Can you imagine if Ford came out and they were like, you know, the car is gonna be great, but we're gonna kill a bunch of your kids, right? Like, everybody would be like, what are you talking about? They'd be like, some of your children will die horribly. We're so sorry, but it'll still be worth it. That people are now, they're like, don't do this to us.
Hi everyone. Today we have a panel of experts talking about the state of the US economy. Annie Lowry is a staff writer at The Atlantic and author of Give People Money. Katherine Rampell is an MSNBC contributor and the economics editor for The Bulwark. And Claudia Sahm is the chief economist at New Century Advisors and the founder of Sahm Consulting. It's an important conversation, something that affects everybody's life. So stick around. Annie, Katherine, and Claudia, thanks for coming on.
Yeah. So before we get to the data, let's start about how Americans are feeling about the economy now. A new Washington Post Ipsos poll found that people are generally pessimistic, with one in five saying they think the economy will improve in the next year. That's not very good. What do you each of you just overall what do you think the biggest factor driving economic pessimism is right now? Katherine, Annie, and then Claudia.
I think people have kind of been soured on the economy for years at this point. And in some ways that makes sense and in some ways that do seem out of whack with the data. They make sense in the way by which I mean like prices have been elevated. Wages have not been, depending on which measure you use, have not been keeping up, particularly since the Iran war started. But you know obviously the elevated prices, elevated inflation predate that. We've been dealing with above trend, above target rather, inflation for over six years at this point. So there are a lot of things to be cranky about. That said, the degree of crankiness does seem a little bit outsized relative to the amount of crisis, if crisis is a quantifiable term, in the economy. But I would say it's a combination of high inflation, kind of stagnant economy, and frankly a lot of political disgust that sort of ends up as referred pain towards the economy.
Economic disgust. All right, Annie.
Yeah, absolutely. Look, I think Katherine is completely right. There's a lot to not like about this economy. Even relatively high income families that are making in the low six figures, families which you know we don't generally worry about them a lot versus a family that's making $40,000 a year, are really squeezed by price pressures. That said, I think that basically the consumer sentiment and the economic sentiment numbers are no longer exactly reflecting just economic and consumer sentiment. I think that they have to do with our media and political environment. And so I think that those numbers essentially are not exactly telling you a lot about real economic conditions versus 20 years ago. But I think that the sense that we are in a declining democracy, that we have complete lack of trust in institutions and one another, some horrible hangover from the trauma of COVID and everything that came out of it, and also the media environment that we're in where the media itself has gotten more negative and also people are getting their news now from short form video from these sources that I think can really color your perception of what you should have and what you do have. I think that those numbers now we should think of them as a more generalized sentiment number, not like how much money do I have in my bank account and we could see gains in the economy and they would show up in the numbers or depressions in the economy and they would show up. They've just become a different measure in my mind, but we should include more measures.
So I would add one more thing to the mix in terms of the uncertainty, the insecurity that people feel. So a few years ago, you know, inflation had come down some from its pandemic highs and the unemployment rate was low. And so I'm an economist. I was looking at all this data and it really looked like things were at least improving. Not great all around, but improving. And yet these consumer sentiment measures were still really negative. And I, you know, was trying to talk to people, be like, help me put the pieces together. And one woman pointed out to me, she's like, you know, on paper, we do look better than we were a few years ago, like coming out of the pandemic. But she's like, 'I don't feel it.' Because it feels like the next shoe could drop, right? And it all falls apart, whatever it happens to be, right? And I think that I really trace a lot of this back to the pandemic, which was a huge out of nowhere just upended people's lives and frankly between policy decisions and other events. It just feels like we're in this rolling mess of uncertainty. And that I think weighs on people and also as they try to navigate like you know prices go up or there's tariffs or there's this and the job like it takes a lot of effort to go do the bargain shopping to go do you know try to figure out the way to deal with this. You go get a new job do you not like and that is like it's like a tax on people. They don't pay it necessarily directly but it just weighs on them. So I've come to understand like as Annie said like those measures are picking up more than economics. But I think it is relevant still to policy.
More of a vibe thing like in that way. So recent labor department data show that inflation did cool in June. The brief Iran war ceasefire gave Americans a break on gas prices. That's not expected to be the case this month. Katherine, after several years of rising consumer prices, are Americans just more price sensitive or how is it showing up in spending behavior when it comes to persistently high food prices? I might, I have noticed them. I've never noticed food prices and you see them everywhere you go and you don't know why particularly.
Yeah. I mean I think that there's some cognitive dissonance in all of this which is one of the underlying themes that we've been talking about which is that prices are high, people are cranky but people are still spending and I know Annie's written quite a bit about this as well. And so people are like mad that they're having to spend more money, but they're still spending the money as opposed to pulling back on their spending in response to those higher prices. But I think to Claudia's point about that mental tax, that is something that I have been hearing from consumers for a while. So like they're spending money, but they have to think more about each decision that they make. It's not like you go to the grocery store and you just have your list and you go down the aisles and you get the peanut butter and you get the eggs and whatever. Like maybe you're not going to get the fancy peanut butter this time. Maybe you have to like price, you know, price compare and you're going to get the private label peanut butter. And so people are spending, but there's more exertion that goes into every choice that they make and that is exhausting. And as long as people continue to have jobs and unemployment is still relatively low by historical terms, that means that they are able to keep spending.
One of the weird things about what Katherine mentioned is that by some measures people are less price sensitive. They are emotionally their feeling is more price sensitive but say that we have like a coupon and we give 50% off it doesn't have the effect that it might have had 20 years ago. But I really think of, you know, the past six, seven years as basically being an experiment telling us how much do people hate inflation and they really hate it. And we had not had a big economywide test of this in a really long time. We weren't quite sure, right? It's a very different economy than the last time than we had this kind of like runaway prices. Plus, what's worse now is the price of housing, of child care. You know, they're nuts and people just despise it. They hate it.
So, you wrote about the great affordability crisis back in February of 2020 and you noted the price of housing represented the most acute part of the crisis. It's been six years. The US housing market still feels broken. There's more sellers than buyers at this point. The new Minneapolis Fed research found that only 53% of American adults own homes they live in. They're not buying. And at the same time, the market seems very flat for a lot of people I've talked to. So what's the what is the underlying problem of probably people's biggest cost that they would pay for?
Far and away housing. Even if you are a person who is paying in your mortgage or in rent an amount that an economist would say you're doing okay, you still might not be happy and it might not be easy to see that because like let's say that you're paying an amount you can afford, $1,800 in rent or something like that, but you're still living with roommates or you're living in a neighborhood that you don't like or you're putting off, you know, proposing to your partner. That's not going to show up except in a sentiment figure. And I think that's part of what we're seeing. But the housing, there's not an easy answer here. Some places are really building. But I think the truth is that, you know, the housing market is in a really tough place and it's going to be for a long time. And I think if we saw interest rates come down, which would help with affordability and help with building, we have so much pent-up demand that you might not see prices fall, which is a really tough thing, right?
So, but the 21st Century Road to Housing Act became law earlier this month. A package of provisions aimed at increasing the housing supply and making homes more affordable. What does that actually accomplish?
I don't think it's going to accomplish a tremendous amount. Look, I think that there's not a lot of federal policy on the table that can affect this because overwhelmingly this is a local concern and so we can incentivize local places to allow more construction, but you still have a lot of homeowners who say, 'Hey, I don't want that giant thing in my neighborhood.' You're still going through the more than 10,000 US jurisdictions that are in control of this and asking them to go one by one. I think actually the best policies that we've seen have been state and local. So California, for instance, has had a number of policies to induce building. But still, right, like timber is really expensive. Labor is really expensive. This isn't a situation that we got into quickly, right? Really, I think the roots go back to the housing crisis before the bubble popped. It's not something we're going to get out of fast either.
So, of course, the job of keeping prices and inflation under control belongs to the Federal Reserve and it has a new chairman, Kevin Warsh. We're now taping this on the day before the July meeting and it'll come out the day after, but let's zoom out. Claudia, I know you've expressed some skepticism about Warsh in particular, how he sometimes uses standard economic language in non-standard ways. What do you make of him so far and his efforts to, I assume, get inflation in check? So that he can lower those rates that Annie talked about.
It's really too soon to have a firm opinion on Kevin Warsh. I mean, that's also partly by his design. He's been pretty quiet about his views on the economy, his views on what should be done. He's made very clear we're going to have price stability. He's going to get inflation down. But you know, as we talked about with housing, you have a problem that it took years to build. It's going to take some time to bring it back to be fixed. And inflation has been running higher than what the Fed puts as its target of 2% for several years now. So, it's not going to turn on a dime with a new person in charge. I think, you know, the Fed is really aware of the inflation problem. Thankfully, we are at a moment right now where the labor market, if nothing else, appears very stable. So, the Fed can kind of focus its attention on inflation, but it still has a tough decision to make. Should we step in and raise interest rates? Because that's creating more costs for people. And if you don't need to do that to get inflation down, well then maybe you should hold off and stay on the sidelines. So, it's hard to tell where the Fed is headed at this moment. And that's really going to be the judgment in the end on Warsh's leadership is can the Fed deliver on getting inflation down.
And Trump doesn't want interest rates to rise. So, there's political pressure.
Yeah. I mean, I think that's the big challenge for the Fed right now. Like it's always hard to be a Fed official and try to like make sense of all of the data, some of which is conflicting. It's especially hard when like you have some messiness in the data today. But it's especially especially hard when you have Donald Trump basically trying to screw up your job. Which is what has been happening, right? Donald Trump does not understand or is unwilling to learn that the Fed in order to be effective needs to be politically independent because if people don't believe that the Fed is independent, if they believe that politicians are in control of the money supply and are just like willing to print money whenever, then they don't believe that inflation can ever get under control, it becomes sort of like a self-fulfilling prophecy. And Donald Trump by very loudly leaning on the Fed, saying that he wants his new man at the Eccles building to cut interest rates actually undermines their ability to cut interest rates in a way.
May I ask Claudia, is he his man, do you think, from what you can tell?
Well, the president chose Kevin Warsh to be... chose Jay, right? And I'm sure from lots of conversation. So I take that as there was some alignment that the president saw in Kevin Warsh, someone he wanted to have at the Fed. Do I think that he's taking orders directly from the president? No, I don't. But that, you know, but he has an alignment and we'll see. And I think one thing that's been unfortunate to what Katherine's talking about, there's some discussion of well the Warsh Fed, they need to raise rates just to prove he's independent. It's like no, we should not be doing monetary policy to like satisfy some political statement either direction. Yeah. Right. Either direction.
So, every episode we get a question from an outside expert. Here's yours.
Hi, Kara. Hi, panel. I'm Mariana Mazzucato. I'm a professor at University College London, currently in Italy. I am Italian. Look at the amazing Italian countryside there. So, my question to you is the following. You're talking about the state of the economy, housing, cost of living. So I've written quite a few books, the recent one called The Common Good Economy on how it's actually impossible to solve any problem with the current way we think about government is just you know at best fixing a market failure always reactive too little too late and I'm just wondering from your own experiences maybe the cities you live in where you've seen government of any type you know city level regional level national level global level actually get stuff done and do it through objectives. You know, there's so many different ways to do capitalism and if you look at Vienna, if you look at Copenhagen, how they do housing and social housing is so different from American cities. But I think it is important to give people hope that there's different ways of doing things and by looking actually at some positive examples where the way that we governed went after the source of the problem instead of, you know, the symptom at the end. Thanks.
So, Katherine, you go first and then Annie and Claudia.
I will talk about something that's actually not where I live, but that I've reported on before. So, there is this sort of pilot program. I don't even know if you could call it a pilot since it's been around for a little while now, that started in Flint, Michigan to give cash to pregnant moms. Basically to address poverty and the various ancillary consequences of poverty at the source that basically the idea was that they were prescribing cash as a way to deal with a number of public health issues. It's called RX Kids. And so this started in Flint, Michigan. It turns out that it, you know, based on the data that they have available where they were giving cash to everyone, everyone who, you know, once they were pregnant, they were eligible and they continued to be eligible, I believe, for a year postpartum. I'm trying to remember the exact details. Anyway, that they determined that it resulted in much better outcomes in terms of, you know, higher birth weights and lower maternal depression rates, things like that. So this is top of mind for me I think because I got a press release today saying that they are expanding it to part of Ohio. So that's an interesting one.
Yeah I think this is such a fascinating question and I love that it was posed by the person that it was posed for. I'm such a big fan of her work and one thing that I think about so you know in the last 10 years I think the most amazing governmental innovation that I can think of was in Project Warp Speed right we got a COVID vaccine far faster than we expected it saved a ton of lives and the material good that it did I think was really significant. But it didn't build trust in government right in fact I think the vaccines were part of this broader collapse in good policy or in trust in institutions and it's something that I think about a lot right how do you have a good program that also creates these benefits that people can recognize it's a good program that people can feel some trust in government like how do we create these systems such that we're all in the same universe and pulling towards the same goal it's been such a long time since I've seen that and felt that.
Right right Claudia right so it inverts the positive spirit of the question.
But one thing that I've spent a lot of time watching recently is just the effects of downsizing the federal government, federal employment, right? You know that federal employment is lowest level in decades and yet it does affect the government services. Like I see it a lot in terms of the statistics. You know they don't have as many staff like 20% less staff, less resources to collect data. But also this came up in the CDC outbreak. They didn't have their communication staff. Like it was harder. Like it's just hard to do these services and I think it's in the spirit of you don't miss something until it's gone and it's important to really underscore like the quality of the services we had and they've really slipped and that can be fixed. So that's you know kind of what I would focus on.
Don't it always seem to go you don't know what you got till it's gone kind of thing and now we have you know exploding diarrhea and measles at this point or something like that.
Among other horrors. Yes. I was going to say there's got to be one family out there that was affected by both and I truly feel awful for them.
It is kind of crazy that we don't know about that. So, let's take a step back and look at what else is fueling inflation. Starting with President Trump's new tariffs after a temporary 10% global tariffs expired last Friday. He imposed dozens of new tariffs of 10% to 12.5% on goods from more than 80 countries. Trump said he has additional tariff plans including duties of up to 200% on generic drugs. The Supreme Court struck down most of his global tariffs in February. How is the, Katherine, why don't you answer this? How is the administration legally justifying the latest round?
So there are different tariff authorities that the president can use. And they have every one of them tends to have like pretty constrained rationales. So it can be a national emergency. And so they're kind of cobbling together any sort of pretext that they can for tariffing other countries in ways that are, you know look I'm not a lawyer so I can't speak to the legality of all of this but are at least very intellectually inconsistent.
Yeah. The first round of tariffs sent shock waves through businesses and supply chains and you described as Trump's economic abuse. Are they more prepared given all these hijinks that he's attempting to impose more of them on them?
They being the administration, the businesses. No. You know, it's just like we were talking before about how it is a tax on consumers to have to deal with inflation. It is absolutely a tax on businesses to have to deal with, you know, basically having to watch have someone full-time monitoring Trump's Twitter feed or his Truth Social feed rather. Because that's how policy is being made. It's not being made through the normal Administrative Procedure Act processes. It's being made by Trump's itchy Twitter finger. And as a result, businesses are having to devote a lot of time, a lot of resources, a lot of labor on calibrating like, do we send the shipment now? Do we keep it on the boat? Do we keep it on at the dock? Do we keep it at the port? Do we try to put it in this warehouse? You know, it's like it's just such a tremendous inefficient waste of time and resources, not just the actual cost of the tariffs, but it's like managing all of these logistics they did not have to think about before. And not only managing that, but like managing relationships with the administration, right? This is the reason why corrupt governments, non-democratic governments tend to have in general worse economic outcomes because businesses have to spend a lot of time like figuring out, you know, figuring out how to like appease the authoritarian rather than what makes the most business sense.
So, the economy obviously dealing with the war in Iran, the affordability crisis, inflation, we talked about Annie, what are the short-term and long-term consequences of Trump continuing his borderline obsession with tariffs?
This is bad. This is really bad. And I think that in some ways when the original large tariffs got pulled back, people stopped paying attention. But businesses did not, right? Especially small businesses, right? Like a Ford or a Google probably has hundreds of lawyers dealing with this stuff or they can bring in legal counsel. If you're like a four-person business, you're not going to be able to do that. You could be bankrupted, right? And we actually saw that happen. And so I think it's one of these things like it's just why and I think he'll just continue doing it for as long as he's in office. He really cares about it sincerely. He does not care about a lot of policy sincerely. This he cares about sincerely.
This is he does. But you to quantify the strain on the economy of these compounding sources is also difficult.
Very hard because it's very hard to do.
So defense secretary Pete Hegseth told lawmakers last week that he estimated the Iran war to cost $37.5 billion in just the past few days. The war has escalated and oil prices have shot back up. So far, the US economy has been pretty resilient. Claudia, at what point will Americans feel the broad impact of the war beyond food and gas prices? And what are the potential economic consequences of yet another extended war in the Middle East?
So, as the conflict drags on, it has effects on energy, food, it can potentially seep into a lot of other goods and services. I mean energy is really a cost that is in a lot of what we spend our money on. So a lot of it depends on how long the conflict lasts and how bad it gets right in terms of disruptions in like the Strait of Hormuz. So it's all pointing in the wrong direction. It's you know without knowing how long it lasts how bad it gets. It's hard to quantify, impossible to quantify what the effects would be on people, but it goes in the direction of cost. And it's just the war in the Middle East is another example of the administration pushing forward policies that unleash a whole set of costs on the economy, just like the tariffs unleashed a whole set of costs on the economy. And that is really we can see that in the inflation data. The broad-based increase in the price level over the last year and a half really does tie to some policies. They may be justified in other like outcomes, but like immediate they are costs. And another thing you see from the administration, they really don't recognize that they're creating those costs, right? With tariffs, they're still like foreigners are paying them. Like there is really good data to say foreigners are not paying them. We are.
