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Producer Frank 0:10
Hello and welcome to lever time the show where David Sirota goes on vacation occasionally I am your guest host producer Frank. On today's show, we will be talking about the Democratic Party and their favorite constituents, the private equity industry and how a certain provision in the new climate bill was actually a bait and switch meant to appease their ultra wealthy donors. Then we'll be talking about the group which is actually responsible for the historic failures of the Democratic Party woke progressives. Yep, turns out it was woke progressives fall to the entire time. Finally, we'll be sharing the levers interview with economist Jason Furman one of the top economic advisors to President Obama and who has been one of the biggest proponents of the Federal Reserve's interest rate hikes, the levers Matthew Cunningham cook and Giulia rock spoke with Jason and pushed back on some of his more controversial ideas. This week, our paid subscribers who get levered time premium will get to hear the extended interview with Jason Furman in which Matthew and Julia drill down on some of Jason's policy proposals. For the walks out there, this is as wonky as it gets. If you would like access to lever time premium, you can head over to lever news.com To become a supporting subscriber giving you access to all of our premium content. And you'll be directly supporting the investigative journalism that we do here at the lever. Speaking of which, if you like this podcast and our reporting, please tell your friends and family about the lever. The only way that independent media grows is by word of mouth, and we need all the help we can get to continue doing the work that we're doing. As I mentioned up top David Sirota is on vacation this week, so I will be guest hosting. I mean, really not so much hosting more like, we're like guiding us through the stories that we have been covering here at the lever. And before we get into the stories I should mention that news broke last night that the FBI has raided Trump's Mar a Lago liberal Twitter is absolutely losing its mind over this news. Will this could this finally be the smoking gun that puts Donald Trump away forever and saves America from the rise of fascism? No, probably not. We're not gonna. We're not gonna spend a lot of time on this topic simply because we don't know that much. As of right now. We know that the FBI raided Mar a Lago. According to legal experts, they must have had substantial evidence of some kind in order to be able to conduct the raid. So clearly there is some kind of wrongdoing, we know that this most likely has to do with the classified documents that Trump took from the White House after leaving office, and that the National Archives had been trying to recover. But other than that, we don't really know that much. So there's not a lot of point in prognosticating. I'm sure more news on this story will be breaking over the course of the next few weeks. But if you want to listen to a three hour long, deep dive on the raid and how awesome it is and how much we should be celebrating, then I highly suggest you check out a podcast called pod save America. So diving right in, we're going to be talking about our absolute favorite group of shills and charlatans congressional Democrats. Specifically, we'll be discussing their relationship with the private equity and pharmaceutical industries. Democrats in the Washington press corps spent the last couple of weeks touting a provision in their new climate deal that would finally close the carried interest loophole. In actuality, the provision only sort of kind of weakened the loophole but came nowhere near closing it, even though lawmakers and the media were saying that it did. I mean, go back through some of the coverage in the last couple of weeks and see how much corporate media was saying that this deal closed the loophole, which it absolutely did not. But ultimately, it didn't even matter that much, because here's din cinema successfully had that provision removed from the bill. So the carried interest loophole will remain as wide open as ever. Over the last two election cycles, the private equity industry has donated $83 million to Democratic politicians at the federal level. And that includes 1.2 million to Chuck Schumer in just the last election cycle. And when it came to the prescription drug pricing reform in this bill again, Democrats were touting this saying, Oh, wow, we're finally gonna be able to negotiate prices with Medicare. In reality, this bill would have given Medicare the power to negotiate the price of some prescription drugs but only 10 drugs by 2026. And then, eventually 20 drugs after that, though crucial price caps, including a price cap for insulin were struck down by the Senate parliamentarian, and Chuck Schumer and the Democrats in classic fashion just sort of rolled over and said oops, well, the poor parliamentarians said we can't do it. So I guess we can't make sure that Americans don't get price gouged for necessary life saving medicines. And it may come as no surprise to you that eight of the Senate's top 10 recipients of Big Pharma money are Democrats. And again, Chuck Schumer and Kirsten cinema pretty close to the top of that list. So when you take all of this into account, all of the political theater of the last couple of weeks starts to make a little bit more sense. To discuss this topic in more detail. I'll be joined by the levers, Andrew Perez, Julia rock and Matthew Cunningham Cook, who wrote a really fantastic double feature for the lever last week about the Democrats and their deep ties to the private equity and pharmaceutical industries.

Andrew, Julia, Matthew, thank you so much for joining us here on levered time today.

Matthew Cunningham-Cook 5:48
Thanks for having me on, Frank. Yeah. Good

Julia Rock 5:50
to see Frank.

Producer Frank 5:51
No, my pleasure. So the three of you collectively wrote some really important stories. Last week, you wrote a double feature, which our audience can find at lever news.com. This double feature covered a lot of the Manchin Schumer deals, specifically the behind the scenes machinations happening within the Senate Democrats. So first off, Can someone explain this carried interest loophole? What was it and what did the original provision do in the bill? If anything? Yeah, so

Matthew Cunningham-Cook 6:22
basically, the carried interest loophole is a loophole that allows private equity general partners to get their income taxed at the lower capital gains rate of 20%, as opposed to the higher income rate of 37%. And they do it through a bunch of different complicated maneuvers. And basically, everybody acknowledges that this is a preposterous tax break that only benefits the wealthiest Americans, typically the highest compensated corporate executives in any given year will be from private equity firms. What the proposed bill would have done was to mildly reduce the scope of that tax loophole. And just because it was a modest threat to the industry, it got defenestrated in very short order.

Producer Frank 7:23
So before we get into how it got defenestrated, let's talk really quickly about how the Democrats and how corporate media outlets were presenting this provision because they were all saying that it was going to close it, when it in actuality was not going to close it in any way, shape, or form. Here's just a few examples. NPR headline, what closing the carried interest loophole means for the Senate climate bill, MSNBC, carried interest loophole on the chopping block the New Yorker, will the mansion deal finally kill the carried interest loophole? If mean, like I get I get why elected officials would lie or hyperbolized about it. But how does this a genuine question? How does the media get away with straight up false reporting

Andrew Perez 8:09
like this? I think, you know, Democrats have pitched you know, pitch this as eliminating the carried interest loophole. You know, we saw Joe Manchin talk about it and how it was like, finally time to we're finally ending, you know, this, like ridiculous tax break. But you know, so I think I think the media is sort of inclined to repeat what politicians say verbatim. I also think that, you know, some of them probably just don't really know, the finer details here. You know, I doubt that they were like, really, that so many reporters, were really picking through the bill to say like, oh, oh, it actually it doesn't it doesn't eliminate the carried interest loophole, it only changes the the amount of time that, you know, companies have to hold on to these assets before they can, before executives can claim this, this tax break, you know, I just don't think that a lot of reporters in DC are going to get after the finer details of of legislation that way. You know, it's something it's, you know, it's part of why, you know, I think like, why we exist, why we, you know, have so much shit to talk about on a daily basis is because, like, we will do that, you know, we have Matthew, who, who's, who's a private equity expert. So, yeah, and then and then we have me and I'm there to compile some headlines where people

Producer Frank 9:31
get it wrong. Yeah, Matthew, you could consider a career in private equity if journalism

Julia Rock 9:37
Have you heard that if you if you become a private equity manager, you get to pay a really low tax rate.

Matthew Cunningham-Cook 9:42
I know there's a bunch of benefits that come with being a private equity manager but you do lose your soul. So I've been on both sides of the of the media world so I ran comps for the Philly nurses union for several years before I came back to media and I wouldn't say usually take other union PR flacks under my wing and the first thing I would say is never forget that journalists are on the whole, both lazy, astute and stupid, and really overworked on top of it. So it's a horrible combination. That means that you need to you need to like try and think like how a hamster would analyze the carried interest loophole. So that's, that's really the core kind of issue here too, is that it's yes, you know, media is filled with you know, Craven losers who just see fillet fellate power at the core, there's some economics of the media profession that that lead to really bad practices that you know, individually aren't really the fault of individual report areas, no matter how bad they might be.

Producer Frank 10:57
Got it much better answer than Andrews answer. So but a lot of this, a lot of this carried interest conversation doesn't really matter at this point, because everyone's favorite next gen Disney villain Kiersten cinema had that provision removed from the bill, then in regards to the 15% minimum corporate tax, cinema got them to exempt accelerated depreciation deductions. And then they also added in a 1% excise tax for stock buybacks. Matthew, what do these words that I just said, mean? And is this any kind of a fair trade? Yeah,

Matthew Cunningham-Cook 11:36
I mean, what's so interesting about the way this bill has gone is that initially, it was like, Okay, well, let's very mildly tax private equity. And in the final version, we have actually a massive carbamate for private equity, where private equity firms can now avoid this 15%, corporate minimum tax, thanks to changes demanded by Kiersten cinema. What that? I mean, I'll get back to kind of some of the details in a second. But I think first of all, is just underscoring just this is a very, very powerful industry with, frankly, obscene levels of influence in Washington that really aren't. I mean, I mean, I guess you could say, military contractors, but really, really just those two, I would say private equity has more influence in Washington than health insurance, for example, or hospitals

Producer Frank 12:32
and right, and you're referring to this separate vote that the Democrats held during the amendment process, which, what did it fully exempt private equity from the 15%? Corporate minimum? tactically?

Matthew Cunningham-Cook 12:43
Yeah, there's going to be questions about how its implemented, especially because private equity is so diversified now into things like insurance and other really complex areas of taxation. That said, for the core functions of what private equity firms do, which is takeover portfolio companies, load them up with dead strip their assets, fuck over their workers, that is all going to that all of those activities are going to be exempted from the 15% corporate minimum tax.

Producer Frank 13:17
Fantastic, really great news for all of us. Now, I want to pivot to Chuck Schumer, who, in my opinion, is the most lovable evil person on Capitol Hill. He's just, I think he's got a sweet demeanor every once in a while I forget that he is inherently a terrible person. So Julia, as you reported for the lever, Schumer has some of the deepest ties to both the corporate and the private equity world of any senator. So how is that how deep do Chuck's ties run?

Julia Rock 13:53
Well, so Matthew's comments provide a great backdrop for the fact that just two days after Schumer and mansion announced their climate tax health care deal, it was reported that Chuck Schumer's son in law was hired by Blackstone, the biggest private equity company in the world, as its managing director of government affairs, which is like lobbying basically, this this is a striking announcement, given what what would happen in the ensuing days, whereas Matthew explained the, the, you know, small efforts to tax private equity were stripped out of the bill and actually, private equity gets gets this new carve out. But but this this is sort of a family business for Schumer, because Schumer's two daughters both work for two of the four biggest tech companies in America that that could face, you know, massive changes to their business if Schumer decides to hold a vote and pass the antitrust law that he's he's been sitting on for the past few months. So one of his daughters, Jessica is a lobbyist for Amazon in New York State and his other daughter Allison works for Facebook.

Producer Frank 15:07
It's fucking absurd that that's not illegal. Like it seems like such common sense policy, also pivoting to some of the pharmaceutical stuff and the prescription drug price reform. Schumer allowed the Senate parliamentarian to strike down a provision that would have kept prescription drug price increases and out of pocket insulin costs for people with private insurance. Schumer held what was mostly a theatrical vote to overrule her but it failed. Why are they listening to the parliamentarian? Can someone go into a little bit detail about how the parliamentarians recommendations could be interpreted by maybe a more a more aggressive Senate Majority? Well, so

Andrew Perez 15:52
they're listening to the the parliamentarian the only the only reason this, you know, unelected bureaucrat is involved in this process at all, is, you know, Democrats have sort of resorted to trying to pass anything and everything they can through in these giant omnibus bills passed under the budget reconciliation process, because it allows you to pass bills with only 51 votes, a simple majority vote rather than 60 votes as mandated by the filibuster that, you know, Senators Joe Manchin and Kiersten cinema have have refused to end so you know, they're trying to pass everything through this process. And you know, what ends up happening is the the parliamentarian gets to sort of advise on whether certain measures within these big bills are, you know, considered, you know, sound budgetary matters, rather than just, you know, a matter of policy. You know, it's a pretty ridiculous invention. It's been around for, you know, this specific procedure has been around since like the 80s. These these bills go with what gets called a bird bath, they go through a bird bath, named after Robert Byrd, the former West Virginia Senator. And, you know, there are ways to kind of get around the parliamentarian. You know, basically, you kind of have to when when the parliamentarian says that some some measure is, is, you know, about policy and not the budget, you know, you say, that's really cool. We're ignoring you. And in the chair, the like Democrats presiding chair would have to say that like, actually, this measure is germane and it is a budget is a budget matter? If you were to do that what ends up happening is, you know, Republicans, it would take them, it would take Republicans finding 60 votes to exclude a measure. If you don't do that, you know, you've removed the provision, and then try to add it back in via amendment, which is what the Democrats did do this weekend. What ends up happening is it requires 60 votes to add it back in. So you know, you've basically taken away your own power and put the party put all the power with the minority party here. And so, you know, when Democrats tried to add back this insulin cap, for people on private health insurance plans, they had 57 votes, and you actually had votes from including from, you know, seven Republicans, but the whole democratic caucus, including mansion and cinema, who had both, you know, made all of these pains and pain statements about how they were never going to overturn the will of the parliamentarian. I mean, that's the real tell is they voted for this thing. They knew it was not going to happen, because this this vote was being conducted in a way that it was designed to not pass.

Producer Frank 18:44
And these parliamentary rulings, in conjunction with Schumer are significant because of the pharmaceutical money that has flown so freely to Senate Democrats. And they've also spent some money lobby blood being the parliamentarian themselves. Is that correct?

Andrew Perez 19:01
So there's been a bunch of reporting about how big pharma basically pulled in Republican lawmakers to like, take their objections, like take the pharmaceutical industry's objections to the parliamentarian, and it's, you know, it's actually been it's been reported since like, last October, because Democrats were going to pass this measure last late last year, right. Like their drug pricing measure. They were going to, I mean, they were going to pass the entire reconciliation bill late last year. So yeah, Republicans have been doing big farmers bidding at the parliamentarians office since that point. It was you know, it was pretty obvious how this was going to shake out right like, but you know, the the end result is that the pharmaceutical provisions in this bill have been really thoroughly stripped down. And it's you know, in addition to changes that cinema had already negotiated last year, stripping the bill down Yeah, it's it's a pretty bad situation. And you know, this was all happening by the way as cinema was good. Doing this TV ad campaign from a pharmaceutical front group like just blasting the airwaves in Arizona and talking about how great she was really, and running these ads making her look like a fucking sports car. I'm not even not even kidding. It's like, the ads are like how you would sell like a convertible.

Producer Frank 20:19
So tying all this stuff together, the lobbyists, Schumer's family members, everything that we've been covering there is, as Julia mentioned, this big antitrust bill, which Schumer has yet to hold a vote on. Do we know what is in this bill and why Schumer is dragging his feet on it.

Julia Rock 20:38
So we do we do know what's in this bill. It's It's a bill that would target the big tech monopolies and stop them from engaging in a very basic anti competitive behavior, which is sort of using the fact that they control these platforms Facebook, Amazon, the App Store Google from from using that control of her platforms to prioritize their own goods and services. So this is a bill that would would block this this very basic type of anti competitive activity. It was introduced by Amy Klobuchar, who you'll remember from the presidential campaign, and Chuck Grassley, and those senators say they have the votes to earn at least Amy Klobuchar saying, you know, the Senate has the votes, the 60 votes, it needs to pass this antitrust bill. And yet Schumer has not held a vote on it a couple of weeks ago to fundraiser. Schumer told his donors that he didn't have the votes to pass the bill. And that's why he wasn't holding a vote. He hasn't said that, you know, to the public. He just said that to donors. So there's sort of this big question. Well, are the votes there? Are they not there? And if they are there, as Klobuchar and many groups, you know, pushing to the bill, have Senator there, why isn't Schumer holding a vote on it? Well, sort of interesting that that two of his daughters, his his two daughters work work at the companies that that would be targeted by this legislation.

Andrew Perez 22:02
Yeah, I'll add in here too, you know, so there's the there's the family ties, obviously, with Schumer, like that's sort of like the carrot. There's also the stick here, right? Like, big tech has been running a giant ad campaign, like just an absolutely staggering ad campaign on this topic, saying that this, this antitrust legislation would break our prime, like breaking amazon prime because it would, you know, keep them from preferencing their products above competitors on prime. And it may be forced Amazon to to allow people to choose other shipping options, not just their own if they want to sell on their on their platform. But so, you know, they've been they've been specifically targeting a lot of sort of like the most vulnerable Democrats who are up for reelection right now. Like, like in New Hampshire, there's been just a giant ad campaign. There's been like campaigns or ads in Arizona, you know, the Atlanta area. So like, they're they're really kind of pulling out all the stops here. And there's, there's also, you know, I'm here in Maine, I just saw a campaign, a national campaign being run by like a conservative group to I think it was called the the taxpayers protection Alliance, like the amount of money getting pumped into these ads is probably actually getting getting close to equivalent to what the health insurance industry spent in 2009 and 2010, to kill the public health insurance option, like so, you know, there's reporting that some of the vulnerable Democrats don't want this bill coming up. In You know, there's probably enough votes to kind of account for that, like among Republicans there very well. Could be. But you know, we odds are, we're not going to find out.

Producer Frank 23:47
Andrew, Juliet. Matthew, thank you so much for all of your hard work, your reporting. I know the three of you really, were burning the candle at both ends last week, getting all these stories out. So thank you so much for your reporting. And thank you for joining us here today. Of course. Thank you. All right, we're gonna take a quick break, but we'll be right back with more leisure time. Welcome back to leisure time. Up next, we're going to be talking about everybody's favorite punching bag. Whether you're a conservative Republican or a centrist Democrat, one of the few things that we can still agree on is that the real problem in US politics is woke progressives, or at the very least we can agree that blaming them for everything is a great political strategy, universal health care, canceling student debt, defunding the police. That's not how the real world works. And honestly, the fact that you're even bringing this up is like very destructive and is going to hurt all of us in the long run. Obviously, I'm being facetious here, but this this isn't a new phenomenon. This is a time honored tradition throughout history to blame progressives for being too idealistic and radical and demanding too much from the political establishment. So now we're going to the levers interview with journalist Alex Perine, who recently wrote a piece for the forum titled The never ending war on the woke, myself and Julia rock sat down with Alex to discuss the history of punching left, and how this strategy has evolved over time. Alex Priene, thank you so much for joining us here on libre time.

Alex Pareene 25:25
Thank you so much for having me. Oh, yeah, absolutely. So

Producer Frank 25:28
you recently wrote this piece for the forum titled, The never ending war on the woke. And, you know, we here at the lever are regularly critiquing the Democratic Party and its leadership for constantly throwing progressives under the bus. And I know, we have our ideas as to why, you know, mainly because they're the easiest scapegoat for the Democratic Party when they lose, which is always but you laid out a little more of like, a more detailed theory in your piece. So so what what exactly was the piece about the piece was

Alex Pareene 26:03
about in part, going back to the history of that tendency, you describe, and that history extends back basically, to the to the 1980s, and 1990s. And I was drawing on a really good book that I would highly recommend your listeners read about called left behind by the historian Lilly geyser. And in that book, I found this memo that a couple of New Democrats had written right after the 1994 midterms. And if you remember, the 1994 midterm was Bill Clinton had just been elected at 92. And in 94, the Republican Revolution had, had won Congress after Democrats had controlled the House, basically, since the New Deal, you know, it was, and you would think that after Bill Clinton wins the presidency as a new Democrat, and the New Democrats were the sort of 80s centrist Democrats who were fighting against liberalism, you know, they were fighting against what they perceived as excessive liberalism in the party. And you would think that after someone who had formerly been the head of the of the DLC, which had been the the main leadership organization of these New Democrats, the centrist Democrats after he went to presidency, and then the Republicans suddenly win control of Congress, for the first time in a generation, you would think that would inspire some soul searching. And what these two people who were, who were DLC affiliated, said in their memo, they're sort of strategy memo, instead in 1995, was that it was a great thing. It was great that Republicans had won control of Congress, because that would finally finally force Democrats to abandon political correctness. And to purge the party of its liberals. In you know, in a sense, it was a celebration of conservative victory, in that it would, it would force, you know, the defeat of liberalism. So Al from and will Marshall wrote in 1995, the 1994 elections have wiped the slate clean, and liberated Democrats from special interest liberalism. And, you know, that's that's quite a thing to say, after your side, you know, sort of has a has a resounding defeat.

Julia Rock 28:35
It seems to me there's sort of two things to disaggregate here, sort of first, that the strategist aren't just saying, you know, we're purging the party of progressives or the left, they're sort of specifically saying we're purging it of Yeah, political correctness, which which sort of as uses this, this allegation that they're representing special interests, so sort of first, like, what what exactly is sort of this distinction between just saying, you know, progressives, the left and and specifically saying political correctness, and then to is there concern, you know, this issue of political correctness? Or is political correctness sort of simply a way to, to sort of lay this allegation that these are actually groups that are just, you know, representing special interests? And and it's sort of a label that is very helpful to attack these people, but isn't actually sort of the root of their concerns?

Unknown Speaker 29:30
Yeah, those are those are great questions and the use of the phrase special interests. I think Lily guys makes us pretty clear. The use of the phrase special interests starts gaining currency in the Democratic Party in the 1980s. And by special interests, it's generally used to mean black people, feminists and labor, and then it could even be extended. It can even be extended To beyond that to mean, like, environmentalists, it can mean farmers like special interest comes to me and basically, the entire New Deal coalition, which I find really interesting, and then

Producer Frank 30:15
can't stand those politically correct labor organizers, you know, just exactly just like making sure that they have safe working conditions. So politically correct, my God.

Unknown Speaker 30:23
So then, from and Marshall had prior prior to the 1994 midterms, prior to the Republican revolution, they had been complaining since Clinton had taken office, because Bill Clinton had taken office, saying, I'm going to make a cabinet that looks like America. And this is something that we're probably familiar with hearing from Democrats. But it was a pretty new thing to hear a Democrat say in 1992, or 1993. They didn't like that. They, they they had been complaining as early as 93, that Bill Clinton needed to essentially do something about what they called his PC cabinet, they being like from and Marshall, yeah, the the DLC people. And and to get to what you're saying, I drew the connection between this antipathy towards what was used to be called political correctness, and what is now called wokeness. Because I think it's the same exact tendency. And it's that even sort of token recognition of diversity in the United States is too much for this group in the Democratic Party, whose obsession for years has been to win over conservative wives. And, you know, they, they couch it in strategic terms. But I think it's been this just sort of like Ahab, like obsession for 30 years

Producer Frank 31:55
to speak to that there was one line from your piece that really stuck out to me that I thought, like crystallized this idea, which was, the big idea of the New Democrats was that denying all of these annoying groups, any material gains would please the white suburban voter who had emerged from all the social upheavals of the 1960s and beyond as the main character of American politics. And I thought that was a really I think, that really sums up sort of like, kind of like this, this triangulation politics that this is very much a part of so how has that played out? Over the years? And is the white suburban voters still the main character of American politics?

Unknown Speaker 32:32
Absolutely. Yeah. And you know, if anything, what's gotten interesting over the last few decades is is that in the actual existing white suburbs, right? Well, the suburbs, the suburbs themselves have gotten much more diverse, the suburbs have gotten much more diverse, and the voters in them, in many respects, have gotten much more liberal. But, but as that has happened, the debate and the dialogue within the party has, has seemingly been frozen. And Amber, I think a lot of us thought, you know, after Barack Obama, and after the sort of resistance to Trump, that that would change that the way we talk about these voters would change. But if you go back and read this, you know, again, the sorts of strategy memos and internal documents that these Democratic Leadership Council people were writing in the 1990s, like very little about it has changed. And that's still the basic idea, the basic theme is still everyone associates the Democratic Party with these hated groups that are our base, and we need to throw them under the bus, we need to throw them under the bus to reach this sort of unicorn, white suburban voter, who, you know, doesn't seem to believe in much and that's what I what it always comes down to is like this, this person doesn't actually seem to want that much all they seem to want in the eyes of the strategist, all they seem to want is for a guy in a suit to complain about welfare queens, the reading about the history of for example, welfare reform in the in the 90s. And under Clinton is pretty remarkable, because at no point can they decide is the point of our program, to reform welfare to help poor people more efficiently. No, the point of reforming welfare is that people got upset in the 80s about welfare queens, Reagan complained about welfare queens got elected. And so therefore, we needed to say we're going to end welfare.

Julia Rock 34:36
And didn't you make a point in your in your review of this book that sort of even after that, it was sort of like the sir I'm not saying politically correct me politically correct, but like the correct strategy politically, when it no longer was they still did

Unknown Speaker 34:51
it? Yeah. And that's, that's one of the most sort of infuriating things about it is that Bill Clinton was cruising to reelection in 1996. You can go back and look at the polls, he was cruising to reelection. And they basically, the Republican, the Republican controlled Congress, made his welfare reform policies even more right wing. And over the objections of a lot of people in his administration, a lot of people, including some who resigned. We're on the advice of Dick Morris, who is one of the all time psychos in American politics. He signed it, he just he just signed it. And it was basically like they he called me, you know, I think Dick Morris called it insurance, like it was just like, yeah, you're probably going to win anyway. But this is insurance. And that's an insane way to think about signing a piece of legislation that affected a social welfare program that had been in effect since the New Deal. And that affected the lives of, of actual living Americans. You know, it was the sort of it was there was a callous indifference to the effects of policy, because the point of policy was only to win elections. And that attitude has persisted. And if your idea is that, like the point of policy is just to win elections, and the people that we need to win over our imaginary reactionary whites, it's gonna lead to some really stupid places,

Producer Frank 36:19
it always boggles my mind that, like, I have a personal theory that it's, it's not unique to me, but that, you know, if elected leaders put forward ideas and policies that are more progressive, that are more forward thinking that do help potentially marginalized groups that the Overton window will shift eventually, you know, I mean, like, Reagan kind of demonstrated that in the 80s that like, he basically convinced the entire country that government is bad, like, which like was it was like a minority position before he took office. And then by the time he left, like, most Americans were like, oh, yeah, government is bad. So do you have any ideas as to why that never happens? Why the Democratic Party doesn't make a push for things that they know will actually benefit people and potentially change the public consciousness? Is it just out of fear cowardice is to behold, like, what do you think?

Alex Pareene 37:08
Well, that's a that's a million dollar question, isn't it?

Producer Frank 37:11
I want it I want a very exact answer. Alex, I need to know exactly why.

Unknown Speaker 37:19
You know, the fact is the Democrats have a really weird coalition. And and you can see this in other wealthy countries with sort of left of center parties that have been lost in the wilderness for a long time. And their their coalition, you know, consists of the groups that are derisively referred to as the special interests still, which is, you know, poor people, people of color, labor, and then But then, you know, a huge part of the coalition is, at this point, educated fairly well off professional class people. That leads to a lot of like, contested ideas of like, what the party should actually be doing. But I think that, that this idea of shifting the Overton Window, Democrats have this idea that what they need to do is operate in the shadows, so no one knows what they're doing, and that they actually think they can improve people's lives. But only on the margins. This has actually been the policy tendency for many years. And it's, you know, this sort of hangover from Reagan. This idea that everyone is suspicious of big government. So we cannot say we're doing big government, we have to operate, we have to fix things only on the margins, and we can't, you know, do new big programs. And it goes to Cass Sunstein, the incredibly influential economist, called the nudges, Obamacare was sort of built on on a lot of these ideas. And, you know, their idea, and it's in part, just a matter of age, because a lot of these people are still shell shocked from the Reagan Revolution. Their ideas that like people will revolt, and, and go against us if we try to do big, good things. And if we talk about the big, good things we want to do. And and this is reflected to in the fact that, you know, all the Senate can do is sort of, you know, affirm judges like that it's just a judge affirming factory, no legislation. And league like, yeah, that's sort of like legal, that's sort of legal liberalism has been the dominant tendency in liberalism for years, because it's like, well, you know, we're not going to get, we're never going to get another great society, we're never going to get another new deal. So what we can do is just install a bunch of judges who will Tinker in the margins to like, make things a little bit better. And they don't even really have like, they don't even have this sort of theory of how to change public opinion. And that's been one of the one of the really annoying debates over the last few years is this. You know, it's called Popular isn't, but it's the idea that public opinion is fixed and naturally formed and that political parties, like just have to react to it instead of shaping it. And as you say, conservatives do not believe that

Producer Frank 40:12
no, they're like, our words will lead the people like we will tell you what to, we will tell you what to believe, and to think

Unknown Speaker 40:18
you'll believe it. Yeah. And then like, suddenly 40% of the population will believe it after we tell them get mad about this. They will exactly.

Julia Rock 40:25
I think this leads in well to this question, which is that, you know, you have this great little anecdote about political playbook tip sheets, something we love to talk about at the lever because of how colossally stupid it is. It's the West Wing playbook tip sheet, where, you know, the headline was what the White House doesn't want you to read. And inside is a you know, public Wall Street Journal op ed by Mitt Romney calling on the White House to quote ditch its woke advisors. And what you're sort of ask in the piece is, you know, Marshall, and from and now other other Democratic strategists like James Carville should just acknowledge that they've won. And, you know, another example that comes to mind for me is that after the after congressional staffers first announced their union efforts, Josh Barro had this substack post in which he sort of said, like, this is an attempt by the more, you know, Lefty staffers of Congress to push policy towards the left, and Matt Iglesias is always sort of saying this, like the Biden administration has listened way too much to these, you know, basically woke, I think, is implicit in what he's saying left us. Why do you want the strategist to admit that they've won? And what exactly does it mean, you know, for the Democratic Party that they have won? Yeah.

Unknown Speaker 41:45
When you when you look at the intra party history here, you see how absurd these arguments are. Because, first of all, Joe Biden is the President, Joe Biden, if you if you remember, if you remember, if you are, if you are, as you know, I'm I you know, I'm an ancient fossil, but if you remember the 2008 election, Joe Biden was chosen because he was already an anachronism. Barack Obama, in his infinite wisdom was like, I need a really out of touch old white guy to balance the balance me. And Biden was already seen as the past of the party at that point, we had moved beyond needing guys like him. So it's really wild now that he achieves his life's ambition and wins the presidency. And, you know, his administration, there's a really desperate need among people whose long standing goal was to elect people like Joe Biden, when they watch that not translate into, you know, unbelievable political success, to like search around for someone else whose fault that is. And, you know, the the fact of the matter is, people who have been saying, since the 1980s, that we need more people like Joe Biden in charge are now have him and Ron Klain, and they're running things. And what's happening is that, you know, Biden's approvals are bad. The remarkable thing is that his approvals are incredibly bad among young people. This is most incredibly left wing young generation in the history of American politics. I'm sure your listeners know this, but that's not actually it's not actually true that young people are always left wing, and then they get conservative as they get old. That's not actually true. You know, like the 60s, were not they were, you know, that was TV, whatever the moment that was movies, right. Like they were concerned a lot of conservative young people in the 60s. But you know, we've we've engineered through economics, and incredibly left wing young generation, and they hate this administration. They hate it.

Julia Rock 43:58
I think it was 1% of 18 to 29 year olds in the most recent poll, who strongly approve structures just a number I cannot.

Producer Frank 44:06
So are you people like show your show yourself right now?

Unknown Speaker 44:13
And so when you're facing those numbers, I mean, I don't know it seems it seems nuts to me to go back to go back to the anti PC. Well, right. Like to go back to? Well, the problem is he's listening to too many PC people. That problem is all of these PC, congressional staffers. I mean, look at Congress, look at Congress and tell me Oh, yeah, the problem is they're young liberal staffers. That's the problem with congressional leadership is their young liberal staffers are forcing them to take unpopular opinions. That kind of advice is just to flatter leadership to flatter the old people in charge. The old people in charge who are screwing up. They want to be told it's someone else's fault. That's that's all that advice is,

Producer Frank 44:58
it's so frustrating I hate When people call Joe Biden as socialists, because then socialism gets 100% of the blame, and we get 0% of the socialism. It's excellent. Yeah, my least favorite thing?

Julia Rock 45:09
Well, I think, you know, the last thing we want to ask about, and I guess we're sort of asking you to put your put yourself in the shoes of a Democratic strategist. And maybe this is unfair. But, you know, sort of as, as we've been talking about the the Republican Party, of course, it's clearer than ever, is really embracing the sort of more extreme way of the party, and even maybe sort of benefiting from the, you know, radicalism and extreme ness and craziness of those people without sort of explicitly embracing them sometimes. And of course, the Democratic Party, as we've been talking about does basically the opposite. It is this sort of like an insurmountable structural problem? Or what do you think it would take for the Democratic Party to sort of change its relationship to the sort of more left wing or not even left wing, but I guess, as you've pointed out, just the people who actually constitute the base of the party, to embrace them, rather than

Unknown Speaker 46:07
Yeah, it's, it's a it's a tough question. And it's sort of it honestly, that's, that's the question for the left of center parties in in the west right now. And the conservative movement, you know, they have a lot of money on their side, and they also have a media infrastructure on their side, that liberals have not emulated. And it's going to take, on the one hand, it's going to take the current generation of leadership, somehow exiting the stage. And, you know, Father Time might take care of that. But it's gonna, I think what's going to take is, this is a leftist cliche to say organization, but to be more concrete, it's going to take, I think, the new labor movement, the new labor movement is going to be huge on that. And, you know, it's a long, hard road. But you can see the ground shifting in terms of, of workers actually coming around to believing they should organize at the workplace, and in the workplaces that currently exist, right? It's not going to be, it's not going to be the old hardhat factory guides of, of, of your, it's the sort of service workers and even academic workers that are sort of organizing now. And then from there, from there, you got to organize locally, take over your local party. And that's actually the huge you know, I live in New York and I have been studying, you know, the local Democratic Party for years and years and years. It's still a patronage machine. It still sucks. But there are groups that have been organizing for years to work to take it over. And they've actually made huge, like strides. They've made huge strides. And that's where it's going to have to come it's going to be it's going to be making the party, it's going to be, you know, a force like labor, actually making the Democratic Party democratic, and that's going to have to come that's going to have to come one place at a time. And I think that's the only way that these tendencies change.

Producer Frank 48:21
It's always the unsexy boots on the ground hard organizing work that people don't want it like, you know, people want an easy answer. And it's never the answer is just like we'll put in the time and effort for years and years and years. Yeah. And then unfortunately, maybe we'll get somewhere. Yeah, exactly. Alex, this was awesome. Thank you so much for joining us today. We really appreciate it. Yeah, it

Alex Pareene 48:39
was really fun. Thank you.

Producer Frank 48:41
Okay, for our final segment today, we've got something very, very exciting. So we're going to be sharing the levers interview with Harvard economist Jason Furman, who was the chairman of the Council of Economic Advisers for President Obama. Jason has been one of the biggest online proponents of the Federal Reserve's recent interest rate hikes to curb inflation. And as Fed Chair Jerome Powell has explicitly said, to get wages down. So the levers Matthew Cunningham, cook and Julia rock sat down with Jason to push back on some of his opinions and question whether the Feds strategy of crushing workers and inducing a recession is actually the best thing for the economy and for the country as a whole.

Julia Rock 49:25
So, Matthew, depending on who you ask, right now, we are two quarters into a recession marked by negative GDP growth or the economy is booming. demand is high, consumer inflation expectations are falling and the labor market is strong. Given this confusion, or these contradictions about the state of the economy, the Federal Reserve's claim that data will continue to lead decisions about by how much to hike interest rates is somewhat misleading because the data don't necessarily paint a clear picture of the economy.

Matthew Cunningham-Cook 49:57
Thanks, Julia. Yeah, Jason Furman embodies some of these contradictions that you see in debates over economic policy. So he accepts that inequality as a problem, that double digit black unemployment should not be a policy aim. And even that unions should be stronger. But he's also publicly advocating for large interest rate hikes, that will throw millions of workers out of work, that will increase the bargaining power of capital against the bargaining power of labor, and seems to shrug off the consequences by saying that monetary policy is a blunt instrument, and that these are technocratic questions. So so we spoke with Jason Furman about inflation. This is a guy who was the chairman of the Council of Economic Advisers under President Obama. And before that was the Deputy Director of the National Economic Council under Larry Summers. And the results were interesting. So please listen on. Um, so I guess to start off, you know, is kind of just a general question I know, you've probably been asked a bunch of times before is kind of where do we stand kind of, with the economy? You know, what's, what's your big take? You know, what are some historical antecedents in your view to kind of where we are right now, you know, and kind of how does your perspective on those historical antecedents inform kind of your analysis of the situation today?

Jason Furman 51:37
Well, you're starting right in with it. incredibly difficult questions. So I'm stumped. I don't know the answer. Maybe we should just stop right now. I don't love the historical antecedents, because I just think the best one is 2022, we just have never had this combination of things. So I think you need to reason through it. And when you reason through it, you need to be prepared to update your reasoning based on the data. And you need to put a big error band around whatever you think. A second difficulty we have is, I'd love to be able to predict what growth is going to be in the second half of this year. I don't even know what growth was in the first quarter of this year. And that ended more than three months ago. But there's two different government data sources. One of them shows a big increase in growth, one of them shows a big decrease in growth. And I don't, not sure which of those is correct. So I'm trying to look forward. But I can't even look through the rearview mirror. If I had to guess now that I did all the caveats, and complaining and whining about not understanding things. I think there's a chance for a so called soft landing in the US economy where inflation comes down, where we resume seeing real wage growth for workers, where that happens with a slowdown in job growth, but not a reversal. But there's also two ugly scenarios, one of a recession, and another of a sustained period of high inflation without wages keeping up and those ugly possibilities are out there, too.

Matthew Cunningham-Cook 53:15
Let's talk about kind of a wage price spiral. So sometimes on Twitter, you have said you I mean, you do think that wages and prices are linked. You've said that a few times. And so kind of what you're when you're saying inflation, is that what you're concerned about? What What does kind of the word inflation mean to you, in this sense, in terms of kind of a causal relationship? Yeah, so

Unknown Speaker 53:47
I don't love the word wage price spiral, because different people here at different ways. And I think the way a lot of people hear it, is wages go up. 3%. So prices go up. 4%. So wages go up 5%, and prices go up 6%. And soon, everything's going up at infinity. I think that's a very, very unlikely scenario. And to the degree that someone wants to dismiss and mock that, you know, possibly I joined them in the dismissal and mocking. Where I think it gets more complicated is if you could do an experiment and you waved a wand and every single business in the country had to pay every single worker 10% More, they would raise their prices. I don't know how much they'd raise their prices, it might be a bit less than that increase in wages, and they'd absorbed some of it and lost profits. Maybe some of it next year productivity, but prices would go up some just like when jet fuel goes up. Airlines raise prices and when chicken breast prices go up restaurants raise their prices. And the converse is also true when price growth is faster. If all the prices in the economy went up 10% Tomorrow, wages would go up. I don't know how much they'd go up, even without index contracts, you'd have workers walking in saying, Hey, here's how much more it costs me to get to work, you need to pay me more. And employers would say, You know what, I don't want to pay you more, but I'm actually selling my stuff for more, so I can afford to pay you more. And it's actually attractive for me to get workers, I don't really have a choice because otherwise the person down the street will so so I think wages and prices are definitely linked. That's what gives inflation a certain amount of persistence, and momentum, which is a bad thing. The flip side of it's a good thing, I do think people will get paid more, because of the price increases, although not enough more, at least so far to compensate for them,

Matthew Cunningham-Cook 55:43
you know, it's always hard to respond to an anecdote. So bear with me. So, you know, waterbirth are in the 50s sought to negotiate over the price of cars. And the big three just totally resisted, but there was, it was, it was, I believe, it was a core issue that that was a strike is that they wanted to they wanted an increase in wages without the same corresponding increase in the price of cars. And, you know, I mean, just, you know, I just the last few days, you know, I've just been doing kind of a crash course and reading through your work, you know, unions don't appear too often in your analysis. But what what do you kind of make of, of, of something like that, of, of kind of, you know, I mean, we do it in the public sector these days, I would say, you know, all the time, we've been the labor movement, where I worked for, you know, many years, where it's like, oh, you know, we don't just want higher wages for teachers, we want you know, smaller class sizes, we want more social workers, things like that. It's something that sends rollers death, we've seen very little of but but kind of what do you make of have some type of proposal like that, whereas kind of organized labor seeks to kind of bargain over prices, in addition to wages?

Unknown Speaker 57:09
Look, there's some evidence in the scholarly literature, I'd be interested in your own personal experience, that there can be a difference between countries where labor unions and collective bargaining covers a very large fraction of the workplace workforce. And where it covers a small fraction. I did something with a trade unionist from Europe a few weeks ago, and they were actually trying to restrain some of the wage growth, they said, We want extra wage growth to compensate for the domestic inflation, we do not want indexation tied to the increase of oil and natural gas. That sucks for our members. But we understand that the employers are also paying the higher costs for oil and natural gas, and they just can't afford to do that extra raise. So you have seen unions in Germany basically negotiate in some ways a smaller raise, because they're afraid of losing employment. And one thing you see in Germany, when they have recessions, they tend not to lose a lot of jobs, they tend to actually really hold on to their workers, we have much more, you know, much worse fluctuations in employment. So you see that in Germany, it's hard for me to see an American labor union going into a negotiation and saying, like, we don't want as much of a pay increase. And but I wouldn't tell them to do that. If you're not, you know, doing collective bargaining at the level of the economy as a whole, the idea that you're going to internalize how it affects the economy as a whole, when all you have representing is your members who are, you know, for your particular union 2% of the country, let's say, for a very big union. I don't think you should do that. So So I think it's, you know, what you describe sounds to me, like a, possibly a bygone era in the United States. It sounds to me like what we might still have in Europe, and for the era we have in the United States union should be trying to grow themselves and trying to get the best deal for their members. But we'll have a hard time trying to sort of optimize over the macro economy as a whole, when they're just a part of it. But I don't know what I if you think something different, correct me.

Julia Rock 59:18
Right. Yeah. So I mean, you know, obviously, one, one reason people are sort of hesitant to make the comparison to the 70s is because, you know, unions are just nothing in the US like they were at that time. But also, you know, inequality in the United States has increased since the 70s. And there's sort of no reason that that that trend wouldn't continue. You know, why? Why has income inequality been been rising in the US since that time? And what is it that that policymakers should be doing to address whatever forces are driving inequality?

Unknown Speaker 59:55
So this is almost as hard as the question you opened up with with where we are in the economy, the difference is that I've been thinking, researching and talking to people about this question for more than 25 years now. So I've had more time to prepare for the answer. In my view, there's a lot of people that want the one cause of inequality, I get such a large increase, that there's room for a lot of people's causes. I roughly when I'm teaching my class, divide them into two buckets. One is the competitive explanation, a slowdown in educational attainment a slowdown in the pace at which regenerating, for example, college graduates, at the same time, as things like computers that are creating more of a reward for skill, and just trace out the supply and demand curves, more demand for workers with higher levels of education, less producing of them, their wages go up relative to others. And then I teach my class a set of institutional explanations rooted in the decline in labor unions, the decline in the real value of the minimum wage, an increase in the concentration of businesses, which has made it easier for them to negotiate. If you have one hospital per city, which you often do now, or they used to be five, six or seven that merged together, that one hospitals can be able to pay nurses less than it used to be able to. So I think there's both these competitive explanations. And these institutional explanations, in terms of which ones are most important, sort of depends on which time which place which form of inequality we're talking about. And my pretty broad ecumenical diagnosis of the problem with lots of different causes, is very consistent with my diagnosis and solution, I would do everything, I would have a more progressive tax and transfer system, I would have stricter antitrust, I would have stronger labor unions, I would raise the minimum wage, I would pursue an agenda around things like poaching, wage collusion, and the like. I'm sure there's a couple of important things that I left out on my list, that doesn't mean I don't support them, it means that I just didn't happen to mention them. So yeah, a lot of causes a lot of times. But the thing I want to end on, though, is I really don't think it's hopeless. And the deck is totally stacked against everything. If you look at wage growth, wage growth for lower paid workers was higher from 2015 through the present, than it was for higher paid workers pretty much every year from 2015. Through the present, I think part of that is the minimum wage was ways raised quite a lot and about states covering I think about two thirds of workers, and they have that ratio wrong. And part of that is I think we had a hot labor market and sort of a good way, not an overly hot labor market, which I think we have now. And from 2015, through 2020. That helps. So I do think this isn't just everything always gets worse, we do have examples of progress we can look at and that should just motivate us to do more, not to do less.

Matthew Cunningham-Cook 1:03:10
So yeah, we've been talking a lot about climate lately. And basically what Furman is articulating is in all of the above approach to diagnosing the inequality crisis, oh, it could be educational attainment gaps, or it could be the decline of union bargaining power, who really knows. And really, that's dangerous, because the decline of the labor movement in the private sector, which has gone from 34%, in 1954, to less than 6%. Today, is really, essentially the sole cause of the growth of inequality. And if you understand it, that way, you get a lot more clarity in your economic analysis. That is to say you oppose any policy that hurts unions, like higher interest rates, and throwing people out of work. So then we we get into some questions about Jason Furman ins approach to economic questions more broadly, and his history with that, and he says something that's really interesting.

Unknown Speaker 1:04:16
I was on the side of more expansionary macro economic policy, in most every debate from 1996 When I joined that debate, up until February of 2021.

Matthew Cunningham-Cook 1:04:35
Ah, okay. So until it really mattered, you were in support of macro economic expansion. And then as soon as the Overton Window shifted, Jason Furman goes to support policies that will throw millions of Americans out of work. Got it, Jason. And let's be clear, this is really all about the elite being mad that people got big checks from Biden And in particular middle class families above the poverty line. Jason thinks it was bad policy to give my family for example, three people with a household income in 2019 of less than 90k Money. Meanwhile, he lives in a $6 million mansion.

Unknown Speaker 1:05:18
I think inflation, I think unemployment is much worse than inflation. I think real wages matter a lot. And, you know, I sort of sympathize with everything you just said. I think, though it is a quantitative thing. I think the government overdid it in terms of fiscal and monetary stimulus. And I think that's not helping right now. So look at real wages, wages adjusted for inflation, they're falling at the fastest pace they've fallen in 40 years. Part of that is some of the inflation is external, it came from, you know, Russia, raising the price of oil. And you wouldn't expect wages to keep up with that. And that's the type of bad luck that goes away. But I think part of it is that when you heat the economy, way too quickly, you get, you know, prices tend to adjust more frequently than wages adjust, for example, that's something John Maynard Keynes talked about, nearly 100 years ago. And so prices go up more than wages go up, because wages are stickier, as economists say. So I don't think this level of heating is obviously good for workers, the best measure is real wages. And that measure is not doing well. I have reef sort of phrase, the slogan for my approach, if heating the economy, one log at a time, rather than throwing all the logs on the fire at once. It's certainly the case last year that no one was saying like, hey, let's do this. Sure. We're gonna have 6% inflation, but it's worth it. And I say six. Yeah, I mean, things like the American rescue plan and what the Fed did after that, you know, so and then in terms of worker bargaining power, I guess, I'm just not even positive. You had more strikes in 2018, and 90, and then you had over the last two years. So

Julia Rock 1:07:25
Furman doesn't think that this level of heating, and it's not quite clear, if he means just in prices are also in the labor market is good for workers. He says that unemployment is worse than inflation, but he's endorsing rate hikes that will increase unemployment. So there's a clear contradiction here between what he says about the dangers of unemployment for people at the at the bottom end of the income strata and the policy prescriptions that he has in mind.

Matthew Cunningham-Cook 1:07:53
So so this is basically it for part one of our conversation here. And what I think it shows is that when you get into the weeds of talking about fisherman's positions in earnest, he's very difficult to pin down. That's very different from his public persona. FURMAN is quoted in the media all the time. And what comes out in those pronouncements is that the cash grants in the American rescue plan caused the inflation that we see today, and that there should be two approaches taken. One, the Fed should raise interest rates, and to Congress to take deflationary action on things like prescription drug pricing reform. But what Furman seems to be totally incapable of understanding is that the Fed raising interest rates is incredibly straightforward, as opposed to Congress passing prescription drug pricing reform in the context of an enormously powerful industry that is deeply wedded to obstructing any meaningful price reform.

Julia Rock 1:08:59
And you can see this very clearly in the new inflation Reduction Act, which nobody thinks is going to reduce inflation in the short term, drug negotiations with Medicare will not begin until 2026. So there's no deflationary benefit there. But by contrast, you have the Fed which can raise interest rates at each of its meetings and enjoy the support of major sections of capital, because ultimately, they support any action that crushes labor, especially when Amazon and Starbucks and now other independent unions are on the receiving end of successful unionization campaigns. And when someone like Jason Furman says that we need to raise interest rates, he's joining a powerful chorus of very powerful people, which is not the case if he's supporting prescription drug pricing reform.

Matthew Cunningham-Cook 1:09:46
Those differentials in power are not present in fermions analysis. It's as if economics exists in a vacuum where we are all equal players on a stage, which is indeed a central The premise of classical micro economics. But as journalists, we just can't afford to ignore the relationship between power, money and policy.

Producer Frank 1:10:11
Okay, for this week's bonus segment, you will be getting the extended interview with Jason Furman, Matthew and Julius spoke to Jason for over an hour, and they covered a lot of ground. So we wanted to share the entire conversation with our supporting subscribers. Again, thank you. Thank you, thank you so much for funding the work that we do here the lever. Now here's the bonus segment,

Matthew Cunningham-Cook 1:10:32
in our bonus segment for lever time, where we give Jason Furman his first adversarial interview and forever we hone in on basically what is the most important claim that he and other orthodox economists make, that raising interest rates will actually reduce inflation. On that front, it's difficult to tell dwells the rental marketplace reported that rents went up by 3% in July, which is 36% annualized, despite the fact that the Fed raised interest rates by 225 basis points. Since March. Well, new home asking prices have cooled, it just appears that this has just added more heat to an already desperately overheated rental market. So here we ask, and we're getting into the weeds here. So here we ask Jason about the fact that 40%, around 45% of the core consumer price index metric of inflation, is housing costs. And here's the problem is the way that housing costs are measured, is an approximation developed by economists at the Fed, it's not actually the real housing costs, its assumptions made about about rent, which means that increasing interest rates effect on variable rate mortgages is not included in housing costs. It's not inflationary. It's not included in an official measure of inflation, even though people paying additional housing costs is definitionally. Inflation. It's very complicated. It seems like it doesn't make sense. But this is how it works. And Jason points out to this. And we also talked specifically about how the National Association of Homebuilders has been very explicit that raising interest rates will reduce new housing construction. And basically, everyone agrees that less new housing will help to drive additional housing inflation. The National Association of Homebuilders has been very explicit that raising interest rates will reduce new housing construction. And basically, everyone agrees that less new housing will help to drive additional housing inflation. This is what Jerry conquer the the chairman of the National Association of Homebuilders said, single family home building is slowing as the impacts of higher interest rates reduce housing affordability. So we have the Home Builders Association, essentially saying that higher interest rates leads to inflationary housing costs. So this is where we get into it with Jason,

Unknown Speaker 1:13:23
look, if you had, like czar in charge of the country, as opposed to the sort of messy Congress system that we have. I think you'd use fiscal policy, you'd use changes in taxes and spending to reduce demand. Because then you can do it in a much more precise way. You can say, hey, you know, we want to cut spending, you know, the first thing we want to do is cut spending by people and make between, you know, 200,000 and $200 billion, then, you know, that's not enough. Let's go to the next thing. If that's not enough. Let's go to the next thing. And you could target things much better. With fiscal policy, you could do things like what I hope Congress does do, which is expand, extend the premium tax credit for moderate income people to get health insurance through the Marketplace. We'd love to see them bring back especially the refundable form of the child tax credit. So again, in many ways, fiscal policy, taxes and spending have a big advantage. Monetary policy is just an incredibly blunt tool. It operates as you said through the housing market. It operates by discouraging businesses from investing. It operates by lowering the stock market and making people poor. But, you know, the flip side of that is it's a tool run by a set of technocrats in a way that I think is good. We can come back and debate that. It is pretty nimble and reversible. And it sort of can work decently well in practice. So yeah, I agree there's a lot of imperfections and messiness. But if the Fed wasn't raising rates, I've no doubt that inflation would stay high, possibly continue to rise. And it would be impossible to have any sustainable good come out of that.

Matthew Cunningham-Cook 1:15:16
Here's the problem, this assumption that you can reduce demand for housing, you can't people need housing, if people aren't buying houses, they're renting. So that's why when we're seeing heightened interest rates, we're still seeing rental costs explode. Even as new home asking prices start to taper off.

Unknown Speaker 1:15:39
So look, let me let me just step back, we would have had a lot of inflation without the American rescue plan, if only because of Russia, Ukraine and supply chain issues. Absolutely. First of all, second of all, there were a lot of good things in the American rescue plan insofar as it was a bet on we're going to get the child tax credit in and then we're going to be able to extend it. ex ante that may have been a worthwhile bet to make ex post, unfortunately, so far on the losing side of that bet. The American rescue plan was put together in January of 2021, when or December, January, when, you know, wasn't clear what was going on with COVID with the vaccinations, and it was a difficult set of choices. So I don't think it's the root of all evil. I think some good things came out of it, like a faster expansion and demonstration of investments in children. And I think some bad things came out of it. So I don't you know, you shouldn't, I think unbalanced, it should have been smaller. I thought that at the time, I think that in retrospect, but I don't think it's the cause of every problem we have. And nor do I think it's it's only bad. In terms of housing, I don't know that that had as much to do with it as the Fed keeping rates low for long, that made mortgage prices really low that made it sort of easier to buy houses that raised the price of houses that made people reluctant to rent their house out when their house value is so high, so that made rents go up. And yeah, we need more housing supply, but you can't press a button to change that instantly, you can press a button to change housing demand instantly. And that's changing the mortgage rate. That's what the Fed is doing and the Fed should be doing. But

Matthew Cunningham-Cook 1:17:30
increasing the mortgage rate increases housing costs, that is an inflationary, right.

Unknown Speaker 1:17:37
That's the way we measure inflation, it used to be prior to 1983. Actually, your mortgage payment would be counted in the measure of inflation. So if you paid more on your mortgage, your inflation would go up. Now we have something like rent, I mean, rent effectively, and owners equivalent rent for people that have housing. And, you know, if you are creating less of a demand for people to buy houses, you're going to have less upward pressure on house prices, you're gonna have more people wanting to rent their houses. And ultimately, that's going to help it's going to do way more if you can expand housing supply at the same time. But most of the tools to expand housing supply are, you know, reducing state and local restrictions on it.

Matthew Cunningham-Cook 1:18:23
Well, but that's I mean, the homebuilders obviously are totally in favor of reducing state and local restrictions. But they're also saying very explicitly, that higher interest rates are going to reduce their ability to increase the size of housing stock.

Unknown Speaker 1:18:37
Yes. Oh, I mean, I wouldn't. I don't think you want to take and I don't think you are. But I think you want to take any interest groups of us with a grain of salt, this hurts that group. This hurts anyone who does real estate development. But again, the question is, does it sort of change, reduce supply more or reduce demand more? Well, there's going to be an easy test for which one, it reduces more just what happens to housing prices. And I think almost everyone agrees this putting downward pressure on housing prices. So it is reducing demand more than it's reducing supply, it will work to lower inflation, whether it's worth it. Whether it's the right way to reduce inflation, I'm open to debating that, but I'm pretty confident that higher interest rates are going to bring inflation make inflation lower. Maybe not an acceptable cost. That's a that's I think more of an open question.

Matthew Cunningham-Cook 1:19:33
Well, yeah, I mean, in terms of the mechanics of that, you know, how exactly does higher interest rates lead to lower rents?

Unknown Speaker 1:19:41
Mechanically it is. Fewer people want to buy houses. So the price of houses falls, when the price of houses fall, the idea of buying a house for your own use rather than renting a house out becomes less attractive, more people rent their houses out. And the cost of rent growth slows. You know, it's not a pretty process, when you think hard about how monetary policy works like the Fed does not ever say this explicitly, they rarely will say, we're reducing the pace of job growth and raising unemployment. They don't say we're discouraging business investment, which is one of the things they're doing. And, you know, the question is, how does all that compare to the alternative? And I think also, that goes back to my argument, it's better to not have inflation in the first place, because it's a real pain to get rid of it once you have it. And if you don't take steps to get rid of it, you know, it'll probably stay there forever.

Matthew Cunningham-Cook 1:20:49
Yeah, I mean, I'm just making a prediction. Now, you know, and we'll circle back on this a year, you know, that we're not going to see, and it may be, there'll be a modest reduction in the growth of rent prices, which is the fastest I've seen in my lifetime, you know, but I, I don't see how interest higher interest rates are going to reduce rents in any way, or even freeze them in any way. That, to me requires a much more broader set of public policy components that goes beyond the Fed. And shatter is significantly weighted in the CPI that you prefer to use, because it is less volatile. So that's, that's my op heading. So then we get into some deeper questions about how the Fed relates to the economy and society as a whole. No, I'm not disputing that, I think the quite the point is just that monetary policy is an excessively blunt tool to be able to solve deep seated economic and social problems. And so kind of when you know, you, Jason, you know, again, like one of the Democratic Party's leading economists, you know, tend to kind of make a big focus of your public discussion about kind of the need for the Fed to raise interest rates currently, and prior, you know, should have raised them sooner. That seems to me, like we're missing a big chunk of the picture when this is, you know, these are kind of deep seated economic, social problems that require a common collective solution. And I, you know, this isn't directed at you, frankly, it's directed at, you know, the entire, like DC policy set, you know, it has heard that the reason why the there is so much focus on the Fed, and not on kind of this much broader constellation of economic and social problems that we're facing, is because they're pretty irresolvable under our present political system. And it requires, basically, you know, like, the type of stuff Bernie Sanders was talking about, you know, a political revolution, for us to be able to address these kinds of deep seated, intractable, you know, social and economic problems. And the reason why there's so little discussion about that, is because it necessitates a confrontation with Wall Street and necessitates confrontation with K Street. it necessitates broad structural changes in the economy, that run against some very powerful interests, who would be very angry.

Unknown Speaker 1:23:43
So let me agree with you, in part, disagree with you, in part, and politely point out that I think you are disagreeing with yourself from 15 minutes ago. I'll do the last one first, which is the least polite, you were talking about, you know, racial disparities and unemployment and sort of the Fed. I think the Fed, a lot of that is issues at Camp six. And so I think we all ask the Fed to do too much. I think the main thing the Fed can do is, frankly, inflation, maybe that's what the point of central banks is, if you just print insane amounts of money, you'll have insane amounts of inflation, and no one will be richer. One way around that is to have a limited resource, be your money like gold. A much better way around that is to have a bunch of humans make the decisions. But do it in a way that you know, there isn't just an infinite amount of money because you don't make if you gave everyone a trillion dollars, they wouldn't be richer, just everything would be more expensive. And part of the job of the Fed is to not give everyone you know, is to sort of be predictable. So I think the Fed can do some things. I don't think it can do everything and I think part of the problem is we're asking it to do too much so that I sort of agree with what you just said. And I think its intention with what you said before. I also agree, we need big structural changes, when it comes to all sorts of things in our economy. I don't think I have quite the same list that I think our lists probably overlap some and probably differ some. But I agree that, you know, the Feds going to do relatively little to solve inequality. You want to solve inequality, you need the tax system, the spending system, and a whole bunch of rules about how the economy up operates, you want a faster growing economy, which by the way, I think we want to, I think that's an important part of the wage slowdown has been slower productivity growth, you know, you need more investments in infrastructure and research. You want to protect people, you need health care for everyone in this country, I have a different idea as to what that should be than what Bernie Sanders has proposed. But the structural conversation on health care is the right one. Yeah, these are absolutely all, you know, more important than than what the Fed does. And and can solve a lot more than the Fed can solve. I spent less time on those topics in the last year and a half, in part because I don't know, maybe it's a mistake in terms of my time allocation. I think the Fed has been was messing up a lot last year, I think it's mostly not now. And I thought maybe I could have an impact on that particular topic. No one, and, you know, continue to work on the other ones, too. But yeah, but um, I don't think the ratio of the time I spend on topics is proportional to the importance of the topic. It's in proportional to the importance of the impact I think I can have on that topic.

Matthew Cunningham-Cook 1:26:58
So there you have it, folks. Jason Furman talks a lot about what the Fed should do to fight inflation because he thinks he'll have more influence there. And that's almost certainly true. But the result is more of people thrown out of work sacrificed to the inflation gods.

Producer Frank 1:27:20
All right. That's it for today's show. Thank you, again, for being a paid subscriber to the lever. We truly could not do this work without you. So from the bottom of all of our hearts over here, thank you. If you particularly like this episode, feel free to pitch into our tip jar. The tip jar link is in this episode's description, or at lever news.com/tip jar every little bit helps us do the kind of independent investigative journalism that we do here at the lever. Until next time, I'm producer Frank. Rock the Boat

Transcribed by https://otter.ai