- The new not normal of the post-COVID economy, this week on "Firing Line".
[siren wailing] The COVID emergency may finally be over, but it left in its wake an economy transformed.
Inflation, a changing labor market, and millennials focused on new types of investing.
- We have a brand new world now that I don't think most people really understand how different it is.
- [Margaret] Financial journalist Felix Salmon has been documenting it all as Axios's chief financial correspondent on his Slate Money podcast.
- [Felix] Your guide to the business and finance news of the week.
- [Margaret] And in his new book, "The Phoenix Economy".
- There'll be upsides and downsides and it's going to be very disconcerting.
- [Margaret] Plus, he's following the showdown over the debt ceiling and some of the radical ideas like the trillion dollar coin to avoid a US default.
What does financial journalist Felix Salmon say now?
- [Announcer] "Firing Line" with Margaret Hoover is made possible in part by Robert Granieri, Charles R. Schwab, The Fairweather Foundation, The Margaret and Daniel Loeb Foundation, The Asness Family Foundation, Jeffrey and Lisa Bewkes, The Beth and Ravenel Curry Foundation, Peter and Mary Kalikow, and by Craig Newmark Philanthropies, The Rosalind P. Walter Foundation, Damon Button, The Center for the Study of the International Economy Inc, The Pritzker Military Foundation on behalf of the Pritzker Military Museum and Library, and The Mark Haas Foundation.
Corporate funding is provided by Stephens Inc. - Felix Salmon, welcome to Firing Line.
- Thank you so much.
- As of this week, the COVID public health emergency is officially over.
That is, the emergency declaration issued by President Trump has now expired.
Took three years and 100 days.
- And 1.1 million deaths.
You write in your new book, "The Phoenix Economy," that the lasting changes from the pandemic are still with us.
- And will be for a decade at least.
- What is the single most important change that will stay with us from the pandemic as it relates to the economy?
The way that we have to expect the unexpected, the way that we don't know what's happening next, the way that the relative stability that we had for 70 years between 1945 and 2015 has basically gone out the window and we're in this period of what I call the new not normal.
There'll be upsides and downsides and it's going to be very disconcerting.
- You explain what you mean by the phoenix economy when you write, the COVID pandemic is one of those rare conflagrations that precipitates a whole new era.
If your metaphor is correct, where are we now?
- The phoenix is just beginning to rise from the ashes of COVID, and from the ashes of the Russian invasion of Ukraine as well, which is a bigger deal, obviously, in Europe.
But we had 70 years of, broadly speaking, relative stability and peace in Europe.
In the United States we had wealth going up in a straight line-ish.
You know, from '45 to 2015, that was a period of time when you could make long term bets, where you could see where things were going, and then we had this pandemic which just stopped everything.
The entire world came to a screeching halt.
Supply chains broke.
International borders went up.
We couldn't even touch each other, and we had to reinvent the economy on a much more regional and much more local level, and we had to reinvent how we worked, and we had to reinvent how we thought about time, and we had to reinvent how we thought about how we wanted to spend our own lives.
You know, did we, if we hated our bosses, did we really want to spend this precious life working for some boss that we hated or did we want to just quit our jobs and follow our dreams?
And so all of this happened, and we have a brand new world now that I don't think most people really understand how different it is, because one of the symptoms of trauma is memory loss.
We forget how bad it was and how different it was.
- What about the lasting impact on our day to day life?
- So much going on there.
So, one thing is that we care so much more about ourselves and about other people.
I do think there's been a rise in compassion.
If you remember the Black Lives Matter marches of Summer 2020, we had for the first time ever a majority of white Americans agreeing that there was systemic racism in this country and that was a problem.
The power dynamics between employers and employees, between labor and capital, were completely upended.
So there was a huge recalibration of power happening across all parts of the economy.
- You said from 1945 until 2015 we had this period of massive expansion and economic growth.
Did you mean to 2020, or did you mean 2015?
- I actually meant 2015, and the reason is that while the pandemic which hit in 2020 really did break everything, you can date the beginning of what I call the new not normal to 2016, ar at least that's where I kind of mentally started.
- No, more in the way that we lost the feeling that we had a shared society, that we all lived in the same society and could agree on the same truths.
- Because of the election of Donald Trump.
- Because of the election of Donald Trump, and because of the Brexit vote in the UK.
That was basically a large section of both countries voting for chaos, voting against the sort of neoliberal order and saying, we want to break things.
- You spend a good portion of the book writing about millennials and how the pandemic influenced this generation of Americans who had previously been completely turned off by markets, and they frankly awakened to investing.
What happened with millennials?
- Well, the reason they awakened to investing was twofold.
First of all, they didn't have any money before the pandemic, right?
They had massive student loan debt.
They weren't earning a lot of money.
They were living paycheck to paycheck.
If you don't have a relatively decent savings account, then you shouldn't be investing in the stock markets at all, and they weren't, and that's sensible.
So then what happens in the pandemic is the stimulus checks.
Suddenly, pretty much everyone in the country wakes up with $1,400 in their bank account, just magically magicked there by the government, and then it happens again, and suddenly there's this free money which they can gamble with at exactly the same time as you have the NFT boom and the meme stock boom and a way of turning that money into $14,000.
So all of that came together in a way for the millennials to be able to do something which was easier than ever, right, which is, if they're sitting around at home, they're bored.
They just need to download Robinhood on their phones and it makes it super easy.
You click, click, click, and you're invested.
You're off to the races, and it's fun, and it's social, and you're talking to your friends, and if you lose money, that's almost as much fun as if you make money, and it becomes this kind of ironized thing.
You and I probably think of investing as something very boring and sober that we need to do to secure our retirement or something like that, whereas for a whole new generation, it's become just a game.
- Define NFTs for the non-millennial audience.
- NFTs are non-fungible tokens, or as I referred to them in the book, newfangled tulips.
They're basically this pure gambling device that masquerades as a work of art.
- I've got to get to news of the week.
The Treasury Department says the United States could default on its debt as soon as June 1st if the debt ceiling is not raised.
You have called the debt ceiling, quote, profoundly stupid, self-defeating, and generally idiotic.
- Care to expound?
- So I don't know anyone who isn't an elected politician who thinks that the debt ceiling is a good idea.
Politicians railing against there being too much debt, and then kind of implying that the existence of a debt ceiling prevents us from having too much debt, which of course it doesn't.
The thing that causes the debt is the spending bills that get passed by Congress, not some arbitrary debt ceiling.
The debt ceiling, the only thing it does is it creates this volatility and this potential chaos and this potentially catastrophic default for absolutely no reason, and no other country has anything like it, and it should not exist, and it should be abolished, and one of the things that really pains me is that people are talking about all manner of circumventions here.
You know, we've got the 14th Amendment this, and the platinum coin that, and the premium bond the other.
And I'm like, you don't need any of that.
You just get rid of this stupid ceiling, which not only is unconstitutional, but is also incredibly damaging to America's status in the world and could end up inadvertently causing an absolute global economic catastrophe.
- So let's go back to some of the quote-unquote gimmicks, okay, or some of these ideas.
You referenced that the debt limit may be unconstitutional.
There's been discussion that the 14th Amendment could be employed in order to get around the debt ceiling.
There's also talk of minting a trillion dollar coin.
These have been called gimmicks.
But you recently said that you're down with both of these ideas, I think, probably instead of defaulting.
- Well, anything is better than default, obviously.
And the platinum coin is awesome.
I love it, it's so fun.
No one wants to print a platinum coin worth a trillion dollars, right?
No one thinks this is the first best solution to this problem.
- Walk me through how that would work.
- So it's actually really simple.
The U.S. Mint has the ability to print a coin of any size.
It doesn't have to have very much platinum in it, but it has to be made out of platinum for reasons which are far too boring to go into.
And so you then print this coin, which is worth a trillion dollars.
You give it to the Treasury.
Treasury deposits that coin in its bank account to the New York Fed.
The New York Fed then gives the Treasury a trillion dollars in return for this coin, and then they have a trillion dollars.
And yes, on some level it is printing money.
I mean, it literally is printing money.
And this is something that the modern monetary theorists say is not particularly bad.
And, you know, and it is something that other economists worry about and say could be inflationary.
There's not a huge amount of evidence either way.
But I don't think that inflation is the reason to object to the platinum coin.
The reason to object to the platinum coin is exactly that it's a gimmick and it kind of destroys this careful balance that we have in the three branch system of government.
- Yeah, and what does it say about us if we have to take that kind of an extraordinary action because the Congress is unable to meet its responsibilities?
- It says that the Congress has become incredibly dysfunctional and we can't trust them to do their job anymore.
You know, it's, all three branches of government in recent years have become much more chaotic and unpredictable and less sort of copper-bottomed and, you know, august institutions that they used to be.
But Congress in particular, and especially the Republicans in Congress, seem to be much more willing to be just complete chaos agents now than they ever used to be.
And that's profoundly dangerous to the country.
- Let me ask you about the implications to inflation and get your reaction to an economist from the Competitive Enterprise Institute who writes that there's no way to get around inflation if you were to print a trillion dollar coin.
- This is nonsense.
- Because the only difference between printing a trillion dollars and borrowing a trillion dollars is that if you borrow a trillion dollars you need to pay interest on it, and if you print a trillion dollars, you don't.
And, you know, that interest winds up going into the economy and getting spent in one way or another.
And so there is a pretty strong case to be made that borrowing a trillion dollars is actually more inflationary than printing a trillion dollars.
- So if printing money to pay our bills doesn't cause inflation, why wouldn't we be printing money to pay for all of our bills and all of our spending as the modern monetary theorists argue?
- We could.
We haven't tried it, and- - Do you give credence to that theory?
- I do.
I think there is a reasonable argument to be made that that would actually be less inflationary.
Now it's very hard to find a country that has tried it, so it's very hard to know.
But in principle, if we're spending, we're spending anyway, which we are, that spending is going into the economy.
That spending is stimulating the economy.
That spending may or may not cause inflation.
But it's the spending that causes the inflation, not the way that it's funded.
If you fund it by borrowing money in the bond market, then all you're doing is you're creating a new stream of interest payments that are also going into the economy.
So in principle the margin should be even more inflationary.
- So would you argue for printing $30 trillion and paying the entire debt of the country?
- I don't think it's important to pay down the national debt at all.
It's perfectly fine where it is, and as the economy grows- - At 100% of GDP is at perfectly fine, or at 120% of GDP is it perfectly fine?
- Well, I mean, so that's where it is right now.
- If it stays at that dollar level and then GDP grows, then it will shrink naturally as a percentage of GDP, and that's what happened after the Second World War.
You know, we had debt of roughly this level as a percentage of GDP, and then GDP grew and debt didn't grow as fast as GDP, and so the debt to GDP ratio went down.
- So ideally, would you prefer a smaller debt to GDP ratio?
- What's ideal for you?
- Well, famously the Maastricht criteria, when all of the countries of Europe were getting together and saying, like, let's all agree on a good debt to GDP ratio, they came up with 60%.
That would be nice.
The Consumer Price Index shows prices rose 0.4% in April, but the annual rate of inflation is still high.
It's 4.9%, but it has declined for the 10th straight month.
Is this a cooldown or is inflation the new normal?
We are very gratifyingly seeing inflation come down very quickly from where it was.
You remember when it was over 8%, you know, 9%.
And now we're down to 4.9 and falling, and that's good, and that's also kind of the easy bit.
That last three percentage points from 4.9 to two, which is the Fed's target, is going to be much harder than those first five percentage points from, you know, nine to four.
So inflation is coming down, but it's not coming down as fast as the Fed would like, and the next bit of trying to bring it down is going to be tough, especially since it looks as though the Fed has stopped raising rates.
So that isn't going to be really pushing inflation down either.
- You think the Fed has stopped raising rates?
- For the time being.
That's the message they've been sending.
- You write about the federal government's robust fiscal response in COVID and its impact on income inequality, even positive impact on income inequality.
- Very positive.
- But you've also been critical of some of the Biden administration's spending.
Did that level of spending outside of the crisis do more harm than good with respect to inflation?
- The degree to which the current inflationary environment was caused by Joe Biden's fiscal policy is a totally unanswerable question.
There was a lot of really entrenched economic, just facts on the ground that Joe Biden had no control over.
Joe Biden had no control over the effect of, you know, Russia invading Ukraine, right?
The one thing that the Biden administration was always very clear about was they said, look, there are risks of doing too much.
There are also risks of doing too little, and we are going to err on the side of doing too much.
And maybe they erred on the side of doing too much.
But that was a risk they knew they were taking and they reckoned, and I think there's a reasonable argument for this, that us having to deal with inflation right now is a much smaller problem than us having a major, you know, replay of the Great Recession that we saw, which ran from 2008 all the way through, what, 2012, something like that, and the jobs just never recovered and the economy took forever to recover, and it was just painful for year after year after year.
This kind of bounce back, which was much stronger and much faster than anyone expected, has got to be preferable to do that.
Like, the 2020 recession was really deep, really scary, and we bounced out of it incredibly quickly.
And because of that, it was much less harmful than the 2008 recession.
- You write that one thing Republicans and Democrats agreed on during the pandemic is to give people money.
You also point out that giving people money is, in fact, a sort of conservative, economic libertarian idea, going back to economist Milton Friedman, who proposed a negative income tax, and he did so on the original "Firing Line" with William F Buckley Jr. - Wouldn't it follow that your proposal for a Negative Income Tax might actually create a larger class of indolent and unemployed than existing programs, or certainly than ideal programs?
So first of all, you'd better explain your Negative Income Tax, because it's frequently misunderstood.
- Yes, it certainly is.
The proposal for a Negative Income Tax is a proposal to help poor people by giving them money, which is what they need, rather than as now, by requiring them to come before a governmental official, detail all their assets and their liabilities and be told that you may spend X dollars on rent, Y dollars on food, et cetera, and then be given a handout.
The idea of the Negative Income Tax is to treat people who are poor in the same way we treat people who are rich.
Both groups would have to file income tax returns, and both groups would be treated in a parallel way.
- So would Milton Friedman have liked the COVID stimulus checks?
- Would Milton Friedman have liked COVID stimulus?
I think one of the things that we learned in 2020 was that when a major emergency hits, like COVID, suddenly both sides of the aisle can come together to agree on something like this.
- That's right.
- That in normal times would be impossible.
And I think Milton Friedman would have been definitely among the majority there, given that virtually all Republicans and virtually all Democrats agreed with it.
- But he even makes an intellectual argument for giving money to people.
- So his argument for the negative income tax, which is quite compelling, is not just in times of emergency.
- He's saying, what poor people need is money, and this is one way of doing it.
Nowadays, it has a new name.
It's called the Universal Basic Income.
- In large chunks of the developing world, it's called unconditional cash transfers.
But however you call it, it just has an intuitive strength to it, which is individuals, adults, know better than anyone else what they need to spend money on, and so just give them the money and it will get put to where it needs to go.
There is this weirdly sort of paternalistic idea that, oh, they'll just spend it on cigarettes and booze, but that never happens.
Empirically, that's just not the case.
- Well, that's Buckley's argument, that perhaps you're creating a disincentive to work.
- Absolutely, but we have huge amounts of evidence from around the world, from Finland, from Uganda, from Kenya, from Alaska, which, by the way, has had unconditional cash transfers for decades.
And in all of these places we see that the cash really helps the poor and they spend it on things they really need, not on indolence.
- Let me ask you about the recent bank failures.
How do you understand the failure of these banks in relation to the 2008 global financial crisis?
- They couldn't be further apart.
They are completely unrelated.
What we had in 2008 was a credit crisis.
We had banks who made a bunch of loans, and those loans went bad, and for a bank, a loan is your asset.
It is what you own, and if you thought that loan was worth $100 and it turns out to be worth zero dollars, then you are insolvent and you collapse.
And that is what we saw in 2008, and in subsequent years, we had over 500 banks collapse, mostly because they made really bad loans.
Often subprime mortgages, right?
In the recent spate of bank collapses, Silicon Valley Bank, First Republic Bank, Signature Bank, even Silvergate, none of the loans went bad.
Their loans were fine.
The credit quality is high.
But then there was this big deposit outflow, which meant they had to sell them, and various problems arose, and they ended up failing, and their shareholders were wiped out, but that's okay.
Shareholders of banks know the banks are risky and they can lose their money.
Depositors are what matter.
Depositors were fine.
And there is no credit crisis.
Credit quality is incredibly high.
It did cause a certain amount of loss of faith in the banking sector as a whole, and that's bad.
But the actual bank failures themselves are not damaging in the way the bank failures in 2008 were.
- And loss of faith in the Fed as well.
- And this is a big problem, that people have just lost their faith in the Fed.
They've lost their faith in the banking system.
And this whole debt limit fiasco is making them lose their faith in the dollar.
And this is just a symptom of the broader loss of faith in institutions everywhere and in civic institutions, and that is really problematic.
- You've noted that the general public believes the economy is in worse shape than it actually is, and many Americans believe that we're in a recession, even though we're not.
The economy is still growing, the job market is still growing, wages are rising, and inflation may be cooling.
- Is cooling.
- Why is there so much public pessimism?
- You know, that's what I wanted to ask you, Margaret.
That's such an incredibly good question.
For the past 2 1/2 years, a majority of the population have said, we are in a recession right now.
If you ask public opinion we have been in recession for the past 2 1/2 years, and remember that we had two years of first the Trump administration and then the Biden administration saying, there is a major COVID crisis.
Things are really bad.
We need to fix this thing that is really bad.
And maybe if you just hear that all the time, you take that to mean we're in a recession.
Then inflation hits.
Do most Americans really understand the difference between inflation and recession?
Probably not, so you see inflation and you think, well, that's recession.
- Is there ever a circumstance where negative sentiment about the economy can become a self-fulfilling prophecy?
- It's the only thing that causes recessions.
I mean, that's not true.
You know, subprime mortgages can cause recession.
OPEC, you know, oil price hikes can cause recessions.
But really an economy is just how much people feel comfortable spending, and right now, the U.S. consumer feels comfortable spending a lot of money.
So if the U.S. public, which believes that we're in a recession, actually instantiates that belief by pulling back on their spending, that would end up causing a recession.
They just haven't done that yet.
- Is it a bubble?
- No, no, it's entirely, we can continue on like this indefinitely.
- It's the phoenix economy.
- It's the phoenix economy.
- Felix Salmon, thank you for joining me.
- Thank you.
[cheerful music] - [Announcer] "Firing Line" with Margaret Hoover is made possible in part by Robert Granieri, Charles R. Schwab, The Fairweather Foundation, The Margaret and Daniel Loeb Foundation, The Asness Family Foundation, Jeffrey and Lisa Bewkes, The Beth and Ravenel Curry Foundation, Peter and Mary Kalikow, and by Craig Newmark Philanthropies, The Rosalind P. Walter Foundation, Damon Button, The Center for the Study of the International Economy Inc, The Pritzker Military Foundation on behalf of the Pritzker Military Museum and Library, and The Mark Haas Foundation.
Corporate funding is provided by Stephens Inc. [cheerful music continues] [cheerful music continues] [cheerful music] [cheerful music] - [Announcer] You're watching PBS.