that aren't hiring if just everybody is a little bit concerned about what's going on what does it take uh the economy has proven

“enormously resilient over the past six years shockingly resilient right like whenever we got another”

recession it's going to be one that was predicted that it would have been here every month for like the last you know five years so I'm not saying that I do think that the labor market is pretty good and you can see that in a lot of ways but I do think that there are some strange things happening including the way that the AI boom isn't isn't supporting the economy right now we'll get to AI

in a second Katherine about labor so I do want to go back to people who have TPS who are about to

essentially have their livelihoods ripped away from them and their legal status ripped away from them that's imminent according to recent reporting and you're going to probably have some mass detention campaigns that happen in places like Springfield, Ohio so I do think you're going to see some major disruptions coming up in the next year as a result of all of that and maybe that'll show up in things like prices and things like wages and maybe that'll just show up in shortages

you know people not being able to get the groceries that they need are not able to get the health care and they need yeah exactly yeah because those are two professions two areas that really do depend on these people will be back in a minute support for the show comes from eleven labs we all know what it feels like to waste time sitting on the phone with customer service nobody is having a good time on either end of the line

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AI as a contributing factor to layoffs although now that's unclear at the same time a twenty twenty five MIT study found that despite an estimated thirty to forty billion dollars in enterprise spending on generative AI ninety five percent of organizations on no measurable return

something gotten I've been talking about for a long time um clotty to what extent are companies

engaging in so-called AI washing using tech to justify layoffs and what evidence actually does it tells about it's impact on the employment so far anytime a company does a mass lay off I mean they're going to try to package it explain it in a way that will we'll go over well with investors right so I wouldn't I do think there's an aspect of AI may have enabled some of these companies to reduce their head count but there were probably a lot of other reasons like they overhired

during the pandemic when they thought you know everyone was going online forever and you know there were probably a whole host of reasons and they put forward the one that investors might be most positive about like oh you're using the technology so I think that's habit but I also would say

“that's probably not a new phenomenon right and that's why you don't want to just take the companies”

at the word you want to go look and see can we make sense of it in the data to all the pieces fit together and frankly what has been really challenging this is relatively new technology there's a lot of experimentation going out there the data it's it's tricky to catch up with it and you have really good studies sometimes using the same data that'll just define exposure to AI a little differently or they might set up the comparisons a little differently and come to opposite conclusions

on how this is affecting how AI is affecting employment so I think it's just more that like we're at a stage where you can't draw a firm conclusion because there's just a lot of experiments running in real time and maybe some of those companies making an analysis maybe for them they actually are doing playoffs because of AI but that is not the broad sense right now an automating away human beings is very difficult right like with all the tasks that that we do correct yeah yeah there

is in much effect as there are but the stock market has been on a tear in the past few years

“fueled in part by this AI but pretty much that's what is fueling it has been made a lot of people”

feel rich Bloomberg Stacy Vanix Smith recently wrote about the wealth effect which some economists estimate is counted for roughly a third of consumer spending growth since the pandemic is rich people buying things they're feeling good about themselves again Scott talks about this a lot but alphabet and Tesla's earnings last week concerns about growing AI spending help wipe out roughly

$890 billion of the combined market value of the magnificent seven these companies focused on AI

together these companies account for about one third of the S&P's 500 total value which is astonishing Katherine can stop prices continue to support consumer spending in the broader can rich people feeling a little less rich you know SpaceX is down Tesla's down all the all the companies are pretty much down except for Apple I mean if I knew the answer to that question I would be a very rich woman and I'd probably keep the information to myself yeah I do not know the answer to that

question I will say that one thing that is troubling that is like another one of these lurking risks under the hood is that so much of the market is driven by just this very small handful of stocks that right that in terms of market capitalization in terms of investment in terms of revenues it's just like they are the whole story and so that's concerning particularly given fragility elsewhere in the economy if we kind of put like all of our eggs in this one basket and then that I don't know what

the rest of this metaphor would be the basket explodes then you know a lot of this other fragility could become a lot more visible all of these other things we've been talking about all of these

sares one of the themes of all of this is like there's a lot of you know precarity there's a lot of

insecurity but there's also a lot of resilience but is it resilience or is it just that like there is this one part of the economy that's propping everything up and if it ceases to continue doing so what happens to all of these other problems that we've been talking about particularly since we have a really erratic policy making that is making it harder to stabilize the rest of the economy right I know you feel bad that Elon's not a trillionaire anymore but we feel very

sad about that so you recently described the AI economy is quoted trillion dollar borrow boroughs of buying and selling investment and equity staking all happening between San Francisco and San Jose that's a snake eating is tail for people who don't know talk about the concentration of capital tells about the durability of the AI boom because it feels a little to me like when I was covering AOL in the early days and it was the same $2,000 going around in this case it's two trillion

“dollars or two two hundred billion dollars so I think there are a bunch of things to give us some”

hope that this is going to be kind of okay so one is that a lot of the companies doing the borrowing and the buying and the selling care they really are profitable Google is really profitable like actually that's not fake and a lot of the money going into this is actually cash it's not borrowing or at least it used to be well they're borrowing they recently tried to bear borrowing right and so

when there's two really really big things that I'm concerned about first is a circularity right

this is all a very circular economy that they are all buying and selling they are all interconnected with each other and becoming even more interwoven so say for whatever reason we need way fewer chips all of a sudden you have you know a huge decline in the price of one of these companies but that means that they can't pay their debts to the other the second is that the AI build out has been so expensive that these companies are going into debt so they are issuing corporate bonds

“and they are borrowing enormous sums not from the traditional banking system but from the”

shadow banking system non-banking lenders those deals are structured to be off of their traditional balance sheets if you're not starting to get worried the deals are very very opaque

right we don't have a lot of insight into who is lending what for whom but we have reason to believe

that institutional investors so people taking your pension or your index funds are really helping this out so if we don't have that visibility in and we have a huge amount of money that is being staked out of very circular economy that is making a bet that the returns on AI are not just going to come in but are going to come in on a schedule that will allow them to pay their bets off maybe it works out maybe it doesn't in the entire like all economic growth right now is

predicated on this one bet that you know very interestingly your average person has nothing to do if they are not investing in it the way in which they are being touched by this is mostly through you know if they have a retirement for one time so so if we're headed for an AI bubble collapse Claudia how vulnerable is the broader market and who will be impacted and AI bubble collapse at this point would be very damaging right because it has you're talking about in financial markets there's

a lot of wealth tied up in terms of the AI spend in the quote unquote real economy we can see a lot of capital investment that's happening it's real like durable goods are being bought to put in place and I mean that's very exciting to build up our physical capital we can be very productive but that is certainly in the you know kind of real economy AI has built out is very much important not doing it all but it is important and then the other piece that we kind of hinted

and touch it a little bit is it is a positive overlay right especially in financial markets and businesses AI is the technology that future it's going to be transformative it's going to be profitable that's been a real like positive message a positive vibe that has counteracted a lot of like negative things like we have a war in the Middle East and we had and I do worry too that taking some of that positive overlay away could just amplify the cleft one thing I'd like to

“point out they think has been a positive development in recent months you're seeing I think some”

healthy skepticism and financial markets so announcing more capital expenditures the market pulls back some in the bonds are they're requiring a bigger interest rates credit spreads are going up so there is some telling markets hey maybe maybe you're going a little too fast slow down are you either of you Annie or Katherine worried about a bubble bursting here in the stock market I mean I'm I'm worried look I think it's very easy to see the negatives of all of this

certainly including all of this investment that's been going into these new data centers all of the competition because a lot of the AI investing companies are like assuming that it's a winner

and what kind of knock-on effects does that lead to for those firms and for those that depend on them because of all of the circular dependencies that Annie was referring to so I'm definitely concerned about all of that I do think it's important to sit a little bit longer with a point that Claudia made that there will potentially be some positives it's easy to see like which jobs disappear as a result of a big disruptive new technology it's harder to imagine what jobs

do come about and I don't want to sound polyanish but I just want to like temper a little bit of the doom and gloom about how lots of people are going to lose their jobs and that may well be the case we are seeing that particularly in certain companies you know maybe it's AI washing and maybe it's not but there will be jobs that are created there will be people who are made more productive and we don't know exactly where those benefits will fall and I am hopeful that we will end up seeing

lots of opportunities created by all of this in addition to some dislocation and that you know

“we really just need to work on I think beefing up the safety net so that those who are in that”

difficult transition are helped out in some fashion right I mean I think we've we've done a poor job in the past at helping people transition when their jobs are displaced because of whether it's because of globalization yeah soon after globalization or automation or anything else but I do think that there are a lot of opportunities and what we should be thinking about from a policy perspective is how to make sure that those opportunities are available to is wide of a swath of the population

is possible and that we help the people who are hurt Danny I think that the thing that I am concerned about beyond just a stock market correction which would be painful for all of the reasons that Claudia and Katherine identified and it does mean that you know a lot of people right like there's

always ancillary people that had nothing to do with it and they are going to be hurt um the other

thing I'm somewhat concerned about is that this is taking place again outside of the traditional lending system so I've had the question of like our regulators on top of this are they the non-banking institutions should be but this is new and it's unusual and these deals are strange so again I'm not worried about like an apple or a Google even with huge losses they're going to be fine but like what about like the smaller little guts of the system that we don't know are we really keeping a good

eye on that I don't have a great answer to that but to Katherine's point we think about the jobs created by AI we think oh it should just be software engineers or something and it's like no actually when the whole economy gets wealthier you get all kinds of new jobs that are created by AI in some strange way but are not like literally tied to it so I do think that that's positive and there are other really positive things happening in the economy we have some cool things

“happening with energy and I think that it's all a matter of we know that we still have this”

very broken safety net all of these policy problems this lack of trust but are we allowing these really positive things to come through yeah absolutely so it's a theme it's the theme this been underlying though everything we talked about the giant gap between what's happening in the markets and what's happening in people's lives right earliest year labor share of the economic app that hit an all-time low at this point a well-profits hit a near record how long can the gap

continue to grow before something gives in that regard when these benefits you're talking about

accrued to more than just a small group of people Katherine you go first and Annie and then Claudia

I mean this is a political economy question right it's an economy question but it's also a political economy question we started this conversation by talking about like economic sentiment and what does that mean is that really political sentiment and I think all of

“these things are wrapped up in one my fear is that as people become more disaffected with economic”

outcomes more resentful that they've been left behind that somebody else is getting ahead maybe it's the immigrants maybe it's the foreigners maybe it's the billionaires that politicians become less prone to trying to fix actual problems and more prone to just doubling down on blaming the scapegoats and blaming the scapegoats is easy punishing the scapegoats is easy actually fixing the problems is a lot harder you know there's a part of me that worries that we're going

to end up in this sort of like infinite doom loop like in Argentina where you have the leftwing

populists in the rightwing populists just alternating power and blaming each other and never actually

solving problems right so that's the that's the real concern that I have that we we do have these real underlying problems with economic inequality with stagnation of living standards and I worry that our political leaders are not as focused on actually doing the boring technical work of fixing them and instead are much cleaner on to tap into the anger it's happened to the anger and and to find the the easy scapegoat rather than the heart fix any I think that that is

early mid-90s when people were getting computers in the internet there's really this broad feeling of like oh my gosh this is going to be amazing right like we'll be able to connect with people all over the world this is going to change this that and the other right like maybe we'll send

“more people to the moon all of this and I think in part because the AI leaders have been so”

vocal about the downsides that they see if their own technology right like I always think like

can you imagine if forward came out and they were like you know the car is going to be great but we're going to kill a bunch of your kids right like everybody would be like what are you talking but they'd be like some of your children will die horribly we're so sorry but it'll still be worth it it is something else that people are now they're like don't do this to us AI sentiment is really really low it I think it's because they see it as another technological advance that's going to lead to them

getting screwed and what nice thing I think about inequality is that it's very amenable to policy solutions this is not something that we don't know how to fix and so I do think that starting to reduce the sense of fragility for people make sure that there there's AI guardrails so it's not going to be that all of a sudden all of these workers are headed to retirement believing that they're

“never going to have the lives that they wanted I think it's it's really tough and we've not seen”

that kind of deep policy work to just get the you know everybody feeling involved again and productive again right and that declining labor share that you talked about that put some really important institutions at risk right and so even if AI doesn't mass unemployment maybe makes people more productive I don't really think it's going to push up wages that much in terms of getting a bigger share and so many of our programs talk about social security as one example like

as so much of our taxation really depends on workers making money and that's that can feed into it if the workers are not the ones gaining if it's more and more going to the capitalist to the which some of that is good but it will cause some of those programs to be you know really understrength so you think we have discontent right now talk about the discontent when social security falls apart right and we are not at far from that program really coming into conflict so I'd say a lot of the

trends we're talking about they're pointed to actually get worse which is going to have some big conversations in the political economy space about how do we fix these problems because people are not going to be happy if they're just left to fall apart those kind of programs right absolutely anyway on that happy note what one thing is positive that you see about the economy

and what thing you worry about the most Katherine you do at first in anything Claudia I don't know

“if this is about the economy or the political economy but I think that people are starting to recognize”

the things that really matter about the economy that they may have taken for granted and that means some of our institutions that help make the economy run that means immigrants who bring new life, new skills, new energies to the economy and the importance of community I feel like that there is a renewed appreciation for you know if you use a partly about democracy and these are partly about thriving civil society but these are also partly about understanding what our economy needs

to function that we need rule of law that we need trust in your biggest worry I guess my biggest worry is the dissolution of the safety net which you know is one of the things we've been hammering on this which is the anger part Annie yeah I'm really really excited about the new cancer medications GLP ones which are really improving a lot of people's lives there's new biologics there's new treatments for previously intractable conditions like cystic fibrosis which is so exciting

I'm terrified that we are pulling away the basic scientific funding that has made a lot of this possible GLP ones came in part from research on the heel and monster and this is precisely the sort of stuff that now doge in the Trump administration wants to cut right when we're at this moment that you know because of CRISPR and other things that I do not understand we seem like we might be able to actually really improve people's lives and save costs yeah exactly and I wish that

everybody had access to the medications you know these are really expensive I wish everybody had access to the medications they need good i caught it right so mine is with the low higher low fire

labor market first the positive the low fire layoff rates in aggregate are very low so if you

are worker who has a job and really likes your job is a good job like this is a good labor market the flip side of the thing that does concern me is the hiring rates are really unusually low for labor market that overall looks pretty good and so this is an incredibly tough labor market for people coming into the labor market for the first time trying to you know get back into labor market or stuck in a bad job so like I do worry about that half of it like the hiring rates

need to come up okay all right thank you guys so much i know we covered a lot of stuff we are trying to get to a lot of stuff but I really appreciate it thank you so much thank you very

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