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With interest rates and prices rising and GDP declining, many Americans want to know: Are we are in a recession, and should we be worried? Andy calls on expert economist Justin Wolfers to explain why the economy may not be as bad as it feels, what the Fed is doing to pump the brakes, and when we might see price increases come under control. Then Justin unpacks the economic elements in the Inflation Reduction Act and predicts whether it will live up to its name and help lower prices.

Keep up with Andy on Twitter @ASlavitt.

Follow Justin Wolfers on @JustinWolfers

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Check out these resources from today’s episode: 

• Read more about Wolfer’s thoughts on how high inflation helps homeowners
• Wolfer’s is also quoted in this NYT piece on why high unemployment makes people more unhappy than high inflation 
• Find vaccines, masks, testing, treatments, and other resources in your community: https://www.covid.gov/
• Order Andy’s book, “Preventable: The Inside Story of How Leadership Failures, Politics, and Selfishness Doomed the U.S. Coronavirus Response”: https://us.macmillan.com/books/9781250770165

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For additional resources, information, and a transcript of the episode, visit lemonadamedia.com/show/inthebubble.

Transcript

SPEAKERS

Andy Slavitt, Justin Wolfers

Andy Slavitt  00:46

Welcome IN THE BUBBLE, this is Andy Slavitt. Wednesday, August 3rd. So how good or bad is the economy, really? We have all of this sort of expert commentary saying we’re going to recession we’re not in a recession. We see inflation up. But gas prices coming down. The job market is about as good as it’s ever been. And we’ve just lived through an incredible recovery. Yet, all of a sudden struggle with the question, how do we plan our lives around what we’re seeing? What’s gonna happen with all this volatility? How’s it going to impact our basic day to day decisions. And that’s a part of what we’re going to cover today with a really fascinating conversation with Justin Wolfers, an economist from the University of Michigan. He is an incredibly thoughtful, articulate explainer of the economy. And we’re gonna go at some of those questions. And some of his answers may surprise you. But I think what we all want to know is, what should we be doing about it? What should the country be doing about it? What expectations should we have for policymakers? You know, we look at things like what the Federal Reserve is doing to increase interest rates. And with a basic understanding that, you know, that’s going to slow down the economy, but at some cost to us and bring up interest rates, maybe cause a recession, if whether we didn’t want or not, which we’ll explore. You know, we’ve had shows with Larry Summers on this before, I think are which are worth going back and listening to but Justin’s take, I think, is really quite a clear, and I’d say sunny view of what he thinks he economy is going through for most people. And I think it would acknowledge that everybody is getting hit a little bit differently. The big place of importance for the country right now, as we think about what to do, actually sitting in front of the Congress at this very minute. It’s sitting in front of the Senate. And that’s something called the Inflation Reduction Act. This is a bill that Joe Manchin and Chuck Schumer and the rest of the Democrats have negotiated and it’s not done yet it needs to go through the Senate, then it would need to go through the house, and then it would need to get signed by the President. And I want to talk a little bit about this, because for those who follow Washington, or climate policy, or a medical drug cost policy, or just the politics of Biden’s presidency, know they’ve been following this legislation, this idea that started out his Build Back Better a year ago, pretty closely. Because the promise was a whole long list of democratic priority things that President Biden campaigned on and things that have a lot of appeal to people on the Democratic side, including some things that are no longer there. Like long term care, like early childhood education, like an extension of the childhood tax credit, those things are out of the bill, to the disappointment of probably a lot of people that have advocated for them and view those as the right kinds of policies. And people have fixed their frustration on Senator Manchin because he has been the gatekeeper here, people jokingly refer to him as president mansion. More than one occasion a senator says that to me, someone resentfully Justin I think even says that in this episode. And it’s uncomfortable in the 5050 Senate with one person having all the power particularly when With things like the climate in the balance, which are so important, so I’m gonna go out on a limb here and say that for as frustrated as everybody seems to be with Joe Manchin, if this bill passes, he will have pulled off something quite incredible. Because not only is this a bill that takes a big step towards our climate goals, reduces prescription drug costs for seniors and all of that. But he from the start, put this bill in one light, which is I want to do something that’s good for the economy. And I think this bill, as we’re gonna go through with Justin, is very focused on what impact does it have on inflation, whether you think we’re in a good spot or a bad spot right now, what impact this bill has is pretty important. And a whole lot of economists gotten together and reviewed this bill before Manchin signed off on it, because that, that this is a bill that meets the moment. This is a bill that not only makes a big step towards our climate future, but doesn’t abandon fossil fuels today, when we are so dependent on them to be able to afford to get to work and buy food. And it takes a big step towards the economy, and reducing costs for people at a moment when we really need it. And I am so not used to Congress being there in a timely fashion, in the midst of gridlock. That is pretty remarkable. And so while it’s not done yet, and there’s some lot of hurdles, including 50 Republican senators and people campaigning against the bill, I would say that the method to manage the madness looks pretty good. So we’ll start with the question with Justin, you know, where are we, is this good or bad? After talking about his wife, Betsy Stevenson, by the way, who appeared on the show. Recently, it was a great episode. And then we will get into the question of whether or not this inflation Reduction Act actually does what it says it does. Here’s, Justin. Thanks for coming on, Justin. You know, we had we had Betsy on a few weeks back, she was spectacular.

Justin Wolfers  07:22

I like it, too. But she speaks well of you. Most of the points.

Andy Slavitt  07:28

Oh, that’s nice. I don’t know what, what I did to deserve that. But I’m really excited to talk to you as well, to be fun. I mean, there’s a lot going on. So look, there’s a lot of news about the economy coming at us pretty quickly. But we’ll get to a bunch of it, including actions that the Federal Reserve took to increase interest rates. We’ve got a piece of legislation that’s called the inflation Reduction Act, marvelously named. But I wanted to just start it would be best maybe start if she could paint a picture of what the economy looks like right now. It’s a weird soup, right? low unemployment, inflation, near record highs, economy not really growing. What’s the temperature check?

Justin Wolfers  08:13

Yeah, so this is Bob Dylan got it. Right. I got mixed up confusion. And it’s killing me. Let me get back to my put on my econ 101 hat, because that’s what I teach, in part of the confusion is, we want to draw an elementary distinction between levels and changes. And then we want to draw a distinction between stuff people make and do and what’s going on with prices. So the one that people get most confused about actually is levels versus changes. So where are we at? What’s the level? Well, the unemployment rate is a hair above its 50, year low. Just a couple of years after a global pandemic, it’s kind of extraordinary. Anyone who wanted to boast about the end of the Trump years, must be thrilled that we’re continuing it right now. So that’s levels. Likewise, the level of GDP is back up above where it was it before the pandemic, so this terrible roller coaster, you know, we’re at the end of the roller coaster, and at the start of the ride or in a good place. So that means we’re also now in a good place. That’s levels, then there’s changes, which is how fast is the economy getting better. So there was a period there, early 2020 was the fastest decline in the US economy in its history. And globally, it was probably the fastest decline ever measured. You know, it was a three month recession. Now, the recovery has also been a record speed. And I think, you know, it really is taken elastic band and snap it and so we’ve snapped back. And so I don’t think there’s anything particularly for anyone to boast about other than say, when you shut an economy down if you reopen it, it also does a lot. But what that means is people have gotten really used to really robust output growth or really robust employment growth numbers. And so as the economy gets back to normal, those numbers are getting back to normal. So when changes, we’re still seeing quite good employment growth, about 400,000 a month, that might slow to 200,000 a month. Those are still numbers, that pre pandemic, we would have thought were really, really impressive and even more so when we’re starting from a good place. So in terms of changes, we’re moving in the right direction. Now, there’s a bit of maybe we’ll go into this, what happened with GDP numbers? Did we just have two negative quarters? Look, the way economists look at things is we realized any indicator is noisy and imperfect. And so we look at a bunch of them. And across a bunch of indicators, the economy is moving forward. The one that people focus on the most is GDP, gross domestic product, that one’s either moving backward or moving forward less quickly. So that’s levels versus changes, things still seem to be moving in the right direction.

Andy Slavitt  10:54

Can I add one more? One more to that GDP conversation? Which is something that some people pay more attention to than others, which is corporate earnings. As you say, we’re looking for some measure of the question. Is the economy expanding? Which to most of us means is my job getting more secure, is by likely to getting a better job more secure? Are we going to be hiring? Can I take the vacation, whatever it is, in our lives, it makes us feel more secure. And so we’ll talk about how what we saw, but from a corporate earnings standpoint, and what you’ve seen from a GDP growth standpoint, to your point about changes? Well, what picture does that paint about this kind of very big, complex economy?

Justin Wolfers  11:36

So ready to walk out a little here, we’re gonna get into the details of national income and product accounting, and I’ve never had an audience of one more interaction. GDP is gross domestic product. It’s how much stuff we make. And the way we normally measure it as we measure how much stuff people buy. But it turns out, everything that’s bought, also has to be produced. And every time we produce someone, someone’s got to get paid. So there’s another way of measuring GDP, the exact same concept, you can measure by adding up the sum of all the incomes in the economy. And this is where corporate earnings come in. So one way of thinking about GDP is it’s the sum of all consumer spending. And otherwise, its sum of all income. When you look at this alternative measure of the same concept, you add up corporate earnings, profits, and how much the workers get to labor earnings. That’s a measure that’s called GDI. Don’t ask me why. But in fact, it’s a better way of measuring GDP, believe it or not, in Australia, they call this GDP parentheses, I. To make it clear, this is how we measure GDP. It’s a better way of measuring GDP. This alternative measure of GDP, which includes corporate earnings and includes labor earnings, because I care about workers too, in fact, grew in the first quarter of this year. Quite strongly. This measure says if you’re worried that we had two quarters of negative growth, don’t worry, because the first of those quarters wasn’t negative. And we don’t yet know what it says about the second of the quarters. And this again, just tell us all data are infallible, when you look at a lot of them, things aren’t so bad.

Andy Slavitt  13:11

And it should be pointed out, as I’m sure you were going to that this first read in the second quarter is just the first read, it often gets adjusted either up or down.

Justin Wolfers  13:22

By a lot, a percentage point, sometimes two. And it’s really hard to measure this stuff, it’s really hard to do it in real time. And when a bunch of other stuff is telling you things aren’t so bad. It kind of gives you a hint which way those revisions are going to go. So I’m willing to accept even money from anyone who’s offering it that those recent bad GDP numbers are going to get revised in a better direction. And in fact, the US has had periods in its history where initially bad numbers got revised way and become quite strongly positive.

Andy Slavitt  13:54

Okay, so one of our producers, before he was a big shot with NPR, and came onto this show was an AM radio producer. So you know where I’m going with this. He sent me a note which said, hey, if this is a Republican President, the media would be calling this a recession. And what I take away from that is, as they listen to you, is this a political designation? Does it matter? How much does it matter? What we call it? You there’s a lot of people fighting off the heritage call it not a recession right now, including my friends in the White House. But for the average listener sitting back here, baby thinking, it costed me you know, $4 more to get gasoline. I know I’m mixing inflation in but bear with me. Eggs are twice as expensive as they were. My 401k may be down. My sense of overall economic confidence is lower. I don’t really care what eight economists Call this thing. Are they acknowledging that we’ve got a problem. And are they trying to fix it? What are they doing about it is kind of what spins through many people’s minds. And by then, they mean, some vague sense of the government, the Fed Congress all the above.

Justin Wolfers  15:15

Right? This is actually, I think we economists have language, we wrote about it in our textbooks. We’re very precise about it when we talk to each other. And then in general conversation, it’s used in very different terms. And that’s the problem here. So here’s the technical definition of a recession. It’s a read from a textbook right now. It’s a period of declining economic activity. Now, the thing is, what people on AM radio and people on my street, but thinking about is the times good or bad. Now, actually, if the economy went from magnificent to merely very good, this is an if, I’m not saying it did, if it went from magnificent to merely very good. That’s a recession. Because it’s a period of declining economic activity. So the way economists use the word recession is very, very precise. And not at all what people mean, when they’re saying things good or bad. So, I think if you’re asking nothing’s good or bad, you don’t want to use the technical word recession, it’s completely uninteresting. You’ve in mathematical terms, gotten the derivative wrong, you’re looking at a rate of change rather than a level. Now, let’s come back to things bad right now. And I’ve been struck by how much everything is taken as bad news, I remember when lumber prices rose, the headlines in the Wall Street Journal were lumber prices rise, it’s going to push inflation higher, then lumber prices fell, and they wrote lumber prices fall lumber producers despair. It’s all bad news. And it’s the same thing reverse in itself. So how are things look, your job security for mostly your listeners is not for all of us, there’s never been higher your opportunities to move to a better job, or to ask for a raise or to reorganize your work arrangements to add a little bit of work from home have never been better. And on the flip side, your wage isn’t going as far because prices are high. That’s the tradeoff you got. Now, I can’t tell any one of your listeners how much weight they put on each of those. But I do know that I’ve studied millions of surveys asking people how happy they are. And I’ve correlated that with inflation. And I’ve correlated that with unemployment. And on average, we tend to find that unemployment about twice as important as inflation for people’s happiness. And as miserable as you are paying for those really expensive eggs. Realize you went to work today. And you weren’t worried about whether your family would get to eat next month. And that’s the real misery of a down economy. And I think we don’t have that misery right now. And look, it’s only an economist who would counsel you and look you in the eye and say, I want you to feel less miserable, because things could be worse. But it’s the least bad economy we’ve had in a long time.

Andy Slavitt  17:59

I think a politician would do that, too. It’s a really interesting take. And I think, you know, getting us focused around levels, as you say versus rate of change. It’s easy to forget how far we’ve come not just the bounce back from the pandemic recession. But just the continued resilience, the bounce back after 2008 recession, which was very deep recession, the continued reduction, over some period of time, in unemployment to very low numbers and interest rates to what are still incredibly low numbers. Many of us got our first mortgages, when we were excited to get them under 10%. Yet, it’s this uncertainty in this anxiety and this angst that kind of spills over it could be could be self-fulfilling. And of course, inflation is just one of those things that people have less recent experience dealing with. Because it’s something that for so long, we’ve taken for granted. So I think people need to help them figure out how to think with think about it, and into what we’re doing about it. So let’s talk a little bit about the Federal Reserve. Last week, they took I think it was the third rate hike to was another three quarters of a point. What does that mean to people? What will higher interest mean for the things that people care about? Like job security, like the price of food and gas?

Justin Wolfers  19:29

Has this kind of affect your life? Honestly, it depends where you are and what you’re doing. So if you’re like me, on a 30 year fixed mortgage that I happened to get a few years ago, doesn’t affect me at all, directly. If you’re young and trying to buy your first home, and you need to get your first mortgage and you missed out on those low rates are available a couple of years ago, your payments have gone up enormously. Remember early on when you’re paying your mortgage, you’re paying mostly interest. And if the interest rate doubles, then, you know, your payments almost double. So that’s incredibly painful. Not only that house prices have gone up enormously. So it’s very, very painful for people borrowing money. Of course, if you’re older, you’re actually lending money, your 401K’s or your bank account. So high interest rates mean that the young people are paying more money or that it’s all going somewhere. So there’s a big redistribution them. And for those who it hurts, it really hurts. And for those who it helps, they don’t say, Ah, my gain is someone else’s pain. Instead, they say my gain is because I’m an investing genius. I’m serious, I think this is part of life, why it doesn’t all just wash out. Then there’s the macroeconomic effects. So higher interest rates, the most important thing that we’ll do is a bunch of business investments, new factories in the light that businesses were going to make no longer going to be profitable, so they won’t make them. That’ll slow the economy. That’s the hope. Indeed, the plan, consumers will buy fewer houses, fewer houses will get built, construction, employment will fall. So if the problem right now is inflation, one view of inflation, not the only one is there are too many buyers trying to buy the same number of goods. So this is getting rid of a few buyers. So then this will push inflation back down.

Andy Slavitt  21:21

Alright, let’s go to break. And when we come back, we’re going to talk about the Manchin Bill, the inflation Reduction Act and ask the question, will it control inflation? We have this sense people gain or lose confidence in the government some degree based upon their willingness and their ability to articulate a plan and execute some of the key steps and we’re going to talk about kind of the two I think key levers in a bit with you now, which in economics we talked about as monetary and fiscal, but we’ll talk about here very explicitly is what’s going on with the Fed. And this piece of legislation called the inflation reduction act with regard to the Fed just to finish that off, they’re trying to raise interest rates not because they’re sadists, right, they’re not trying to torture us with a slower economy. They’re trying to essentially nip inflation in the bud. And I think, as you described, inflation comes from, you know, at least two main places, one of them you just described, which is there’s excess demand. The other as we know, from the war in Ukraine and other places, the shortages and supply and supply chain issues, and so forth, which are a little bit harder to get a handle on. So how confident are you? I mean, we’ve obviously seen gas prices move down recently. What does that relate it to? And how confident are you that that what the Federal Reserve is doing is going to be effective? And do you have a sense of how long you think they’re going to need to keep doing it to get inflation where they want it?

Justin Wolfers  24:56

First of all, you just want to give some perspective on where the Feds at. So, you can think about the Fed as if it’s got an accelerator and a brake. And when it’s got its foot neither on the accelerator nor on the brake, it’s a neutral, then it’s neither pushing the economy faster nor slower. That neutral setting is probably with the interest rates round about two and a half or three and a half percent. Interest rates right now after this sharp rise around about two and a half, maybe if they keep raising three and a half percent. So what the Fed has done is it has not slammed on the brakes. It simply stopped it pulled its foot off the accelerator. So we had an extraordinary degree of the Fed trying to help the economy along. We had a lot of it after the financial crisis. And then we had just as soon as it started to take its foot off the accelerator COVID hit. And so that’s all that it’s doing. So it is not slam the brakes on. And I think that that is really worth reflecting on that it’s just moving things back to normal that the federal funds rate is two and a half percent. If you went back to your earlier self-20 years ago and said two and a half percent, you would have said, Oh my goodness, why it is so low? I’m gonna borrow and buy a house and buy a car and all that. So you know, the Fed just hasn’t done that much. Now, let me get back to the deeper question you’re asking, which is sort of like, what is inflation? Where the hell does it come from? And so yeah, it’s too many people trying to buy too little stuff. So you either get rid of the too many buyers or yourself or too little stuff problem. What got us here might be an important question. And that’s actually one of the big divisions in Washington right now. Republicans want to say what got us here is too many people want to buy stuff. And too many people want to buy stuff, because the government did too much to help them at the end of the pandemic. The problem with that story is that the US government only exists in the US, but inflation has been high in every country around the world. It’s hard to believe that Joe Biden caused inflation in Europe, in England, in Australia and Canada. So, that says there probably is something else going on. And boy, has there been something that affected all those countries at the same time. I stretch my mind. And I think maybe there was a global pandemic. And the global pandemic has direct effects. It has indirect effects. It’s caused snarls in global supply chains. The direct effects I think, still can’t be understated, which is in China right now, any factory could shut down with one positive test. And because global supply chains, you know the things you know, your car needs so many parts. And if one of those parts doesn’t turn out, your car doesn’t get made. The thing is, it may not have been government spending to cause the inflation. But what is true is if the Fed slams on the brakes, no matter what caused it, it’ll push inflation down. So that’s the view the Fed should slam on the brakes. Now there’s a different view, which is be patient. If you think it’s supply chain issues, right, then you think that as the pandemic recedes, you think as China adopts a more sustainable policy, you think as supply chains on snarl. You think that as Putin runs out of new countries to invade, that these new pressures will go away. And I should be clear, Putin invading Ukraine caused gas prices to go up. But now he’s done it, the gas prices are high. If gas prices are high, that’s painful for you and I, but it doesn’t cause any more inflation, because inflation is the rate of change of prices, right? And so the thing about supply shocks is if you’re just patient, then they go away. And so this then would be the argument that the Fed doesn’t need to slam on the brakes, because we’re coasting towards lower inflation anyway.

Andy Slavitt  28:42

And we had Larry Summers on about four to six weeks ago, if people want to go back in here kind of a slightly more bearish view of how interest rates high interest rates have to go. And, of course, his justification for why he thinks we’re going to face stagflation. That’s available not just on this show, but probably anywhere you hear Larry Summers, just Google his name. And magically he’ll appear. I think the most interesting question I have for you, Justin is not about the Fed, or whether or not we’re technically in a recession or technically not, because I completely buy your perspective on those things. I think the big story actually might be the potential for what happens with their, they’ve labeled the Inflation Reduction Act. You know, we’re talking about this agreement that’s been reached between Senator Manchin and Senator Schumer, that is a package of a number of things, big investment in climate, a big reduction and prescription drug costs for seniors, continuation of some subsidies in the Affordable Care Act. And I guess my first question for you is, based on what you’ve seen, is this effect in inflation reduction act?

Justin Wolfers  30:01

I really like the act. And I think it’s nice that President Manchin got to name it. And he gets to sell it, how he wants to sell it. And I would vote in favor of the act. I think it’s terrific. I think at this point, the idea that Congress should be making policy to try to reduce inflation, when the Fed has every tool ability and expertise to do so is absurd. In fact, if what this does is reduce inflation, the Fed smart enough that what the Fed will do is reduce its own inflation reduction, one for one, to offset whatever Congress is doing. This is why we typically don’t have Congress trying to focus on inflation. But Manchin was focused on inflation. That’s what he needed to pass the bill. I think it will, in fact, reduce inflation, because of the elements that he included. So it included a lot of things that liberals like on the spending side. And every time I hear a Democrat talk about the act, they talk about the spending side. Now, if you thought there was a whole bunch more government spending coming, you wouldn’t be too excited about that as inflation reduction. But in fact, there’s a whole lot more on the tax side, and you tax people more, they’ve got less money to spend, that reduces some of the demand that will reduce inflation. So what’s funny is Democrats are talking about the spending side, Republicans only talk about the tax side, and they’re saying tax hikes will crush the economy, which of course, is because they haven’t looked at the act at all. And the moment that you look at the tax provisions, all of a sudden, you realize that this is populist and political genius, and I think economically, entirely defensible. So we’re getting rid of what was called the carried interest loophole, which was basically a way for rich hedge fund guys to never pay tax. So I’m kind of happy for those guys to take pay tax one, that’s where the money is into, I’d like to tax them anyway. We’re investing a ton of money in the IRS. And the thing is, there’s tax cheats all across the country, both personal and corporate, who are getting away with murder. And they’re getting away with murder, because Republicans over many decades have staff, the tax authorities have any resources. And if you starve them, if any resources, they can’t catch tax cheats. And then everyone gives themselves a tax cut by cheating. And so that’s going to raise a ton of money, I think even more than what the Democrats think it’s going to raise. And then the third set of provisions is part of this global minimum tax that Treasury Secretary Yellen has been involved with, which is basically every country getting together and saying, let’s prevent a race to the bottom where I’m always going to offer lower taxes than you and you’re going to try and offer lower taxes than me. And then we end up taxing corporations, nothing. So she says, actually, let’s draw a line. We’ll call it 15%. Now, that was a deal that was done. But of course, the US actually has to do it’s part of the deal. And that’s part of this bill as well. So I think we’re meeting our international obligations, I think we’re taxing corporations the way they ought to be taxed. And we’re raising a bunch of revenue. And if a Republican came out and described those tax hikes, and said, I’m really worried about this, because corporations paying below 15% are going to have to pay more hedge funders are going to have to pay more in tax cheats are going to have to pay more, you’d certainly see people start to feel a little more comfortable about the tax side of this.

Andy Slavitt  33:15

Yeah, we’re talking about Amazon, right? We’re talking about big tech; we’re not talking about small businesses. We’re not talking about middle class individuals, right. We’re talking about people who I think most people who look at the matter would say, they really don’t pay their fair share of tax.

Justin Wolfers  33:32

Well, Andy looks to you and me man, […]

Justin Wolfers  33:36

Are you a hedge funder?

Andy Slavitt  33:40

I’m not a hedge funder.

Justin Wolfers  33:41

Are you a corporation paying less than 15% of your income and tax?

Andy Slavitt  33:44

Nope.

Justin Wolfers  33:45

All right, my guess is most your listeners with three knows in a row, which means this is also a 0% tax hike for them.

Andy Slavitt  33:51

All right, let’s go to break and after the break, we’re going to come back and talk about what the inflation Reduction Act means in other parts of our lives, like the cost of prescription drugs. And I want to ask Justin, to give us a prediction on what the economy is going to look like between now and the election. All right, and so the thank you for actually making us focus on the tax part of this. The other place that the government saves money, as do many individuals is that the prescription drug reduction part of the bill is a big saver for the government because and I used to run the Medicare program back in the day, and I was the biggest customer, I was buying more drugs than anybody in the world. And I was the only person not allowed to negotiate the price of those drugs. And so both myself and the 60 million seniors that I was representing, were paying whatever prices basically was the exceptions that the pharmaceutical companies charged, even when they were looking like drugs, when you could when you could say to drugs do exactly the same thing. You could put yourself in a situation where you could negotiate to a lower price. And think that enjoys last time I saw polling on it 85% to 90% popularity, that the government should negotiate prescription drug costs, I find it interesting, even the majority of Libertarians believe that the government should negotiate prescription drug costs. If our goal here is two things, to get the economy expanding at a normal rate and to keep prices under control. I’m going to say something that is going to be wildly unpopular with everybody, which is that Manchin actually took a very ambitious list of political policies and turn it into something that I think seems to from what I hear you say quite effectively accomplish these goals. And putting aside whether or not Congress should be focused on inflation, putting aside whether or not it’s a one time or an ongoing thing. Right now, there are, the reason I’m asking this and pushing this so hard is because pharma companies are spending 10s of millions of dollars, though, to try to kill this bill from getting passed.

Justin Wolfers  38:20

So, this is easy, pass the bill. And it’s one that meets the macro-economic moment. I think that’s the question you’re asking, does it meet the macroeconomic mind? Yes. Does it meet the democratic wishlist? No, that’s the anger against Manchin. Does it meet the Republican wishlist? Hell no. But it certainly meets the macro-economic moment and get some part of the democratic wish list done. I’m qualified to judge half of that statement. Does it meet the moment? And I think it really does.

Andy Slavitt  38:53

Good, good. Well, I think that’s well done. I mean, look at Friday episode is going is actually about whether or not the environmental goals ie, the production by 2030 that we’re aiming for greenhouse gases will be achieved by this bill. So it’s a great conversation. And you happen to be an unusual economists, I think it gets very clear headed in a very good way. And that you do center, the conversation around how this impacts real people. And I appreciate you making that point and we ought to be, I think Friday show is going to be all about that on the environmental front. I probably talk less about the prescription drug in the ACA, in some part because it’s the most familiar to me. Right? But I probably don’t do it enough justice. What a big deal it is. What a big deal it is. 50 senators are opposing this bill, at least 50, hopefully only 50. Why? What what’s the point they’re making? Do they have a point?

Justin Wolfers  39:55

It’s an economist and a policy wonk, I’ve always tried to avoid strawmanning. And so I think asking oneself that question and trying to come up with the most generous interpretation you can is always a worthwhile exercise. I find it very difficult on this bill. I do think once you actually think about this bill, it’s popular, it’s smart. It’s good politics, it’s good economics. So the why then ends up being an ungenerous. You know, they don’t want to see the other side when there is a part where, you know, they don’t like tax rises. But these aren’t the sorts of tax rises, Republicans shouldn’t like, you might say, they don’t like the budget consequences. But I’m so old, I remember when Republicans used to like deficit reduction, and this is deficit reduction. So my friends who were the pre Trump Republicans, I could imagine them at this moment coming up with a bill that had some amount in common with this. It’s obviously not where the current political moment is. But it’s not a wildly liberal bill, either. It’s a bill for the moment.

Andy Slavitt  41:00

Okay. Look, we’ve been we’ve been jumping around this notion of politics intersecting with economics. And so you know, it probably worthwhile to say that the President is hoping for positive economic news before November, Democrats in general are Republicans will want the story to continue to be weak, you know, we actually have an actual recession, gas prices are high, etc. We put your crystal ball and a little bit and kind of looking at the direction of gas prices, the direction of jobs and jobs growth. What do you think the next few months of economic news would look like that will color the election?

Justin Wolfers  41:42

Well, the thing I feel comfortable saying right now is the claim that we’re in a recession right now is almost certainly going to be proven false. I can’t promise anyone, we will never have a recession. But I’m more optimistic than most. And there are certainly risks out there. What’s clear is, if Republicans hang their head on inflation, it’s very likely inflation is going to be head itself. It may still be high. And so then the question is, will voters be equally upset when inflation is higher than they hoped for but head itself? I guess that’s one of the big questions we’ll have run in through November, the economy may be running a little less hot in terms of rates of change. But life hopefully is going to be like every month, it feels like life gets a little bit more normal. One of the big debates I hear from my economics, political science and reporting friends is Why do the economic numbers look so good, and the people sound so miserable? Look, it’s not that hard. What on earth is currently going on and has been going on for the past long, you know, many months that might make people miserable, despite a reasonably good economy, freaking pandemic. And the more we start to put that in their rearview mirror, and the more life looks like normal, and the more I feel confident, I’m gonna send my kids back to school next year. And the more I feel confident my students are going to turn up, and the more I feel confident that customers are going to come to my store, and the more I feel confident my workers will make it to work every day, that I’m going to get back to the glorious days of 2019, which were boring as hell, and I loved every moment of it. And I think you’ll start to see a lot of those sentiment indicators turn around.

Andy Slavitt  43:22

And say, Justin, when you just said every month, life gets a little bit more and more normal. I don’t think there’s a more welcome phrase that they give people goosebumps at this point in time than that, just that very idea. And not just from an economic standpoint, I know you made it even more broadly than that. But I think that’s where people feel. Justin, thanks so much for illuminating both the current situation helping us understand it, but also giving us a peek ahead. And so understand what this bill if it passes could mean for both economy and all of our lives.

Justin Wolfers  43:55

It’s great pleasure, mate, you’ve got a great show and a great audience too.

Andy Slavitt  44:12

We have a great Friday conversation show coming up, we’re going to look at what is inside the climate bill. We’re going to have a great deep dive discussion in a Friday conversation about whether or not this helps us meet our climate goals. And what’s involved here with two really wonderful people. Leah Stokes is a political scientist and environmental policy expert, and Gavin Schmidt, who was a senior climatologist at NASA. You’re gonna love this conversation. Then, next week, we’re going to talk about bounce back effect and what we know about treating COVID including with someone who helped me through my recent bout by Wachter, who you all know on the show, and Dr. Tyson Bell, so there’s a lot of options that are a little bit confusing when you get COVID treatment. And people are a little bit confused since the President’s bounce back case of Paxlovid. Should you get monoclonal antibodies? What’s the story there? So it’s gonna be really useful. Another pandemic show coming up in the near future with Christian Anderson, and what we know about the origins of the pandemic and what it all means. I’ve got Patton Oswald coming on, Tony Fauci, you may have heard of, and Jamie Raskin for the January 6 committee all coming up over the next few weeks, really looking forward to it. Have a great couple of days, and I look forward to chatting on Friday.

Andy Slavitt  45:44

Thanks for listening to IN THE BUBBLE. We’re a production of Lemonada Media. Kathryn Barnes, Jackie Harris and Kyle Shiely produced our show, and they’re great. Our mix is by Noah Smith and James Barber, and they’re great, too. Steve Nelson is the vice president of the weekly content, and he’s okay, too. And of course, the ultimate bosses, Jessica Cordova Kramer and Stephanie Wittels Wachs, they executive produced the show, we love them dearly. Our theme was composed by Dan Molad and Oliver Hill, with additional music by Ivan Kuraev. You can find out more about our show on social media at @LemonadaMedia where you’ll also get the transcript of the show. And you can find me at @ASlavitt on Twitter. If you like what you heard today, why don’t you tell your friends to listen as well, and get them to write a review. Thanks so much, talk to you next time.