BROOKE GLADSTONE On this week's On the Media, the steaming cauldron of contradictory facts and feelings about the economy.

 

NEWS REPORT Inflation rate hikes and market uncertainty. A deepening recession fears. Americans want to know when we will see some relief.

 

JOHN CASSIDY We haven't experienced this sort of inflation since the early 1980s. Unless you're 50 or older, you basically don't have any memory of this sort of thing. And I think it's come as a big shock to everyone.

 

RANI MOLLA One of the hallmarks of a recession would be low employment demand, but that's absolutely not what we're seeing.

 

FELIX SALMON Brooke. You've used the word recession 8 million times in this interview. This is how the media contributes to the vibe that we're in a recession or could be going into it.

 

MARK BLYTH You remember like maybe ten, 15 years ago, what happened is you get together with your friends on a nice summer night and the point was to crack each other off. And no one, we get together. We all sat around and we go [SIGHS].

 

BROOKE GLADSTONE Some good vibes and bad after this.

 

[END OF BILLBOARD]

 

BROOKE GLADSTONE From WNYC in New York, this is On the Media. I'm Brooke Gladstone. Recently in The Atlantic, Derek Thompson wrote a piece called The Everything Is Weird Economy. Don't you feel it? The stories don't make sense. Or maybe they kind of do on Tuesday, but not so much on Wednesday. You've got horrible inflation, especially gas prices. But now those are trending down and consumer spending is actually a little better than expected. You've got fears of a serious downturn. But one of the main indicators of recession is low unemployment. And that's the opposite – extremely opposite. A large part of the public is negative about the economy, but a large part of that part says we're doing fine. The indicators aren't serving us. Economywise, everything is weird. So we're devoting this hour to grappling with that weirdness. Let's begin.

 

[CLIP MONTAGE]

 

NEWS REPORT In today's MoneyWatch, we're talking about how to prepare for a potential recession with inflation at a 40 year high. Many experts warn of a possible economic slowdown.

 

NEWS REPORT Big question mark largely centered around early 2023. You know what happens with inflation? What happens with rates then? Are we in a recession?

 

NEWS REPORT Inflation, rate hikes and market uncertainty are deepening. Recession fears. Americans want to know when will we see some relief? [END CLIP]

 

BROOKE GLADSTONE The New Yorker's John Cassidy recently outlined three factors causing economists to perhaps preemptively sing the blues. One, manufacturing output or how much stuff we're making.

 

[CLIP]

 

NEWS REPORT Data out today from the Philly Fed. This is a regional indicator of mid-Atlantic region. Manufacturing activity showed in July a contraction for the second straight month. [END CLIP]

 

BROOKE GLADSTONE Speculation as to what the Batman of fiscal forces is up to the Federal Reserve.

 

[CLIP]

 

NEWS REPORT Rarely has the Federal Reserve been under such a microscope. The question this morning, how much will the Fed raise interest rates as it tries to bring 40 year high inflation under control. [END CLIP]

 

BROOKE GLADSTONE And consumer sentiment. How the public feels about it all.

 

[CLIP]

 

NEWS REPORT A CNBC poll reveals 81% of adults say they think the economy is likely to experience a recession this year. [END CLIP]

 

BROOKE GLADSTONE That gloomy assessment of the economy as a whole often diverges from how people across the board see their own finances. I asked John Cassidy why.

 

JOHN CASSIDY I think in this case, personal incomes have actually held up very well throughout the pandemic, partly because of the three stimulus packages that Congress passed. That's starting to run down now, but people still have we're in general terms, which doesn't apply to everybody. Some people are doing terribly, but in general terms, people still have higher savings and higher incomes than they had a year or two ago. So if you ask them how personally are doing, they may well say I'm doing well, but then they see prices going up for staples like gasoline, like food, like rent, and they say, you know, this is a bad economy.

 

BROOKE GLADSTONE And not for no reason. Low income families are spending 30% of after tax income on food and gas.

 

JOHN CASSIDY Economists often describe inflation as a regressive tax because it hits people on low incomes hardest.

 

BROOKE GLADSTONE Now there's a close correlation between consumer confidence and the gas price. You say that's strange to economists and yet not to an average person.

 

JOHN CASSIDY Well, economists would say, you know, gas prices are important, but they're not the biggest component of people's spending. The biggest item in most people's personal budgets is their rent or mortgage checks. Now, they've gone up quite a lot as well, but nowhere near as much as the price of energy, which has gone up nearly 100% over the last year.

 

BROOKE GLADSTONE So if these things are making people feel pessimistic, that has a huge impact on the economy, right?

 

JOHN CASSIDY I mean, it certainly has an impact on the reporting about the economy [BROOKE LAUGHS] and how people feel about the economy. But it's not quite clear how much impact it has on consumer spending, because one of the big sort of divergences we've seen this year is as consumer sentiment has collapsed, actual spending in the economy has held up pretty well. This week we've had the big banks, Citigroup, JP morgan Chase, Bank of America, the biggest banks in the country, reporting their quarterly results. And they've got enormous amounts of data on how people are spending because they all have big private label credit cards and debit cards so they can track spending on a day to day basis like the government can't really. Now what they reported in their earnings is that actually their customers still seem to be spending as much as ever, indeed more than ever.

 

BROOKE GLADSTONE So you can see why this is so confusing, right. Polls say that people are feeling really bad and they're feeling a real pinch, but spending is up. The employment numbers are very strong and yet there's so much gloom and doom. And how do you reconcile that?

 

JOHN CASSIDY It's funny, in this country we don't use the term, but in the U.K., where there have been very similar inflation problem at the moment, all the coverage is in terms of what they call a cost of living crisis. And if you think of it in terms of cost of living, it's very simple to sort of see why people would be in a funk because of inflation.

 

BROOKE GLADSTONE Your second concern is manufacturing output, which has been falling. Why does that matter so much? I mean, how seriously did it fall? Don't we really spend most of our money on the service economy?

 

JOHN CASSIDY Yes, we do. Economists tend to think that manufacturing is what they call a leading indicator, so that if things are turning down, you would see it first in manufacturing. And we have seen that of last couple of months. Manufacturing growth turned negative a few months ago and it was negative last month as well. Not a big fall, but you know it's obviously a. So some of. Economists would say, well, that is going to eventually going to spread to the service sector, because manufacturing is usually driven by firms perceiving what the future demand is going to be. So if they think demand's going to fall, they're going to cut back, make fewer widgets, make fewer pieces of furniture, etc.. And that's what we've started to see in some areas. You're also seeing a debate in the tech sector. Companies like Microsoft and Amazon, Apple, huge employers now have announced that they're going to cut down on hiring or introduce hiring freezes in certain areas. But we shouldn't emphasize it too much, because really the core of the economy now is services. Services accounts for more than two thirds and about 70% of overall spending in the economy. And actually what drives the economy up and down. And so far, the service sector is held up pretty well.

 

BROOKE GLADSTONE So the third is the Federal Reserve, which is and will continue raising interest rates, making it tougher to borrow. And I guess that puts a big crimp on the housing market. What else do I need to know about the Fed?

 

JOHN CASSIDY An economist would tell you the Fed is the most important factor of all. Because over history, in most cases, what has driven the American economy into recession since the Second World War is the Federal Reserve. Not every time we had this sort of financial crisis in 2008.

 

BROOKE GLADSTONE Yeah, I remember.

 

JOHN CASSIDY We had the start of the pandemic in 2020. So the last two recessions this doesn't apply to, but just set them aside for a minute. The rest and almost all the other recessions in Second World War have been caused by the Federal Reserve raising interest rates to bring down inflation or because of other financial concerns. The Fed raising interest rates hits the economy very directly in a couple of ways. First of all, the way monetary policy works these days, it always leads to a big fall in the stock market and financial markets because they're forward looking. So as soon as the Fed announces that it's going to start raising rates, you see the stock market falling and you see other interest rates backing up.

 

BROOKE GLADSTONE If the stock market drops, people who have pensions wrapped up in there, that sort of thing, it isn't just a playground for rich people. It mostly is.

 

JOHN CASSIDY It's crazily lopsided, the stock market. But having said that, there are still, you know, tens of millions of people have 401k plans and they look at that and see it going down. And that does tend to impact spending a bit. The other thing is the impact of interest rates on things like mortgage rates and car loans. You're already seeing that the housing market has already had a crazy bubble like burned over the last couple of years in terms of house prices. They're now finally starting to come down a bit because of higher mortgage rates. Mortgage rates have basically gone up from like 3% to 5% in the last few months. So it's just a lot more expensive to buy a new house. So basically, to go back to your question, the Federal Reserve can sort of just set the overall weather in the economy by moving interest rates around. And it's taken a conscious decision because of its attitude to inflation and it wants to bring it back down towards its target of 2%. Then it's going to make the weather worse in the economy over the next year or so.

 

BROOKE GLADSTONE If it still works. I mean, Derek Thompson, writing in The Atlantic, posited the idea that the Fed may have lost its magic touch, that it's like an irritated parent driving while the kids in the back are kicking up a fuss. And and dad starts with gentle warning, stop it. Stop it back there. And they don't work. So ultimately, he says, don't make me turn this car around.

 

JOHN CASSIDY Yeah, I mean, possible. The pandemic has sort of scrambled a lot of things in the economy, but I think ultimately we've had the very high inflation figure, 9.1% highest since 1981. If that trend doesn't turn around, the Federal Reserve will keep raising interest rates, which I think could bring about a recession. So you've got a very cloudy picture here now.

 

BROOKE GLADSTONE It's very clear. Demand is up, prices are up, jobs are up, wages are down because of inflation. Consumer sentiment is very squirrely and recession is right around the corner despite a cavalcade of contradictions.

 

JOHN CASSIDY Yeah, well. I would agree with everything you said that apart from the last one, the recession is right around the corner. We're not sure about it yet. I mean –

 

BROOKE GLADSTONE Just 44% of economists think that.

 

JOHN CASSIDY Yeah, 44%, they might not make a change since last month. But, you know, one of the most famous American moments of the 20th century, Paul Samuelson, who said the stock market has predicted nine of the last five recessions, I think.

 

BROOKE GLADSTONE Okay, so what is a recession other than two quarters of negative GDP and what exactly is GDP?

 

JOHN CASSIDY That a recession is an extended downturn in the economy overall. So what does that mean in terms of specific statistics? It's got to translate into a downturn in employment and a downturn in spending over an extended period. Now, next week, we'll see what the GDP figures are. It's conceivable that the GDP could have been negative in the second quarter as well as the first quarter, which, as you say on the sort of rule of thumb, would be considered a recession. But there are some special technical factors in play here, which I won't go into in great detail, but –

 

BROOKE GLADSTONE Maybe you should. And I think it starts with the letter I inventories, the GDP, basically. Counts all spending in the economy, right.

 

JOHN CASSIDY All production and spending in the economy. And when a big manufacturer adds a bunch of new products to its inventory, that's counted in GDP, but actually it hasn't sold. Yeah, it's just sat there on the shelves. Now, what we've seen in the last couple of quarters is that because firms are worried about the future, they've been cutting back on their inventory investment, making less stuff to sit around because they're worried he won't sell eventually. So we've seen negative contribution to GDP from inventories.

 

BROOKE GLADSTONE But I had heard that they were floating in inventory because of the supply chain issues earlier on, delayed stuff from coming. And now it's all sitting there. They're awash in it, right?

 

JOHN CASSIDY Right. So they are awash in it. So that's why they cut back. The Gap is a good example. I think they've had a lot of trouble in the last couple of quarters making products, which didn't sell very well. So those inventories when they were made were counted as part of GDP, maybe last year, third quarter or whenever. They I don't know when they manufacture them, but they've had to sell them off cheap and they don't then order as many clothes inventories for the new quarter and that translates into a negative impact on GDP, even though overall spending may not have fallen. So inventory accumulation and inventory decumulation in a situation like this can drive GDP negative, even though overall spending in the economy may still be positive.

 

BROOKE GLADSTONE So it's a misleading indicator.

 

JOHN CASSIDY It is a misleading indicator, yes.

 

BROOKE GLADSTONE Is there an equivalent to the canary in the coal mine when it comes to recession, or is that what we've been talking about? Well, if some canaries actually live or die  It's clear.

 

JOHN CASSIDY Well. I mean, there's not a reliable canary. We all know the economy is in recession if there's a big downturn in employment and spending. So if we see them falling substantially, then you will know that we're in a recession. But we haven't seen that so far and we'll just have to wait and see.

 

BROOKE GLADSTONE I guess my final question is, if those two big indicators are actually still rising, why is there so much worry? Is it all about inflation?

 

JOHN CASSIDY I think it is all about inflation or largely about inflation, yes. We haven't experienced this sort of inflation since the early 1980s. So unless you're 50 or older, you basically don't have any memory of this sort of thing. And I think it's come as a big shock to everyone because economists and the Federal Reserve and everybody else thought we were basically in a low inflation, permanent situation. So seeing gas prices go up 100% in a year and energy prices and food prices, particularly going up very sharply, I think has come as a big shock to people. I mean, all the polling and consumer surveys shows that.

 

BROOKE GLADSTONE John, thank you very much.

 

JOHN CASSIDY Thank you for your time. Sorry, it's a bit complicated, but that's the world we live in.

 

BROOKE GLADSTONE That's why we called you. John Cassidy writes on economics for The New Yorker. Coming up, jobs, gas and the search for reliable indicators. This is On the Media.

 

[BREAK]

 

BROOKE GLADSTONE This is On the Media. I'm Brooke Gladstone. Before the break, we heard John Cassidy say that a reliable indicator is employment and so far so good.

 

[CLI P MONTAGE]

 

NEWS REPORT Very big economic development today with a very strong jobs report. Employers added 372,000 jobs in June. The unemployment rate hovering still 3.6%. As the Fed focuses on taming inflation. The unemployment rate still hovering near 50 year lows. Wages up 5.2% from a year ago.

 

NEWS REPORT And look, you got 372K new jobs. It continues. But the conflicting sign here is you have the GDP going down, you have the supply chain problems, you have inflation. We just discussed are we headed for a recession? [END OF CLIP]

 

RANI MOLLA One of the hallmarks of a recession would be low employment demand, but that's absolutely not what we're seeing.

 

BROOKE GLADSTONE Rani Molla is a senior data reporter at Vox's Recode and author of the recent article How to Make Sense of the Very Weird Job Market.

 

RANI MOLLA We're seeing lots of people quitting. We're seeing very few layoffs and we're seeing lots of job openings.

 

BROOKE GLADSTONE There has been debate over the so-called great resignation. It's true a lot of people did leave the workforce retiring early, but a lot of women who couldn't get childcare and so forth but wasn't more of a great reshuffling.

 

RANI MOLLA Yeah, I mean, people aren't just leaving their jobs and not working at all. They're leaving their jobs for what they perceive as better jobs, you know, jobs that pay better jobs with sort of immeasurable stuff like better work life balance and flexibility, and they can kind of get more of what they want. You know, I don't want to overstate worker power, obviously, like it's the employer who's still in power, but more so than in recent history. Employees have a little bit of leverage.

 

BROOKE GLADSTONE Yeah, I just wondered whether the great resignation was kind of a grudge phrase invented by people who were offering jobs that just weren't very good.

 

RANI MOLLA That's definitely a fair criticism of 11 million open jobs. A lot of those are jobs that people don't want. That said, wages have been going up across the board on average 5% across the private sector in June compared to a year earlier. That's a big jump. Part of that is there's such a demand for workers that in some of the crappiest jobs out there, the lowest paying jobs out there, those companies are having to offer a lot more money, but they're also continuing to offer things like retention bonuses, signing bonuses. And that's not just isolated to the tech sector where we're used to these sort of perks. That's happening in retail, that's happening, you know, manufacturing and warehouses. And that's something that there would be no need to offer if they were having an easy time finding workers.

 

BROOKE GLADSTONE But getting back to the money issue, we've been hearing that wages are falling.

 

RANI MOLLA So we know in June it went up 5% compared to the year before. But when you factor in how much the cost of goods has gone up, it's actually gone down 3.6%. So, you know, inflation is rising faster than wages, which are already rising pretty fast. Inflation is just rising faster.

 

BROOKE GLADSTONE To summarize on the inflation issue, so wages up 5%, inflation up almost 9%. Then that means wages down almost 4%.

 

RANI MOLLA The Bureau of Labor Statistics says that wages went up 5%. So, you know, for $100 an hour, $105 an hour. But when they put it in like 1984, 1980 $2, it actually went down. So they do the calculation based on the consumer price index. So in real dollars spending power, it went down 3.6%.

 

BROOKE GLADSTONE And what does the consumer price index measure?

 

RANI MOLLA It's a basket of goods across the whole economy. You know, it ranges from just how much it costs for a T-shirt to how much it costs for gas. And it takes a basket of goods across the economy and says last year with $100, you could get this much stuff and this year you could get this much stuff and you could get a lot less with that because the prices have gone up so much. And one thing I noted in the article was that while demand is down in certain parts of the economy, surely the companies that are hiring are making the calculation that, hey, we can make more money. If we had people to work here, we could have sold more sandwiches if I had another person working at the deli. So they're making this calculation and saying like, there's still money to be had and we could make more money, but we need more employees.

 

BROOKE GLADSTONE So let's say there is a recession as defined by the economic powers that be. Couldn't the job market protect us from a faltering economy?

 

RANI MOLLA They could help with the depth of the recession. Obviously, if people stop spending, if businesses aren't bringing in enough money, they will have to lay off people. If people are spending less, then we would expect higher unemployment. That hasn't happened yet. That there is so many open jobs right now that everyone is hiring leads you to believe that at least demand for products that these companies are selling has not decreased enough yet.

 

BROOKE GLADSTONE What do you think of the coverage of the job market. Do you think we're getting a fairly clear picture of a muddled situation or not?

 

RANI MOLLA There's just so many inputs here and so many different things going on that it's not just one story. It's not just about people at the lower end and retail jobs quitting. It's also people in high tech who are quitting. There is this tendency to sort of have these very contrarian hot takes. You know, like everything you thought you knew about X is wrong. And while sometimes that's valid, oftentimes I see that headline and then you read it and you're like, Oh, you mean this thing is slightly different or it wasn't completely true or you know, it wasn't the case in all instances, but generally still stands. You know, I see why like that's an attractive thing, but sometimes, you know, the great resignation is just sort of chugging along.

 

BROOKE GLADSTONE Rani, thank you very much.

 

RANI MOLLA It was a pleasure.

 

BROOKE GLADSTONE Rani Molla is a senior data reporter at Vox's Recode and author of the recent article How to Make Sense of the Very Weird Job Market. More than 75% of Americans drive to work, according to a global consumer survey conducted by the polling form Statista. But even those of us who don't own a car have heard about the rise in gas prices.

 

[CLIP]

 

NEWS REPORT The average price for a gallon of gas jumped more than 40% in the last year. That's according to Triple A. Those rising fuel prices are causing a ripple effect across the US economy.

 

NEWS REPORT Prices jumped more than $0.10 in the last 24 hours on average. Californians are now paying $5.57 for a gallon of regular gas.

 

NEWS REPORT Here in York County, we're paying $4.98 a gallon. That's the average, but prices are over $5 at some stations. [END CLIP]

 

BROOKE GLADSTONE In July, gas prices finally began to fall. But the frustration with inflation and the rising cost of living around the country hasn't caught up as Americans look for someone to blame. In a recent piece for Axios, Felix Salmon wrote that the gas station owners have gotten a bad rap for price gouging.

 

FELIX SALMON If you pay a lot of money for gas at the gas pump, it's not the gas station owner whose price gouging you or who's making outsized profits. It's not like they're just raising their profit margins willy nilly. It's because the price of oil and the price of gasoline is going up and they have to pay more for their goods. So they have to charge more for what they're selling you.

 

BROOKE GLADSTONE And a lot of them are independent operators, right?

 

FELIX SALMON Nearly all of them. This is something I think a lot of people don't realize, because so many of these gas stations are branded with BP or Shell or Exxon or whatever. Nearly all of them are independently owned little mom and pop convenience stores.

 

BROOKE GLADSTONE And you have written that there are times when many of them I don't know how you know this, but that many of them eat the high prices so they don't lose their regular customers.

 

FELIX SALMON So convenience stores is the active word here, right? What they are is they're convenience store owners. The way they make their money is by getting people into the convenience store and getting them to buy things in the store. The gas is really a loss leader in order to get people in the door of the convenience store. So when gas prices start rising, they are very reluctant to raise the prices too fast because people won't want to fill up and then they won't be coming into the convenience store anymore. So they tend to be a bit slow to raise prices when gas prices rise. And then what happens is eventually they have to because they have to refill their tanks with new gasoline, which is much more expensive. They have to raise their prices. And then what happens is that if gasoline prices start falling, as we've seen over the past month or so, they're in a terrible position because they bought that gasoline when it was expensive. Prices are coming down. They need to reduce their prices in order to remain competitive. But that means selling the gas for less than they paid for it. And so they're losing money on every tank. Joe Biden has been coming out and tweeting about gas station owners. I feel like, yeah, they're really the last people to blame here.

 

BROOKE GLADSTONE I, for one, don't have a car. So I personally am not engaged by the issue of rising gas prices. But the media ignore the personal impact of that on people at their peril.

 

FELIX SALMON Yes and no. I'm not sure I buy that as a piece of media criticism. I think that if anything, it's the other way. I see a lot of media fear mongering around gas prices. Certainly back last month, in June when they were super high, there was this one gas station in downtown Los Angeles that was famous for having super high gas prices. And you'd always have, like the local TV stations going to that one gas station and showing $7.85 a gallon or whatever it was at that one place. And it's the most salient price in the economy. It's the price that nearly everyone in America sees in big, like two foot high numbers multiple times a day. Whenever they pass a gas station, it sears itself into your brain, because that's what those convenience stores want to do, is they like, look, this is the price of gas come in and fill up. So there's no risk of understating the salience of gas prices. And I would say in general, honestly, that the media spends too much time on gas prices, even though they are an important part of the overall consumption basket, because they are volatile and they don't really tell us much about whether inflation is becoming entrenched, which is the real big economic issue.

 

BROOKE GLADSTONE Okay. So dropping gas prices, that's a positive sign. So is the announcement this week that there are 11.3 million job openings? It's positive, but it's also confusing. Alongside warnings of recession.

 

FELIX SALMON You don't have a recession when job growth is that strong and when unemployment is as low as it is right now, the chances that the NBER will look back at June or even July 2022 and say, oh, yeah, that was when we were in a recession, a very, very low.

 

BROOKE GLADSTONE NBER?

 

FELIX SALMON NBER, the National Bureau of Economic Research. They have this timing committee that looks at the economy as a whole and all of the data about the economy and looks back at where it was. And then after the fact will come out and say, you know what, we had a recession back then. It's not very useful because at that point we're normally pretty sure that there had been a recession in the past. There's no good indicator of whether there's a recession in the present. But there are some okay indicators like, for instance, has the unemployment rate shot up by half a percentage point and no, it hasn't.

 

BROOKE GLADSTONE It's interesting. We've spoken to a few different economic journalists for this segment. And the definition of recession, apart from two successive quarters of negative GDP, seems to vary each time.

 

FELIX SALMON To be really boring and nerdy about it.

 

BROOKE GLADSTONE Please do.

 

FELIX SALMON The definition of recession is just whatever the NBER says it is. Whenever the NBER says there is a recession, that's when there was a recession. If NBER says there wasn't a recession, then there wasn't a recession. The two successive quarters of negative GDP growth is another attempt by market participants to sort of second guess when the NBER might say that there was a recession.

 

BROOKE GLADSTONE Now you are not alone in having observed that it's very hard to tell. A recession has happened until it's over.

 

FELIX SALMON You never know until it's over. I mean, put it this way in March – April 2020, when the entire country came to a screeching halt and there was just no economic activity, we knew that that was a recession. We didn't need to be told by the NBER when in 2009 there was a huge stock market crash. Everyone started getting fired. Banks were going bankrupt every week that we knew was the financial crisis. We didn't need the NBER to tell us that this is not like that.

 

BROOKE GLADSTONE But what about the 2023 recession? If there is one, would that one be different?

 

FELIX SALMON Very, very different. So, number one, there probably isn't one. And number two, if there is, it's just a recession. That's not a crisis. And again, this is something which people I can't blame them for getting wrong, because the last two recessions that we've had have both been crises. We had the financial crisis in 2008 and then we had the COVID crisis in 2020. And both of them were really, really bad. And so now, after having gone through two recessions, which were crises, everyone's like, well, a recession is terrible because it means we're in a crisis. No, that's not what it means.

 

BROOKE GLADSTONE Well, if you're under 40, no one would blame you for thinking that.

 

FELIX SALMON Absolutely. The last time we had a recession that wasn't a crisis was a little baby recession in 2000, 2001, which, you know, I'm over 40. You're over 40. I don't know if either of us really remember that as a recession, but it was not such a big deal. You know.

 

BROOKE GLADSTONE This was the explosion of the tech bubble you're talking about

 

FELIX SALMON Exactly.

 

BROOKE GLADSTONE Yeah, that was not an all consuming collapse. You could go through your life if you were separated from that and not even notice.

 

FELIX SALMON Yeah, the rest of America just went along its merry way and there was a recession and it was okay.

 

BROOKE GLADSTONE So it's a political inevitability that as the midterms approach, the recession chatter will get louder. So much of this is partizan. How should news consumers gird themselves?

 

FELIX SALMON So I'm just hoping and crossing all my fingers, not just for the sake of America, but also for the sake of the discourse, that we don't get a negative print for GDP in the second quarter, because if we do, every single Republican and a bunch of, you know, graybeards on the television, they're all just going to say, we are in a recession. Look at this. We had two quarters of negative GDP growth. And anyone telling them that they're wrong is going to sound like a moron. And ultimately, really, that's what a recession is. A recession is just a lot of people feeling bad vibes at the same time. So I think the first most important thing to do is to try and tune out any hysteria. Stocks go up, stocks go down. Volatile prices in commodities like oil go up and down. Oil, by the way, is a key ingredient in food. This is something a lot of people don't understand. There's this thing called the haber bosh process, which basically creates all of the nitrogen and all of the fertilizer that is used to grow food. So when oil prices go up, food prices nearly always go up as well. This is a cyclical thing that happens every so often, and all of us in America are pretty much the worst that happens is we wind up having to spend more on our food and much of the rest of the world. There is a real food emergency that, you know, the Americans are outbidding everyone else for the food, which means that if you live in large areas of sub-Saharan Africa, say like there is actually a hunger problem. So put it in perspective. If the worst that happens is you wind up having to spend more for your food or to fill up your car and you can drive to your job and get your paycheck. You're really doing quite well.

 

BROOKE GLADSTONE Well, but nevertheless, recession –

 

FELIX SALMON Brooke,  can I just stop you here? You've used the word recession 8 million times in this interview, and this is the problem. We are having a conversation about the economy and you're like, well, what about this kind of recession and are we in a recession? Do you think people are going to say we're in a recession? And if anyone remembers this interview this time tomorrow, the main thing that they will remember is you saying the word recession. And that is exactly how the media contributes to the general vibe that we're in a recession. Or it could be going into one.

 

BROOKE GLADSTONE Even though I'm skeptical.

 

FELIX SALMON Even though you're skeptical.

 

BROOKE GLADSTONE A word is being intoned over and over. I am duly chastised and chastened, and the R-word will not pass my lips again soon.

 

FELIX SALMON Very glad to hear that. My one good deed that I've done for the media today.

 

BROOKE GLADSTONE Felix Salmon is the chief financial correspondent at Axios and host of the Slate podcast Slate Money. Coming up, the Ugh of it all. This is On the Media.

 

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BROOKE GLADSTONE This is On the Media, I'm Brooke Gladstone. In our exploration of the weirdness of the economy this week, we've covered jobs, gas, politics. That word that begins with 'R', we won't be saying anymore. But we haven't plumbed its depths. We've barely scratched the surface. All we can say for sure is that our money, like our bodies, our circumstances, our daily lives have undergone significant upheaval in the past two years and perhaps forever. We'll come back to that idea in a minute. But first, how about a final anecdote demonstrating not so much how we talk about the economy, then what the economy says about us. It is, after all, a creature of our own design. Unlike so many of humanity's creations, it ultimately reflects our accomplishments and progress, along with our fears and, of course, mistakes. Why should we expect anything more or less from our economic indicators?

 

MARK BLYTH So here's an interesting one, and it's about robots.

 

BROOKE GLADSTONE Mark Blyth is a political economist and a professor of international economics and public affairs at Brown University.

 

MARK BLYTH I don't know if you remember this, but around 2010, just when the global financial crisis beginning to matastisize, every financial outlet in the world started to say that everyone was going to be replaced by a robot. Do you remember that? We're all going to lose our jobs. It was the race against the machine, all that sort of stuff. Underlying this was the way that we calculate the productivity of manufacturing. For a long time, it looked like the United States was roaring ahead of Europe. It turns out that it was a mass measurement problem. As an economist called [00:34:42]Silvia Holzman [0.4s] figured this out, that what we do is we look at the IT sector, which is obviously a very large part of American manufacturing, and we basically say, okay, so you've got a new computer. The chips twice as powerful. You must be twice as productive. I'm being crude, but that's essentially what it is. So we were calculating the productivity of the IT sector in the United States as just being almost exponential. Now, when you didn't do that and you did it the same way as Europe, the effect disappeared. But that really mattered because for ten years it made it look like America was running leaps and bounds ahead of Europe when in fact it wasn't.

 

BROOKE GLADSTONE Let's move out a couple of thousand feet. You suggest we might be staring down the barrel of a kind of permanently shocked economy?

 

MARK BLYTH Yes. Let me explain that. So here's how people tend to think about the economy. And it's a weird way of thinking about things, but let me run with it. So there's an idea that if you take all of the labor, all of the capital, all of the ideas, all of the stuff, and put it together and call it an economy, it kind of settles into a kind of equilibrium that basically just means steady state. And that steady state can be shocked from time to time. So whether it's a financial crisis, that's a big slap in the jaw or whether it's externally generated inflation because of COVID and a war, that's another shock. That basically that equilibrium gets out of whack for a while, but then it will come back to trend. Right. That's the assumption we've worked with for a very long time. So what I'm wondering, sitting in this incredibly hot world that we are and we're basically half the planet's on fire, thinking about things like the Colorado River really running dry in the west, being in a 1600 year drought of I got that figure correct and various other developments across the globe. What if we're moving out of that equilibrium completely? What if we're getting to a stage now where basic things that we took for granted are going to be permanently short, whether it's workers, water, food in certain parts of the world and the conflicts that are going to arise because of that. It's very hard to imagine reverting back to the prior equilibrium. It's more likely that we're bouncing around in a new world of uncertainty with permanently higher prices. It's not a very pretty view, but I think it's one that we have to entertain.

 

BROOKE GLADSTONE Should there be a move simply to slow down the economy then?

 

MARK BLYTH There's a lot of very serious folks who will argue that we need to degrow the economy. But you have a kind of static pie problem. If you don't add to the economy, if you don't grow in some sense, then proportionately you're going to get less and less over time. If you want to see what that looks like, consider Italy. Italy hasn't grown in the past 20 years. It's now about 20% smaller economically and it was before and its politics reflect those divisions. So while you want to de-grow in the sense that you want to decouple GDP growth from carbon emissions, it's not clear that the answer to do so is to basically shrink the economy at the same time.

 

BROOKE GLADSTONE Okay, but what up is Italy's political problem because of its shrinking economy? I mean, stability has not actually been a hallmark of Italian politics.

 

MARK BLYTH That's very true. But here's a little fact that most people have forgotten. Between 1960 and 1990, the two fastest growing economies in the world were Japan and Italy. It absolutely changed its governments all the time, but it was politically stable in the sense that the same parties were around the same people swapped cabinet positions. The economy grew. Wages rose. Politics wasn't polarized. What's happened since essentially joining the euro and I'm not just blaming the euro for this. They just have failed to grow. They are 20% poorer. And when you get poorer, that tends to produce a bad politics.

 

BROOKE GLADSTONE So the argument against slow growth or maybe shrinking is that the political consequences could be dire. Let's extrapolate to the U.S..

 

MARK BLYTH Think about everybody's hate figure of the moment in the Democratic Party, which is Joe Manchin who has killed Build Back Better finally for the third time or possibly the fourth time. Why is it that he's doing this? Well, if you have a look at West Virginia, you can call up the number of jobs in mining and you can say, oh, my God, there's more people work in insurance than in mining. This is crazy. But then you remember that there are some of the best paid jobs in the state. This is a state that's very poor, has a lot of Medicare liabilities, a lot of people with opioid problems, etc.. So those high wages pay high taxes. That keeps the system afloat. Odd together gas. Odd together. All the ancillary skills it's worth. A one third of GDP for West Virginia is tied up in the fossil fuel industry. And then you've got people like us saying, hey, we need to decarbonize, which they take as a mortal threat to their business model.

 

BROOKE GLADSTONE There are, of course, a lot of implications about the major source of Manchins campaign funding.

 

MARK BLYTH Oh, no doubt. But simply from the point of view of a worker working in West Virginia, why would you trust the federal government not to blow this one? You do remember that Senator Clinton in 2016 was running around saying to all these 55 year old white guys that work in a mine should become coders. That was never very practical, was it? And if you have a look at what happened to the Midwest from the Clinton period onward, you see effective deindustrialization and massive downward mobility of many people in that part of the country, which happened under the same people who now want you to embrace a green transition. So why should they trust them?

 

BROOKE GLADSTONE So our economy is shocked. Shortages, wars, oil crises. They aren't new, but maybe not so many disruptions all at once, especially when you add on global warming. So are our tools of diagnosis, like defining a recession as two straight quarters of declining GDP and so many of the other things we use no longer suited to assessing the situation at hand.

 

MARK BLYTH That might well be the case that, you know, these are not the droids you're looking for. To quote Star Wars on this one, these are not the indicators you're looking for. Let's let's think about why that might be the case. And you give me a clue in something you were just saying. Earlier on I was talking about how we think about an economy being in equilibrium in a steady state and it gets hit by a shock. The way that we think about these shocks is that they're normally disrupted. Big shocks happened, rarely, small shocks happen quite a lot and you don't notice. And these shocks themselves are independent of each other. What you just said it that what we've got is a world where the big stuff is happening quite frequently and these shocks tend to compound on each other, adding one to the other. That takes us into a very different world. You can start to get weird outcomes like the labor market seems to be super tight, but at the same time we're raising interest rates and we're expecting a recession. So maybe the system has shifted in such a way that it doesn't respond the way that it used to and increasingly will fail to do so. In which case many of the indicators that you're looking at has given you information, but it might not be given you the information that you think it is.

 

BROOKE GLADSTONE You said we need to imagine a world in which some things are permanently in short supply because of these shocks that will soon just become basic conditions of life. But goods aren't in short supply right now, are they? I thought one of the factors here is that companies have too much inventory.

 

MARK BLYTH So it's a very mixed story out there. Certainly some big retailers, notably, I believe it was Target, who pulled a whole ton of inventory and then had to sell it off to clear the decks, essentially. We still have supply chain problems. My favorite little example of this is that the PCR reagents and the home test kits that you get. They're not just made in one city in China. They're made in one factory in China.

 

BROOKE GLADSTONE Oh god.

 

MARK BLYTH So we are still totally dependent on these very shockable supply chains. You begin to manage that by home sourcing, by trading more with partners who you can trust to share your values, to use the language of the White House on this one. But all of that stuff. Takes time.

 

BROOKE GLADSTONE What about the things that may be in permanently short supply because of climate change?

 

MARK BLYTH Well, what's happening now is a lot of weak and sloppy thinking about climate change is itself being shocked. So one of the arguments you would hear as, oh, well, it'll take, you know, 20 or 30 or 40 years for these things to show up. And, you know, if that means that we can't grow wheat in Wisconsin anymore, well, you can grow it further up in Manitoba. Well, no, it's happening really fast. And you can't grow it in Manitoba because the soil is completely different. And the same thing with zooplankton because of acidification. If they basically start dying off, the entire Marine food chain comes into jeopardy. Once you go through a certain limit, there's no way back. A simple one for this is global food supplies. We have a highly geared system that is just in time delivery based upon regular harvests, which are based upon regular things like monsoons. And if those weather patterns begin to shift drastically, then your ability to count on those crops really comes into doubt. My favorite example of this is the Colorado River literally running dry. American agriculture depends upon the Colorado River, particularly California. Would America still count as a superpower if its West basically stopped producing the agricultural goods that it does? That enables the U.S. to be not just self-sufficient, to be a net exporter of food?

 

BROOKE GLADSTONE Historically speaking, though, haven't we seen large shifts in the way the world does business before? I mean, the Roaring Twenties and the Sixties.

 

MARK BLYTH The types of shocks that you got within the twenties and you got hit with in the sixties and seventies were the business-as-usual shocks. What we were always able to do is ignore what economists call the externalities of production, continue to just dump more and more stuff into nature and take more and more stuff from nature. And that will always be the cornucopia. We never have to worry about that. But we're not seem to be in a world where we can no longer ignore those externalities that what we're doing is making them worse. These shocks are different qualitatively, and the trajectory that we may be on as different qualitatively.

 

BROOKE GLADSTONE Hmm, so you think the real underlying cause of this shift is and will be climate change?

 

MARK BLYTH I think it's all these things coming together. This is what I mean about this is not normally distributed. And these are things are not independent. In terms of production, when the sort of the honeymoon between China and the United States started to come apart maybe ten years ago. Then we had our first conversations about globalization because of the pandemic. Now we have actual warfare on the European continent, which is impacting global oil and food supplies. And add to that the fact that the United Kingdom had the weather that the British weather office thought would happen in 2050 in 2022. So it's not just climate. It's almost as if climate is kind of the icing on the crappiest cake of all time.

 

BROOKE GLADSTONE [BROOKE MAKES AN EXASPERATED SOUND] So –

 

MARK BLYTH You know, it's funny. It's funny. You should make that noise. I was talking to someone about this last night. Do you remember, like maybe ten, 15 years ago what happened as you get together with your friends on a nice summer night and you'd be sitting outside and you make each other laugh and you'd have a few drinks, and it'd be great. And the point was to crack each other up and no one would get together. We all sat around and we go [MARK SIGHS EXASPERATEDLY].

 

[BROOKE LAUGHS]

 

MARK BLYTH You know, you want to talk about confidence in the economy. Think about it from the point of view of a 25 year old coming to a college. Do you really have great faith in your ability to put together a retirement portfolio that's going to last the course, let alone buy a house? To go back to this idea of what are the things that we're measuring when we're measuring the economy, let's think about the confidence index. So consumer confidence is down it'ss terrible right. Well, if you go on Bloomberg, you can sort out bi partisanship you can look at the american confidence index in terms of republicans and democrats and what it shows the majority of democrats thinks things are okay but not great. Practically all Republicans think things are terrible because they must be under a Democrat. So on average, we all think they're bad, right? But I wonder how much these other subjective factors are featuring into this. I mean, are we confident about the future in the way that we used to be? Do we really think that like 20 years from now, things are going to be totally fine and kids coming out of college are going to have more life chances than they do now? Or is this kind of feeling that we've all got that we don't really express? Is that kind of, "ugh" and what's that doing to us on a macro level?

 

BROOKE GLADSTONE What is it doing to us Mark?

 

MARK BLYTH I mean, it would be wonderful if, you know, these this moment of rising temperatures, etc. really gives us pause and makes us recognize that, you know, we face an existential set of problems. I mean, there should be a moment for transformation, a moment for incredible investment in our collective futures. But we seem to be paralyzed by a lack of imagination and we see this in you know, in build back better. Adam Tooze put it well in his newsletter, when he said the real failure here isn't Joe Manchin. It's the fact that the centrist Democrats think about generational transformation with a funding model that would be used to fund a nursery school in a village. Everything has to be paid for. And you run the global economy with a dollar, which is the global reserve asset, and you run it as if it's a corner shop. That's the "ugh" moment.

 

BROOKE GLADSTONE Mark, thank you very much.

 

MARK BLYTH It's always a pleasure.

 

BROOKE GLADSTONE Mark Blyth is a political economist and professor of international economics and public affairs at Brown University.

 

And that's the show. On the Media is produced by Michael Loewinger, Eloise Blondiau, Molly Schwartz, Rebecca Clarke-Callender, Candice Wang and Suzanne Gaber with help from Savannah Collins. Katya Rogers is our executive producer. On the Media is a production of WNYC Studios. I'm Brooke Gladstone.