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The Assignment with Audie Cornish
Each week on The Assignment, host Audie Cornish pulls listeners out of their digital echo chambers to hear from the people whose lives intersect with the news cycle. From the sex work economy to the battle over what’s taught in classrooms, no topic is off the table. Listen to The Assignment every Monday and Thursday.
Yes, This Economy Is Confusing
The Assignment with Audie Cornish
Mar 23, 2023
The past few weeks have been head spinning: U.S. job numbers? Solid... except for those layoffs in the tech sector. Inflation? Slowly dropping... but still high. Not to mention the bank failures...
It all has made us wonder: Why was it so hard for economists to predict this? What will happen next? And what does it mean for folks caught in the middle of high inflation? Audie gets an assignment from a listener and asks economists Gary “Hoov” Hoover, Executive Director of the Murphy Institute at Tulane University, and Alfredo Romero, Associate Professor at North Carolina A&T University, to make this economy make sense.
Episode Transcript
Audie Cornish
00:00:00
So we took a short break to do some more reporting. We've been dipping into the mailbag, researching ideas and recording new interviews. Journalists call this getting stuff "in the can." All right. So first, just start by introducing yourself who you are, what you do... So a couple of weeks ago, we sat down with some economists ... How you want to be referred to your name, etc., pronunciations. Who wants to go first?
Alfredo Romero
00:00:24
Well, I'm Alfredo Romero, I'm an associate professor of economics at North Carolina A&T State...
Audie Cornish
00:00:28
We thought they might be able to help us answer a listener's question about the economy, but also talk to us about the economy in general, which has been weird.
Gary Hoover
00:00:37
It's just left me baffled.
Audie Cornish
00:00:39
Yeah. Not exactly reassuring. But we taped a great interview and thought nailed it. And then the news gods laughed.
NBC News
00:00:51
Inflation rose by 6% year over year in February.
Christine Romans
00:00:56
311,000 jobs added.
Scott MacFarlane
00:00:57
Nearer and nearer this ominous deadline for the debt ceiling breach, for a default on American debt
KPIX
00:01:03
Facebook's parent company is giving another 10,000 workers the ax.
Tom Keene
00:01:09
It was such a shock to see. And the real question is, did we see this coming? I did not.
Audie Cornish
00:01:18
The past few weeks have been head spinning. Tons of numbers. All of them paint a conflicting picture. U.S. jobs numbers solid, except those layoffs growing in the tech sector. Inflation slowly dropping and yet prices on certain goods and services, everything from hotels to haircuts still high. And then.
Bianna Golodryga
00:01:39
that California regulators shut down Silicon Valley Bank, a big lender.
Elizabeth Schulze
00:01:43
Told lawmakers on Friday that when banks experience financial losses, it is and should be a matter of concern.
Audie Cornish
00:01:50
The run on Silicon Valley Bank, a regional bank with tons of tech industry customers. Its failure set off worries about a panic at other regional banks. All of this meant we needed to can most of our in the can conversation with our economists. So today, why is it so hard for economists to predict what will happen next? What is it about this moment that carries so much uncertainty? And what does it mean for folks caught in the middle? Facing rising prices and high inflation. Who's left out of this conversation? I'm Audie Cornish. And this is The Assignment. So let's start with some introductions. Dr. Gary Hoover, economics professor and executive director of the Murphy Institute at Tulane University. Wait, did I say something wrong? You just made a face.
Gary Hoover
00:02:48
Oh, everybody just calls me Hoov, but you're right Dr. Hoover
Audie Cornish
00:02:49
Everyone calls you Hoov? Why did you make a face like I'm supposed to call Hoov? I don't know you. I don't know your life.
Gary Hoover
00:02:56
I'm just too – I'm too laid back to be Doctor Hoover, but ok
Audie Cornish
00:02:58
Okay, so you want to be referred to as Hoov.
Gary Hoover
00:03:01
That's fine.
Audie Cornish
00:03:02
And Dr. Alfredo Romero, associate professor of economics at North Carolina Agricultural and Technical State University.
Scott MacFarlane
00:03:10
I'm also a member of a couple of forecasting teams. I'm part of the panel of economic forecasters of The Wall Street Journal and I'm also forecasting for the Survey of Professional Forecasters of the Federal Reserve.
Audie Cornish
00:03:22
Which basically means he's part of this group of economists who try to predict what's going to happen next.
Alfredo Romero
00:03:27
I also just go by Alfredo most of the time.
Audie Cornish
00:03:30
So they agreed to help us with a listener assignment that we received in our voicemail inbox a while back. So to start, I played it for Hoov and Alfredo.
Tamika Reynolds
00:03:40
Hi, my name is Tamika Reynolds. I am from Detroit, Michigan, and I just had an assignment really been on my mind. It seems like the middle class single parents are being left out as far as getting any help. I know um the people that does get help is those who are lower income. I don't get no help from the state. I have two kids. I work full time at an assembly plant. But by the time. I pay bills, rent, uh childcare costs, um groceries all out of pocket. I'm left with nothing. And so I want to see where the balance or if there's going to be any services available to help middle class citizens who are struggling to pay the bills and everything if they could get help. Thanks. Bye.
Audie Cornish
00:04:38
So there's a lot to unpack here. You know, she works full time. She does pay her bills. She does pay her rent. Um you know, she is covering her childcare costs and her groceries. She's actually covering everything, but she feels like it's a struggle. What do you what are you thinking as you're hearing that part of her message?
Gary Hoover
00:04:58
Well, I'd say it's an affirmation of exactly what the data is showing, that what we're finding is there's a shrinking of the middle class. It's tougher to get into the middle class and it's harder to stay in the middle class. So what she is talking about is exactly what the numbers are demonstrating.
Audie Cornish
00:05:19
But we've been hearing that for a long time.
Gary Hoover
00:05:21
Right. And it's been happening for a long time and it's just been accelerating. So it's not a coincidence that she's feeling that pain.
Alfredo Romero
00:05:29
Yeah, I agree. I mean, clearly the problem here is not that she doesn't have a job. It's not that she doesn't have the ability to make some money. It's just a struggle with making that little money make ends meet. And that is the problem with inflation.
Audie Cornish
00:05:45
And while inflation affects everyone, Hoov and Alfredo say that in this moment, people like Tamika, they're going to feel it even more. It's this phenomenon that economists call inflation inequality.
Gary Hoover
00:05:58
If people are more likely at the lower tails of the distribution income distribution, meaning the not wealthy, uh meaning most of us um have a limited budget and the prices of goods which are essentials are rising. Right. Let's think about food and housing as being essentials. If the prices of food and housing are increasing, but yet our incomes are not, that's going to put a terrible squeeze on people at the lower parts of the income distribution, more so than it would someone at the top of the income distribution.
Audie Cornish
00:06:40
So at the top you might own your house so your mortgage is fixed and you took advantage of low rates, lower down, you're a renter and maybe your rent goes up. And the prices of everything are going up.
Gary Hoover
00:06:52
A lot.
Alfredo Romero
00:06:53
If the interest rates have to go up because we have to fight inflation, then for some of us that are using our credit cards to make ends meet, the amount of money that we have to pay every month in terms of our minimum payment and how long we have to be paying that is going to increase. And we've seen that already happening for many people that had a credit card with variable interest rates are starting to go up. But if I am better off because very little part of my budget goes toward consumption of goods and services and I have a relatively large disposable income, I'm going to benefit from higher interest rates on my bank.
Audie Cornish
00:07:31
One of the things we all thought, though, is that wages were doing pretty good, right? Like that they were higher than they used to be, that the competition for workers has meant that it's been a little bit better. Sounds like it's not been enough.
Gary Hoover
00:07:44
Right. Well, wages have gone up. That's that's true. But look at the rate of inflation. I don't think there's any economist who would say that the rate of wage growth has kept up with the rate of inflation, price inflation. So that's that's just not true. So someone like Tamika, even with a raise, might find herself losing ground. If we think about the main staples that she's probably spending her money on, which is going to be transportation, housing and food. Right. We look at those three as a bundle. If she's spending anywhere between 85 and 90% of her budget on those three alone and the prices of those three in particular go up, she has very little wiggle room. That's why she says she's hurting.
Audie Cornish
00:08:33
Okay. I want to underscore this. She's hurting and she says she can't access the same help that people with even lower incomes can.
Alfredo Romero
00:08:41
As opposed to problems that we have with unemployment, that have some kind of federal or state level assistance that would help you with your loss of income. We don't really have anything like that at the federal level or the state level that help families with inflation. So this is something that we will have to feel the burden of.
Audie Cornish
00:09:05
One of the things I found intriguing is that the one of the Federal Reserve governors, Philip Jefferson, has said that, look, economic models are important, but you have to be careful because in a sense, history doesn't quite apply in this moment.
Gary Hoover
00:09:20
Right. Think back to what happened in the 1970s. Towards the end of the 1970s, we had really runaway inflation and we said there's going to be a lot of pain involved in taming this inflation. And there was. The Federal Reserve started raising interest rates, which cooled down the economy. It cooled down the economy so much that we had a recession.
Audie Cornish
00:09:46
Right. So this was. This was you're talking Paul Volcker, who was head of the Federal Reserve. And he said, look, I think we should raise interest rates by double digits. Just to put this in context, we're all like, we might raise it by 0.1 percent. You know, debate, this was like ten, 12, 13%. It was called Volcker shock because it freaked everyone out. Like overnight, everything became more expensive. That that doesn't sound like something people want to go through again, even as he is considered the guy who sort of tamed inflation. Like, he's like a legend for that.
Gary Hoover
00:10:26
Well, I was under the impression, you know, if we're talking about the past being a indicator of the future. I was under the impression that we were heading that route this time. But it doesn't really seem that that's happening. By now, I thought we would have seen some of that Volcker pain. There's no indications of any of that Volcker pain showing up.
Alfredo Romero
00:10:46
Well, the reality is that the economy is a collection of millions of decisions made by millions of people every day. So there's there's a little bit of hubris to think that a group of of scientists can actually control the economy. But I think for the most part, you know, some of our models have proven to be able to explain a little bit of what happened. But in situations like this one where we have no history to guide our decisions, we do seem to rely more on what we think is going to happen than what has happened in the past when we did this.
Audie Cornish
00:11:24
So what do you talk about with your economist friends? I mean, do you have a moment where you're like, oooh this jobs report, don't know what to do with this, don't know how to, you know, like what's going on here? Or are you actually watching the Fed Reserve, you know, hearings like it's the Super Bowl? Kind of help me understand what's of interest to you right now, like in your world.
Gary Hoover
00:11:45
I often tell my students, you know, think about trying to steer an ocean liner, right. If you wait until you get to the dock and then think about hitting the brakes, well, you're way too late, you should have been thinking about that two miles out and slowing down, then. That's the lever that the Fed has in that they're not thinking about contemporaneous changes. They're thinking about I'm going to make decisions today that are going to impact the economy at some point in the future. And I have to hold everything else constant.
Audie Cornish
00:12:25
Now, this is one of those, you know, weird conversations where we're speaking in the abstract, even though it's really going to affect all of us. And I think one of the things that was a real kind of learning for me as I'm researching for this is just the idea that the the medicine, the cure is worse. Basically, their way of fixing the economy could potentially feel worse than the economy already is. Is that all we've got on offer? Like that's the best option.
Alfredo Romero
00:12:58
That's why inflation produces such a visceral reaction on people. The Federal Reserve has this job of making sure that everybody that is looking for a job and is able to get a job should be able to find one. And at the same time, they're also responsible to make sure that there's price stability, not that prices are not going to change, but that prices are going to change in a predictable fashion. But to accomplish both goals, it only has one tool, which is the interest rate. And so there is this level of a trade off between what I can do with prices and what I can do with unemployment, that it is going to affect a group of individuals over the other group of individuals, but in the long run should have better consequences for the economy as a whole.
Audie Cornish
00:13:44
Hoov, how do you think about this, especially given Tamika's call?
Gary Hoover
00:13:48
Right. And I'm thinking about what's the best thing that we can do for her. Let's say that we had a program that helped Tamika deal with the rising prices of goods by putting more money into Tamika's pocket. That is exactly the thing we don't want to do, because now she has more money in her pocket, she has greater demand. The greater demand is then going to increase the inflation, the very thing we're trying to control. So the best thing we can do is try to get those prices down and get those prices stabilized.
Audie Cornish
00:14:26
So I've learned so far the economy is as confusing as I thought it was. What else should we know going forward? What do you want us to take with us?
Gary Hoover
00:14:35
Taking this thing back to Tamika, Tamika might feel that no one is thinking or cares about her particular situation. And if there was any message I'd like to have is that there are people working very hard on behalf of people up and down the income distribution, that she is not alone. We clearly aren't getting this right, but she is not disregarded at all. I think that was how she started by saying, you know, is anyone thinking about me, does anyone care about her? Yes. Yes. The answer what I would like her to leave with if she hears this is yes, you in particular? I my research is particularly centered on understanding up and down the income distribution and precisely where she is. And I hope that that might give her some comfort. It obviously won't help when she's in the grocery store, but she's not alone.
Audie Cornish
00:15:49
Okay. We're going to pause here for a minute. And when we come back, an update from our economist friends about the head spinning economic headlines from the past few weeks and whether they are any less baffled.
Gary Hoover
00:16:00
I got to say, I didn't see it coming. So to me, it was quite weird.
Alfredo Romero
00:16:04
Yeah, I mean, unexpected events always happen when you're not looking.
Audie Cornish
00:16:23
So after everything that's happened the past few weeks, we had to call back our economists, Dr. Alfredo Romero, the economic forecaster in North Carolina, and Dr. Gary Hoover, the economics professor at Tulane. So a lot has happened since we last spoke. And hit me with the headlines that hit you hardest. Hoov?
Gary Hoover
00:16:47
Well, the first thing that caught me off guard was the still very strong jobs report. When, if ever, are these interest rates hikes going to start taking effect by now, as I said before..
Audie Cornish
00:17:00
Meaning when will businesses be so freaked out by raising interest rates that they won't want to hire anymore?
Gary Hoover
00:17:06
Right. Exactly. Higher interest rates means I have a higher cost of borrowing. That means that it's going to cost me more to do business. Where then can I make cuts? I can make cuts in my labor output. Right? And so if I have cuts in my labor output, that means that jobs, those who are employed should go down. That didn't happen. And that's sort of surprising to me.
Audie Cornish
00:17:31
Alfredo Romero, headlines from the last couple of weeks that surprised you?
Alfredo Romero
00:17:35
Well, definitely that after the lessons learned in 2007 and 2009, we still have bank runs. We had the second largest bank failure in US history and probably one of the fastest.
Audie Cornish
00:17:51
You know Hoov, yhe last time we spoke, we talked about Volcker Shock. That was the history. And that was supposed to help us, help us understand, what the Fed could do now. You know, what's the best case scenario? What's the worst case scenario? So where are we now, Hoov? I mean, what's going on? And can can history help us?
Gary Hoover
00:18:13
Yeah, we want to, we want to slow down the economy, but we don't want it to come to a screaming halt. And so what we're trying to do is ease along and if Alfredo's right then we've reached that point, or at least we're nearing that point to where we have to look and think more cautiously about our next steps. However, you know, this is such an uneven economy right now, where are we sure that we've reached that point where we need to start thinking about easing off and if we aren't? And let's say we take off our feet off the brake too soon and we start, you know, lurching forward, then we'll probably have done more harm than good. So this is a really precarious time as we think about where we're heading.
Audie Cornish
00:19:05
How are you both preparing to be wrong given the way things are going?
Gary Hoover
00:19:11
Well, I've already been wrong, right? Because I've already said that by now, given what the Fed did back in September, I expected us to be in full on recession right now. So I am just living my reality of wrongness. And so from here on out, all I'm going to do is just keep I'm just going to keep writing this wrong train until eventually it turns right.
Audie Cornish
00:19:34
Nowhere to go but up, basically.
Alfredo Romero
00:19:37
Is it also the basic tenet of science right? You expect to be wrong and learn from the error.
Audie Cornish
00:19:41
Yeah. What lessons do you think economists can take from this last year, right, of this conflicting picture?
Alfredo Romero
00:19:48
Well, one of the most glaring ones to me was to assume that the structure of the economy didn't change during COVID.
Audie Cornish
00:19:55
So you're saying they underestimated the impact of the pandemic quarantines.
Alfredo Romero
00:20:00
Of the pandemic quarantines and the change in tastes and preferences of firms and individuals.
Audie Cornish
00:20:05
So sometimes it feels like people are looking at the pandemic as something that has passed. Right. But it feels like maybe what you're saying is for this economy, it hasn't. Like it's had a much more lasting impact than anyone could have realized. Am I my misreading that?
Gary Hoover
00:20:26
That's exactly right. The impacts of the pandemic could be long lasting, and some of them could actually be permanent, such as working from home. Right. That that might now become a new permanent part of the way we move going forward.
Audie Cornish
00:20:46
And therefore, our productivity and therefore our economy...
Gary Hoover
00:20:50
Will change. Yeah. Exactly.
Audie Cornish
00:20:51
Alfredo, for you? Has there been anything like the pandemic quarantine period to impact the economy? Is there any historical comparison?
Alfredo Romero
00:21:00
Look, the problem here is that historically, when we have nature driven economic crises that are the result of a natural disaster, the economy tends to recover a lot faster, than if they are man made disasters. So if there's a hurricane or there's a tornado or an earthquake, the economy recovers faster. It seems to be the case that if there was, say, the financial crisis from 2007 and 2008, the problem with the pandemic is that it's both manmade and a natural disaster in the making. So we don't know yet what the medium and long run consequences of this are going to be.
Audie Cornish
00:21:39
Have any of your students in the last couple of days been like, what the heck? Like, I don't know.
Alfredo Romero
00:21:44
I must say that in addition, economics became interesting again. You know, over the last decade, we would talk about concepts like inflation and we would talk about concepts like recession. And our students were too young to even understand what a recession would be. They didn't have jobs yet.
Audie Cornish
00:22:03
Right, it's all theoretical.
Alfredo Romero
00:22:04
And yeah, and for inflation, you would have to use other nations and say this is what happens there when inflation is high, this what happens here, because we may actually have to eliminated from our textbooks since inflation seems no longer to be a problem. So now we can actually relate those concepts back to reality because we all are feeling this.
Audie Cornish
00:22:24
That was Dr. Alfredo Romero, associate professor of economics at North Carolina A&T State University. He's also a forecaster on the Wall Street Journal's economic forecasting survey. You also heard from Dr. Gary "Hoov" Hoover, executive director of the Murphy Institute and professor in the Department of Economics at Tulane.
Audie Cornish
00:22:46
That's it for this episode of The Assignment. We want to thank you, Tamika Reynolds, for listening, calling in and making us think about this very confusing economy. And if you like, Tamika, have an assignment for us, you can give us a call and leave us a voicemail at 2028548802 or record a voice memo on your phone and email that to us at the assignment at CNN dot com.
Audie Cornish
00:23:19
The assignment is a production of CNN Audio. Our producers are Madeleine Thompson, Jennifer Lai, Lori Galarreta, and Carla Javier. Our associate producers are Isoke Samuel, Allison Park and Sonia Htoon, with support this week from Xander Adams and Cole del Charco. Our senior producers are Matt Martinez and Haley Thomas. Mixing and sound design by David Schulman. Dan Dzula is our technical director. Steve Lickteig is our executive producer. Special thanks to Katie Hinman. I'm Audie Cornish. And thank you for listening.