What Happens if America Defaults on its Debt? (with Jason Furman)
America’s debt represents every deficit that’s been run by every president, from George Washington to Joe Biden. Now, there’s a showdown between the White House and Congress over whether or not the House will vote to lift the debt ceiling as they’ve done dozens of times in the past. Andy gets specific with Jason Furman, who was an advisor to President Obama during the 2011 debt ceiling debate, about how we got here, whether our debt is too high, and what actually happens if America defaults on its debt.
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Andy Slavitt, Jason Furman
Andy Slavitt 00:18
This is IN THE BUBBLE with Andy Slavitt. Email me at firstname.lastname@example.org. And I’d love to hear what you have to say what’s on your mind, you’ve been writing some spectacular things, we’ll read some of this stuff on the air, great, great show ideas, was just reviewing a few this morning. So we’re now in the beginning of what I think is a major evolving story of the year, which is the confrontation between the White House and Congress over whether or not Congress will vote to lift the debt ceiling, as they’ve done dozens and dozens of times in the past. Remember, Congress approved spending, but they then have this one weird power that they seem to have either granted themselves or been granted, which tells them that even though they’ve told the government to go ahead and spend, if they borrow too much to spend it, they have to approve it. And it’s a really weird thing, because it’s actually the only real power that the Republican Congress has as a source of leverage to get what they want. Anything else that they pass out of the house, if it doesn’t make sense to the Senate, or it doesn’t make sense to the President just isn’t going to become law. But this is really the big issue where they can cause a lot of trouble. And so I thought it made sense to investigate and analyze and understand kind of what it really means. And I thought it would make sense to begin with job one, which is just to understand it, understand the debt, where it has come from, how we got here, who’s been responsible for it? And answer the question, is it too high? So that’s the first bit. The second piece is, you know, why we have a debt ceiling. And what actually happens if the debt ceiling is breached, if it’s not allowed to go up, and, you know, there’s a lot of things people throw around that it’ll be an economic disaster. But I wanted to dig underneath that and get to real specific answers of what technically literally happens if the federal government isn’t able to pay more of its debt. And so, for that purpose, I decided to invite on the show the person who was on the front line negotiating the last debt ceiling, Jason Furman, who’s been on the show before, he was the chair of the Council of Economic Advisers, from 2013 to 2017. Under President Obama, he essentially was part of the team that was negotiating with then Speaker John Boehner, over a very similar clash. So part of what I wanted to do to answer these questions, was to get these questions answered in the form of how it worked last time, and how it’s likely to work this time. And what’s different this time around. Now, this week, Kevin McCarthy, will be in the White House to meet with President Biden to begin the negotiating process. This is something that will last over a couple of months, I think there’ll be a lot of games, a lot of brinksmanship, we will talk to our own spies within the White House to understand what goes on here. But suffice it to say, this is the top economic and political issue or one of them for sure, that we face right now. And there’s and this will impact all of us, if the US is in a position where it can’t pay its debts. And so Jason is going to help us unpack it all. And understand it all. Let’s bring him in.
Andy Slavitt 04:07
Jason, welcome back to the bubble.
Jason Furman 04:09
Great to be back.
Andy Slavitt 04:11
Last episode, we talked about inflation. This year’s economic issue does your is the debt ceiling? How much debt do we have? And how did we get here? How did we accumulate this debt?
Jason Furman 04:24
Yeah, well, let me answer that second question first, every year that you run a deficit, which is to say you spend more than you tax, you add to your debt. And so when you look at our debt today, is a broad concept of debt, which is currently at the limit 31 point 4 trillion. If you net out the money that government owes to itself, the debt is a little bit over 20 trillion. But either one of those concepts of debt represent every deficit that’s been run by every president from George Washington, up through Joe Biden and most of those presidents, especially for the last 50 years, since at least World War Two, I’ve added to that. So it’s just every time you run a deficit, your debt goes up. And we’ve had very, very few presidents that have run surpluses, President Clinton was the last one that reduce debt. Everyone else, it’s added up a little bit.
Andy Slavitt 05:19
And a lot of this debt has been added in the last couple of decades, right?
Jason Furman 05:24
President Clinton did start to pay off the debt. And then under President Bush, there were big tax cuts, big spending on wars and the like, under President Obama, he did a combination of short run stimulus that was added to the debt, and then longer run things like the Affordable Care Act that actually reduce the debt. So he pushed in both directions. President Trump only pushed in one direction, huge increases in the debt, but stimulus and some permanent tax cuts. And then President Biden has done more things that have added to than subtracted from the dead, although he’s done a bit of both.
Andy Slavitt 06:01
And if you were going to help people with a convenient way to think about the debt from a standpoint of either tax cuts for largely the wealthy and corporations, on the one end spending on things like wars, which had been a lot of it’s been done in started under Republicans carried over into Democratic administrations and wasteful social programs, or, which is, I think, what you hear a lot of rhetoric around, that the Democrats are pushing the fact let me play a clip for you. There. You hear Rick Scott, who’s the senator from Florida, say that this is really a product of profligate spending from Democrats largely from the left, as he calls it. Is that right? Or how do you proportion, the debt across different causes?
Jason Furman 07:07
Right. So if I don’t bring my values to bear, all I can tell you is the debt results from government spending has historically run above taxes, I can’t tell you objectively with 100% certainty that the problem is spending is too high, or taxes are too low. It’s the disconnect between them. If I go one level deeper, and try to look at the composition of those, we see that a lot of areas of government spending, so called discretionary spending, that covers education, and scientific research, and training and all sorts of stuff like that, that’s really declined as a share of the economy. Over time, we have seen increases in spending on things like Social Security and Medicare, although that Medicare spending increase is actually much smaller than anyone was expecting. You know, 20 years ago, you ask people, they thought Medicare spending was going to grow enormously. And it’s grown a lot less than that, in part, and because of efforts by you, and, and many other people, then you look on the tax side, and we have basically had a downward ratchet for taxes. When Republicans are in office, they cut taxes for everyone. When Democrats are in office, they undo some of the tax cuts for the rich, but they do some more tax cuts for the middle and the bottom. And the result of this is that taxes paid by typical people are just about the lowest they’ve been in half a century. And so fundamentally, I do think if we look at the changes we make, we’ve continually reformed spending to lower it, maybe we could lower it still further. But that downward tax ratchet that the Republicans have done more of but Democrats have participated in as well, is a really big part of the story.
Andy Slavitt 08:59
So it sounds like on its face between the 10s of billions of dollars into the wars in the Middle East, between the tax cuts that both parties have participated in. And between spending post pandemic which has been really recovery, spending, etc. On its face, it’s just hard to take seriously the claim that Scott makes, that this is due to one party’s actions.
Jason Furman 09:20
Yeah. And I look, I do think if you add it up, I think you’re gonna find more if it was added there by the Republicans than the Democrats. But definitely both parties have done it. And by the way, not all debt is bad.
Andy Slavitt 09:30
That’s exactly where I wanted to go with you next, to help us understand that what about our debt is appropriate, and it makes you feel comfortable and should we look at and say, Oh, that’s okay. Because we’ve got a big economy and it’s okay to take on debt and what part of it is bad? Where you’d say that’s too much. Is there a way to help us understand that?
Jason Furman 09:48
Yeah, there’s two broad circumstances in which debt is perfectly okay. The first is you have a temporary emergency, World War two or COVID. You have to spend a lot of money right away. And it’s okay to pay that money back over time even pay that money back over several decades, that’s totally appropriate. That’s the way government should budget for an emergency. The second circumstances if that debt is used for really wise investments, if you’re using it to invest in infrastructure, invest in research and development, that might be okay too. A bunch of our debt, though, is just financing wasteful activities, is financing consumption is financing things that will have to happen over and over again, year after year. So I do think while it’s not the biggest economic crisis our country faces, at some point, we are going to need to bend the curve on the debt, have it not continued to rise as a share of the economy? In a way we’ve seen it rising?
Andy Slavitt 10:50
What’s the right way to think about the size of debt that we should comfortably have right now my understanding is, our total debt is about 120% of our gross domestic product, what’s the right way to think about it?
Jason Furman 11:04
So first of all, you’re right about that. But I would net out all the debt the government owes to itself. And when you net that out, you’re at 100%, of GDP that the government owes to people outside the government. So I would start there. And then I’d say there’s not some magic number, Japan has a much higher debt level, and it does perfectly fine. Or at least the problems it has, aren’t because of its debt, the more important thing is to make sure it stabilizes. So if you told me the debt is going to stabilize at 150% of GDP, and never rise above that, I’d be perfectly comfortable and perfectly happy. If you told me it’s gonna go 151, 175, 200, 300, 500, then I’d be pretty unhappy. The last thing I’d say in terms of the debt level, is you also have to factor in what interest rates are, interest rates have gone up, but they’re still very low compared to where they were historically. And as long as interest rates stay low, it does give you more capacity to run somewhat higher debt. So I do not think we need to lower our debt as a share of the economy from where it is now. But I think we do need to make sure, at some point, it stabilizes at some reasonable value, and absent action, in the next couple of years, that’s not going to happen.
Andy Slavitt 12:24
Alright, let’s take a quick break. And let’s come back and look at the actual debt ceiling and the fight over the debt ceiling that is about to happen. Okay, so why do we have a debt ceiling?
Jason Furman 12:59
Used to be that every time the Treasury needed to borrow money, Congress would pass a new law, you want to go out and borrow $500 million tomorrow, okay, we passed a law, you can run an auction of $500 million, or whatever it is you want of bonds. During World War One, there was so much borrowing that that became impractical. And so in 1917, Congress switched to a new system, instead of every single time the Treasury was going to go borrow, they would pass a debt limit and say you can borrow up to a certain amount, and then come back and check with us. Once you’re at that amount. Since then, it’s been a little bit over 100 years, and the debt limit has been raised about 100 times. So roughly once a year, the debt limit goes up. And so the Treasury can borrow, you know, borrow, borrow, borrow, and then the debt limit needs to be raised.
Andy Slavitt 13:57
So I guess what I want to understand is, Congress approves all the spending that comes out of the federal government. Right. So since the Congress is saying to the federal government here, you must spend money on this. How do they also get to say, but you can’t borrow too much money to do it? How does that make sense?
Jason Furman 14:22
I’m not sure it does make sense. The United States is the only country in the world that has a debt limit, or at least a binding debt limit. And as you just pointed out, it’s a contradictory law, because once the government passes a law that says spend this amount and collect that much in taxes, it has effectively passed a law saying you must borrow such and such amount to then pass another law, about the borrowing itself makes no sense at all. And if you want to cut the debt, there’s only two ways to cut the debt. Two decent ways to cut the debt. One is to cut spending. And the second is to raise taxes to not pay the debt would be an awful, awful, terrible, horrible way to reduce the debt. And I don’t think anyone explicitly advocates or supports that. But effectively, that’s what the debt limit is saying. And that’s why as a tool to control debt, it just doesn’t make a lot of sense. You need to cut spending or raise taxes, you can’t just default and not pay back because you don’t feel like paying back.
Andy Slavitt 15:25
Although we’re definitely going to test that theory. And I want to come back to it, which is that if what happens if you elect a handful of crazy people in a narrow majority. So that’s clearly a question that’s going to be begged. And if they don’t want the country to default on its debt, then it must be something else at work. And to get to that something else work, I want to play this clip from Ted Cruz, who I think exposed quite explicitly what’s at work here. Okay, so it sounds like Senator Cruz is saying, this is our form of leverage. We have one place where the country needs us to do something, everything else Congress says they could propose a bill. It could not go anywhere, they could do oversight. Nobody has to watch it on their TV, or they can if they want to. But the one place where they’re needed, because the country can’t really function is approving the debt ceiling. And it sounds like what Republicans are saying is, this is our one chance to get some of the things that we want, because you need this from us. Now, my first question for you is do they have a point? If they’re saying, hey, we need to have a responsible conversation about spending in taxes in this country, although I think they mean spending? Isn’t this from their perspective, the right way to force that conversation?
Jason Furman 17:27
No. Firstly, you have to understand the spending conversation is going to happen. Because there is discretionary spending that has to be passed every year for things like education, and defense. And it is a new thing that Congress is doing. And so it can make a fresh decision about what it’s going to do. And there absolutely should be a negotiation on that. Because the House Republicans, the Senate Democrats, the President, you know, they all have different views on the question. And they’ll ultimately have to come to some common ground that is going to involve lower spending levels than the President wants and higher spending levels than the House Republicans want. So there absolutely does need to be, and will be a negotiation. I wish by the way, it was a bigger negotiation, that would include revenue, but there’s no forcing event for now on that there’s a forcing event on revenue in 2025, when tax cuts expire, but at least for now, there’s no forcing event. So Republicans are right, that there should be a negotiation. And there’s a great forum for that. The reason the debt limit is the wrong forum for the negotiation, is the debt limit was caused by both parties. And ultimately, I think a lot of Republicans recognize that you just don’t want to take a hostage if you’re unwilling to shoot the hostage if you need to. And this is just not a hostage that anyone can shoot because everyone in the state of Texas that that Senator Cruz represents would be extremely adversely affected by the debt limit being breached. It’s not just President Biden, that would be hurt.
Andy Slavitt 19:08
So let’s talk about what happens if we breach the debt limit because I think I’m used to hearing people talk in vague and unspecific terms and say, it’ll be a financial collapse, it’ll be a financial catastrophe. And I’m hoping we could get a little bit more specific. Many of us lived through the 2008 financial collapse. So we know what a financial collapse feels like. But this feels something like that. But how would it affect your care for veterans? How would it affect supporting Ukraine in the military? How would it affect our ability to borrow money for our homes? Like what do you think would be the actual impacts technically?
Jason Furman 19:44
So um, any no one knows the answer to your question, because it’s never happened before in the United States has never happened anywhere else. I have studied fiscal crises around the world and been involved in responding to some of I’m in other countries. And normally what happens in a fiscal crisis is your country is no longer credit worthy people do not trust your government. And so they don’t want to lend you any more money. And that can cause just a horrible recession, mass unemployment, spiking interest rates, and more. This is a very different type of fiscal crisis, it’s not that people wouldn’t want to lend money to the United States, it was B that the United States would effectively say, we’re not going to borrow. There’s something called an X date, which is the date we get to when all of what’s called extraordinary measures. That’s a bunch of accounting tricks that we don’t need to bore ourselves by discussing in any detail, but a bunch of accounting tricks, which will take us till about June, maybe a little bit longer. After that date, the government will face a choice of does it want to pay its debt, the principal does it want to pay its interest, or maybe it honors its debt and interest. And instead, it defaults on payments to hospitals, and to veterans, and to schools or to Social Security beneficiaries? Whatever it is, you’re risking, you know, but the direct harm of people who aren’t getting paid, and the much probably bigger indirect harm of financial markets melting down, and the economy, you know, potentially going into some form of tailspin, the risk of all of that goes up with each day you go past the X date.
Andy Slavitt 21:29
So people all over the world have invested in United States Treasury bonds, treasury bills, they invest them because they’re about to share a bet in terms of getting repaid as they can imagine. It’s the index for which all other investments are triggered off of. So would this mean that on the day that this happens, would you get past the X state, the government would default on some portion of those bonds or some portion of that debt, and therefore, the value of that debt would go low, and the interest rates would go high. And that’s the kind of first reaction that would trigger those other reactions that recessions that other things you talked about.
Jason Furman 22:10
So it’s possible, that’s what the government would do. It’s also possible the government would decide not to pay hospitals, and to pay the bondholders in China, and Europe and elsewhere around the world. But either way, a lot of people would say we’re nervous about holding us bonds, because yeah, maybe this week, they’re paying us because they’re stuffing the hospitals. But two weeks from now, are they going to be able to continue stuffing the hospitals, maybe two weeks from now they’re going to pay the hospitals and not pay me. And then you start selling your debt. And that means the price of your debt falls and the interest rate on your debt rises. And that’s everything else. I said before and you know, the thing about debt is it’s not, you know, every point your interest rates go up, is actually raising government spending, and increasing the total amount of debt you have. And so that’s one of the ironies here is this brinksmanship could easily end up costing us money and adding to our debt, rather than subtracting from it.
Andy Slavitt 23:13
Right? And so here, we would sit in this situation, and I’m trying to make get an understanding of how visible these constant questions would be. And it sounds like they would be quite visible, financial markets would be doing crazy things, maybe hospitals wouldn’t be getting paid, maybe veterans wouldn’t be getting care. You’ve lived through the last major debt ceiling negotiation as part of the Obama team in 2011. I want to come back and talk about that. So we can give people a sense of what would happen and what’s likely to happen next. All right, we’ll be right back. Alright, we’re back. Jason, you were directly involved. The last time we had a debt ceiling showdown 2011, between President Obama and at the time, Speaker Boehner. So give us a little bit of a history lesson and tell us what happened and how it was resolved.
Jason Furman 24:25
Yeah, so in 2011, we did an extensive negotiation. Ultimately, most of the forms of the negotiation fell apart. Markets were starting to really get hit consumer confidence plunged, and at the last minute, a sort of shrunken version of the negotiation came together and averted disaster. In retrospect, we may have handled it wrong. President Obama was excited about an opportunity to have a real budget negotiation. Speaker Boehner was actually willing to put higher tax revenue on the table and make that part of the conversation. President Obama himself thought that programs like Medicare needed to be strengthened, and some of the ways of strengthening it would involve saving money in Medicare. So he saw an opportunity for some type of Grand Bargain some type of compromise. And ultimately, it didn’t come together, I think it didn’t come together, because Speaker Boehner didn’t have the leverage and the ability to go to his caucus, and tell them that they needed to make compromises, you know, they have a set of reasons why they blame President Obama for it. In some sense, it doesn’t really matter that much, because this whole big upside, that we were hoping to get just didn’t materialize. And the downside of all the brinksmanship and uncertainty did materialize. And so, you know, I can defend in advance why it wasn’t crazy to think something good could come out of the discussions in 2011, the two parties really were much more open minded, especially the Republicans more open minded then than they are now. But ex post, it didn’t work. And the conditions for anything good coming out of it now are just so much worse than they were in 2011, which is why I think President Biden should adopt the same stance that President Obama did in his second term, which is the stance, President Biden is adopting so far of, you know, not turning into a major brinksmanship negotiation over this.
Andy Slavitt 26:32
So what I’m hearing you say is it in there are a few technical things in there, which we’ll explain. But what I’m hearing you say, basically, is, the parties were able to talk to each other back then, at least to some extent, they were able to talk and both parties thought it was worth taking a shot at a grand bargain, that included, increases both increasing taxes, and finding ways to cut spending. And that those conditions turned out not to allow a deal to happen. Because while Boehner may have wanted there to be something that happened, he didn’t have the house caucus, basically, the Republican House caucus, was that on board was far closer in the direction of where they are today. And that as we come back today, as you said, the economic situation is more, there’s more at risk. But the political situation, it sounds even worse, because you have a very, very narrow majority, a speaker that is barely hanging on. And we have more hardline MAGA districts of people who are who are, I think demonstrated that they’re less responsible or less interested in the whole picture. And either more interested in using that leverage somehow, or scoring points with the base, which this is clearly something they could do. That makes her the challenging situation that we face a head.
Jason Furman 27:48
Yeah, I agree with that. Let me give you the positive side, even though I agree with every single thing you said, Sure. McConnell in the Senate was the top Republican in the Senate. I don’t think he wants any brinksmanship. I don’t think he wants any drama. I think he’d love to solve this quickly. A lot of other Republicans have learned that lesson that this ends up sort of redounded badly to your party. And then you look at the House side, there are 218 votes to raise the debt limit in the house. Now to be clear, that’s 212, Republican, a 212 Democrats plus a handful of Republicans. So the bigger question is, can it get to the floor. And that’s where all the scary points that you made that to get to the floor, it involves the speaker making a choice. And it’s going to be hard for the speaker, to make that choice. I do think though a lot of ingredients are there to solve this with, you know, some form of discretionary spending deal or some fig leaf around a commission or you know, whatever, and things like that would be completely fine. From my perspective, the problem is, you know, it likely can get solved. But if I told you, you were likely going to live the rest of the year, only 15% chance of dying. Like I don’t think you’d be that reassured.
Andy Slavitt 29:10
Wow. Thank you for making me feel quite that way. Jason. So take us inside, who you think will be some of the critical figures here? Is McConnell able to play a role? Are there people in the White House that can potentially play a role in this negotiation? And I have to ask this question, because I think I get asked that a lot. And you may as well that people just would say, gosh, there’s got to be a trick up their sleeves. Somehow. I guess my first question is, is there a trick up their sleeve? Is there, if glass is broken? We can always do this and continue to pay our debts or do you think that’s not realistic?
Jason Furman 29:44
Yeah. So is there a trick? The tricks are incredibly costly. minting a platinum coin, declaring the 14th Amendment means you can still borrow issuing Premium Bonds, there’s all these different workarounds And a lot of them are of uncertain legality. We don’t know, you know, maybe they’d last for two months. But then two months later, the Supreme Court would say, You know what, you’re not allowed to do that. And then what, you know, do people want to lend money to the United States, while they’re waiting for the Supreme Court to decide whether or not they’re going to be repaid, no one would lend money to the United States, except at a very high interest rate. Some of them also do things like the platinum coin, would require the Fed, to make choices to get involved in this political debate. It would really politicize the Fed and could sort of unleash a certain amount of political dynamic that could lead to more inflation.
Andy Slavitt 30:41
As you say, the White House doesn’t control the Fed, the Fed is independent. Yeah. And so that’s not a lever that they have.
Jason Furman 30:48
Yeah. And one of the leading advocates of this minting the platinum coin, when asked the question of what would you do if the Fed says no, said he would send federal soldiers to the Federal Reserve to insist at gunpoint, that they honor this coin. I mean, if your plan involves sending soldiers to the Federal Reserve or to the Supreme Court, that’s probably not really a very good plan. Write that is an economic adviser an American citizen, that I would recommend. So yeah, these alternatives are just are very costly, and very damaging.
Andy Slavitt 31:23
Got it. So I want to finish up by where you were heading before the solution path a solution sets? And who and how do you see this conversation happening and coming together? Is it like everything else happens at the very, very last minute?
Jason Furman 31:38
Usually a safe bet that these things will happen at the last minute, certainly in 2011. There first was one venue, something called the Biden group where he brought together handpicked by each of the leaders representatives to negotiate it. And then those talks collapsed. And then there was a secret negotiation directly between Obama and Boehner, and then that collapsed. And then there was something in the Cabinet Room, which was the leaders of all the parties together in the Cabinet Room with the President. So there, we went through a number of different venues to find the one that ultimately worked. And that’s what might happen here. I do think behind the scenes, the thing that I have the most hope is the solution here is that Senator McConnell understands it’s not in the interest of the Republican Party, that he’s a pragmatic person, he knows how to get things done. And that he will figure out some solution and basically sell it to Speaker McCarthy. But you know, that’s much easier said than done. The Democrats and Republicans don’t fully love and trust each other, the house in the Senate, don’t fully love and trust each other, either. Finally, there’s one other route here, which is that you get enough Republicans to join with the Democrats to bring it to the floor without the speaker’s consent to so called discharge position petition. And I think that is, I think that’s another possible resolution here, if the costs just get too high for moderate Republicans, maybe they’ll peel off.
Andy Slavitt 33:15
Who could initiate a discharge position? Do you know how that works?
Jason Furman 33:18
I’m not an expert on it, but you only need half the house, it just is a very strong tradition that you don’t go against your leader. So it’s a very Republicans would be extremely reluctant to sign on. But you don’t need that many.
Andy Slavitt 33:31
Is it also possible that, you know, we play chicken, the bumpers touch, in other words, we pass the X date, people start to see bad things happening, that creates a whole scurry of activity. And then it gets resolved within say, a week’s time is that is that a scenario that could happen?
Jason Furman 33:52
I think there’s a decent chance of that, frankly. And the X date is not a binary thing that the day after the X date, every single horrible thing I said happens. It might all happen the day after the X date, by the way that might be like that you don’t have any more time. Or it might be that the problems are mounting, you know, the market goes down 2% Today, each day for five days in a row. That’s not great. Right. But you know, the world can survive something like that. So yeah, I think we might do something we haven’t done before, which is go past the X date, see the beginning of the consequences, start to see the cost of them. And that force is a solution, whether it’s this discharge petition or McCarthy caving or something else.
Andy Slavitt 34:37
I’m going to say something that’s going to sound cynical, but the one thing we do know about Congress people today is that many of them seem to have massive stock portfolios. So you know, when I think about this stock market going down 2% a day, I could certainly see how that could play into their thinking here. I could also see how because how many of them have been praying they’ll be accused of insider trading, I could see how many you could be trading out of stocks. You’re going into June. Since you’re here, Jason, let’s just let’s just finish up by giving your overall take on inflation in the economy. We, you know, we seem to be headed in the right direction from an inflationary standpoint, finally, curious how low you think it’ll go and whether or not it’ll be enough to keep the Federal Reserve from raising rates much higher. We saw good gross domestic product numbers due to the growth of the economy in the fourth quarter, and the job situation remains strong, notwithstanding all the headlines, other big companies in the tech companies laying people off. So what’s your wisdom on what you see in the year ahead and economy?
Jason Furman 35:40
Yeah, so the economy is shaping up better than I would have expected. But I still don’t see an easy path to the Fed reaching its inflation target. And the good things are unemployment is at a 50 year low, the economy grew really strongly in the second half of the year. And inflation has come down quite a lot from its highs, the whole 1970s Out of control inflation. I never really believed that was the case. But that problem has been buried. The issue is that inflation is still running probably at about a three and a half percent rate. Labor markets are still very hot in terms of lots of job openings. For every unemployed person, wage growth continues to be very high, which is a good thing, except when it just leads to price growth. So workers don’t get ahead as a result. And solving all of that is going to be difficult. So, you know, we don’t have a terrible inflation crisis at all anymore. But we still do have an inflation issue. So I worry that people have gotten, you know, just a little bit too complacent about the state the economy is in there’s more hard work ahead of us and hard work ahead of the Federal Reserve.
Andy Slavitt 37:01
If the inflation rate stays steady at something above 2%. Does the Federal Reserve keep interest rates high? And stable? What’s their response to something like that? Because they do have issues, they have this mandate to try to get inflation down to 2%.
Jason Furman 37:18
That is like the trillion dollar question for the US economy that I don’t know the answer to I don’t even know if they know the answer to my own view is if it’s inflation stabilized at three, that would be fine. But it would have to be done in a credible way you can’t have, well, we say three, but now it’s four. Okay, four is fine. And now it’s five, you can’t have that you have to avoid that situation. I think if inflation settled down at 2.8, the Fed could very much afford to say, you know, maybe it’s not all the way to where we want to go, but we’re not going to worry about it that much anymore, because everyone else has forgotten about it, too. I think it was 3.5. That is just too far from where they said it should be. And they need to keep raising rates to bring it down from there. So there’s a really big difference between say 2.8, and, you know, even 3.3 or 3.5, in terms of how they’d likely respond and how actively, they try to continue to combat it.
Andy Slavitt 38:13
Well, these are very complex issues and questions, lots of variables to assume. And so we need someone like you, Jason to help us understand it and sorted out. So I very much appreciate you being back in the bubble. I know and of the audience does as well.
Jason Furman 38:28
It was great being here for this wide ranging discussion.
Andy Slavitt 38:45
All right, thank you, Jason. Friday show is about long COVID It is our largest remaining mystery, perhaps risk factor for many of us from COVID. And it’s something that we revisit every few months, every time there’s more information on long COVID There have been a slew of recent studies. Eric Topol, who many of you may know from this show or other places, has written something in nature, where he has done a complete and full summary of what is known about lung COVID. And he coauthored this report with scientists who happened to also be suffering from lung COVID. So I thought that’s a fascinating twist. That’s Friday. Monday, is our conversation about open AI, and chatGPT, the new device, the new person, the new robot, the new whatever you want to call it, him, her or whatever, that I’m sure many of you have used. We’re going to talk with some people about what the coming of AI actually mean for us, for jobs for our society. What’s the good, what’s the bad? We’re going to start with a couple of incredibly interesting guests, including Congressman Ted Lieu and Renee DiResta from Stanford, who is focusing on some of the disinformation elements that could come from the prevalence of AI. So that’ll be Monday. More shows to follow. Thank you for checking in with us today. We’ll talk to you Friday.
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.