The Honesty of Our Economy

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Allison Schrager: Growth becomes so much more important if you have an aging society, because societies will get poorer if we don’t have productivity increases, like productivity increases can make up for a smaller population, you can still have positive GDP growth if you become more productive. And we’re going to need that if we have fewer people to do stuff.

Allison Schrager: As I said, our living standards will start to really decrease if we don’t find a way to sort of continue to grow and we have fewer people.

Zachary Karabell: What could go right? I’m Zachary Karabell, the founder of The Progress Network, joined as always by my co host, Emma Varvaloucas, the executive director of The Progress Network.

Zachary Karabell: And What Could Go Right is our weekly podcast in conjunction with our weekly newsletter, What Could Go Right. Please scurry to your computer Sign up for the newsletter. It’s free. It’s weekly. It’s a good dose of things that are going on in the world that you may not have paid attention to or attention had not been drawn to that are going right in the world, in a world where we do tend to focus when we focus on the news.

Zachary Karabell: And the news tends to be what’s going wrong. What are the crises and what are the challenges and what are the problems that’s accentuated in an election year, which we are in, in the United States. In fact, a lot of the world is in an election year. More people would go to the polls in 2024 in aggregate democratically than has ever happened ever in human history.

Zachary Karabell: That’s probably. A good thing, and should certainly be seen as a good thing, even if the results don’t always please everyone. Democracy is, after all, a constant process of some part of the population getting what they want, and another part of the population not getting what they want. There is no way around that in a democracy.

Zachary Karabell: There’s probably no way around that in life. Anyway, every week we try to look at different issues, culture, politics, economics, international relations, and talk to people who have unique perspectives on what’s going on in the world. Many of those people are members of the Progress Network. Many are not, and not all of them think that things are going right.

Zachary Karabell: In fact, many of them are focused on all the things that are going wrong. We are not attempting in this to pretend that there is not much that’s going wrong. And we want to talk about issues that are animating people. One of the issues that is animating everyone in 2024, whether it’s in the United States or elsewhere, is the cost of living, the role of government, the problem of inflation, what inflation is going to be, whether or not we are going to be able to meet our needs commensurate with what the price of things that we need is and what income we are earning.

Zachary Karabell: And, you know, the questions of like, what exactly is this thing we call the economy doing? is one of the great debates of our time, particularly given that most people have a different personal sensibility about what’s going on economically than what the data is telling us, i. e. many people in many parts of the world think things are quite bad economically, and the economic data that we use as a gauge is telling us that things are quite good economically.

Zachary Karabell: And there is a huge gap there that remains unanswered and hard to explain. So we’re going to talk to someone today who has unique insight into these questions. Emma, tell us who we’re going to talk to today.

Emma Varvaloucas: So today we’re going to talk to Allison Schrager. She’s an economist. And also a senior fellow at the Manhattan Institute.

Emma Varvaloucas: Her writing has appeared lots of different places, but right now she is a columnist for Bloomberg and also writes for City Journal. She’s also the author of a book called An Economist Walks Into a Brothel. And she’s the co founder of the Lifecycle Finance Partners, which is a risk advisory firm. So are we ready to go plumb Allison for her wisdom?

Zachary Karabell: Yes, we are. Allison Schrager, what a pleasure to be having this conversation with you. Or at least I assume it’s going to be a pleasure to have the conversation that we’re about to have with you. You are one of the more eclectic, unique, unusual voices talking about all things economic for your columns for Bloomberg and City Journal.

Zachary Karabell: You also have one of the unequivocally best. Book titles of the past decade, plus that I can remember of An Economist Walks into a Brothel, which is just such a delicious title for a book. You did a piece recently on the negative economic long term consequences of kids living with their parents. Maybe expand on that one.

Zachary Karabell: Cause I thought that it’s like a perfect iteration of all things, Allison.

Allison Schrager: Oh, well, thank you. Such kind words. I was doing a column for Bloomberg about finance, TikTok, and I got surprised by a couple of things about it. One that I’m not on TikTok, so I don’t consume it often, but I was shocked. The financial advice was not terrible.

Allison Schrager: It was actually a pretty standard personal finance advice. And in fact, maybe more digestible and easier to understand the normal.

Zachary Karabell: Can I cut you off for one second? You’re not on TikTok because you’re against TikTok or you just not on TikTok because you’re not on TikTok?

Allison Schrager: Combination of the both. I mean, I’m against it, but I’m probably not against it because I’m not on it.

Allison Schrager: If I liked it and enjoyed it, I’d like Twitter. I’d probably be like, you know, it’s not so bad, but I’m not on it anyway. So it’s easy to be against it. That’s how I feel. I’m on TikTok and I love it. I, for

Emma Varvaloucas: personal finance, for everything.

Allison Schrager: Yeah, if I was loving it, I’d probably rationalize everything, but because I’m not, I’m like, it’s evil and it’s corrupting the youth, but at least what TikTok steered me towards with its algorithms was actually pretty reasonable advice.

Allison Schrager: The thing that shocked me about it was they kept talking about living at home as a viable financial strategy or, well, if you are living at home, this is how you do things. This is a normal thing. And I looked again and I knew there was a big upshot of people living at home during the pandemic, but it’s been trending up for a while and it struck me With the TikTok that this is a social norm now, not everyone’s living at home, but it’s not weird or a source of shame to as opposed to when I was in my twenties, this would have been only something that happens if your life fell apart, you lost your job, or you got a divorce, and you definitely had a lot of issues on the dating market.

Allison Schrager: But now it’s just a lifestyle, financial choice that seems totally acceptable. In some ways I think about, I’m like, Oh, I would have saved a lot of money, I guess, if I didn’t pay all that money for those terrible apartments I had in my twenties. But if you told me then, why don’t you live with your parents to save money?

Allison Schrager: I would have thought that was insane. When I guess people live at home in Europe for a long time, or people lived at home until they started their own families for most of time. But it does seem to me that striking out on your own is an important part of adulting, making rents. Big motivator to push your career forward and just general independence and risk taking.

Allison Schrager: It seems like something’s being lost there, or it’s a sign of people not really fully individuating or being willing to take risks. I was at my university board meeting and a new theory was floated that I don’t know this is true because I don’t like to generalize too much because every generation has a lot of different viewpoints and preferences that universities get a lot of flack for investing in really fancy dorm rooms.

Allison Schrager: Because when we were in college, we lived not in squalor, but it wasn’t exactly nice. You had several people in a room, you shared a phone in a bathroom and the rooms weren’t that nice. They were like cinderblock and kind of dark. But now it’s like people just live in really nice dorms and then the apartments they can afford probably aren’t that great.

Allison Schrager: So living at home might also be compelling because you can still live in a nice place. And the idea that you’d live in a terrible apartment with lots of roommates, just not a price you would pay for independence. It just feels not worth it. And that does seem like an important cultural shift in terms of ambition and risk taking.

Allison Schrager: Although I guess we’ll see how it plays out.

Emma Varvaloucas: What percentage of millennials is that? I mean, I know you said that it was rising, but is it a significant portion of the population? So for men,

Allison Schrager: it’s about 20%. And for Women, it’s about 13, 12 and a half percent ish.

Emma Varvaloucas: Okay, that’s higher than I was expecting. I mean, how much do you think that that’s related to this general story that we hear about?

Emma Varvaloucas: I think particularly millennials and Gen Z, that the upfront economic costs of becoming an adult in the United States are so high. That it’s just not possible. Meaning the rents are so high, healthcare is so high, college is so high. And it’s just like kind of a albatross around those two generations next.

Allison Schrager: Well, there’s some validity to it. I mean, first of all, the healthcare costs I don’t buy because I mean, you can be on your parents healthcare well into your twenties now. True. And even this student loan stuff, I don’t really buy that either. I mean, it’s true that people today have much more student loan debt than before.

Allison Schrager: But I mean, if you have a student loan, that’s correlated with higher earning. So I’m not sure that’s a reason why. Also, I mean, the proliferation of these income based repayment plans ensure that you can also pay rent and pay your student loans. So I’m not entirely sure. It is true rents are higher and significantly higher than they used to be.

Allison Schrager: But you have options. Other than living with your parents, you could live with roommates or like not live in a nice apartment or move in a cheaper area. I think it’s just different norm that It wouldn’t have been an option for me when I was young. Despite whatever financial situation I was in, I just would have found a way to live on my own because I just would have been embarrassed.

Allison Schrager: And now people aren’t. And again, maybe there’s some advantages to that. I mean, it’s nice to be close to your parents. When they do have families, maybe they’ll be closer to your parents. Their parents will be more involved. There’s all sorts of evidence that that’s a nice thing. But I think there are also definitely going to be downsides.

Zachary Karabell: This kind of segues into another piece you wrote recently about, uh, taking on the issue of wages have been rising somewhat in step with inflation going up, which is one of the pushbacks that people who are saying, Hey, the economy is better than people feel. Everyone’s focused on headline inflation numbers.

Zachary Karabell: They don’t focus as much on the degree to which their wages have gone up. And you wrote a piece saying it makes total sense that people would. Simultaneously benefit from rising wages and be upset about rising inflation. So maybe expand a little bit on that.

Allison Schrager: Yeah. So this is, I guess, what a financial economist would call a disconnect between macro and finance, the whole central premise of financial markets and how assets are priced is that people prefer or don’t like risk, a risky stream of income.

Allison Schrager: All else being equal is not as desirable as a sure stream of income, and you will pay more for that sure stream of income. And we just sort of, this is sort of undergirds all financial theory. So if you think about what it’s like when you’re in a high inflation or volatile inflation environment, or you just have a big bump of inflation, you don’t know what prices are going to be, effectively that turns your income into a much riskier income, because the whole point of income is what you can buy with it.

Allison Schrager: So every financial transaction or sort of consumer transaction you’re having has a level of risk in it. So even if you have a real wage increase and risk adjusted terms is what we would say, it could still feel like a decrease because you know, all this uncertainty, like you just think of the last couple of years, eggs were like 7 and they were 3 and 2.

Allison Schrager: And you still see, as I said, a lot of volatility and sort of consumer goods, particularly around groceries. I also wrote about How well grocery prices have been coming down quite a bit and are now like at a relatively decent level of inflation. The cost of dining out is still quite high. That inflation rate is still like 5%.

Allison Schrager: And I mean, you know, Something really extraordinary happened in the last couple of decades is dining out became a very sort of big part of people’s lives of all income levels. I think it now accounts for like 50 percent of food spending, at least going into the pandemic. So, I mean, this is also something that’s important to people’s quality of life and things like that are still very expensive.

Allison Schrager: So I think it’s not surprising that you can have a real wage increase that keeps in line with inflation, but if you’re exposed to more risk and uncertainty, you’re still going to feel worse off. Not to mention that the things that matter to your quality of life are still really expensive, all of which are going to make people unhappy.

Allison Schrager: And I think that’s understandable.

Emma Varvaloucas: Although it’s remarkable how fast that shift to eating out not as a luxury item, but as an expected part of everyday life happened. Because I remember when I was growing up, we never ate out. I mean, it was extremely rare. Yeah, any thoughts on that? How quick that was?

Allison Schrager: Yeah, I mean, uh, there, there’s all sorts of theories, like the rise of fast casual is one. And just as I said, like this proliferation of sort of cheaper restaurants. And, you know, maybe that wasn’t good because, you know, we definitely got fatter and, you know, it’s good, better to eat at home, probably healthier.

Allison Schrager: But, you know, I don’t think we can deny that people find it convenient and they like eating out. I wrote in this column I did for Bloomberg in which, you know, they indulged some taxicab reporting, which I hate, but I couldn’t is I can’t remember what city I was in, but an Uber driver. Who is just like, yeah, you know, I mean, my wife and I, it’s always been very like sacred to us that we have this date night once a week where we go out and like burger and a beer, like nothing fancy.

Allison Schrager: I’m not trying to invoke Kyle Bass or David Brooks about like ridiculous bill I had at a hotel. Like these, this is just like a normal guy. Who, you know, would go to out for burger and a beer with his wife once a week. And this was very important to them. It’s just very like in their quality of life. And he’s like, it was 40.

Allison Schrager: Now it’s 80 and they still do it, but it’s like kind of a big financial strain. And as I said, restaurant inflation is still going up. So, you know, before, I mean, a couple of decades ago, maybe they would only do a date night once every six months, but doing it once a week has become like a thing for them.

Allison Schrager: And it’s important to them. And now it feels out of reach or definitely a bigger financial strain. So I don’t think it’s shocking that he would still be upset about inflation, even if he’s being told all the time, well, you know, Uber prices have gone up. Like, why are you complaining?

Zachary Karabell: I’ve spoken a lot over the years to audiences and tried to give some sense of you can simultaneously be hugely discontent with your economic system in the present and recognized how dramatically, at least in material terms, things have improved over whatever the past hundred years, let alone the past 20.

Zachary Karabell: Like the present tense discontent with what rewards and or the lack of them are and recognize change. Have you done any work on this? Or have people done any work on this? Are people cognitively able collectively or individually to step back and go, Oh, right. I’m now eating out once a week. I used to eat out every six months, but my once a week is more expensive than it was.

Zachary Karabell: two years ago, but I’m still doing it more than I was 20 years ago. Like are people susceptible to, in a good way, that kind of toggling between the bigger picture trend and the immediacy?

Allison Schrager: I don’t think so. Like I haven’t done any rigorous work on it, so I can’t like cite any research or as I said, I’ve read it, but I don’t think people really do.

Allison Schrager: If

Zachary Karabell: rigorous research were the criteria for making profound and cogent statements on podcasts and television. There’d be a lot of dead airtime.

Allison Schrager: Yeah, so I’m, I’m just going to make stuff up. Anecdotally, I don’t think people do have that awareness of what things were like 20 years ago. Like if anything, you hear people all the time talking about how much worse things are as if the eighties were like some like wonderful time.

Allison Schrager: Like people don’t remember what the eighties were like. I mean, I wasn’t very old then, but I don’t remember them being that great. I mean, not that many people had air conditioning. And, you know, we didn’t have like phones, you know, cars weren’t that safe.

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Allison Schrager: I mean, it was better than the fifties. So like we were happy cause we like progress. Certainly I see this a lot with the retirement is people have this like golden era of retirement in their head where allegedly everyone had this like wonderful, rich, defined benefit plan.

Allison Schrager: But like that, that never happened. Like people have sort of, sort of romanticized the past and don’t really realize like things were not that great. I mean, I think it’s hard to argue that the quality of life now is worse than it was in the eighties. But I seem to read Upteen articles. Claiming that things are worse in every way when they seem to be better to be in every way.

Allison Schrager: And I mean, maybe there’s a reason for that. Maybe, you know, there’s something evolutionary reason to have humans always be striving for more. I mean, there’s one thing that’s been remarkable about humankind and particularly since the industrial revolution is these sort of dramatic increases in quality of life that have unfolded.

Allison Schrager: Even in our lifetimes. And maybe that comes from this constant feeling of not feeling like things aren’t good enough and they should be better.

Emma Varvaloucas: I mean, I always think about forget. Asking people to be comprehensive about what the data was like in the 80s. People are uncomprehensive of what the data is like now.

Emma Varvaloucas: You know, even people that care about data, I find it difficult for a lot of things to like really get a clear picture of what’s going on.

Allison Schrager: Yeah, it is. And maybe, maybe we’re meant to be unsatisfied and that’s healthy because that pushes us for more because if we’re just content, that wouldn’t be good. I mean, it’s, it’s like the de growthers.

Allison Schrager: You know, they’re just like, we’ve had enough growth. We don’t need to grow more. I find that more destructive and sort of toxic than the, wow, you know, things should be better than they are people.

Zachary Karabell: Although on that de growth er question, one, there’s certainly a moralistic aspect of growth as destroy is destroying the planet materially and climatologically.

Zachary Karabell: And therefore. There should be degrowth because it’s growth has been harmful or it is beginning to consume the very resource that we need to continue growing. I do want to ask on that because it is a kind of a relevant one for the next 10 to 20 years that in large swaths of the world, right? Japan, Korea, China, Germany, England, population is shrinking.

Zachary Karabell: I mean, we’re in a aging population and then a declining population. Should there be economic growth? for declining aging population, either systemically or normally, meaning fewer people presumably consume less. And this is a totally separate question to the de growthers who are saying there should not be growth because it’s bad morally because we’re destroying the planet, or because it’s leading us into a consumerist culture that’s removing us from the spiritual connectivity or the larger issues in life.

Zachary Karabell: I’m just asking the question of in a system where there’s fewer people with fewer material needs, why should there be growth? I

Allison Schrager: mean, we still want improving, like improving life, improving prosperity. And, and I mean, I’d tell the de growthers if we want it, the definition of productivity. is using our existing resources more efficiently.

Allison Schrager: If we want to sort of help the environment, growth is important. Growth becomes so much more important if you have an aging society because societies will get poorer if we don’t have productivity increases. Like productivity increases can make up for a smaller population. You can still have positive GDP growth if you become more productive.

Allison Schrager: And we’re going to need that if we have fewer people to do stuff. As I said, our living standards will start to really decrease if we don’t find a way to sort of continue to grow and we have fewer people. It’s not only good for the environment, it’s good for our quality of life. I mean, especially as we’re all getting old, I mean, innovation is going to be important.

Allison Schrager: We’re going to need sort of different ways of technology to help take care of us to hopefully live even longer. And sort of live even sort of higher quality. Think of like how old your grandparents seems like in their seventies versus people in their seventies now. But it is true in a lot of ways, improving our quality of life, improving productivity, economic growth is our best shot to make that happen.

Emma Varvaloucas: Fun fact. This is a massive TikTok trend right now that talks about how slowly millennials are aging compared to their forebears. So I like to think that it’s just like, we’re getting healthier lives. You say we’re living longer lives. And of course it does bring issues as you’re bringing up, you know, how are we going to pay for everybody?

Emma Varvaloucas: But I wanted to

Allison Schrager: talk about, like, Oh, remember that show mod? Like I actually, I wasn’t old enough to see mod, but I see clips of it. Like Be Arthur was 47. She

Emma Varvaloucas: looks so old. Yeah, there’s a massive video going around on TikTok and Instagram right now where someone brings up the, the cast of Cheers that were supposed to be like 30 years old.

Emma Varvaloucas: And they look like someone you would imagine to be 50 years old now.

Allison Schrager: Yeah. I mean, you see like, or I was some James Bond villain was like, looked like he was about 75 and they’re like, he’s 42. I mean, like Reese Witherspoon’s like 50 and she looks great.

Emma Varvaloucas: Alice, I wanted to ask you in particular about social security because it’s definitely in the news right now with the presidential election coming up. There seems to be this fear that it’s about to combust, but you had it in one of your retirement myths in a column that you wrote. I don’t know how old it was actually.

Emma Varvaloucas: So tell us the good news about social security.

Allison Schrager: Well, I don’t think it’s going anywhere. I mean, first of all, worst case scenario, we just sort of. Let like, don’t do anything. That would be a 22 across the board benefit cut for everyone, which wouldn’t be bad. I don’t think we should do that at all, but that’s a lot better than social security, like going bust and not getting anything.

Allison Schrager: And I don’t think that will happen. I feel like when you look at pensions, particularly state pensions, they somehow always get paid, you know, we might like default on bondholders. We’ll certainly cut services to younger people, but pensions always somehow get Uh, older people are very powerful and no one likes to see them get their pensions cut.

Allison Schrager: So I think we’ll find a way. The question is, are we going to find a good way to do it? And are we going to Do it in a way that’s like most efficient. Like, as I said, like, are we going to spend more than we need to, to fix it? And I think that’s a question and I’m not heartened at all by the political debates on it now.

Allison Schrager: I feel like the conversation is sort of terrible, but I am optimistic that people will get their money. It’s just going to be more expensive and messy and unpleasant than it should be.

Zachary Karabell: So there are two main things going on. One is, and we’ve talked about this repeatedly in our podcast, and I think you’ve reflected on this, whether you call it the vibe session or the disconnect between how people feel this thing we call the economy is doing and what our data says the economy is doing.

Zachary Karabell: And obviously there’s a huge impact Huge divide there, but there’s also a COVID kind of scrambled a lot of macroeconomic assumptions about spending, about what the effects would be. You know, there’s still a completely unresolved and I imagine will continue to be unresolved debate about, was there a tipping point of all the spending that was done in 2020 and 2021 and into 22.

Zachary Karabell: Was the massive amount of spending in 2020, not inflationary, but the spending of, of the inflation reduction act, which wasn’t really about inflation at all. It was about climate change. That was too much. Was the spike in inflation actually transitory except the problem of using the word transitory. No one ever defined exactly how long transitory is.

Zachary Karabell: I mean, life is transitory, right? Everything is transitory. It’s a, it’s a matter of what you’re. Your, your timeframe is so in a, in a completely like big picture way. Given that government spent more money in 2020 into 22, then had been spent certainly in the entirety of whatever we call the new deal, some more, more Keynesian spending than ever before.

Zachary Karabell: It clearly lifted people out of poverty. It had an inflationary effect, but maybe the inflationary effect was just as a result of like a lot of money before people could spend it. What do you make of all this? Did it, did it show that governments could spend more money than they’re spending and we shouldn’t be worrying so much about spending?

Zachary Karabell: Did it prove that if governments spend too much, it creates inflation? I don’t know. Like, what is there, is there ever going to be any consensus about this?

Allison Schrager: I think there is a consensus about it, at least for like credible people, you know, it’s, it’s complicated because inflation had a lot of fathers. It was to some degree that COVID disruptions and, you know, issues with the supply chain that got resolved and taking the economy on and putting it back online.

Allison Schrager: And I think that bit was transitory, however we describe it. But I think there was also a big piece of inflation that was from government spending. I think Jason Furman says it’s like two or three percentage points of the 8 percent inflation that we had was due to government spending. So, you know, there, there are a lot of different things going on at once.

Allison Schrager: And I, I see like, honestly, like amongst, like a lot of economists consensus around that. I mean, you have, you know, Olivier Blanchard who pre pandemic was like, well, you just spend, it’s great being like, you know, maybe we can. And I think the spending went a little out of control. As I said, you see Democrats and Republicans, Larry Summers, you know, definitely was concerned about this.

Allison Schrager: I think a lot of economists do think, and I, I’m among them, it was justified to do a lot of the spending in 2020. I mean, We, we shut down the economy and like unemployment was really high and you know, you, you had to do something and financial markets were, were, were freezing. And I, I even, I’m not a QE fan, but I understand why that was done then.

Allison Schrager: The question is, is why are we still doing this in 2021, let alone 2022? And particularly as the economy was taking off, why were we pouring more fuel on that fire? So I think it gets confusing because it’s, you can’t just say inflation was all the government’s fault. No, it wasn’t. And you, you, you can’t say inflation, it was completely transitory because it wasn’t, it was a lot of different things going on.

Allison Schrager: And I think what you have to do is sort of separate them out. I think in general, people are going to have to wake up in a couple of years that we sort of the last 10 years sort of lived in this world where there were no economic trade offs. And I think that’s what happens when you have effectively a zero rate environment is you don’t pay for a risk.

Allison Schrager: You don’t pay for capital. So you end up in a world where people think there’s just no trade offs. Like you can spend as much as you want and you don’t have to pay for it. That, you know, you should be able to get upside without risk of downside. And I think this just became pervasive in a lot of things.

Allison Schrager: It didn’t last though. Like I don’t think we’re going back to a zero rate environment. I see a lot of consensus around that to be doubtful that that’s going to happen. And if that’s the case, then we do start having trade offs. Then we do see that, you know, if you do run up debts, you know, it does have an impact on the economy because interest rates go up and that can be contractionary.

Allison Schrager: Or if you do want to take, you know, have, you know, higher wages and sort of take risk or have higher asset returns, you are going to have to face downside risks. So I think people, the vibe became this sort of, sort of idea that, you know, we could do all these things. And there was a free lunch everywhere.

Allison Schrager: My, my colleague at Bloomberg just wrote a great column I love that was called like, say it loud and say it proud. I’m a neoliberal. He was saying how this non neoliberalism, the statism is this idea that like, we can just have this free lunch. Like the government can direct resources to industries it likes, and we’ll have more growth.

Allison Schrager: And no downside risks to that. I said, we can spend without inflation or raising interest rates. You can take risks and you won’t have any downside. And you know what, like neoliberalism, he argues, was always about acknowledging that there was trade offs and, you know, we have to sort of long run, be a little bit more prudent and thoughtful about our policies.

Allison Schrager: I think that era is coming to an end. Not right now. We’re still sort of living in it. But I think we definitely see elements that, you know, certainly the high rate environment that isn’t going away suggests that that’s not going to stick around forever.

Emma Varvaloucas: Allison, I’m wondering if you could tease out another piece of the economic puzzle for me.

Emma Varvaloucas: You know, you’re talking about how inflation had many fathers and you kind of need to tease out what caused what. Something that I have not been able to figure out in the post COVID environment, and I’m not by any means an economics expert. So this might be a very obvious question. All these like papers are coming out now that wage growth sort of skyrocketed between 2019 and 2023, you know, is used to be pretty stagnant.

Emma Varvaloucas: Now it’s at 10, 12%. What caused that?

Allison Schrager: Well, again, different fathers. I think, you know, 2019, the Trump, Trump era, I just did this data thing for Bloomberg and the Trump regime. Actually, it was the only regime of all the presidents since 2000 that had positive wage growth for everybody, all income levels. I mean, not everyone, but like all income levels, particularly lower income people who hadn’t seen a lot of wage growth in years.

Allison Schrager: Now, I think on the margin, maybe the tax reform had some benefit, but I’m of the view that was just, again, there’s always different reasons for everything. But I think most of the reason was it just took a really long time to come out of the financial crisis. And I think Trump had some good timing of, you know, a financial crisis.

Allison Schrager: I think the economy had finally recovered. I think a lot of technology initially impacted, uh, higher wage people. I think it started to trickle down finally to lower wage people. So I think pre pandemic. We saw just a lot of that, like just good timing. And I think on the margin, I think the tax, the tax reform did do some nice things, but I think it was marginal, but useful, but really it was just where we were in this cycle.

Allison Schrager: And then the pandemic came and I feel like we’re now in a different, very different economy where, There’s just a real shortage of labor, particularly low skill labor. So they’re just making a lot more money because there’s not that many of them. And there’s a huge demand for service jobs right now. I think that’s why people are putting a lot now on immigration, sort of filling that hole, but still not enough.

Allison Schrager: Actually, since the pandemic, higher and middle high earners haven’t had a huge wage increase. In fact, I think they’re solving had a real wage decrease. But we are seeing in the lower end, uh, some big wage gains, just, I think, just cause there’s a shortage of their labor.

Zachary Karabell: Kind of back to where we began the discussion of your recent piece about people can simultaneously benefit from rising wages and also legitimately be discontent with rising inflation. Nonetheless, it’s. Almost impossible to have significantly rising aggregate wages and zero inflation. So there’s gotta be a level of inflation where you kind of go, this is a good thing.

Zachary Karabell: And, and, and zero inflation probably isn’t a good thing unless you are degrowth or if, or if you believe that there should be no growth, because yes, you could continue to have lots of productivity growth and low inflation. You probably couldn’t have wage growth and low inflation, right? You’re gonna have lots of productivity and no inflation.

Zachary Karabell: And. You know, we could debate whether or not the cost of capital was kept artificially low for the 10 years prior to the pandemic, or whether it was just a product of kind of technology and globalization where cost of capital was low because it was actually just low. I mean, not because central banks were manipulating it.

Zachary Karabell: It just, there’s a lot of capital and there still is a lot of capital. I mean, we live in a, still a largely capital rich world, even with whatever, 4 percent interest rates rather than zero. We’re not talking about the 1980s here. We’re not talking about the 1970s. Or for much of the time before that, I mean, interest rates are still historically on the low end, right?

Zachary Karabell: They’re certainly not anywhere near the high end. So maybe this whole idea of we need to get back to a 2 percent inflation rate, which is what the Fed and all central banks globally are saying. Maybe that’s the wrong number. You know, maybe it’s 4%. I don’t, I don’t know. But why, why isn’t that conversation being had more actively?

Zachary Karabell: Like it’s, there’s a normative sense of inflation is high because that number, because the number that we decided that inflation should be. Is, is below what it currently is, but we just made that number up anyway.

Allison Schrager: Yeah, we did. I think we’re starting to have that conversation. I’m starting to notice it.

Allison Schrager: It’s going to take a couple more inflation reports. I think the fed is hoping it was going back to two and now it seems to be stalling out. And I personally don’t see how it goes down lower. Like. It was going down because we had all these deflationary forces partially from coming back online from COVID, but we saw a lot of goods price deflation.

Allison Schrager: And I’m not sure I see, well, we still had high service inflation, which again, largely. driven by wages and things like that. So now that goods price deflation has pretty much moderated, we still have the high service inflation. So I’m not sure if I see inflation then stalls out around like two and a half, 3%, but I think you’re right.

Allison Schrager: Like there’s no reason why three is worse than two. In fact, even before the pandemic. A lot of people were arguing for four. So I’m of the view again, like inflation is a sign of a healthy economy. We don’t inflation it to be zero, but we want inflation to be as relatively low and predictable. The predictability is key.

Allison Schrager: We want it relatively stable and we want it to like, in theory, I mean, inflation was 5 percent and everyone knew it was going to be 5 percent and we could like constantly. You know, not to worry about that. That wouldn’t be a bad thing. Although higher inflation does tend to be more volatile. So it’s not a good thing, but assuming it could be, it doesn’t really matter.

Allison Schrager: It matters that it’s predictable. And, um, it seems like the fed can credibly has chosen it, I guess. Um, although I’m starting to rethink that I, I was a big fan of inflation targeting. And yeah, we chose two, although we, the Fed’s never really gotten to two. It was like below two and now it’s above two and like, it’s never really been at two.

Allison Schrager: So I’m not sure the Fed has as much control over inflation. I, I’m starting to think that inflation was so low from 2000 on just cause we had a huge deflationary shock called trade with China. And now that the gains from that are not so apparent going forward. So inflation might just be higher. And now the Fed has to have this conversation of, Oh, well, maybe two, not two, maybe three instead.

Allison Schrager: And in theory, that’s fine. If we were just like, it’s three and it stays at three and the Fed targets three, then, you know, there’s nothing wrong with that. And I feel like the economy is in pretty good shape. Is it really worth taking it into a recession just so we can go from. three to two, especially if the economy just naturally wants to be at three, just doing two, just so we can prove that that can do it.

Allison Schrager: Some people would say yes, because I guess credibility is important. Although I’m starting to feel like, does anyone really think the Fed, if you look carefully, when is the Fed ever made its inflation target? And so if they just go to three, because like, well, we can’t make two, then I mean, what’s the point of inflation targeting?

Allison Schrager: It seems like you can’t make it. So people who, uh, smart people I know who are in this are like, well, I assume you’re going to see them starting to massage the language. It’s like, well, we meant a range, like a hundred basis point range. And that’s probably where we’re going to end up. Did we say two?

Zachary Karabell: I, I, I mean, I guess we said two, but you know, we, we didn’t really mean two.

Zachary Karabell: We meant, we meant two as a, as kind of a not a notion of two. That could be three, but it could be one, but it could be four. It might be zero.

Allison Schrager: We meant between one and three with two in the middle.

Emma Varvaloucas: So Allison, I want to ask you one more question about retirement because it’s a topic that’s really on my mind right now.

Zachary Karabell: You’re planning on retiring kind of as you’re thinking about early retirement, Emma?

Emma Varvaloucas: Well, I have been trying to early retire since I was 21 years old. So that’s a fun fact about me. But I was telling Allison before we started recording that, I recently realized that I made an incredibly dumb mistake calculating for my retirement.

Emma Varvaloucas: And fortunately it was in the category of over saving instead of under saving. But it did, uh, bring the question to mind for me because I started reading a book about it, which is what is the state of Americans in terms of retirement? Because I feel like the popular narrative is that they’re a disaster and they don’t save enough.

Emma Varvaloucas: But there’s also, I mean, the rise of employer matching, the rise of automatic enrollment into 401k. Apparently the younger generations are doing better with this. So I was wondering if you have any data points to share with us about it.

Allison Schrager: Well, it’s like we were saying earlier about you don’t want to romanticize the past.

Allison Schrager: It’s like, I think people should have more money for retirement. They probably don’t have enough money to have the retirement they want, but they still have way more money than anyone else ever has had for retirement. So things are better than before, but could still be better. Like the old days, I guess the defined benefit days in the seventies and to some degree, the eighties, the only 30, 40%, depending on how you measure people had defined benefit plans.

Allison Schrager: And they only really were valuable if you stayed at a company for most of your career. And even then you had the risk. Defined benefit plans went away because they were very expensive and companies didn’t want to acknowledge how expensive it was to bear that risk. Like people were finding out what’s a lot of risk to manage your retirement.

Allison Schrager: Well, yeah, it’s expensive and it’s hard to provide a risk free retirement. And when companies had to do it, they kind of were in denial of how expensive it was. And then they kept like, you have these big blowups, people didn’t get their pension and that’s really bad. So the government pretty much, we did the regulation and forced companies to realize how expensive this really was.

Allison Schrager: And once they did that, they’re like, Oh, we don’t want to do this anymore. We’re going to put this on individuals. And the benefit of that was that it was cheaper. So way more people now have retirement accounts than ever had to find benefit plans. More people have savings than ever before. So that’s good.

Allison Schrager: And that’s one of the reasons like evidence does show that retirement income is higher than it used to be. Of course, people also live longer. People are very reluctant to increase their retirement age further. So they need more money and healthcare costs are a much bigger deal and long term care costs are enormous and not covered by Medicare.

Allison Schrager: And a lot of people haven’t really thought that through. I think all these problems are fixable. We just aren’t really focused on it right now. It could be worse. It could be, you know, before and somehow people did get by. So I think people will be okay. Definitely there’s more we could do to make it better.

Zachary Karabell: Allison, it’s been a real pleasure to have you speak with us today. You’re, you’re someone who I feel like we could probably talk about almost anything and come up with nuggets of unusual insights and unusual takes that are, if not counterintuitive things that a lot of people don’t look at. I know you come from a Both the traditional economics, academic background, plus the work you’ve done in Wall Street and finance.

Zachary Karabell: But you do have a, you kind of have a way of looking at things that is unusual and I find continually insightful, um, makes me think about what’s going on in the world in a different way. And that’s. of immense value to everyone. So for whoever has not read Allison’s work, she does a column for Bloomberg.

Zachary Karabell: As we’ve said, she also does some stuff for city journal. I think the Bloomberg stuff you probably have to pay for, which is a good thing. Content should not always be free, even though this podcast is. And I look forward to continuing to learn from you as I have in the past. And thanks for joining us today.

Emma Varvaloucas: Thanks so much for having me. Yeah. Thanks, Allison. So that was a really fun conversation. I feel like we were dipping in and out of a lot of different topics and we kind of went around her major topic, which is risk. That’s what her book was about. We didn’t get to ask her so much about it, but I feel like she is a rare economist who is.

Emma Varvaloucas: Interesting to listen to, right? She’s not a very serious person, as you mentioned in the beginning and she’s fresh, you know, and she’s clear. She explains things in a way that I think makes sense to people who are in the web of intellectual, economist, whatever the heck, and just a normal people, you know, that she can, she can say that, well, people want to eat out more.

Emma Varvaloucas: Duh. That’s why they’re upset about inflation.

Zachary Karabell: Yeah. And this idea of risk, you know, again, as she’s. said we didn’t really get into it with her because there were much more immediate things to talk about. But the thing is like people, people’s attitudes about risk. And we did talk about those a little of what a zero cost capital environment for a decade led to.

Zachary Karabell: You know, we all essentially want the benefits of taking risks without taking risks. Like, we want all the things that come with outsized risks, i. e. the outsized gains, but none of us really want to take those risks because we don’t want outsized losses. We all want everything, but not at the cost of having nothing.

Zachary Karabell: And then we can lionize a few people who seem to take outsized risks. I mean, whether or not you love or hate Elon Musk, part of what, you know, Made him so enchanting to so many people for a while is that he did put everything on the line at one point in time to build Tesla and to go for SpaceX. And we think that’s cool, right?

Zachary Karabell: That someone’s risks paid off. Of course, we never really line eyes the gazillion numbers of people who wanted to do that and wanted to be that, and it didn’t work. Like there’s, there are, there are lots of unwritten books about lots of human beings. Who tried and risked everything and got nothing.

Zachary Karabell: There’s no, there’s no book about that. Oddly enough.

Emma Varvaloucas: Yeah. I mean, I’ve met a decent number of startup founders, you know, you meet them three years later. You’re like, what happened? It’s nothing. No, one’s going to write any book about them. They basically had a job that led to nowhere. But anyway, she writes a lot too, which we kind of got into, but didn’t get deeply into the question around risk and retirement.

Emma Varvaloucas: Um, it’s a fascinating topic to me because on the one hand, you don’t want to under save, right? You don’t want to be 90 years old, realizing you live longer than you meant to. And now you have these enormous healthcare bills that you can’t pay for, but you also don’t want to have all this money, you know, waiting for you.

Emma Varvaloucas: And then you die when you’re 75 and you retired when you were 70. Maybe if we have her on again, she can give us some nuggets of wisdom for how to plan in the best way.

Zachary Karabell: So shall we look at some of the news du jour?

Emma Varvaloucas: Yeah, let’s go. So Zachary, I’m sure you remember that not too long ago, there were a lot of freak outs in the news and with individual sort of activists around colony collapse that we were going to basically lose the support of honeybees.

Emma Varvaloucas: The United States and our agricultural systems were going to collapse because we were running out of bees.

Zachary Karabell: You remember that? I did. I do. I do remember that there was like the whole, Oh my God, the bees are dying. It’s, it’s, it’s like the beginning of one of those apocalyptic sci fi films where someone casually sees the bees dying and thinks nothing of it.

Zachary Karabell: And then the next scene society has collapsed utterly. And we’re all living in, you know, huts in the Mojave desert.

Emma Varvaloucas: Exactly. So we live through the first scene, but we did not make it to the second scene and new data has come out that we actually have a record number of honeybees in the United States.

Emma Varvaloucas: And that is pretty amazing. Talking about livestock bees, so honeybees that, so they’re essentially like a, like cattle, you know, their, their populations are taken care of by a vast industry. So that data is for those honeybees, but they also think that feral honeybees or wild honeybees are also populous, reaching high numbers.

Emma Varvaloucas: So, Long story short, no need to worry anymore. The honeybees have been handled.

News Clip: Honeybees are here. They are more abundant now in the world than they have ever been. There are honeybees everywhere. Including social media, where hashtag beekeeper has racked up billions of views. With more people picking up beekeeping as a hobby and booming demand from the pollinator from the almond milk industry, honeybees are now the fastest growing livestock segment, according to analysis from the Washington Post.

Zachary Karabell: And do we know why there has been this sudden reversal?

Emma Varvaloucas: There’s a few different reasons, one of them being agricultural tax breaks, not such a sexy answer, but the sexier answer and a big reason. actually has to do with the supercharging of almond tree farms. Oddly enough, the American public got obsessed with putting almond milk into everything.

Emma Varvaloucas: That led to people trying to meet the demand and that led to hyperpollination, which led to the health of honeybee colonies. So there you have it.

Zachary Karabell: Wow. Yeah. Wouldn’t have expected that one.

Emma Varvaloucas: Yeah. If people are interested, Washington Post has a really interesting article on it. Their department of data, if they want to read the whole story.

Zachary Karabell: Well, all right. So honeybees are back and flourishing.

Emma Varvaloucas: Moving on. It is becoming readily apparent that Thailand is going to become the first Southeast Asian nation to legalize same sex marriage. Their lower house of parliament passed a bill. Not too long ago. And they expect that there is not going to be any resistance for that bill passing through the Senate and then being signed into law by the King.

Emma Varvaloucas: So that’s pretty historic.

Zachary Karabell: It is pretty historic. I mean, granted, the King of Thailand is, okay, we won’t even go into Thailand’s incredibly messy political system, but at least for the time being. The King has done something that we would consider to be correct.

Emma Varvaloucas: Yes. And to be fair, Parliament did put it through

Zachary Karabell: before we,

Emma Varvaloucas: you know, got into the King signing.

Emma Varvaloucas: Anyway, good for, for human rights. We won’t get into the other governmental authority questions about Thailand. And then, uh, last but not least, not sure how far this news traveled around, but it’s very interesting. The Census Bureau has updated. the forms for the first time in 27 years for the census around the questions that have to do with race and ethnicity.

Emma Varvaloucas: So they did some, probably things that really needed to be done a long time ago, like strike the word Negro from forms. Apparently they had not been struck out, which is wild, but also what they did, which is quite actually affect people’s responses is that you can now tick multiple boxes. So they combined all of the race and ethnicity questions, into one.

Emma Varvaloucas: So let’s say you’re Black and Hispanic, you can take both. They also added a lot more categories for people that might be Middle Eastern and North African heritage. Previously, they were just told to check the white box, which obviously is a little bit of a overly broad brush to paint, uh, for people, let’s say from Lebanon.

Emma Varvaloucas: So now there have been a demarcation of categories and they, they think that people will be much more actively able to say. What is the race at ethnicity?

Zachary Karabell: Yeah, of course. What’s interesting about that is at the same time, you have a greater ability to actually identify where you’re from and who you are, let alone the whole, you know, 23 and me effect of people now being aware of all these things that they weren’t aware of before.

Zachary Karabell: And simultaneously in the United States of not being able to use those categories anymore because of the rollback of affirmative action that was supposed to create racial preferences. So I don’t know what to make of that other than. Ever more chaos, like more information, less policy, more policy, less information.

Zachary Karabell: I don’t know. What do you think?

Emma Varvaloucas: I think anytime you have something that leads to more comprehensive data, it’s a good thing. I just think there’s like, the more that I look into data in the United States, the more I’m convinced that there’s an absolute dearth of good data, particularly on the federal level.

Emma Varvaloucas: So I am actually just a hundred percent pro this.

Zachary Karabell: All right, then more data.

Emma Varvaloucas: That’s what we got for today. More data, more data, more problems. We say no.

Zachary Karabell: So thank you all for listening. We will be back with you next week. Please sign up for the newsletter. What could go right? It’s free shows up weekly, gives you a dose of.

Zachary Karabell: Things going on in the world that are a little more constructive, a la the brief rapid fire headlines that we just discussed. Please send us ideas, send us critiques, send us comments about the newsletter, about the podcast, things you would like to have addressed that we have not, or that you want us to delve into more that we have.

Zachary Karabell: We hope this is a conversation with you, at least as much as possible, and not just a conversation at you. So we look forward to the feedback and the engagement and continuing to build an idea movement that hopefully leads to a more constructive future rather than a worse one. So thank you for your time and we will be back next week.

Emma Varvaloucas: Thanks everyone.

Zachary Karabell: What Could Go Right is produced by The Podglomerate. Executive produced by Jeff Umbro. Marketing by The Podglomerate. To find out more about What Could Go Right, the Progress Network, or to subscribe to the What Could Go Right newsletter, visit Visit theprogressnetwork.org. Thanks for listening.