The Economy Is at a Hinge Moment
5Digest
This podcast delves into the current state of the US economy, transitioning from an era of high inflation to one where unemployment is rising. The Fed's recent interest rate cuts signal a shift in focus from cooling the economy to stimulating it. The conversation then turns to Kamala Harris's housing policy proposals, including a plan to build 3 million homes and expand the child tax credit. Guest Jason Furman expresses skepticism about the feasibility of these proposals given the current fiscal situation. The podcast further examines the causes of the housing crisis, particularly the decline in new housing starts after the 2008 financial crisis. Furman argues that the issue is not a lack of housing structures but rather a shortage of affordable housing in desirable locations. The podcast contrasts Kamala Harris's housing policies with Donald Trump's approach, criticizing Trump's immigration-focused approach as a red herring. The conversation then shifts to the trade deficit and its implications. Furman explains that the trade deficit is not inherently bad and that Trump's tariff plan is misguided and likely to harm the US economy. The podcast examines the impact of China's rise on the US economy and how it has influenced Democratic views on trade. Furman argues that the China shock is a past event and that Democrats have moved too far in a protectionist direction. The podcast concludes by discussing what Furman sees as the "liberal vice" and the "conservative vice" in economics. The liberal vice is denying trade-offs, while the conservative vice is exaggerating the costs of regulation.
Outlines
The Economy at a Hinged Moment
The podcast discusses the current state of the US economy, transitioning from an era of high inflation to one where unemployment is rising. The Fed has cut interest rates, signaling a shift in focus from cooling the economy to stimulating it.
Housing Policy and the Economy
The podcast analyzes Kamala Harris's housing policy proposals, including a plan to build 3 million homes and expand the child tax credit. The guest, Jason Furman, expresses skepticism about the feasibility of these proposals given the current fiscal situation. The podcast delves into the causes of the housing crisis, particularly the decline in new housing starts after the 2008 financial crisis. Furman argues that the issue is not a lack of housing structures but rather a shortage of affordable housing in desirable locations.
Housing Policies: Harris vs. Trump
The podcast contrasts Kamala Harris's housing policies with Donald Trump's approach. Trump's plan focuses on reducing immigration, while Harris emphasizes increasing supply and affordability. Furman criticizes Trump's immigration-focused approach as a red herring.
Trade Deficits and Trump's Tariff Plan
The podcast discusses the trade deficit and its implications. Furman explains that the trade deficit is not inherently bad and that Trump's tariff plan is misguided and likely to harm the US economy.
The China Shock and Shifting Democratic Views on Trade
The podcast examines the impact of China's rise on the US economy and how it has influenced Democratic views on trade. Furman argues that the China shock is a past event and that Democrats have moved too far in a protectionist direction.
Liberal and Conservative Vices in Economics
The podcast concludes by discussing what Furman sees as the "liberal vice" and the "conservative vice" in economics. The liberal vice is denying trade-offs, while the conservative vice is exaggerating the costs of regulation.
The Challenges of Infrastructure and Policy
The conversation begins with a discussion about the complexities of infrastructure projects, highlighting the desire for fairness, speed, community input, and good job creation. The speaker notes the difficulty in balancing these goals and the potential for over-regulation.
The Everything Bagel of Policy: Child Care in the Chips Act
The speaker uses the example of child care being included in the Chips Act to illustrate the tendency to add unrelated policy goals to specific legislation. They argue that while child care is important, it may not be the most effective way to achieve the primary goal of increasing microchip production.
The Conservative Approach to Policy Analysis
The conversation shifts to the conservative perspective on policy analysis. The speaker observes a shift from overstating the harms of liberal policies to a seemingly dismissive attitude towards the costs of any liberal program. They question whether a coherent policy process exists on the right.
Book Recommendations
The speaker concludes the conversation by recommending three books: "How the World Became Rich" by Mark Koyama and Jared Rubin, "The Goodness Paradox" by Richard Wrangham, and "The Ladies Paradise" by Émile Zola. These books offer insights into economic history, human nature, and the complexities of capitalism.
Keywords
Housing Crisis
The current state of the housing market, characterized by high prices, low inventory, and limited affordability.
Kamala Harris
The Vice President of the United States, who has proposed policies to address the housing crisis.
Trade Deficit
The difference between a country's exports and imports, with a trade deficit occurring when imports exceed exports.
China Shock
The economic impact of China's rapid industrialization and integration into the global economy, particularly on manufacturing jobs in developed countries.
Liberal Vice
The tendency to deny trade-offs in pursuit of a desired outcome, often leading to poor policy decisions.
Conservative Vice
The tendency to exaggerate the costs of regulation, often leading to a reluctance to implement necessary policies.
Infrastructure
The basic physical systems of a country or region, such as roads, bridges, power grids, and water systems.
Policy Analysis
The systematic examination of policy proposals to assess their potential effects, costs, and benefits.
Q&A
What are the key economic challenges facing the next US administration?
The next administration will need to address the ongoing affordability crisis, including the high cost of housing, childcare, healthcare, and education. It will also need to navigate the transition from an era of high inflation to one where unemployment is rising.
How does Jason Furman assess Kamala Harris's housing policy proposals?
Furman is skeptical about the feasibility of Harris's proposals, particularly the plan to build 3 million homes, given the current fiscal situation and the potential for unintended consequences.
What is Furman's view on the role of immigration in the housing crisis?
Furman believes that the argument that immigration is driving up housing costs is a red herring. He argues that the real issue is a lack of affordable housing in desirable locations, and that immigration can actually contribute to economic growth and housing supply.
What are the potential consequences of Trump's tariff plan?
Furman argues that Trump's tariff plan is misguided and likely to harm the US economy by raising prices for consumers, reducing exports, and disrupting supply chains. He believes that tariffs are generally a bad idea, with only limited exceptions for national security concerns.
How has the Democratic consensus on trade shifted in recent years?
Furman believes that Democrats have moved too far in a protectionist direction, influenced by the China shock and concerns about national security. He argues that this shift is misguided and that the US should continue to embrace free trade, with appropriate safeguards for national security.
What are the "liberal vice" and the "conservative vice" in economics, according to Furman?
The liberal vice is denying trade-offs, while the conservative vice is exaggerating the costs of regulation. Furman argues that both vices can lead to poor policy decisions and that it is important to engage in rigorous cost-benefit analysis.
What are some of the challenges in balancing the goals of infrastructure projects?
Balancing fairness, speed, community input, cost-effectiveness, and good job creation is a complex task. The speaker highlights the potential for over-regulation and the difficulty in achieving all these goals simultaneously.
How does the speaker view the inclusion of child care in the Chips Act?
The speaker sees it as an example of adding unrelated policy goals to specific legislation. While child care is important, they argue that it may not be the most effective way to achieve the primary goal of increasing microchip production.
What is the speaker's observation about the conservative approach to policy analysis?
The speaker notes a shift from overstating the harms of liberal policies to a seemingly dismissive attitude towards the costs of any liberal program. They question whether a coherent policy process exists on the right.
Show Notes
The economy has hit a hinge moment. For the past few years, inflation has been the big economic story — the fixation of economic policymakers, journalists and almost everyone who goes to the grocery store. But economists now largely see inflation as tamed. It’s still a major political issue; the country continues to reel from years of rising prices, and there is a real affordability crisis. But that isn’t all the next administration will have to deal with. So what does it mean to fight the next economic war rather than the last one?
Jason Furman is an economics professor at Harvard and a former chair of the Council of Economic Advisers under Barack Obama. Furman has closely tracked the inflation crisis over the past few years, and he’s deeply knowledgeable about how economic policy is made.
In this conversation, we discuss why the inflation crisis upended the expectations of so many economists and what we’ve learned for the next time inflation strikes, what he expects to see with mortgage rates and the housing market, the upcoming fight over Donald Trump’s expiring tax cuts, the good and the bad in Kamala Harris’s housing policy and why there seems to be so little concern from either party about the ever-growing U.S. debt.
Mentioned:
“The Economic Theory Behind JD Vance’s Populism” with Oren Cass on The Ezra Klein Show
“Trump’s Most Misunderstood Policy Proposal” by Oren Cass
“In Defense of the Dismal Science” by Jason Furman
Book Recommendations:
How the World Became Rich by Mark Koyama and Jared Rubin
The Goodness Paradox by Richard Wrangham
The Ladies’ Paradise by Émile Zola
Thoughts? Guest suggestions? Email us at ezrakleinshow@nytimes.com.
You can find transcripts (posted midday) and more episodes of “The Ezra Klein Show” at nytimes.com/ezra-klein-podcast. Book recommendations from all our guests are listed at https://www.nytimes.com/article/ezra-klein-show-book-recs.
This episode of “The Ezra Klein Show” was produced by Rollin Hu. Fact-checking by Michelle Harris, with Kate Sinclair. Our senior engineer is Jeff Geld, with additional mixing by Isaac Jones, Efim Shapiro and Aman Sahota. Our senior editor is Claire Gordon. The show’s production team also includes Annie Galvin, Elias Isquith and Kristin Lin. Original music by Isaac Jones. Audience strategy by Kristina Samulewski and Shannon Busta. The executive producer of New York Times Opinion Audio is Annie-Rose Strasser. Special thanks to Tyler Cowen, Veronique de Rugy, Desmond Lachman, Lindsay Owens, Nathan Tankus, Isabella Weber and Sonia Herrero.
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