The Inside Economics team is pleased to welcome Glenn Hubbard, Nonresident Senior Fellow at AEI and former chairman of the President’s Council of Economic Advisers, to the podcast. Dante kicks things off with a summary of this week's "surprising" employment report. Glenn offers his opinions on the Trump administration's policy proposals and their potential effects on the economy. The group successfully navigates the statistics game through hints and joint effort.
The Inside Economics team is pleased to welcome Glenn Hubbard, Nonresident Senior Fellow at AEI and former chairman of the President’s Council of Economic Advisers, to the podcast. Dante kicks things off with a summary of this week's "surprising" employment report. Glenn offers his opinions on the Trump administration's policy proposals and their potential effects on the economy. The group successfully navigates the statistics game through hints and joint effort.
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Guests: Glenn Hubbard, Nonresident Senior Fellow at the American Enterprise Institute and Dante DiAntonio, Senior Director of Economic Research, Moody's Analytics
Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics
Follow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my trustee cohost, and of course, Dante DiAntonio, Dr. DiAntonio on Jobs Friday. Hey, Cris. Hey, Marisa.
Cris deRitis: Hey, Mark.
Marisa DiNatale: Hey, Mark.
Mark Zandi: Hey, Dante. How are you guys?
Dante DeAntonio: Doing well. How are you?
Mark Zandi: Doing well. Yeah. Are you guys all... Well, Marisa is in Southern California. How are you? Everything okay?
Marisa DiNatale: Yeah, I'm fine. I'm about an hour and a half south of the fires. I've got a house full of refugees and dogs. All my friends are evacuated, and so I have a bunch of them here staying with me until they can hopefully safely go back home, so it's very tense.
Mark Zandi: I bet. I haven't kept up this morning. Are the fires still raging or they are?
Marisa DiNatale: Yes, they are. And we had a day yesterday of very light wind, so they got a lot of them. They made a lot of progress, but the winds are coming back today and through the weekend, so we'll have to see what happens, but they were able to make some progress yesterday.
Mark Zandi: Good. Well, I wish everyone good fortune and hopefully everything plays out reasonably well here. I know that's a very trying time, but back here on the East Coast, Dante you're in... Cris, you're in Philly in the Philly region, right?
Cris deRitis: Yes.
Mark Zandi: Cold, huh?
Cris deRitis: A little cold. It's okay.
Mark Zandi: Not too bad. Well, it's January.
Cris deRitis: It's expected.
Mark Zandi: Exactly. And we've got a guest, Glenn Hubbard. Glenn, hi. How are you?
Glenn Hubbard: I'm great. Thanks for having me, Mark.
Mark Zandi: Absolutely. It's been meaning to have you on for a long time and you have such a great career. Maybe there's so many things that you've done over the years, maybe I'll just... And listeners always love to hear about folks' background and how they got to where they are today. Maybe I'll just throw it into your court. Maybe you can give us a sense of your career path, how you got here today, and we've gotten to know each other a little bit over the years at the American Enterprise Institute function that is held in Georgia every year. And are you going to be there this year?
Glenn Hubbard: I am. I'm looking forward to it.
Mark Zandi: I'm looking forward to it as well, but maybe you can just give us a sense of your career. I think people would be very interested.
Glenn Hubbard: Well, nobody grows up as a small child thinking, "I'd love to be an economist." It just doesn't happen quite that way. I went to college studying engineering and found that I fell in love with economics instead, for two reasons. It was about analysis and data, which I liked, but it was also about people. And I went into economics actually because of some specific people. Now, keep in mind I was in college in the late 1970s and then started graduate school in the late 1970s.
The heroes I had were Alan Greenspan, who was really a model... He had not yet gone to the Fed at that time, but was a business economist, somebody who'd been chairman of the Council of Economic Advisors. I saw him interested in real stuff. I chose Harvard for grad school because of Marty Feldstein. He was on the cover of the New York Times Sunday Magazine with the heading; Superstar of the New Economists, because he dared to look at data on public policy, and I said, "I want to be him." And so that's what got me into it. I fell in love with almost every area of economics, but it's principally finance, applied micro and a little bit of monetary policy that keeps me going.
Mark Zandi: And you were very active in the Washington political circles. I know you were at the Treasury in the early '90s.
Glenn Hubbard: I went to the Treasury in the early '90s. The tax part of the Treasury Department was me, the Office of Tax Analysis, which was a fun time. At that time, the Treasury was doing the landmark integration study, which actually became law under another Bush many years later. I thought that was a very formative experience for me, because Secretary Brady would often ask questions that I didn't know the answer to, and I thought our profession needs to work harder to give the answers the policymakers need. And then I had the privilege of working in the White House and the second Bush administration, George W. Bush's administration as chairman of the CEA. Also learned a lot then. Any tour of duty in Washington, whoever the president is, is a great experience. For an economist, you hope you can bring some of your work, but you certainly should learn a whole heck of a lot about what's going on.
Mark Zandi: And now I know you're visiting scholar at AEI and you're also on the board... Is it Total that you're on the board of?
Glenn Hubbard: I'm on the board of Total. I chair the board of MetLife, and I chair the board of the Fixed Income complex at BlackRock. So I've been very active in boards for many years. In part for interest in those industries and policy, and in part it's a great learning opportunity about business.
Mark Zandi: Sure. And of course, one of the key things you did, you were dean of the business school at Columbia too.
Glenn Hubbard: I've been at Columbia many years... I started teaching Northwestern. I moved to Columbia many, many years ago, and other than being in Washington, I've been at Columbia 35 plus years, and I was dean of the business school for 15 years, a great experience for me. I'm not sure why the trustees brought somebody from the economics department to do it, but I learned a whole heck of a lot, and the business school is in great shape.
Mark Zandi: Yeah, it really is. And of course, the folks going on the economics team for the incoming Trump administration, Kevin Hassett.
Glenn Hubbard: Kevin is very impressive. I think that's a very good choice for President-elect Trump.
Mark Zandi: Obviously is really focused on tax policy, a strong supporter of corporate tax cuts and was really instrumental, because he was head of CEA under Trump one and led the way on TCJA.
Glenn Hubbard: In the early '90s, Kevin and I wrote a series of papers using natural tax reforms as a natural experiment to estimate effects of big tax changes. Because as you know, traditionally macro people were looking at time series, but if Congress tends to change tax policy with business cycles, you don't learn anything really from doing that. But if you use a tax reform as an experiment and focus on the cross section, the effect across industries, you can actually estimate underlying effects. So Kevin and I found very large effects of tax reforms, and I think Kevin used some of that information when the Tax Cut and Jobs Act of 2017 was being developed. There's a new economist who just was on the job market last year, Patrick Kennedy and a group of Washington co-authors that have a much more modern version of that work, also finding very large effects of corporate tax changes on investment. So there's a lot for Kevin to do.
Mark Zandi: Yeah. And do you know Scott Bessent, the incoming Treasury secretary?
Glenn Hubbard: I didn't know him well, but he's very impressive. I think that by focusing on the growth objectives, there's a lot of good work to do there. 3% is pretty ambitious, but there are some specific things he could do. Tax is one, but there are others, but I think it's an excellent choice. On the economic side, the president-elect seems to have done a very good job.
Mark Zandi: That you're referring to the Bessent's 3-3-3 plan, 3% growth. Presumably that's sustained GDP growth. Of course that's...
Glenn Hubbard: I think it's an ABE-like search for three arrows, but it worked for ABE as a communication device. I think the trick will be what is it that gets you to 3% growth? Aspirations are nice, but policy is good.
Mark Zandi: And we'll come back to that in the context of tariffs and immigration policy. I'm really curious how you think about that. And also tax cutting in the context of large budget deficit, because the other three is of course, a 3% deficit to GDP ratio, we're at 6, that's hard to-
Glenn Hubbard: That's a heavy lift.
Mark Zandi: Heavy lift. And then the other was equivalent energy increase of 3 million barrels of oil a day, which that one I don't get.
Glenn Hubbard: Yeah. It's harder to understand because when people say the oil industry, there's no such thing. I mean, there's big super majors took, Powell happens to be one of them, and there's lots of the independent shale frackers, and I think that's the audience that Bessent is talking about, but the super majors aren't so wedded to big oil production increases.
Mark Zandi: It's hard to imagine the frackers ramping up production unless oil prices are a lot higher. They're not going to...
Glenn Hubbard: They're not, and there's no likely prospect that that's barring geopolitical.
Mark Zandi: Well, I want to come back to all of that, but before we move on, today is Jobs Friday. We got the jobs report from the Bureau of Labor Statistics for the month of December and wow, Dante, what do you think?
Dante DeAntonio: Impressive. Better than certainly I expected. Headline job growth came in at 256,000, well above consensus expectations for growth to moderate in December. Three-month average growth is much lower than that. It's at about 170K, which I think is a more realistic target for where trend job growth is right now. I don't think 250,000 isn't realistic in terms of sustainable job growth. Industry wise, it's not all that different than what we've seen in recent months. The same industries are leading the charge here in terms of healthcare, leisure and hospitality, the public sector.
Retail was a big contributor in December, but that was really just some buyback after a big drop in November. Weakness in manufacturing is back. It fell 13,000 in December. Very small declines in wholesale trade and utilities, so definitely some weak points there. But the same industries are powering the charge here and accounting for the overwhelming majority of job growth and have been for most of this year. Wage growth down a little bit.
Mark Zandi: Dante, I always ask, and I'll ask again, what's underlying monthly job growth abstracting from the ups and downs and all-arounds of vagaries of the data? What do you think it is?
Dante DeAntonio: I still think it's between 150 and 175, which is we averaged 190 over the course of 2024, but that was front-loaded to some degree in the first half of the year. The 3-month average is around 170. I think that's in the ballpark of what we could expect moving forward, if not a little bit weaker than that.
Mark Zandi: Got it. No, very good. And you're going to go to wage growth I think next?
Dante DeAntonio: Wage growth reasonable in December, 0.3% on the month, a year-over-year actually ticked a little bit lower as a result, because you rolled off a stronger wage gain from late last year. So year-over-year growth is at 3.9%. It was at 4% last month, so I don't think anything to be concerned with on the wage growth front. Hours worked were steady in terms of average weekly hours. Aggregate hours ticked up a little bit, not surprising given the strong headline job gain. For once the household survey was in alignment in its positivity. About the labor market, we've had a lot of months where they diverged. In here, that wasn't the case. We had a strong labor force gain. A strong gain in household survey employments. The unemployment rate ticked down by a 10th to 4.1% again. So it's really good news all around on both sides of the report.
Mark Zandi: Can I ask, on the household survey, I think for the month of January, Bureau of Labor Statistics benchmarks to new population counts, do I have that right?
Dante DeAntonio: Next release, we'll get the updates to population control.
Mark Zandi: The next release.
Dante DeAntonio: They update the seasonal adjustment factors in this report for the prior year, and that had very minimal impact to the unemployment rate.
Mark Zandi: And I know Census came out I think last week with some new population estimates based on some revisions to the immigration numbers that they've been using. They've been completely under-counting, but it looks like they caught up to the reality of what's going on across the southern border. Will that be reflected in the household survey? The population counts that the household survey will benchmark to, will that get into the data or not?
Dante DeAntonio: It should. I mean the population control should be based on the latest Census Bureau estimate, so I would expect to see a pretty big shift. They won't revise the old data. That's the one nuance in the household survey is that they don't go back and actually change previous data based on those new population controls. They just create a new level starting in January. So we're likely to see a pretty big disconnect between the level of employment in December of 2024 versus January of 2025, if there is as big of a shift as we are anticipating.
Mark Zandi: One word, two words, three words, how would you characterize the report?
Dante DeAntonio: Impressive.
Mark Zandi: Impressive. Marisa, any other word you would use?
Marisa DiNatale: Surprising. Surprised by...
Mark Zandi: Surprisingly?
Marisa DiNatale: Strong.
Mark Zandi: Strong.
Marisa DiNatale: I wasn't expecting that.
Mark Zandi: And Cris?
Cris deRitis: Just one word?
Mark Zandi: You can use two, maybe three. You got to do it in the next second though. Come on. What comes to mind?
Cris deRitis: Surprising.
Mark Zandi: Oh, original. Hey, Glenn.
Marisa DiNatale: On original.
Mark Zandi: Glenn, so I'd say that's a damn good report. That'd be damn good report, three words.
Glenn Hubbard: It's a very good report. I wouldn't have guessed 256, but I would have guessed that it's going to be quite good. The economy is in good shape and the job market is in good shape. The conundrum is everybody is saying this is good news. Of course, the stock market today is panicking a little, and I'm not quite sure why. I've been of the view that employment is reasonably good, the economy is strong and inflation is stuck higher than it should be. The market was of the view rate cuts are coming. I think they learned that's not happening today, but that's not news. So that's what's surprising to me that people who are far richer than I am seem to have misjudged this.
Mark Zandi: So you would characterize the economy that's being handed off to President Trump as a good economy?
Glenn Hubbard: Well, it depends what you mean by that. Obviously, the political economy version of that is probably not true, or we wouldn't have had the election result that we just had. But if you're asking me about averages and aggregates, absolutely.
Mark Zandi: In the aggregate, it feels almost exceptional, doesn't it? I mean, in terms of growth, the jobs...
Glenn Hubbard: You have very low rate of unemployment. Inflation came down. It's not at the target level it should be, but it has come down. GDP growth seems good. There's a lot of innovation potential in the economy with generative AI, so it's not a bad economy. The question is how to make that sustainable going forward. How to realize that the FISC, the public sector, is going to have feedback effects from this. If I'm right about this description of the economy that says interest rates will be higher than people thought, and indeed we're already seeing that, and one place that's going to feel that aggressively is the federal budget.
Mark Zandi: To Glenn's point about the markets, I know you're following them. What have they done here? This is now 11:00 AM, Eastern Standard Time, so the market's been open an hour and a half. I saw a lot of red, at least in the equity market.
Cris deRitis: Equity market down 5,600 points. So I've crossed the board. Given the expectation, and if you look at the Fed Funds Futures, investors now are expecting one, maybe two cuts this year, later in the year, nothing until June. So on that higher interest rate environment pushes down the expectations for the stock market in terms of the discounting. The Tenure Treasury is up. So if you wanted to look for some green, there's the green on your screen, that's up seven, eight basis points. We're over four, 4.7.
Mark Zandi: I view that as red bond prices are down, yields are up. I guess maybe if you look on the screen, are they even green when yields are...
Cris deRitis: They are in green.
Mark Zandi: Are they really?
Cris deRitis: Well, depends on...
Marisa DiNatale: Oh, my screen has them in red, but I'm looking at if they're in red.
Mark Zandi: I think they were red. I think they were red. No. Okay.
Cris deRitis: Bond yields up. Are in green on mine, if you go to CNBC.
Mark Zandi: Anything that goes up, whether it's good or bad, is in green.
Cris deRitis: Correct. Correct.
Mark Zandi: I got it. But the ten-year yield is now at four. Last I looked, four, seven, five, 4.75.
Cris deRitis: Yep.
Mark Zandi: And so markets are thinking because of the strong job numbers, because of the sticky inflation and potentially uncertainty around the economic policy, debt ahead, the Fed is not going to be cutting interest rates here very soon. So that's the interpretation, Glenn. Does that makes sense to you?
Glenn Hubbard: Yeah, but that's what's baffling to me because none of that is news. Again, I didn't know that the job report be 256, but underlying healthy economy with inflation stuck at too high a level That part is not news. I didn't think the Fed would cut it all in 2025, and I'm still not sure...
Mark Zandi: Oh?
Glenn Hubbard: ... that it will.
Mark Zandi: Oh, really? Oh, interesting. And just because the strength of the economy or because of the economic policies or combination or...
Glenn Hubbard: Well, I think combination, certainly the strength of the economy. But if you look at, let's say TCJA, the Tax Cut and Jobs Act, which has to be done this year, I think there are ways to do that, that would not make the budget deficit worse, but I'm not sure those will be the ways that are selected. And so if you had a higher budget deficit on top of the strength of the underlying economy and throw into that just things that can happen in the world, it's not hard to imagine the Fed becoming more cautious.
Mark Zandi: My narrative has been, well, you've got a strong, obviously strong economy, you've got sticky inflation. It hasn't quite got back to their target and feels like it might not in the context of the policies around tariffs and deportations and potentially deficit finance tax cuts, which would be in a full employment economy, somewhat inflationary, but also the uncertainty. It does feel like there's a fair amount of uncertainty here with regard to what economic policy actually is going to be. It feels like we're going to get tariffs, but who knows what that means Exactly. And because of that, because of the uncertainty, the Fed is doing what the Fed would do in a world of uncertainty, and that's do nothing, just sit on their hands. Does that all sound right to you?
Glenn Hubbard: Yeah, that sounds right. I don't think we know in a lot of areas. We know that TCJA will be addressed, because it has to be. What exactly that looks like we don't know, we have a strong suspicion there will be tariffs. But there too, we don't really know across the board, what size. So it's very hard to judge until we start to see specific proposals from the administration.
Mark Zandi: I've even heard some chatter about the next move by the Fed is for higher rates. Maybe it's my chatter, I don't know, but I think I've heard the chatter. Is that a possibility in your mind? Is that...
Glenn Hubbard: Well, I mean anything's possible. I would doubt it, unless something really goes off the rails in terms of inflation. It seems to be much more likely a watching and waiting. I think the market disappointment this morning is less that it thinks the Fed is going to raise rates, but more just that it won't cut them.
Mark Zandi: All right. Let's turn to the policies and the way I think about it, just I'll lay it out and see what you think. We've already mentioned them, tariffs. Here in year one of the incoming Trump administration, it's going to be about tariffs, it's going to be about immigration policy, it's going to be about tax cuts and the TCJA and how to handle that and what to do about it. Maybe I'll throw into the mix a little bit of angst hand wringing. We had Alan Blinder on the podcast a couple of weeks ago, and he was very focused on Fed independence, some of the comments that Trump was making around the Fed. Let's take each one of those in turn, and I just want to get your sense of things. On the tariffs, how do you think about that? My sense of you, your economic background is that you're cut from a more traditional Republican perspective on things, like a Bush or a Romney or maybe even a McCain. In fact, Kevin Hassett, wasn't he McCain's chief economic advisor?
Glenn Hubbard: Yes, he was.
Mark Zandi: I believe he was McCain... In fact, I worked on that campaign because of Kevin. Kevin drafted me in that campaign. And that doesn't feel like that's tariffs, higher tariffs, so broad based tariffs. Maybe there's distinction here to be made between strategic increases and broad-based tariffs, but broad-based tariffs doesn't feel like something that would be consistent with more traditional Republican thinking. But has that changed? Do you have a different view on that? How do you think about tariffs?
Glenn Hubbard: Well, I mean, I think it's important, Mark, to set the table a little bit, because I do think that President-elect Trump, former President Trump, President-to-be Trump, whatever we're calling him, has mined a very important vein. Globalization and technological advance, globalization is actually the smaller of the two, but both of them have had tectonic changes on the labor market, on prospects of many Americans and on many places for several decades now. And I think what President Trump is saying is we need to take a hard look at gains from globalization. That far, I am with you.
Where I worry is that there are other ways to help people in places left behind, and we've done them before in our country. We once built land-grant colleges. We once had GI bills. We know how to do these things, and they have... If you want big structural shifts in the economy, tariffs are probably not the first place I would look to them.
So I think it depends what tariffs we see. One version, I wouldn't call it a tariff that I would certainly strongly support would be in fact, allowed to mix your subjects. If you did for TCJA, what economists would call a destination-based cash flow tax, you would've border adjustments in there that would raise revenue, helping to pay for the reform, and they would look like a tariff. So I'm not opposed to all of that, but I think it has to be part of a policy mix that makes sense.
Mark Zandi: Got it. Got it. One thing I worry about in the context of tariffs and how they're being talked about, how incoming President Trump is talking about them is just the uncertainty it creates, because it feels like a lot is being thrown out there, 25% on Canada, 25% on Mexico, 60%, a 100%, 10%, 20% broad-based not... And it feels like that's the thing that may actually do the most longer-term damage here, because from perspective of a business person, I'm not going to make an investment in my supply chains or make a location investment decision, expansion decision unless I have some clarity with regard to what tariffs, or which countries, which products over what period of time, and that makes me nervous that...
Glenn Hubbard: I think that's reasonable, Mark. I guess I'm as worried about certainty, meaning high-tariff regimes tend to generate a lot of rent-seeking behavior. There are a lot of inefficiency... It's the certainty that works more than the end. The uncertainty will clear up. We will have a policy and it'll be there, but a policy of very high tariffs really raises lobbying, rent-seeking corporate inefficiency of all the things economists worry about. But I don't know that we're going to get there. I have no idea, of course, what the president is going to do, but I would imagine this is more of a negotiation, so I'm with you at the moment and the uncertainty, we'll see how that plays out. But if it were to be a high-tariff regime, then I do worry about the certain downsides.
Mark Zandi: I'm not sure. You impose a high tariff on, I don't know, vehicles coming across the border from Mexico. If I'm a business person, how long are those tariffs going to be in place? You have certainty you got those tariffs, but how long are they going to be there? And that really makes a big difference in terms of whether I'm going to invest in whatever going forward in Mexico.
Glenn Hubbard: Well, and again, if the goal here is more things made in America, the destination-based cash flow tax does that, sorts out the incentives and pushes toward America. So there are plenty of good policies, that's why I'm hoping that the team will step back and rather than using the tariff word necessarily, just say, look, what is the president trying to accomplish? And what's the best way we can accomplish that for him? That might lead to a different answer.
Mark Zandi: All right. Immigration policy, how do you think about that? I think there's widespread agreement that we need to control the southern border. That is a national security issue. It doesn't make sense to have people streaming over the border like we've had, although that does feel like we've made some progress there. Maybe more can be had on that front. It's more about the thought of broad deportations of the undocumented or unauthorized immigrants in the country. How do you think about that? Should we...
Glenn Hubbard: Well, again, I think Mark, it's important to table set. So I think what President-elect Trump got exactly right is the zeitgeist of concern over immigration. Many people who sit in policy circles simply don't face communities where there have been lots of new immigrants, not well integrated in school systems and culture. There's a lot of illegal immigration. I think he got that exactly right. There's two things though that I worry about. One is I think economists have been a little facile when we say, what's this fear about wages?
Well, if we think that deportations are going to be inflationary and raise wages, well, I think we have the answer there. I mean, the illegal immigration was holding down wages and prices, and we'd be honest with that. So then it gets back to, well, how do you prepare domestic born people to succeed in the labor market? So yes, we need to make sure the border is secure, but yes, we also need to help domestic born low skilled people. Then there's a whole separate debate over high skilled immigration, which to me is a very different subject. I mean, I teach in a school where half of the students here are not Americans.
And I would hope that every one of them wants to work in the United States, not because I'm a nice guy, but because they're really smart and I'd like to have them here and I hope everybody is in agreement with that. And I think President Trump said, yeah, H-1B Visas, which is the high skilled program he's fine with.
Mark Zandi: Then onto the TCJA, the tax cuts, it feels like the individual tax cuts that are set to expire at the end of '25, they will be extended. I don't think there's any question about that. It really is the debate I think would be more around the corporate tax side, and do you have a sense of how that might play out and kind of...
Glenn Hubbard: Well, I'm not sure I agree with you on the individual side.
Mark Zandi: Oh, is that right?
Glenn Hubbard: Let me start on the corporate. So on the corporate, the piece that's missing... Most of the law on the corporate side was permanent. So the rate cut from 35 to 21% is permanent or at least as permanent as anything is in the tax code. But things that economists are just as interested in, like expensing, we're not. So expensing is already phasing out. It phased out 23 to 26. So I would think an obvious thing is to restore expensing and make that permanent. I think I'm going from memory, I think the ten-year cost of that, which is the way Washington looks at numbers, is about $400 billion. So you could pay for that a whole number of ways. Obviously you could pay for it with offsetting tax provisions. You could also pay for it with reductions in IRA credit spending or President Biden's executive orders. There's lots of pay force there.
Now that assumes that Washington is content with what in the inside baseball is called a current policy baseline. So as long as we just let the current policy go, we're fine. That of course isn't a current law baseline, because the current law baseline has things expiring. So if we're serious about current law budget, we would be needing some revenue raisers. On the individual side, here's what worries me. The SALT conversation, State and Local Tax conversation, the very thinness of the Republican majority in the house, anything that increased SALT, which by the way is a New Yorker, selfishly...
Mark Zandi: You'd benefit.
Glenn Hubbard: ... I'm cool with it, but it's a terrible tax policy and we shouldn't be bringing it back.
Mark Zandi: SALT is for the listeners, a State and Local Tax.
Glenn Hubbard: State and Local Tax deduction. So the reason that old fogies like me think it's not great tax policy is why should somebody who lives in Florida, the state of my birth subsidize me and the government here in New York State and Albany, that's a high spending government. It doesn't make any sense, and so we shouldn't have it.
Mark Zandi: And that was a scale back under TCJA, Trump one. It was capped at, I think it was 10,000.
Glenn Hubbard: It was capped at $10,000. So there's several things that could. I don't expect it to be brought back in its entirety, but the cap could be raised. There are all kinds of things.
Mark Zandi: And President Trump has talked about that, about raising the cap or...
Glenn Hubbard: Right. And there may be other provisions as well. So I think one of the things to look for in this process, if this is to be part of what's called in Washington a reconciliation bill, then there will be a budget limit that's articulated before. And so when we know what that deficit limit is, whatever the policy happens to be, it's got to fit in that bread box. So just like in TCJA, there was a decision of here's how big the 10-year deficit can be, and you guys have to fit in that bread box, which is why some things couldn't be permanent and so on. So we'll see that discussion all play out again. But I do hope early on the president will say, what am I trying to accomplish with this? Because it's not just extend TCJA. Maybe we can make it better in some respects, but I do worry that a theory of opening it up broad-based might encourage bad things like the SALT coming back and so on.
Mark Zandi: And ultimately higher deficits and debt, which obviously you're concerned about.
Glenn Hubbard: Because keep in mind the higher deficits and debt, it's not just the TCJA discussion. I think there's widespread agreement that we need to spend more on defense, not a military expert, but those are big... When people talk about the Wall Street Journal this morning talked about, well, wouldn't it be great if we spent 5% of GDP on defense, but we're just spending a little over three? Those are big numbers if you're trying to add that. And then keep in mind that interest payments, which were already its largest defense, are likely to stay elevated because of higher interest rates. So it's not just TCJA. This is a conversation that I hope will focus the public's mind on deficits in debt to GDP.
Mark Zandi: Right. And the final policy, and there's others, and I will hopefully find a few minutes to come back to them, but the other big one that's on people's minds, and I mentioned Alan Blinder, is Fed independence. Do you worry about that in the context of President Trump's comments around the president having input into the decision-making process at the Federal Reserve?
Glenn Hubbard: Well, obviously I think Fed independence is a good idea insofar as it relates to monetary policy. The Fed has gotten its fingers in too many pies, in my view, in financial regulation where independence is not merited. Those are clearly congressional areas. I would speak somewhat differently about the Fed, but I'm not terribly worried when we actually start seeing appointments. I mean, people can say they would've preferred X to Y or whatever, but I don't think there'll be any serious diminution of independence of the Federal Reserve, mainly because it's just too important for everybody. A Federal Reserve that is seen as not being independent would probably lead to higher risk in term premium and interest rates. It wouldn't even serve the government to have that.
Mark Zandi: Right. So you add this all up. You add up whatever is happening on tariffs, immigration policy, the TCJA, other fiscal policy efforts that are going to be made and Fed independence. And you can throw in the regulatory discussion around regulation, lighter regulation, antitrust, some of the things around DOGE, the Department of Government Efficiency, the thoughts about that. How do you feel about the overall policy mix and the concerns that obviously the Federal Reserve has? You can see it in their minutes from their December meeting and that I have, and I think a lot of other folks have, and you can see it in the markets, and I think investors are also concerned that this is all inflationary, some combination of higher inflation and interest rates and potentially slower growth.
Glenn Hubbard: Well, I think the administration's got to do two things right out of the box. One is to first be clear as to what its objectives are. So take the uncertainty part off the table, at least about policy, but then to really think hard about some good policy changes that are not inflationary. I would put a lot of weight on the potential for regulation here just to name several areas, and not all of them are federal. They may require work with states as well, housing and zoning, permitting and the electricity grid. Things that really get into the regulatory state I think are going to be very important. I don't think DOGE is going to be very successful in cutting $2 trillion out of the budget.
First of all, if you take interest, social security, Medicare and defense off the table, there's not 2 trillion left, so I don't think that's going to be successful. What could be very successful is a focus on the efficiency, the Department of Government Efficiency, what regulations stand in the way? Why does it take so long to build infrastructure in this country, not only relative to other countries, but relative to our own past. What can we learn there about policy? So I'm pretty optimistic if the administration wants to have that discussion, it will do very well. But right up front, it's just got to be clear.
Mark Zandi: Right. Hey, let's play the game, the stats game. We all put forward a stat. The rest of the group tries to figure that out with clues, questions, deductive reasoning, the best stat is one that's not so easy that we get it immediately and not one that's not so hard. We never get it. And if it's apropos to the topic at hand, all the better. And Glenn, we always begin with Marisa. So Marisa, you're up.
Marisa DiNatale: I think this is... Well, I think it's easy, but we'll see. 213,000.
Mark Zandi: Jobs, some jobs number?
Cris deRitis: Is that the four-week average?
Dante DeAntonio: Unemployment insurance?
Mark Zandi: Oh.
Marisa DiNatale: Yep. That's what it is.
Mark Zandi: I thought was that was 201.
Marisa DiNatale: That was an easy one.
Mark Zandi: I thought it was lower than that. No? That's the average.
Marisa DiNatale: That's last week's. 201 was last week's 213 is the four-week moving average of UI claims for the week ending January 4th.
Mark Zandi: That's a little disappointing. Dante, don't you think that was a little disappointing, that stat?
Cris deRitis: Relevant.
Dante DeAntonio: I think it was a great stat. I think it was a great.
Marisa DiNatale: Thanks, Dante. I'm Dante's boss.
Cris deRitis: That is my manager we're talking to, so I don't know. I.
Mark Zandi: Think that's a double Calabella stat.
Cris deRitis: Oh, there you go.
Marisa DiNatale: I know. Its a pretty basic one. Why did I pick it? Just because I think it illuminates something else about the job market that we've talked about a lot that's not in the jobs report, which is that layoffs are extremely low. We got another report this week, the Challenger, Gray & Christmas Report on layoffs. Layoffs fell in that as well. Even in the jobs report, if you look at the reasons that unemployment fell, one of them was fewer people being let go from their jobs. So we've talked about the JOLTS survey that hiring rates have come down quite a bit. Job opening rates have come down quite a bit.
So despite that demand side of the labor market, we're still seeing that companies really are not laying off workers. So we may see job growth slow here going forward, which is what we expect, but not because layoffs are ticking up to any meaningful degree. So this four week moving average of UI claims is the lowest that it's been since April of last year, so it really extraordinarily low here.
Mark Zandi: Hey, Glenn, what's going on here? I mean, one theory we've has been bandied about is some form of labor hoarding argument that businesses have been scarred by severe labor shortages during the pandemic. Pre-pandemic and demographics are such abstracted immigration. If you look at the native born population that's declining, working age population or close to the businesses are just really reluctant to lay off. Does that resonate with you or do you think some of the...
Glenn Hubbard: Yeah, completely. I do think this is a classic labor hoarding story, so I'm not so surprised. I mean, we're very far away of any trouble in claims data. Claims hitting like 400,000 would be an issue. But if you're talking about half that, we're nowhere in the... So everybody whose hand wringing on the labor market, we're so far away from labor market calamity that I'm not sure why there's so much focus there.
Mark Zandi: We'll do Dante next and Glenn will come back to you. I'm really curious about your step. Dante, you want to go next?
Dante DeAntonio: Sure. 1.695 million.
Mark Zandi: Are the four significant digits important here?
Dante DeAntonio: Yeah, important. I just wanted to be precise.
Marisa DiNatale: Is that the number of private sector jobs created last year?
Dante DeAntonio: It is not.
Mark Zandi: That's close. There was 2.2 million in total. So it sounds about right.
Glenn Hubbard: Is it the sum of all of President Biden's pensions from so many government jobs?
Dante DeAntonio: It could be, but that's not what I totaled here.
Mark Zandi: Is it in the JOLT report?
Dante DeAntonio: No, it's in today's report. And you were on the right track thinking about how many jobs were added this year. It's related to that.
Marisa DiNatale: Is it a payroll survey number or a household survey number?
Dante DeAntonio: It's both. It's arithmetic.
Mark Zandi: Oh, it's the household survey on the payroll basis. Oh, the average of the two or no? No.
Dante DeAntonio: You're dancing around it.
Mark Zandi: We give up. What is it?
Cris deRitis: Difference or...
Dante DeAntonio: Yeah, it's the difference between the two. The payroll survey added just over 2.2 million jobs. The household survey only added 537,000 jobs, so the difference was an average of 140,000 jobs a month. So that's the biggest difference over on an annual basis since 2003, and that's now the fourth consecutive year where the payroll survey job gain was over a million jobs higher than the household survey. So in 2021, 2022 to '23 and '24, that total difference is over 5 million across those four years. So I'm curious to see what happens when we get those new population controls. How much does that shift?
The household survey, I will say it's not completely unprecedented to have a gap that large over a long period of time. If you look back in the early 2000s, the gap was actually the other way where the household survey added more jobs than the payroll survey from 2000 to 2003. It was about a 4 million difference over those four years. So it's not completely unheard of that we get these several multi-year divergences between the two surveys. And again, I expect this one to get a little bit better here once we get those new population controls. But I think it'll be interesting to watch next month to see how that changes.
Marisa DiNatale: And we're going to get the benchmark revision next month, then the payrolls...
Dante DeAntonio: Then we'll get the benchmark revision, which is going to be negative, at least based on the [inaudible 00:42:47], so both of those together should help narrow that gap.
Mark Zandi: Well, only five people on the planet that are on this podcast know what you said, what that actually means. You want to just explain that for a second?
Dante DeAntonio: And four of them are here? Is that what you're talking about?
Mark Zandi: Four of them are here, yeah.
Dante DeAntonio: We get a couple things next month with the release of the job report. On the household survey side, we get updated population controls, which we touched on earlier. So they use updated population figures from the Census Bureau to benchmark to essentially wait that household survey sample to get the correct level of employment population, which will obviously affect the relationship between household survey employment and payroll survey employment. On the other survey, right on the payroll side, the survey of establishments in the January report, which comes out next month, we get the benchmark revisions, which means they go back and benchmark the March level from last year to a near universal count of employment from the QCW program. So they essentially refine that level and set it based on a near universal count, and then revise the data from March forward based on that new level. So it'll change essentially the level of employment that's in those two surveys and should bring them closer together after they've been diverging here quite a bit.
Mark Zandi: Glenn, you should know that both Marisa and Dante came from Bureau of Labor Statistics.
Glenn Hubbard: Oh, I see.
Mark Zandi: They know the data well. So your bottom line point is, next month we're going to see likely an upper revision to the household survey employment estimate and a downward revision to the payroll survey estimate. And that gap, that one point, was it 695 million is going to be lower?
Dante DeAntonio: It'll be lower. And yeah, just to reinforce the point that I don't think it's a huge concern. I think people have pointed to this widening divergence of something to maybe be worried about. I don't necessarily think that's the case. I think there's some reasons why it has diverged, and it's not completely unusual in history to see them diverge over periods of time.
Mark Zandi: Good. Hey, Glenn, you want to go next?
Glenn Hubbard: 5%.
Mark Zandi: 5%.
Marisa DiNatale: Labor market related, Glenn?
Glenn Hubbard: Nope.
Marisa DiNatale: Fiscal policy related?
Glenn Hubbard: Could be, but not really.
Dante DeAntonio: Is it an interest rate?
Mark Zandi: You play this game anytime. You know how to play this game, I can tell you...
Marisa DiNatale: He's good.
Mark Zandi: He's good.
Marisa DiNatale: Poker face.
Glenn Hubbard: I'm choosing this statistic because it wraps in everything we've talked about all in one number.
Mark Zandi: 5%...
Dante DeAntonio: Is that interest rate of some kind?
Mark Zandi: Yeah.
Glenn Hubbard: Yeah.
Dante DeAntonio: Yeah?
Mark Zandi: It is an interest rate. Well, the 30 years bond is over 5%.
Glenn Hubbard: Yeah, the 30 years hit 5% yesterday, I guess.
Mark Zandi: Yesterday.
Glenn Hubbard: The reason I chose the 30 year is...
Mark Zandi: Oh, you've picked it.
Marisa DiNatale: Oh, that's right.
Mark Zandi: 30 year?
Glenn Hubbard: Yeah, it's a 30 year.
Dante DeAntonio: There you go.
Mark Zandi: Glenn. Glenn, do I get an A in your class? Come on, man.
Glenn Hubbard: You do.
Dante DeAntonio: Do I get the assist...
Marisa DiNatale: Dante...
Dante DeAntonio: For the interest rate?
Marisa DiNatale: I think Dante gets at least half of the credit there.
Mark Zandi: No, I was thinking interest... I was thinking interest rate.
Glenn Hubbard: He put the ball right on a tee for you.
Dante DeAntonio: I held it up for him and I let him take it.
Glenn Hubbard: Just minute or an inch from the hole and then you cut it in. But no, the 30 year is telling you everything we've talked about, prospects for the real economy, about inflation and the term premium and uncertainty, so it's one to watch. And I think it's going to drive a lot of the fiscal conversation, because interest rates this high are on people's minds.
Mark Zandi: Yeah, absolutely. One thing we didn't talk about that may come to the fore here is the debt limit battle. Do you think that's something we should be... Because obviously the debt limit has been triggered again.
Glenn Hubbard: Yeah. This is one where I think Trump cut it a 100%. I shouldn't be able to go charge my dinner tonight with my Visa card, and then my wife and I vote on whether we pay Visa. I mean, that doesn't make any sense at all. And I realize this gets into a fight over spending and taxes, but we should just have a more honest discussion. We will have the debt limit, but I think the Republicans need to be somewhat careful. The majority in the house is just so razor-thin that adding debt limits to these bills is going to be a problem.
Mark Zandi: We're coming close to the end of the conversation, but Cris, will you want to do one more...
Cris deRitis: Sure.
Mark Zandi: ... with yours?
Cris deRitis: I have 3.3% and 3.3%.
Mark Zandi: Oh, okay. 3.3 in the jobs numbers?
Cris deRitis: No.
Mark Zandi: Interest rates?
Cris deRitis: Nope.
Marisa DiNatale: Housing related?
Dante DeAntonio: Hiring rate?
Cris deRitis: Nope.
Mark Zandi: What's that?
Marisa DiNatale: Housing... Oh.
Dante DeAntonio: Hiring rates was 3.3%. Is that one of them?
Cris deRitis: Nope. No.
Dante DeAntonio: Okay.
Marisa DiNatale: Is it jobs related?
Dante DeAntonio: No.
Marisa DiNatale: Is it housing related?
Cris deRitis: No.
Glenn Hubbard: It's really interesting. Year of GDP we spend on defense, which I think is three point...
Cris deRitis: Ah. Oh, that's a nice guess, but not what I was going for.
Marisa DiNatale: Okay. Is it fiscal policy related?
Cris deRitis: No, it's much more...
Mark Zandi: Is it related to the economy, Cris? Is this like today that the Eagles are going to win the ball or something?
Cris deRitis: Oh, no. That's much higher.
Mark Zandi: Oh, much higher. Much higher.
Cris deRitis: Came out this morning.
Mark Zandi: Is it Michigan survey came out this morning?
Cris deRitis: Yes.
Marisa DiNatale: Oh, it's an inflation expectations.
Cris deRitis: Right. That's right. It's the one year and the five-year ahead inflation expectations.
Dante DeAntonio: Wow.
Mark Zandi: Okay. But who gets credit for that? Me or you, Marisa? I'm just asking.
Cris deRitis: Shared.
Mark Zandi: Okay. We both get the Golden Globe Award.
Cris deRitis: You both get C's. That's good.
Mark Zandi: Okay. We get C's. Okay.
Marisa DiNatale: That was extremely mediocre on all accounts..
Mark Zandi: This is inflation expectations. What? One in...
Cris deRitis: One in five years ahead? One in five years out. It's a big jump.
Mark Zandi: Oh, is it?
Cris deRitis: Yeah. Well, in relative terms, it was 2.8 and 2%. The public is certainly factoring or considering...
Marisa DiNatale: Last month... So the last release, it went from 2.8 to 3.3.
Cris deRitis: 3.3 Yeah.
Marisa DiNatale: Wow.
Mark Zandi: So the 1-year-old. I don't know if you noticed, but I think gasoline and now natural gas prices are moving north here. So good of the cold weather, and that may be part of it. Is that any reason...
Cris deRitis: Yeah, I think the actual observed prices are higher. And then I do think that the public is considering, or has been so much chatter about policies being potentially of inflationary that might be having an impact. Investors certainly are projecting higher inflation as well.
Mark Zandi: Yep. Well, I want to end the conversation, Glenn, with something I read in the New York Times today. There was a good piece about economists being... I think they said the title was Economists in the Wilderness. Basically, no one's listening to us, Glenn, and you were quoted, I'm sure you read the piece.
Glenn Hubbard: Well, I didn't read the piece. Is this Ben Castleman?
Mark Zandi: Ben Castleman.
Glenn Hubbard: Because I did talk to him while I was on vacation, but I think what I said to him, I don't know what he put in the piece, but I said, it's our own fault. When the Queen of England asked at the London School of Economics, why did nobody see it coming? I think about the GFC, Global Financial Crisis...
Mark Zandi: Global Financial Crisis.
Glenn Hubbard: ... Boone was saying, what are you guys up to? And I think if we want to have impact, it's not just how smart we are, what we're writing, it's really about focusing on the questions that policymakers have. So I'm more optimistic about economists role than most people. If we focus on that, if we continue to do as we have been, I'm less optimistic. So I don't know what Ben said I said, but that's what I said.
Mark Zandi: You were actually... The point of the piece was like a lot of experts, to be frank. I think their voices are being diminished. They're less influential. And the piece was about why, what's going on? What's behind that? Some of it was bummed forecast. A lot of economists thought recession back a year or so ago, and that obviously was wrong. In fact, just the opposite, the economy performed exceptionally well. So that diminished. And also I think there's a general sense that in this populist fervor that's taken over less of an interest in what experts have to say about climate, about the economy, about pretty much everything. But then your point was, the point you just made was that, in fact, economists are... I think the word you might've used is callous. The words we're using are...
Glenn Hubbard: Yeah. I mean, the example...
Mark Zandi: ... they sound countless.
Glenn Hubbard: The example I gave Ben was sometimes when we talk about policy in economics, we live in steady states, so there's this one, and then there's this one. The real world lives in transition paths in between, and we call people who are in that transition path transition costs. Not about you, but I wouldn't want to be referred to as a transition cost of a policy. I understand that people don't mean anything Ill when they say that, but you could be forgiven as a politician for saying, who the heck are these people? And why did they use words like this? And you mentioned Alan Blinder. Alan like me, has been a Johnny. One of them is we got to clean up our language to talk to policy makers.
Mark Zandi: Sometimes it's hard. We were talking about back in the start of the conversation about the exceptional economy. And as you rightly pointed out, it's the averages, it's the aggregates. But there's a lot of stuff under the hood, and particularly look across the income distribution. The folks, everyone on this call are doing quite well, no problem. I mean, we own stocks, we own a home, and they're at record high values, and we're doing just fine. Folks in the bottom...
Glenn Hubbard: One of my graduates at Columbia Business School is Warren Buffett, so I took the living alumni population. I'm quite confident that the average net worth is in the tens of millions of dollars. But I have a hunch, it's not the median. So I think we just have to be very careful.
Mark Zandi: And it's hard to do, actually. I'll say the economy is performing very well, but not in the aggregate, not for everyone, obviously. And for folks in the bottom part of the income distribution, it's a struggle. It's a real struggle and not that's... And then the other thing I say, is look, the broader economy can do well, even if the bottom third isn't doing well, because all the spending is done by the folks in the top part of the distribution. Not that that's good. And you have to say that. I think you have to say, look, you can see it in our fracture politics. You can see it in our social fabric breaking down. It's not a good thing. But for the immediate near future, the economy can continue to perform well, even if the bottom part of the distribution isn't going along for the ride. But it's a tough one. It's a very difficult one. Anyway, well, hopefully economists continue to listen to you, Glenn. That's all I have to say.
Glenn Hubbard: Well, hopefully policymakers continue to listen to all of us. We may not have the answers to everything, but I think we're pretty useful to have around, but we'll see.
Mark Zandi: I hope so. I hope so. Well, it was really an honor and pleasure to have you on. Thank you so much.
Glenn Hubbard: My pleasure. Thank you.
Mark Zandi: Thank you. And guys, good to see you all. And Marisa, I hope everything goes well there in Southern California. Hopefully the winds die down here relatively soon. And you guys stay as warm as you can up there in PA, and we'll talk next week. Thank you. And go Eagles. That's all. I'll have to say. Go Eagles. They have a big... There you go. Dante hs got his Eagle shirt on. Maybe next week we'll all be... Marisa, you're not an Eagles fan, are you?
Marisa DiNatale: Yeah, I mean sort of.
Mark Zandi: Sort of. All right. Okay. We'll, for this week.
Dante DeAntonio: This week, yeah... But with that dear listener, we're going to call this a podcast. Take care now.