301. A Monetary and Fiscal History of the United States (4)
2 (39m 51s):
So that's a big, that's a big range of difference. That's why it's a hard question. If you ask me what's my guess, I would guess it's probably somewhere in the low fours pick a number 4.2 or something, you know, I don't know exactly. Nobody does, but not everybody is making the same guess. The Federal Reserve, what it's worth is guessing for. I'm geo, I'm trying to remember four two or four four something fairly close to what I just said.
2 (40m 31s):
I don't remember exactly. They published their guess four times a year. I'm just not
1 (40m 38s):
Remembering just on a, another specific news item. You know, yesterday there was something on the AP about, you know, businesses can't hire enough people. They, they have more jobs than there are people applying for them. Right? And if unemployment's 3.7%, why aren't those 3.7% taking those jobs?
2 (40m 56s):
Oh then, I mean the three points, I mean in some sense they are, you shouldn't think of this as the, a stagnant pool of unemployed people are coming into the pool and going out of the pool and the rate at which you go out of the pool depends on the availability of jobs. And it's very high now. So people that really wanna work and aren't too fussy, you know, like I want exactly this kind of a job in Calistoga, California and I work only Wednesday through Friday. That's not so easy to find. But if you are more flexible, there are jobs over the place. I mean, in my town, Princeton, New Jersey, I'm sure in your town you can't walk down the street without seeing help wanted signs in virtually every store.
2 (41m 45s):
That's why by the way, Michael, many people think 3.7 measured unemployment is well beyond full employment. We have a really high labor market.
1 (41m 57s):
Right. Okay. Then one other specific thing about the farm products, supermarket products, let's say, but you know, the invasion of Ukraine and so forth, but what about American farmers? Why are they raising their prices? Or are they,
2 (42m 10s):
Well, because a lot of these crops are, are sold in world markets. So the price of wheat to an Amer in America is not gonna be very different from the price of wheat in France or in Indonesia or any place in the world. A little different cuz you have to ship things and things like that. But the, the many agricultural products are sold on world markets just like oil. I mean oil is really a world market price. Bur for crude is more or less the same everywhere.
2 (42m 53s):
But standard agricultural products are also pretty close to world markets. So when the crop in the Ukraine is not available for sale, that raises the price of wheat, including what American farmers get for their wheat. You know, I was, I was saying before you hear a lot of complaints and justifiable complaints about people in the grocery stores, about the prices they have to pay. You're not hearing the farmers complain about them. Those are good prices for them.
1 (43m 30s):
That's funny. Right? And of course we want our farmers to be successful, but we want their customers who are far more to be even happier, right? So sometimes you hear one of the drivers of inflation is the government just prints too much money. So let's talk about the discussion in your book. I've forgotten about some of these, but all the different programs like the American Reinvestment and Recovery Act, the Economic Stimulus Act of 2008, the Emergency Economic Stabilization Act of 2008, the paycheck protection program of last year and so on, or, and now Biden's new, you know, infrastructure bill and you know, just billions and billions and billions of dollars. How can the government just print money or borrow money or whatever it does without it driving up inflation?
1 (44m 15s):
Or does it,
2 (44m 18s):
It it may, Well now let me go back a second. I was listening to your list. There was a lot of things in it. I think all the things that were in your list were fiscal policies. They tend to get names. Monetary policy doesn't get a name that does something, doesn't got a name. Fiscal policies that are not tax financed. Now, a couple of those were financed by tax revenues, but mostly they weren't. And as you said, they were adding to the budget deficit have to be financed by either printing money. But that's the Fed's business. And if the Fed doesn't want to print that much money, it doesn't.
2 (44m 59s):
And by the way, why wouldn't it? Because it's worried about inflation. And if they're not financed by printing money, they're financed by floating debt instruments. We call them government bonds. And as you know, and as I think everybody knows that the government debt, the federal government debt has been exploding in recent years because of the very large budget deficits that got Titanic by world standards in the Great Recession. We were talking about that a little bit before, back in 2008, 9, 10, 11.
2 (45m 40s):
You had mentioned one of those, the recovery act under the Obama administration then sort of got back, I don't wanna say to normal, but to manageable size the deficit, the annual deficits, and then exploded again for very good reasons. By the way, when the pandemic struck the government, as we all remember, started writing checks, sizable checks to, I I was about to say everyone, not everyone, but to great number of people. And they were not financed by printing money by the Fed. They were financed by government debt.
2 (46m 21s):
And so that kind of activity tends to push up interest rates. If you have to sell, if you, the federal government have to sell a lot more bonds, by the way, that's another world market. You don't have to sell 'em all to Americans. We sell a lot of 'em to foreigners. The, that tends to push down the price of bonds when you flood the market with more supply. And that means interest rates go up. Now if the, for a long time the Fed worried about the health of the economy was preventing that from happening. Remember the Fed does control interest rates and they were holding the interest rates down.
2 (47m 6s):
Then as inflation started rearing its ugly head, or maybe I should say after, because the Fed was slow to get started on this maybe a year after or six months depending on how you count, six months, nine months, 12 months after the Fed started saying, we can't do this anymore because the inflation is rising and started letting the interest rates go up. And that's what's, that's what's been happening lately.
1 (47m 35s):
Mm. All right. Let's do look at some of the history in your book. So you start off with Kennedy and you, and this is an example of how much things have changed of what we consider to be left leaning and right leaning. Kennedy, as you point out, was really a fiscal conservative, not so different from Eisenhower and Nixon. If anything was a little bit in the other direction. When did that start to change in our history?
2 (47m 57s):
That's a good question. I think, I think the Reagan years were in many ways turning points. They certainly were in terms of the attitudes of, I, I guess I would say both political parties, but especially the Republican party towards budget deficits. So Eisenhower thought deficits were harmful, immoral, disgraceful, et cetera. I think in one of the Eisenhower years, we actually ran a surplus, or maybe two, not a big one, but you may remember, and I quoted in the book that Bill Clinton, when we were discussing, excuse me, getting the budget deficit down, bemoan the fact that as he put, we were becoming a bunch of Eisenhower Republicans.
2 (48m 59s):
So that was Clinton. But that was in reaction to the very large increase in the federal budget deficit caused by Reaganomics, which was mostly by tax cuts. Reagan came in with the pledge, if you call it that, I mean he wasn't under oath or anything, that they were gonna cut taxes, income taxes by a lot, which they did. And a, they would balance some of that by serious cuts in spending, which really never happened to any large extent. And B, by fantastically faster economic growth, the incomes would be going up and you didn't have to raise the tax rate, the money would just come flooding into the treasury cause of the boom.
2 (49m 51s):
Well the boom never happened either, but the tax cuts did happen. And at the end of the Reagan years, we were stuck with, by American standards, very large budget deficits as shared gdp, which lingered through several attempts by both Republicans and Democrats to bring them on under control. Finally started to have some success under Bush Senior. There was a budget theft budget agreement in 1990, you'll probably remember read my No new taxes. Yeah. That's when he stopped lip reading and agreed with the Democrats that to get this deficit under control, we had to raise taxes a bit.
2 (50m 38s):
And they did. And then the big, big step of course came under Bill Clinton, which was both tax increases and spending cuts. Not just talking about spending cuts, but actually doing spending cuts.
1 (50m 53s):
So would you describe Clinton as a Kennedy, like Eisenhower leaning fiscal conservative?
2 (50m 59s):
Yeah, yeah, I think that's right. You know, not as much in the rhetoric. Some people can just talk a good game and they sound like they hate deficits and, but I mean Ronald Reagan talked about that said, I hate the deficit is terrible, rid of the deficit. But if you looked at what he did, he didn't do anything but think not well exaggerate slightly, but most of what he did was boosting the deficits. Clinton had the rhetoric that the deficits were ruinous in some vague sense and he intended to do something about it.
2 (51m 43s):
And he did do something about it, as I'm sure you'll remember by the end of the Clinton administration and the budget that he turned over to George Bush. I second we, the federal government were running sizable surpluses. And there was actually talk about what might happen if we paid off the whole national debt. It sounds so silly now cuz of what happened in on the, in the very next administration. So this didn't last, but there was a lot of talk back then about what would happen if we had no more national debt, including by Allen Greenspan. By the way,
1 (52m 23s):
I'm, I've been fond of saying that, you know, conservatives are hypocrites when they say we're in favor of small government and leave people alone and autonomy and individual freedom and all that stuff. But in fact they intervene all the time in people's lives. Whether it's, you know, on the abortion issue or or armed conflict with wars and intervening in other countries and their elections. And, and in this case, you know, if you look at like the national debt for the last 70 years or whatever, every administration grows. The national debt, Republican, Democrat can't even hardly tell the difference. You know? And
2 (52m 58s):
Why
1 (52m 58s):
Is that? Yeah, except for both Clinton, That's right. Yeah. And so is that because in fact they're not really in favor of small government. They want big government when it comes to military prisons, judicial system, immigration, the wall and so on.
2 (53m 14s):
Yes. And they like tax cuts. It makes you very popular with your constituents if you cut their taxes. People forget this. You may have forgotten this. I don't, I don't forget this cuz I was one of his advisors. One of the things Bill Clinton ran on but didn't do when he became president was a middle class tax cut. That was part of his platform. I was then part party to the many conversations that went on with Clinton and his economic advisors, Not just me, not mainly me, a whole bunch of us in which he gradually and reluctantly gave up on the idea of a middle class tax cut because he was really serious about getting the budget deficit down.
