Why The Stock Market Hated May’s Strong Jobs Report | Off the Clock

The work week maybe over, but the economy, it never
really takes time off. I'm Justin Wolfer said, I want
to welcome you to Off the Clock, the show where
we're going to unwind the week's economic news, and I
am joined again by my favorite economics journalist in the
whole wide world, Stacey Bannocks Smith.
I am overwhelmed by this honor. Justin, thank you. I'm
very happy to be here. I am a columnist for
Bloomberg BusinessWeek and co host of their podcast Everybody's Business,
and thrilled as always to talk economics.
With you, justin mate, highlight of my week. So, as always,
our job is going to be to pick through the
week's headlines and we want to figure out where there
are things you should really be concerned. There's a whole
bunch of stuff, I'm pretty sure you can say for ignore,
and we're going to be really digging in and see
we can find a silver lining somewhere. Right.
The first thing we're going to talk about is the
jobs numbers. They came in from May and they're looking
really good and second month in a row, so we're
going to talk about that.
It's been exciting for me I've been doing television all day,
and I've been such a grumpy bloke when I had
to talk about the economy. And I have gotten to
walk in with a big smile and say, God bless
the labor market, and it's good to see American workers
getting ahead. We're going to move on from that. That's
going to be the first part, and then we're going
to get to what doesn't sound like an economic story,
but I think might be the most important economic story
of all. There are a whole lot of musical acts
that we're meant to perform in America two p. Fifty,
the big celebration, they've all canceled. Now you might wonder
what that's got to do with the future of the
American economy, and I think actually it's a symptom of
the state of capitalism. What we're going to do is
we're going to compare what's going on with the musicians
with what's going on with the tech sector and see
if that tells us something about where the economy is going.
And then Stacey, we're going to close out with a
new segment that comes straight from your big brains, and
we're going to step back and we'll get some of
the bigger trends in economics. Too much of the years
focus is on the right. Now, we're going to look
back and we'll discover that once we look outside the
daily grind, there's a lot more cause for optimism. Mate,
are you ready to get into it?
I'm ready to do it. Okay. First thing we got
to talk about is apparently the thing you've been talking
about all day, but it's a really exciting development. It's
the jobs numbers for May. They came out one hundred
and seventy two thousand jobs created in May in those
four weeks, and April jobs were revised upwards. They revised
them every month to one hundred and seventy nine thousand.
This is justin I have so many questions about this,
but I would just love your overall take.
Honestly, I love days like this. I wake up, I
learn some statistics in my heart. So us a little
bit because people are seeing a better world than they
otherwise were. So let's try and get some context around this.
About four or five months ago, the question was whether
the US economy was creating any jobs at all, and
so then what happened was we got a good month
and then you're like, well, Loo, if you've got a
bunch of noise going on and then a good month,
you don't always want to believe it. And then we've
got another good month. Oh two is good, but you know,
you get undo that pretty quickly. We just got three
in a row, and not just three in a row,
as you said, we also learned the previous two months.
We're stronger than they otherwise were we previously believed. I
mean to say, because of revision. It's a very normal process.
So what that tells us is the job market, on
average has created one hundred and eighty eight thousand jobs
a month over the past three months. And I just
a note for folks, whenever someone's telling about what just
happened this month, chances are they're trying to sell you
on a particular story because one month is usually noise.
But three months, that's how you sort of see what's
going on, and the answer there is definitely very very
good news. I don't have all the answers about what's
going on, but I do have a lesson for a
bunch of people. I spend a little bit of time
on social media very very dangerous moment, and I noticed
many of my liberal friends were reluctant to accept this reality,
or were reluctant to accept the possibility of good news.
And look, nothing's a sure thing. But if you're not
changing your mind today, you're not actually a social scientist.
You're not looking at the numbers. The numbers have turned
distinctly more positive, very good news for the American worker.
This reminds me of a quote from John Maynard Keynes
when he said, when the facts change, I change my mind.
What do you do? I have seen this too, and
I actually have a larger question about that in the end,
but I want to stay on these jobs numbers for
right now. What I'm really curious about is like where
these jobs are coming from. And I know you've been
talking a little bit about that this week, so I
want to kind of get into that, where are these
jobs coming from? Who's getting hired?
Right? Let me give you the one month answer, which
our audience now knows they should ignore and then talk
over a longer period of time. So the one month
answer is, this is actually very good jobs report. Jobs
came from pretty much across the board. We feel really
good about that. But one month is more noise than signal.
So one of the things that we've been focusing on
is total jobs created in the second Trump administration. So
over the last sixteen months, for instance, Oh no, this
is May, so seventeen months. And what we've seen is
literally all of the jobs have come in the healthcare
and social services sector. When I say all, the answer
is more than all, which is that sector has created
more jobs than the economy as a whole, which means
the rest of the economy has been.
Drinking what social services sector?
Things like, well, that's good. I was talking to my
therapist earlier today and I asked him exactly that question.
What does your therapist say.
That's right. So it's not actually my therapist, he's a
private therapist, but things like social workers, elder care workers,
groups like that. Okay, and so, but the biggest part
of this is what's going on with healthcare. So look,
one viewer, this is healthcare is doing well. The rest
of the economy, in fact, is going backward. Oh my goodness,
this is a horrible recovery. People are a little too
quick to say that it's not unusual for one sector
to boom to the exclusion of others. More to the point,
if there's a lot of growth in healthcare. What that
tends to do, We could say the rest of the
economy is shrinking, But that's not the same thing as
saying if healthcare weren't going gang buster, if healthcare slowed
the rest of the economy and state negative, Because what
healthcare is doing is it's competing with the rest of
the economy for workers. So in some sense, it's just
suctioning them out of the rest of the economy. So
this isn't telling you how strong or how weak the
rest of the economy is. In some sense you can
think about this is there's just something really interesting going
on with healthcare right now.
What is going on with healthcare right now? Is it
the aging population? Is it some kind of boom? Where
where's all this growth coming from?
Yeah, So one of the things I want to do
is actually spend some time talking to some of my
friends who are health economists, because they can give you
a very easy descriptive thing. But I think there's a
you're asking a much deeper question than I've got a
good answer for you. So the growth and healthcare is
across the board. That's happening in pretty much all parts
of it. Large part of that is, so there are
questions about where there's a post COVID echo. There's the
aging of the population, which is very very important. There's
a long run shift towards healthcare. And there's also the
fact that as societies get richer, once you own one dishwasher,
you tend not to buy a second dishwasher. But once
you'm a little bit of healthcare, people get a real
taste for its delicious healthcare. I recommend it to anyone,
and so richer societies tend to spend more on it.
So you know, it's a big part of what's going on.
I think I'm not usually a big fan of taking
what's going on at the aggregate level and cutting it apart,
because it invites you to tell stories, and when you
invite people to tell stories, that's when their biases start
to come in. So one part of me says, let's
focus on the big picture. But there are sometimes very
good reasons, like the administration has been layser focused on
manufacturing and construction and jobs for big boofy blokes wearing
steel toed birds. Well, it turns out that's none of
the story. I can guarantee you that tariffs have not
helped the healthcare sector. Bombing Iran has not helped the
healthcare sector. Allowing Obamacare subsidies to expire has not helped
the healthcare sector. So this economy is the little engine
that could, that's doing what it wants to do, no
matter what it is that the traffic cops in Washington
are telling them to do.
Well, you made it a point. I happened to come
across some of your social media videos this week, and
you made a really interesting point kind of about this
about the jobs going A lot of these jobs getting
created are going to women, and I was very interested
in that, and I wanted to ask you about it
a little bit. So talk to us about the gender
breakdown in the jobs.
Right. So, look, the healthcare sector as it stands, healthcare
and private education is to be the larger version of
the sector. That's roughly eighty percent, maybe it's seventy five
percent female to start with. So there's a reason we
carry around stereotypes about women working and caring occupations. It's
not just a stereotype, it's a reality. And so if
I tell you that these are workplaces that in the
popular mind thought of as being female coded or feminine jobs,
and then I told you those were the workplaces that
we're expanding. That's really you're not going to be surprised
by the next part, which is to say most of
the jobs so far, this is through the second Trump administration,
three quarters of the jobs have gone to women, which
means overall job growth is will moderate. Men have only
gotten a quarter of it, and so that then means
that we've created very few male jobs. So at one
end you've seen what are sometimes called pink collar jobs
really expand. And then the blue collar jobs that the
administration is so focused on, construction and manufacturing and mining
and the like, those are actually shrinking sectors. And so
that in and of itself is enough to fully explain
there's a big tilt towards increasingly female workforce. Stacey, you
get to blow a bugle or celebrate or something, which
is women now hold a majority of non farm payroll
jobs more than men.
Wow. This is very fascinating to me, and I have
many more questions about this, but one thing I also
wanted to get into because we got all this great
news from the job market at the same time the
Beige Book came out this week.
Uh and just like you explained. Could you just stop
by explaining what the Bige Book is and then we
can give it a critic and think, you know how
you mod have named it? Well?
Okay, the Beige Book, in fairness is my favorite of
all economic data reports, like the CPI is a close second.
But what I love about the Beige Book is it's
this collection of short stories essentially. And so the Central Bank,
there are twelve central banks, They're located all over the country,
Central Bank of Saint Louis, Central Bank of Dallas, Central
Bank of San Francisco, and each of the central banks
UH will basically submit a report and they're economists, talk
to all these small businesses and small business owners and
workers in their local areas and they put all these
stories together. So for me, this is fantastic. It's like journalism,
and so you.
Can accuracy of journalism amiss.
To stain the bees Book? Is this a thing that
it's like?
Yes, okay, this is amazing. So one of my first jobs,
my first job after undergraduate, was working at the Reserve
Bank of Australia, Eric will under the FED, and I
used to have to make these calls. I just randomly
called business isn't I had to ask them about how
their labor negotiations were going, and I would call union
and I'd say, what's going on? And then I would
write these one and two page memos that Stacey, I
think you would have submitted to Planet Money and called
a story. You might have added a little more narrative
insight than I did. I wouldn't have said, his brow
furrowed as he thought about how to make payroll next week.
I simply would have said profitability pressures continue.
Over brow implied, Yes, that's right.
I remember being in a room many moons ago and
Ben Bernanke had just been appointed to the Federal Reserve Board,
and it was a bunch of economists, economics professors, and
one of them said, Ben, please tell me, please reassure
me that when you listen to these stories from the basebook,
you just throw it away and rely on statistical data instead.
And I'm not allowed to tell this story because it
was a behind closed doors meeting. But even then Ben
was clever enough to say, oh, no, these stories are
really important and it's a deep question, and you and
I will fight about this another day, Stacy, Which is
stories are so seductive when you go and visit neg
farmer who's struggling, and you know, a single tear goes
down their cheek as they think about what their children
are going to inherit the seductive nature of that, the
persuasive nature of that, compared to when the Bureau of
Labor Statistics calls tens of thousands of people and asked
them what they actually did last week. That's why we
economists are a little bit like well Stacy called twelve people,
the BLS called sixty thousand. Let's give them roughly equal weight.
And I think you make an excellent point, But I
would also like to say that data can be deceptive
in any format, and if you're asking a certain question,
I feel like it doesn't get at everything. And I
think the value of the stories, in addition to their seductiveness,
is that they can bring out nuance that sometimes gets
missed in the data. Like all, if you just look
at job creation numbers and you don't necessarily go down
into which sectors are creating jobs, you think one story
about the economy. But then if you look at it
and it's like wow, all the jobs are coming from
this sector, it gives it nuance. So I think the
Beige Book can. Also it's also a leading indicator and
a lot of data is lagging, so it gives you
hints about things that are happening. And let me just
read you one of these hints, because I did want
to bring this back to jobs. So the Beige Book
is full of all these stories of people struggling. And
this is why I wanted to ask you about this,
because retail stores are saying fewer people are coming in,
they're making fewer sales. And there's this amazing quote that Heatherlong,
the Great Economist, quoted in social media, and I have
not been able to get out of my head, and
she said quote, middle income households were described as squeezing
the life out of every dollar before deciding to spend it,
and low income consumers showed greater financial strain. Now this
is a little separate from jobs data, but I wanted
to ask you about this because for me, this is
just the central question in the economy for the last
couple of years, which is it's not a simple picture.
It seems like we've got an economy going kind of
at sixes and seven's. Oh, I can't believe I just
said six to seven. But you know what I mean. Wow,
I know I was totally organic, but I wanted to ask, like,
when you hear these two kinds of data, what do
you think Facebook shade aside?
Yeah, I honestly, I'm just going to tell you I
find it very confusing because, Okay, the beige book in
that sale to feel very true.
To do.
But it can't possibly be the case that a couple
of young staffers at the FED ringing around are figuring
something out that tens of thousands of surveys of retail
sales and consumer expenditure are not. And I think that's
your questions great, because one is historically relevant to the economy. Right.
So what I was looking at was consumption spent, consumption
expendich is they're very strong right now, in which case
I'd say the consumer feels terrific. If what I did
was turn on the television, the consumer looks miserable as
all hell, which should I believe? And there's a look
I sort of want to pause the professor and me
wants to pause and just say to the audience, look,
I want you to pause. My kids listening to a
beautiful podcast where it says press pause and talk with
the people around you right now. The thing I want
you to do is not right now, but when you've
got a quiet moment. Just think if you were running affair,
how much weight would you put on statistical data, which
are effectively surveys of tens of thousands of people ask
them how they're doing, versus phone calls, which are also
surveys of up to dozens of people asking how they're doing. Stacey,
you've given a great defense of the narrative approach, which
is so surprising from a professional storyteller, and you'll be
surprised to hear a professional econometrician and statistician isn't so convinced.
I know that I'm going to get in trouble next
time I go on campus, because we have these wars
on campus. The sociologists, the qualitative sociologists will sit down
and talk deeply with seven people and then ask me
to throw away the results of my surveys of hundreds
of thousands. So I don't have you figured out how
you're going to square this circle, thread this needle.
Well, I'm really glad you brought up campus justin because
you may recall that I actually visited the University of
Michigan campus and got to I got to watch some
of your econ one oh one class, which was awesome.
It was really fun. It was.
A hit with my student. So I said, the great
and I know you read to play Simolia, and I
know we're coming from I said them, the great Sticy
Vannick Smith is sitting in the back over there. Who
wants to go talked to her after class and they
rushed you.
It was so much fun. Well, I think they were
excited to talk about the economy and they were just
the loveliest humans. But I asked them how they were
feeling about the economy and the job market, and so
I wanted to play their responses and see what you thought,
and also make a small, not that subtle plug for
the value of storytelling. But here's what they said. It's
one thing to say, look at the data.
Look at the data.
Everything's fine.
But I mean, as we just saw with the job support,
the data sometimes doesn't even tell the whole story. Really,
on the ground effects are not lining up with the numbers.
And I think for a long time people have felt
that way.
I'm a computer science made too. I'm just mainly worried
about job security. I mean, we don't know the limits
of what AI can be. It's hard to pick a
career path that you know is going to be stable.
I feel like it's like, ah, sort of an independence thing,
you know, Like I don't want to I don't want
to have to be like subsidized by my parents just
to like live a normal life.
Like my mom's a public school teacher.
She didn't make enough money to actually mortgage our house,
so it's mortgaged by my grandma, And that's sort of
where all the wealth is coming from in my family.
If that's already happening to my parents, what am I
gonna do?
Is there anything about the economy that'll gives you hope
right now? Technological innovation AI, I guess.
So I'm hoping that AI technomology like gets better in
some way and it'll help create more jobs.
I think it's a lot harder for people to get jobs,
and especially when we're saying cross of living and everything
is a lot more expensive. I think that's just a
bigger worry and a lot of students.
Yeah, I mean, I would agree with the labor market.
I've applied to a bunch of jobs like even local
campus shops like Panera bad. And I haven't heard bag
at all.
Anyway, So I did want to play those for you.
I'm sure you've heard these stories from your students, but
I wanted to get I don't know. I wanted you
to like square the circle for me with the with
the stories we're hearing versus the number the really exciting
and awesome numbers we're seeing, which, like you said, is
really wonderful.
So first of all, love those kids. They're wonderful. I'm
going to try, but I want to fess up. So
there are times when I want to talk to our
audience as an economics professor and say, my textbooks teach
me this. The economists believe that economic theory is clear
on this, And there are times when you're asking me
to speculate, and this is one of them. And so
I'm not going to claim the full weight of my
profession behind what I'm selling here. I think you would
encourage me to speculate because you said, well, if someone's
got to speculate, it may as well be an economist.
Fair enough, let's do that. I think it could be
that the present is okay, and fears about the future
loom very large. You heard a couple of the students
who are worried about AI. And it's not just the students,
almost all of us seeing it start to infiltrate our workplace.
We're thinking about how it'll reshape our work lives. Ten
years ago I had a pretty good sense of how
I could imagine my career of being in ten years time.
In fact, ten years ago I wrote my diary, Dear Diary,
I hope in ten years I've got my laptop at
the kitchen table talking to Stacey Anick Smith, and that
dream came true. Yes, but I could have guessed that
this is what I'd be doing now. Try and form
the picture of what you'll be doing in ten years time.
And ten in AI years is a long long time,
and for me at least, and I'm an economist, I
do this for a living. It feels very fuzzy. I
don't know if there will be a physical campus I'm at.
I don't know if I'll be talking to you on
a computer. I don't know if they're you know, think
about what I do. My only skill in life is
that I read very very widely, and then turn what
I read into very simple English. Guess what's really good
at that chat? GPT. So my job you also talk
to people. I just crunch numbers. So your job's a
little harder than mine. But yeah, no, you and I
should be scared. And that's the point. And I don't
want to scare people at home. I just want to
acknowledge the fears that exist. So there's the AI part
of this. And then, honestly, you know, since twenty sixteen,
we've had a period of just a men's economic and
political instability. There was, of course the first Trump administration,
which felt chaotic in real time. There was the COVID endemic.
There was January sixth, There was a pretty contentious few
Biden years. And then whatever you think of the president,
good or bad, you have to admit it's chaotic. And
what you believe is true as you go to bed
at night is often not true the next morning. And
then we're at war right now, war that may end
but may not. America's place in the world is being
re evaluated. The kids who sit next to you in
a lecture, who may have come from the other side
of the world and be paying really high tuition to
the University of Michigan. They may not be allowed across
the border next time. These are very I feel like
that makes me feel less comfortable about the future, and
so I can be okay overall, but still very worried,
and I think that might be somewhat was seeing.
Okay.
Well.
I really appreciate this breakdown because although I was really
thrilled to see the jobs numbers, I was very confused
about what was going on, as I have been for
a while. So I actually do feel like this has
given me some clarity, which I very much appreciate. We
just had this radiant jobs report, really so positive. Positive
for May, positive for April. We are adding jobs at
a rate that I don't think we was beyond even
what most people hoped for or thought was possible. So
such good news. The stock market somehow has completely well,
I don't want to say cratered, because but it's just
had a horrible day. I mean, the SMP is down
two and a half percent, the Nasdaq's down more than
four percent. I mean, these are big drops, and I
don't understand why this is happening after such good news,
So I'm hoping you can make this make sense.
These are very big drops. Let me stop by giving
a bit of context. Why would Stacey and Justin care
Neither is the stock triders. But this stock market is
people placing bets on the future profitability of American company.
So they're betting on the future of the economy. So
when it starts screaming, I'm unhappy. Our job as people
who try and understand the news is to listen and
then come here and translate. So I want to emphasize
the first thing you said, this is really big. This
is I mean, not hold the front page big, but
let's have a chat about it big. This is the
largest decline in stocks this year in a single day
this year. What's going on? Goldman Sachs has put together
an unbelievably helpful stock market index, which is they took
the S and P five hundred and they took out
of it everything that's a big AI company.
That is really smart because it's been so distorting.
Yeah, well it's been such a big part of the
whole story. So you know, they took out in video,
and they took out Alphabet, Google and a whole lot
of others. In fact, they had to be really thoughtful
about this because AI has big effects up and down,
you know, from chips to software companies, and so they
took out they actually call it AI enablers, anyone who's
sort of upstream or downstream of the AI burn when
they do that. By the way, that means taking out
a lot of the biggest companies, because the biggest companies
are in video right now. And the mag seven, which
is say, you know, the big AI firms, the big
tech firms. Now, that index, which is to say, the
average of the American economy parent excluding those jerks over
on AI, fell exactly zero point zero percent today. Actually
rows are tiny fraction of present. So what happened today
was all about AI. That's the first thing. So if
we're learning any signals about the economy, it's not signals
about most people's jobs. Remember AI is not actually directly
a big employer of people, right. AI machines write AI
code and then a few guys have to put up
some data centers.
So at one way, Oh sorry, go ahead, yeah, no,
go on, Why does AI? Why is AI having a
bad day? Doesn't AI isn't he? I happy about extra
jobs and I.
Felt bad about it. I said, Claude, why are you
having a bad day? Now, Claude, I want you to
know that some people don't like you, but some people
do appreciate you. And Claude actually said thank you. Justin
I feel seen. Claude's the first person to actually think
that I'm into personal skills. I only know that because
I asked him. Okay, what happened today was the jobs
markers was reading a lot stronger than people expected, with
very very good news. Love when people find the ability
to earn their way in society. It has taken the
idea of the FED cutting rates next off the table
because what we have is, on the one hand, price
is going up very very quickly, partly because of a rhym,
partly because of tariffs. And on the other hand, now
the labor market looks healthy, So the Fed's got two
things that looks at the labor market and inflation. Labor
market looks healthy, so there's no reason to cut Inflation
looks unhealthy, is a reason to raise rates. Even though
the President managed to appoint his favorite FED chair, handsome
Kevin Walsh, not even Handsome Kevin is going to be
able to cut rates in that environment. So, in fact,
what we're seeing, I took a quick look at what's
called the Federal funds futures curve. Okay, let's go back
through that. Federal Fund's futures is people betting on the
future of the Fed, the Fed's interest rates. Federal funds
rate is the Fed's interest rate. Federal funds futures is
people betting on the Fed's interest rate, and the curve
is what they're betting will happen to interest rates over
the next few months. Okay, what they're betting is an
interest rates are going to be quite substantially higher over
the next few months. So not that long ago, the
market was expecting two rate cuts in twenty twenty six.
Then we invaded a run that went away. Now they're
expecting one or two rate hikes through twenty twenty six.
So the next so first thing is good job numbers.
Next domino interest rates.
Up.
Here's the thing about AI.
I'm going to say, like, why is AI so concerned
about interest rates?
They're borrowing markets of money to put out huge data centers,
and an investment that makes sense when you have low
interest rates may not make sense when you have high
interest rates. So as big as the boom is, maybe
it's not a boom that could withstand high interest rates.
That's the fair.
Oh so basically the boom. The idea is AI is
on this amazing trajectory, poised for all this growth. But
in order to realize that growth, it's got to borrow
lots of money, and if interest rates are higher, it
is going to have to pay higher interest on all
the loans it needs to build all the data centers
that it needs to make its product work, and if
interest rates get really high, it may not be able
to afford that money. But these companies are all set
to go public. Have these IPOs start selling stock this
year setting records? Don't they have money coming out of
their ears?
The IPO is the company's trying to raise money. They're saying,
we don't have enough cash for these data centers. Let's
get some stockholders in. We want their money. So it's
one way of getting money from the broader public that
is indirectly linked to interest rates, because the general public
now I can either buy stock in open AI, or
I can put it in the bank or government bonds,
which I earn a fairly high interest rate. And so
buying stock of these companies might be a good deal
if I don't have a better place to park my money.
But now high interstrates mean I might have a better
place to park that cash. Now I want to say
all of this is the only facts that we observe
are the prices and one quantity. We observe the job
markets better. We observed the general stock market fell, we
observed the stock market excluding AI was flat, and we
observed that market expectations of future interest rates are higher.
Those are all the facts. That's financial markets saying something
pretty interesting happened today. And then the storytelling part is,
can I find an economic theory that could reconcile all
those facts? Can I find a thread that runs through
them and makes sense of them all at the same time?
But I want to be clear what I'm doing there.
I could be fancy and call it economic theory, or
I could be honest and call it storytelling. So the
facts are very, very big move today. Second fact is
you've seen this happen lots of times before. A big
thing happens one day and then it undoes it the next.
You know, it's more temperamental than my dog trying to
get in and out of the house. But the movement
he has big enough to pay attention to and may
end up having important implications.
Well, very interesting. We'll have to keep watching it. But
it is these are strange times. I think I do
feel like I have at least a grip on what happens.
I do feel like I understand a little bit more
what happened.
So thanks Justin, Hey Stacy. So I do have a
really exciting story. It's super weird coming through the stories
of the week, and I think this really is the
biggest economic story and it's the biggest story that no
one's telling.
I love weird. Let's do this.
Yes, So have you heard about the America two fifty celebrations?
Yeah, yeah, yeah, yes, two hundred and fifty years country birthday.
Yes, yeah, seems very exciting. I love a good birthday.
I love a good celebration, and so we were meant
to celebrate with a series of concerts. But what happened
this earlier this week is that seven of the nine
originally announced musical acts backed out. They said we do
not want to be part of the nation's birthday party.
Includes Brett Michaels from Poison, Martina McBride, love country music,
and you know the stories they're telling are I was
not told this would be a part of an event.
I don't want my music to be partisan. And so
you can see this through the lens of economics very much,
which is, these are folks who have clients, they have
an audience, and they don't want to play to Red
America all blue America. They'd rather play to all America
because they'll honestly sell twice as many records or twice
as many streams and be twice as rich. The only
one still standing apparently as a bloke called flow Reader,
which honestly.
Writer, flow writer, and even handle me right now, you are.
So much more hit than me.
That's definitely not true.
And Vanilla Ice, who, by the way, insaying that he
was willing to play, did point out you'd also be
willing to play for Putin. So I'm not sure you
learn a lot with that.
I think his economics or a particular situation now.
And I can't remember is Nelly Vanelli in or out.
Millie Vanilli one of them died?
Oh but won't they play? But also weren't they limp sinkers?
Like they didn't actually lip sinkers?
Yeah, but yeah, I mean that might have been a
very sad situation for.
Our moment anyway, Milli Vanilli's involved somehow, and I just
never thought I'd be on an economics show talking to
the great stage of Annie Smith about it just goes
to show your dreams do come true. Let's get to
the economics of this though. Yeah, I want to contrast
its nine acts, seven of them said I just can't
afford to offend half of my clients. Kay. Let's contrast
that with how many times have you seen Tim Cook,
the CEO of Apple, who, by the way, also sells
products that you think both sides of politics might like.
How many times did you send him drag his sorry
ass to the White House to be part of explicitly
partisan pro trunk displays. Remember there's that time he brought
like a he set it up in his office like
a bable on a thing. I think it was gold.
It was gold on a pyre exit based He said, Oh,
he said, I con'm bearing gifts, and of course the
only gift that has meaning is gold, and so he
understood that. That was good of him. You know, we've
seen Mark Zuckerberg prostrate himself. There was a wonderful press
conference where someone said, how much you investing Zack, and
Zak said, you know, eleventy billion dollars, and then he
whispers into a hot mic to Donald Trump, I'm not
sure what number you wanted me to say, explicitly acknowledging
he was there to be a bit part an actor
in the Big Trump Show. So here's the economics. Yeah,
why is it not in the best interests of most
musicians to only appeal to Red America or Blue America.
They want to appeal to all of America. But the
tech CEOs are out there doing something even more partisan
than in America two fifty concert and happily turning up
to Washington to kiss the ring. There's got to be
some economics in that.
I bet you have a theory. I have a weird
half bigd theory, but I want to hear yours because
I think you've put some thought into this. I want
to hear what your theory is.
I was trying to pretend I hadn't put thought into it,
and so then I'd appear really smart when I suddenly had.
Right, I'll give you my half big theory if you
want to do that. Yeah, okay, it feels like the TEXIEO.
Everybody's making an economically smart decision. Yes, it feels like
that's kind of very telling because it seems like the
musicians are feeling like the aligning with Trump and the
Trump administration right now is not good for And maybe
it was when they agreed to do this six months ago,
because of course, if a certain president is throwing the event,
it's going to be a part of an event. So
maybe they were okay with things six months ago, but
now they feel like it'll be a liability and they
live and die by popularity. The tech CEOs, the motivations,
I think are a little different because policy is such
a big deal for them, like government policy, government contracts,
so they're making the rational decision. Tim Cook is kissing
the ring and Mark Zuckerberg because they realize that having
the president's favor is a huge economic leg up for them.
So it just feels like slightly different motivations. That's the
thing coming into my mind. But I want to hear,
I want to hear what you think you've got it.
It took my idea exactly. They're the sign amount of isss.
Everyone's making profit maximizing choices. The musicians, they want to
keep everyone on side and the profit maximizing choices. I
want to make the best choice for the market for
the consumers. The consumers are not going to be happy
by seeing their favorite musicians being politicized, So why is
it profitable for Sam Altman, for instance, the CEO of
Open Ai, to say, I wish I had done more
of my own thinking and definitely fill in the NPC trap.
I think it will be incredible for the country in
many ways. He said things that not even country music
stars would say. And it's because what's now more important
for a tech CEO than their customers is the president
and that is a very very different feeling than we've
ever seen before. And so, yes, you're right, it's all
market forces, but market forces are perverted when what you
want to do is impress the president or the folks
at Moro Lago more than your customers. And so this
is I think you can think about this as early
stage crony capitalism. The way you win today is not
producing a better phone, better software, better aiols. It's by
carrying favor by the pool at Mara Lago, by getting
the president to like you. And so what you're actually seeing,
quite literally, I thought it was lovely. What the musicians did,
they said, we don't want to be politicized. They centered
their customers. What the tech CEOs have done is they've
decentered their customers. We don't matter as much. We don't
matter as much as carrying favor with the big guy,
who otherwise would go on a revenge to it and
destroy my business. And the deep question is is that useful? Now?
There was a time not that long ago where the
Republican Party thought big government directing businesses what to do
was a very, very dangerous state of affairs. We fought
a whole Cold War about it. But now what you're
seeing out of the tech sector is a sense that
it's just the best thing that they can do. Is
impressed the guys higher up the food chain than them.
Well mean, i think they're behaving very logically. But it's
interesting that the economics of this moment are different from
I mean, it does create I think what economists might
I'm going to might get this wrong. I'm kind of
embarrassed trying it out. But like market inefficiencies, because when
you create a system where it's more advantageous to appeal
to somebody than it is to create a better product
that does seem to not create a like that seems
to be a drag on our economy, because then you
don't have the most competitive company succeeding. Right, it's the
one the.
Best lobbyists determine, or the best lobbyist of brown noses
determine who survives, not the best products, the whole thing.
Oh sorry, go ahead.
It's just how genius of capitalism says, always such a
strong incentive to do the right thing by your customers,
And what's happening right now is that's being weakened, and
instead the most important thing is to be the biggest
brown noser to the present. That cannot be a system
that's explicitly a system that doesn't have strong incentives for
productive innovation.
I feel like that is always the case, somewhat right,
I mean I agree.
I agree, And so you're saying, I want to be
relentlessly fair. I'm a journalist and I'm going to agree
with you. When Obama was present, there were people from
Google always coming and going, and you can look through
the visitologues there was always a close relationship. Now what
there and you know, the question is what sort of
policies you saw out of it. So under Biden, for instance,
it was like, wouldn't it be good if we all
use the same standards now, standards like the fact that
we all now use the same cable to charge our phones,
whether Android or Apple standards are really helpful. They make
tech work better. The discussion rate now is I hope
you're going to let me import the chips I need
from abroad. I hope that you're not going to let
me tar on the stuff that I need. I hope
that you'll let me hire the h one B visas
that I need to produce the work that I And
so what we're seeing instead of an attempt to coordinate
more constructive behavior, is an attempt to get the tech
companies to submit and in some cases submit to the
present political will rather than necessarily that of the American people.
But you know what reminds me of a little bit
is like in a company, there are always people who
like do the best work, and then people who are
like the most politically savvy, and to some extent, the
politically savvy people always do maybe a little better than
their quality of their work might suggest. But there's always
a balance. But I guess if you get a certain
like a leader in place who really responds to politicking.
Then suddenly you have everybody who's succeeding is really good
at politicking. And some of the people who do the
best work are also really good at politicking. But some
of the people who do the best work are terrible
at it.
And so as I get to design a company, in
fact I am right now, I have a company. It's
called Platfle and I don't want my staff to brown nose.
I want my staft to be brilliantly productive. And that
means they tell me when I'm wrong, and that means
being responsive to our audience that you're watching and listening
right now today, whereas you know they could wake up
every day. I mean, thank goodness. Also for kids. I
came home last night, just had a haircut. My kids said,
that's the worst haircut I've ever seen.
I like your haircut. I think it looks good.
That's I went fishing for that. Actually, but you don't
have to say that, Stacey.
I'm just doing the thing.
That's right, and so I respect you less for liking
my hair.
What can you do?
But I like your hair? Okay, good Stacy, We're going
to stick on target. So you have a big idea
that I really love, and I hope we can make
part of this show.
Yes, okay, this is I do have to credit Cardiff Garcia,
who I worked with for years at NPR, and one
of the things that he showed me was there's a
group of data scientists called Our World in Data, and
they basically look at really long term economic trends and
it's really amazing, like some of their data sets go
back to the fourteen hundreds. But the purpose of it
is to show because sometimes, you know, you get so
into the minutia, right like the jobs market. You know,
even when unemployment is ticking up to four point three percent,
we don't want to see that happen. You know, historically speaking,
it's an incredibly low unemployment rate, really good. It can
be easy to see all the bad stuff and easy
to miss all the progress. So one of the things
they do, they had this idea called the fifty year newspaper,
which is instead of if the news came out, it
used to be every day, but now it's like every second.
If it came out every fifty years, we would be
overwhelmed with how positive things were. And I do think
that's a really beautiful silver lining segment. Are there any
that you like particularly like justin because I feel like
you look at these data sets all the time, and
you're in the very of the moment data and probably
less frequently look at the sort of super long term data.
And what I love about this idea, and I remember,
well the first time you told me about it, is
if we're always focusing on what happened last month, we're
missing at least half the story, and we might even
be missing the big half of the story. And so
you know, we have the freedom here. We don't get ratings,
and we don't have bosses. We have the freedom to
talk about economics the way we really think it is
and the way it matters. And some of that is
the long view. And you're right, this gives us an
opportunity for hope. So let me take something that's annoying
the crap out of everyone right now and an immense
source of anxiety. People are really worried about the cost
of living inflation right now three point eight percent. It
feels harder to get Biden it's ever felt. People talk
a lot about an affordability crisis. This is miserable, and
I agree three point eight percent is worse than two percent.
But if we were to write a fifty year newspaper
about inflation and say what's happened to inflation over the
last fifty years, I'm going to do it a little
bit different. I'll say, you know, what's happened over the
last few decades, and what was it like compared to
a few decades before that. In fact, we would count
inflation as one of the great success stories of our time.
My parents grew up in an era when inflation your
parents was on average much higher. That's a big problem.
And not only is it a lot higher, it was
much more variable. And the thing is, when it varies,
it's even worse. Not only a prices going up, you
don't know by how much, And if you don't know
by how much, it makes it hard to make plans.
You don't know how much of a pay rise to
ask the boss for. You might see a price that
didn't go up as much as you thought and think
that must be a bargain, and then you'll learn later
on it's just none of the prices are going up.
So variable inflation is also a lot worse. So you know.
Let me just tell you how excited I am by
a few simple facts. I'm going to compare up to
the nineties post war through to the nineties. Since the nineties,
average inflation has fallen from about four percent to about
two and a half percent. Pretty good. So what we
think is a nightmare right now your parents used to
think was normal. The ups and downs of inflation have
fallen immensely. So it used to be in a typical year,
next year's inflation could be two percent higher or two
percent lower on average. Now that's down to one percent
higher or one percent lower. If you're a nerd, you
want to know what that's called. That's the mean absolute deviation.
But just saying you've got a pretty good guess about
what's happening next year. It used to be that if
you just said next year inflation will be the same
as last year, it used to be you'd be wrong
by at least a percentage point nearly three quarters of
the time. Now you're actually right two thirds of the time.
So inflation has become not only lower, but a lot
more predictable. So let's celebrate the fact that over a
run of decades, the FED and economists and economic reasoning
has managed to reduce how much inflation is a problem
in our lives, reduce its variability, reduce its levels, and
increase its predictability. So believe it or not, you're actually
living through pretty remarkably good times when it comes to inflation.
That is, you know, this actually makes you think of
something my mom said, which is that when she was
first looking for a house with my dad, they were
home shopping and she was trying to find she was
going around to banks trying to figure out what the
best interest rate would be. And at the time, and
this was in the lead seventies, she found an interest
rate for eight percent, and she's a mortgage rate of
eight percent, and she said she was thrilled, like she
couldn't believe it. Can you match? Like eight percent?
Is so? In fact, in Australia, our big reduction in
inflation happened a decade after the United States. So I
can actually remember in high school I bought a government
bond issued by the railways. I think I had one
hundred dollars to invest at a fifteen point five percent
interest rate. So that would feel unamaginable today, Yeah, very
latest bond. So inflation feeds into interest rates. That's why
the interest rates were so high back then. But that
was a very different world. And I think for much
of our audience who not lived through it, And I'm
not you know, I know you're too young to have
lived through much of it, Stacey, but your parents, we'll
tell you. It used to be active life, and it
used to be a whole lot more painful. Well, we
haven't stamped it out yet. We're in a much better
place right now. Hey, so love, we need to end
on That's what I was going to say, Stacey, thanks
so much for joining me. Mate, you are a gem.
This has been off the clock. This is our podcast
where Stacy and I slow down review of the week
that was and we try to sort out what really
mattered and somehow that was the jobs market America two
fifty and what's going on with the cost of living.
You know, if you've enjoyed this, be short to subscribe.
This is a show that can only succeed if we
find an audience, and so if you can help. If
you've enjoyed this show, I've got a favorite to ask.
Can you send it along to a mate and say, hey,
it's a good way to slow down, a little bit
of economics. Just say, here's how you do it. Okay, mate, mate,
platypus economics. That's all you need to know. In the meantime,
Stacy our well, we're going to keep on top of
the economic news that you don't have time for. And
my message to you is stay curious.