Federal Reserve, inflation, recession
Photo credit: Adapted by WhoWhatWhy from Steve Buissinne / Pixabay and benscripps / Pixabay.

Brad DeLong, economics professor and former Treasury official in the Clinton administration, takes us on a not-so-random walk through current economic conditions.

Amid the unprecedented turmoil of today’s political climate, the mantra that Bill Clinton reportedly embraced during his winning presidential campaign in 1992 still holds: “It’s the economy, stupid.”

On this week’s WhoWhatWhy podcast, we talk with economist Brad DeLong, who served as deputy undersecretary of the Treasury in the Clinton administration — working directly for Larry Summers. He is currently a professor of economics at UC Berkeley and author of the popular substack “Grasping Reality”; his new book, Slouching Towards Utopia: An Economic History of the Twentieth Century, will be published next month. 

DeLong focuses on what he sees as the five key economic developments that got us where we are today. He delves into the unique role the Federal Reserve has played since 2007 and explains why perception and anticipation are as much a part of Fed policy today as the setting  of interest rates.

He talks about the zero interest rate policy that has prevailed since 2010, the growth of the Fed’s balance sheet under the policy known as quantitative easing, and how today the Fed is trying to simultaneously increase interest rates while reducing its balance sheet — in a unique exercise of “quantitative tightening.”

DeLong explains why Europe is facing a different set of economic problems right now, mostly a direct result of the war in Ukraine, and he discusses what might happen to all the asset bubbles created in global markets in the past few years.

Digging deeper, DeLong lays bare the connection between income inequality and interest rates, and how the zero-interest environment has made “stupid investments” almost a part of economic policy.

iTunes Apple Podcasts   Google Podcasts Google Podcasts   RSS RSS   MP3 MP3

Full Text Transcript:

(As a service to our readers, we provide transcripts with our podcasts. We try to ensure that these transcripts do not include errors. However, due to a constraint of resources, we are not always able to proofread them as closely as we would like and hope that you will excuse any errors that slipped through.)

Jeff Schechtman: Welcome to the WhoWhatWhy podcast. I’m your host, Jeff Schechtman. Amidst all the noise about the market, interest rates, and even crypto, the economy seems healthy on some level. Unemployment is low, consumer balance sheets are in good shape, people are traveling, tourists are everywhere, so what are we worried about? Except that in an almost unprecedented series of events, interest rates are rising while the fed is reducing its balance sheet. Inflation is at decade-high levels, and simultaneously, stocks and bonds are in a bare market.

Cognitive dissidence about the economy seems to be confounding even experts. And today, we get to talk to one of those experts. My guest, J. Bradford DeLong, is an economic historian, a professor of economics at UC Berkeley, he was deputy assistant secretary of treasury during the Clinton administration, he writes the widely-read economic Substack that you all should be subscribed to entitled Grasping Reality, and he’s the author of the upcoming book Slouching Towards Utopia: An Economic History of the 20th Century. It is my pleasure to welcome Brad DeLong here, to the WhoWhatWhy podcast. Brad, thanks so much for joining us.

  1. Bradford DeLong: Thank you. And thank you for letting me come on to your wonderful podcast.

Jeff: Thank you so very much. Why is it that with all the smart people out there — and there are plenty of smart people that are looking at the economy — that your former boss, former Treasury Secretary Larry Summers, was one of the few voices out there that were heard warning about the reality of where we are today?

Brad: Well, one answer is that Larry was smart, and the other answer is that Larry was lucky. Or rather, Larry was lucky in that bad things happened to make his prediction become more true than it might have been otherwise. Larry is as horrified at the war in Ukraine and its effects on world energy and grain supplies as any of the rest of us, and it is something that threatens to cause substantial famine throughout Nigeria and Egypt, and elsewhere, as well as putting a big crimp in an economy [that] is still reliant upon carbon-based energy as well.

I like to think of it, is that there were, let’s say, five things had to happen for Larry Summers to have been proven 100 percent right back in early as to his prediction that there would be inflation, substantial and lengthy inflation, back in early 2021. And the first thing would be that people would actually start spending the wealth that had piled up on their balance sheets during the plague at a faster rate than they’d been spending it during the plague. And we check that off.

And the second is that it had to turn out that plague-era residuals and plague-time mistakes on the part of companies that cut back capacity during the plague would have to be large enough to matter, that you would see a lot of holes emerging in the economy where there just wasn’t supply to meet the demand as people began spending down their balance sheets faster than they had during the plague. And we check that off as well.

And the third thing that had to happen was that these things would start to reverberate throughout the economy. That we wouldn’t just have one price go up by 20 percent or so and then come back down as the wave passed, but that one price would go up by 30 percent or so and stay elevated for six to nine months. And so all the people who bought that, say, who rented cars from Hertz for their businesses, would have to raise their prices as well.

And the fourth thing would have to be that additional bad things would have to happen to the world to cut back on supply. You enter Vladimir Putin’s belief that the Russian empire should at least have the boundaries that it had at Peter the Great, let alone Catherine the Great, let alone Alexander the First, and actually, send tanks and aircraft to try to make that so. That was number four, which Larry did not predict but which happened then, which made his prediction back in January 2021 even much more right.

And the fifth thing is that people —  and by people, not just bond traders, but workers and bosses —  have to switch from a mindset of thinking that inflation is going to be low in the future because the federal reserve has got it, and thinking that the federal reserve does not have it and inflation in the future is likely to be what it was last year, or maybe a percentage point or two more. And that has not yet happened. And if that does happen, we are in a hell of a fix.

And right now, the federal reserve has decided its job number one is to make sure that does not happen, that that shift in expectations does not take place. And hence, it’s straining all of its muscles right now not to worry about guiding the recovery or keeping people, everyone, employed or keeping the financial markets sound insolvent, but instead on keeping that expectational shift from occurring.

Jeff: Talk about the tools, or the lack of tools, that the fed has in terms of preventing that expectational shift from happening.

Brad: Well, the federal reserve basically can do two things to the economy. It can buy or sell bonds, which is very useful in a financial crisis when nobody else wants to buy bonds. The fed can buy them to serve as the bond buyer and the fed is the lender of last resort. And that’s a mission that it’s been well known that central banks should have since maybe 1825. Maybe before then. There’s a wonderful letter from Ian Forrester’s aunt, Maryanne Thornton, to one of her friends, that Ian Forrester collected in a book he wrote about the financial crisis of 1825 and the Bank of England acting as a bond buyer back then so it can buy and sell bonds.

But, except in a financial crisis, such quantitative easing turns out not to matter very much because the fed buys bonds and —  big whoop! People go out and do other things with their money. The economy continues on it, more or less the same path. But the fed can also act to squeeze interest rates to push them up or to push them down. And when the fed pushes interest rates up by changing its discount rate and then enforcing it with open market operations at the very short end of the yield curve, as opposed to buying bonds at the long end, it pushes interest rates up.

Well, first, a lot of people want to hold more dollar-denominated assets because they now pay higher interest rates. And so the value of the dollar goes up. And as the value of the dollar goes up, people find American-made products much more expensive, so our exports fall off, and people buying domestic products that compete with imports from foreigners find the US product is much less attractive. And so spending on it falls off. And mortgages, people willing to take out mortgages and construction loans, simply collapse when interest rates go up. So the federal reserve can hit the economy on the head with a brick of high interest rates, and so greatly reduce employment in export-producing industries and import-competing industries, and in construction.

And when it does that, workers from those sectors head on out looking for jobs elsewhere, and their willingness to underbid those employed and other sectors push down wages. And bosses and firms in export- and import-competing goods production, and in housing, and construction find they have to cut their prices as well to try to keep some of the markets intact. But unemployment goes up and production goes down. The federal reserve would much rather simply pick up the brick and hold it in its hands and toss it up or down from one hand to the other, and get that to make people say, “We are confident inflation will be low in the future. It’s not something to worry about, we’re not going to plan on it,” rather than actually have to hit the economy on the head with a brick.

Jeff: How much of this is unprecedented in that on the one hand, we have the fed raising interest rates, at the same time, they’re trying to unload their balance sheet with this quantitative tightening?

Brad: Well, the expansion of the fed balance sheet was really unprecedented. And it was in the hope that the federal reserve could get a faster recovery in the 2010s when it already pushed interest rates on short-term treasury securities down to zero. Maybe it could buy longer bonds. And by buying longer bonds, it could get people to invest in supporting businesses and businesses’ capital expansions, and so get a faster recovery during the 2010s.

In that way, it worked —  or if it worked at all, it worked only to a trivial degree. And so now, the federal reserve is unwinding that position, and that does, indeed, make this thing unprecedented. It probably doesn’t make a terribly big difference that the fed is engaging in quantitative tightening at the same time as it’s raising interest rates. It’s probably the raise in interest rates that’s doing the bulk of the work here.

Jeff: What is the difference, as you see it, between what the fed is doing here and what we see the European Central Bank doing right now?

Brad: European Central Banks have a different problem, first because they’re much, much more exposed to the energy and the food price increases that are coming from Russia’s attack, or Putin’s attack, on Ukraine. And so, they’re seeing a much bigger shock, but they also did less to make people feel rich to transfer money to people during the plague. So they don’t have as much spending coming from inside their country raising prices. It’s more a shock from outside. And so there’s an argument that the European Central Bank should react less strongly than the federal reserve is to this situation, because it’s mostly simply a wave that’s going to crest and wash over them while we have this extra source of spending pressure here.

And that’s probably right. And they are indeed doing that. They are indeed reacting but reacting less aggressively than the United States Federal Reserve is.

Jeff: And in that sense, when we look back on all the stimulus money that was pumped into the system, to what extent was that a mistake as we look at it from the vantage point of today?

Brad: Well, is it a mistake to buy insurance? When we look at the ungodly Geico premiums we paid on this house, I’m now staring at it in Berkeley’s Elmwood, over the past 15 years, the house hasn’t burned down. Was it a mistake for us to buy all that insurance? Answer: almost certainly not because 15 years ago, we did not know we would not have a fire over the next 15 years.

I think the policies the Biden administration followed in early 2021 were quite reasonable given the very real fears that we were about to repeat the abnormally slow recovery that we saw after 2010; that goosing the economy more and making spending more so that people would actually have a strong incentive to figure out what businesses will actually work now. We didn’t have that in 2011 and 2012 and we suffered massively from it, might have had it in 2021 and 2022. It was worth buying insurance from it. Afterwards, it turned out we didn’t need to buy insurance, that people started picking up and spending off of their balance sheets that they built up during the plague at a rapid enough rate that it wasn’t needed, but if it had been needed, and if we hadn’t done it, then we would be in a much worse situation than we are here now.

Jeff: The combination, though, of the zero-interest-rate policy which has been around — I guess — since the end of 2008-2009 financial crisis, coupled with the stimulus post-pandemic, seems to have created so many of these asset bubbles that we’ve seen along the way.

Brad: Yes. You’ve seen a lot of asset bubbles, and really since 2003. The problem — and actually, Larry Summers was the first to seriously identify this problem. And if they do give him an economic Nobel Prize, that’s what it’s going to be for. The problem is that it’s proven very hard, given how unequal income and wealth has become distributed in the United States and around the world, to convince those who are doing the saving, in large part because they have too much money coming in for them to think of a way to spend it. For those who are doing the saving, [they] need to find investment projects that they think are going to pay a worthwhile return. And if the interest rate you could get at the bank was 5 percent, people would pass on a lot of investment projects saying, “No, that’s not worth it.”

And so the fed in 2003 began dropping the interest rate. “All right, you won’t fund investment at 5 percent, how about 4 percent? How about 3 percent? How about 2 percent? How about 1 percent? How about 0 percent?” And by the time we got to zero, yes, the excess savings needed to be deployed, the gap was largely closed. Unfortunately, it was largely closed at a lot of people doing an awful lot of weird things, as the late Richard Blum used to say, that during the time of low-interest rates and of the subset of the consecutive Silicon Valley booms, so many people became rich by making stupid investments, that a lot of people began to think that making a stupid investment was a profitable and productive business model.

And so you had all kinds of things from Theranos, to Ethereum, to Terra LUNA getting a lot of money poured into them. When, actually looking at it, would say, “It’s very unlikely this thing is still going to be around in five years.”

Jeff: It seemed like the fed was going to do something about this back in 2019, there was talk of bringing the interest rate up somewhat from the zero-interest-rate policy. But that never happened. Talk about that.

Brad: They did try to launch. I think in December 2015, a tightening cycle, and found themselves backing off after 2018 because it seemed that when they did indeed raise interest rates, they found that construction and long-term investments were falling off more quickly than was consistent with the rise, the increase in employment in other sectors. And yes, they really wanted to raise interest rates. They really wanted people to, say, not be willing to say, “Well, I can’t get anything if I put my money in the bank, I might as well buy this thing X, which seems silly, but what’s the alternative?” They wanted to get people out of that situation.

But the fact that we went through a mini recession in 2016 — not a formal one, but certainly one in the manufacturing sector — made them cautious. And then, when investment did not pick up after the tax cut, they backed off the interest rate. The positive interest rate policy went back down to zero, and then the plague hit, and everything became much more complicated and much more scary.

Jeff: You wonder how much of what happened at that point was kind of the reverse of what you were talking about with respect to the fed before, that it was the industry holding that brick and tossing it from one hand to the other, just to get the fed to back down.

Brad: Well, or shall we say, a lot of people who greatly fear the future, who will actually invest in building buildings, or installing machines, or training workers. If there’s no alternative way they can put money in the bank and feel that they have a secure return. But the moment they feel they have a secure return through something else, they’d rather hold a safe financial asset than undertake the risks of actually trying to expand a business that might go bankrupt. And that seems to have been a mindset that people got into increasingly after 2003.

More and more money, simply wanting to be safe. And as long as you can promise some kind of return for being safe, they’re unwilling to extend themselves and their risk. That’s the “secular stagnation conundrum” that we’ve really been in since 2003 until a year ago. And in some ways, it’s very nice to no longer be in that conundrum that we didn’t really know how to deal with. And now, we have a situation that we know how to deal with. So even though it has unpleasant aspects, it’s much better than the alternative.

Jeff: As you talk about it, there’s a clear cause-and-effect relationship in so much of this, but one of the mysteries right now seems to be the way the bond market is reacting. It doesn’t seem to be consistent with everything else that we’re talking about.

Brad: Yes, this is perhaps the most interesting thing of all, that there’s this thing called the five-year-forward breakeven rate. It’s the return required for a portfolio that matches what the rate of inflation will be from five years to 10 years from now. That is, you want to buy a contract and the contract will pay you whatever inflation is starting five years from now, then going forward five years. And that thing has been hanging around at, or below 2.5 percent ever since the early 2000s, that people have had a lot of confidence. At least the people betting in the bond market, putting their money on it in the bond market, don’t think there’s any money to be made, by betting that between five and 10 years from now, inflation will average more than 2.5 percent. And it’s still there right now, even though the past year’s inflation is 8.6 percent. People still seem to be very confident in the bond market that inflation will come back to normal once this particular 2-, 3-, 5-year episode is over.

And it surprises me that bond traders’ expectations are that solid, that they have that much trust in the federal reserve to some degree. Yes, but in fact, they do. And I think that trust in the federal reserve should both, a) make us think this situation is actually not as exciting and dangerous as a daily news broadcast that really is in the clickbait business, so they can keep your eyeballs glued to the screen and sell you ads, would like you to believe. And also, that the federal reserve has to be careful because this amount of trust in it is a very valuable social asset. You’re giving the federal reserve the power to react to situations to try to keep the economy on an even keel without running the risk of creating long-run inflation expectation problems. And that credibility is something to be guarded very carefully and reinforced.

Jeff: In that sense, let’s assume that the bond traders are right. Why are equity markets not reacting the same way?

Brad: Well, on the one hand, they think there’s a chance that the end of the era of secular stagnation is over. And if you’re going to be able to get, essentially, zero  — above inflation or even below inflation — returns out of bonds, you’re going to be willing to pay a very healthy multiple for stocks that actually have earnings, that are then used to buy back shares and pay out more stuff. But if you think you’re going to get 2 percent above inflation by investing in bonds in the future, that’s going to bring the multiple of stock earnings you’re willing to pay down considerably.

And it’s half that. And the other half of it is that the stock market is now worried that the federal reserve will overdo it, that the brick will actually slip, and they’ll actually hit the economy on the head with a brick and do some significant damage, and we’ll wind up in a recession. And that’s the other half of why the stock market is not so happy right now.

Jeff: Talk about the fed’s concern about perception of their actions and this whole idea of a forward guidance, which I know you’ve written about.

Brad: Yes. There’s a very nice quote — I can’t give it verbatim — from my old teacher Charlie Kindleberger, about how the federal reserve and its actor as guardian of credibility and last resort has to always make people be uncertain that the federal reserve will rescue them. Because if they’re certain the federal reserve will rescue them, they’ll take on really stupid and destructive risks. But also, if there ever is the case that there is serious systemic risk, that you’re going to get a financial crisis or even a collapse in investment that will produce a serious recession, you want the federal reserve in their system to actually rescue people and keep investment from collapsing or the financial system from freezing up. Which is a neat trick, best done with mirrors and involving lots of smoke.

And the federal reserve will always talk about credibility and the importance that it be credible, and that people believe that it is on the job and will properly handle it and understands what the situations are, what the risks are, and it’s acting appropriately. And they decided, this week, that too many people thought acting appropriately was raising interest rates by 0.75 percent rather than the 0.5 percent they planned.

And so, they did raise them by 0.75 percent, but then Powell went out and said, “Well, we might not do this again next,” in which case, all he did was then swap what was going to be a 0.5 percent increase this month and 0.75 percent increase next month, for 0.75 percent increase this month and 0.5 percent increase next month. I’m going to have to study what he said and talk to some people before I have a firm view.

Jeff: Wasn’t 2008-2009, though, the penultimate example that the fed will always come to the rescue?

Brad: Well, except they came to the rescue too late. They allowed the uncontrolled bankruptcy of Lehman Brothers, which I think was a huge mistake. And, as a result, unemployment hit 10 percent and stayed elevated for a decade. Much better if they had nationalized Lehman Brothers or put it into receivership back in March of 2008, when they put Bear Stearns, or when they forced the merger of Bear Stearns into JP Morgan Chase.

The fact that they let Lehman Brothers hang out there for another six months, and then let it have to then go bankrupt without anyone taking over its positions, was, I think, very damaging. So they were late to the party, but when they did show up, they did bring lots of refreshments. And that was very gratifying. Could have been much, much worse.

Jeff: Is the central question now, and really the difference between what the fed is able to do as the bond traders see it, and the way the equity markets see it — is this question of whether or not there’s going to be a recession? And if so, how long and how deep?

Brad: This is the “big four.” One of the several big problems with a market economy. Back around 1800, when it was really starting up for the first time, when we would really have a market economy, rather than the market economy where most people produced most of the stuff themselves on their family farms and just traded the surplus. There’s all this worry about — well, I’m in Berkeley. So, maybe the yoga teachers will be unable to earn any money because the artisan potters aren’t able to sell any pots, because the baristas aren’t able to buy any pots, because the broke yoga teachers can’t go out and buy any coffee.

But everyone’s willing to work, but because the financial system that is supposed to be the nervous system of the economy freezes up. Although everyone’s willing to work, nobody has the money and the income to have any effective demand in the economy. Going back in 1803, French economist Jean-Baptiste Say said, “That’s a silly thing because nobody ever sells anything without intending to buy something else.” So, the simple fact that you’re out there selling something means that you want to buy something else.

And if worst comes to worst, you’ll be able to find someone who’ll be willing to give you credit, so you can actually buy it. Thirty years later, Jean-Baptiste Say, after watching the English financial crisis and recession of 1825, then changed his mind and said, “No, it’s not always the case that supply creates its own demand.” That we need to have a central bank to actually manage the system, to make what was called Say’s Law tool in practice, even if it’s not dumb in theory, that the economy needs some central planning. But it only needs very light-handed central planning through the monetary system.

And we know where we can soon learn how to do that. And ever since then, that’s what central bankers have been, they’ve been trying to do the central planning that the economy needs to match total spending to production. But do it with an extremely light hand, so they don’t actually get in the business of commanding that people do things that are stupid.

Jeff: What are the external forces, the existential forces that can have either a positive or a negative effect on all of this? Certainly, if the war in Ukraine comes to an end, that will have an effect. What are some of the other factors, as you see it, that could have an impact on how this plays out, good or bad?

Brad: Well, how vulnerable are all of our global supply chains? We constructed things that are incredibly sophisticated and incredibly complicated on the assumption that things would go smoothly, and that shocks could be papered over. Yes, but then a ship runs aground and blocks the Suez Canal. This produces that amazingly complicated division of labor that makes us enormously productive. But it also makes us enormously vulnerable where things don’t show up or don’t show up on time. And we do not know exactly how vulnerable our supply chains are to disruption.

The Biden administration has a lot of people on the case trying to figure this out. We’ll find out, and that could be a major monkey wrench. And then there’s the possibility that we get blindsided, that it’s never the financial risks you see that cause trouble, but it’s the financial risks that you do not see. Everyone, back in 2006, thought that subprime mortgages were too small a market segment to be a source of trouble. Yet, because of who actually held the residual risk, they turned out to be an enormous source of trouble.

Back in 1998, nobody really thought that Russia’s state bankruptcy would have an effect on hedge-fund portfolios in New York. Yet, it brought down the then-largest hedge fund in the world, Long-Term Capital Management, in something that was very neatly kept from becoming a much more major crisis. The risks we do not see because we do not think they are risks, the unknown are known, as former Defense Secretary Donald Rumsfeld liked to say.

Jeff: There’s certainly concern out there that we’re looking at credit bubbles that could be a bigger problem down the road as well.

Brad: Yes. How many people have done stupid things like borrowing against their Bitcoin in large amounts? And what will happen? I mean the destruction of 4 trillion of paper wealth during the .com crash of 2000 had next to no effect on the broader economy because all of that 4 trillion of wealth was equity held by rich princes of Silicon Valley. And they saw their portfolios melt away but it didn’t cause a big problem.

The destruction of $500 billion of notional wealth in mortgage-backed securities in 2007-2008 caused enormous problems because it turned out the people holding that $500 billion were using it as the capital basis on which they had then constructed the leveraged banking portfolios of the major money center banks; that banks were saying, “Haha, this stuff is rated AAA. We can hold it as part of our core reserves because it’s rated AAA.” But it actually really wasn’t AAA, it was only rated AAA. And when its value began to decline, well, CitiGroup only survived because people were willing to value the fumes produced by likely future government bailouts.

That every single investment bank that was not already merged into a commercial bank died as its funding steam vanished, except for Morgan Stanley and Goldman Sachs. And Morgan Stanley and Goldman Sachs frantically reincorporated themselves as bank holding companies so that they could be rescued by the federal reserve if necessary and draw on the Bernanke put. Yet, the first was eight times the shock of the other. And the first had no effect, and the second brought us to the brink of another Great Depression.

This is why I really do not want, would not like to be president of the New York Federal Reserve Bank. [laughs] This is why I thought John   was rather brave to take the job. Because you really are the point person on regulation for systemic risk, which means you have to figure out what credit risks the financial system is actually really exposed to. There was Axel Weber who was head of the West German Central Bank, the Deutsche Bundesbank at some point before 2010, who tells a story on himself about how he was invited to a session at the Davos meeting where they mistook Deutsche Bundesbank with German Central Bank from the Deutsche Bank, one of the biggest German banks, something that has a role in Casablanca, the movie.

And he got there and he listened to all these people talk about mortgage-backed securities and how profitable they were but how they were understood — they were risks, and how they were creating these mortgage securities but they were immediately then selling them off. That their issue departments were only holding three months’ worth so there was no risk to the bank from there being in this business.

And he stood up and said, “Well, I’m your regulator and I’ve looked at all your balance sheets. And it’s certainly true that you’ve sold off all the mortgage-backed securities you’ve originated but you’ve also bought a lot of the mortgage-backed securities that the neighboring bank has issued because they’re rated AAA and are holding them as part of your reserves. So that you’ve actually not diversified away from this source of risk at all. You only swapped risks you have a chance of understanding for risks you don’t.”

But he says, and here’s where he went wrong, he did not think of this as a big enough problem to be of serious concern to bank regulators and central bankers. And so, missed a chance to actually take steps to keep 2009-2010 from coming.

Jeff: And, finally, Brad, what impact, if any, do you see in this particular crisis that we’re in from the kind of poisonous political environment that we have today?

Brad: What risks? Well, I think the political environment is poisonous no matter what. I think things are actually considerably better than they would be if our unemployment rate was up at the 9 percent that it was in 2011, and if people were terrified that they did not dare say, “Boo!” to their boss so they would lose their job and have a hell of a time finding another one. I mean high gas prices and high food prices are an unpleasant thing but, at least, the labor market is tight enough that you can then go and bargain with your boss and say, “These prices are really high. Things are tight. You’re going to have to give me a raise or I’m going to have to go take another job even though I like you so much.” And that’s better than, “Gee, I might well lose my job next month if I’m in the lowest, say, 10 percent.”

At the moment, the workers of Tesla, they don’t care terribly much that Musk has just said that he wants to fire 18 percent. And the fact that that is not a big source of dismay for them is the reflection of the fact that we had a very strong recovery and have a good labor market, and they can find other jobs — quite possibly, better jobs — fairly easily. But they do have to pay higher prices as this inflation wave works its way through. So, I’d say, it’s pretty much a neutral, or even at least a slight positive, and calming people down.

Because higher prices for gasoline is annoying, but fearing there’s a real chance your family’s entire income might disappear, and knowing that you have very little social power to resist whatever the boss asks because the boss can fire you, and then you’ll have a hell of a time, but that’s more worrisome and creates more economic anxiety, which sees outcomes in different ways.

Jeff: Brad DeLong, his Substack is Grasping Reality. His upcoming book is Slouching Towards Utopia: An Economic History of the 20th Century. Brad, I thank you so much for spending time with us today here on the WhoWhatWhy podcast.

Brad: It’s been very great pleasure.

Jeff: Brad DeLong, thank you so much.

Brad: You are very welcome.

Jeff: And thank you for listening and joining us here on the WhoWhatWhy podcast. I hope you join us next week for another radio WhoWhatWhy podcast. I’m Jeff Schechtman. If you liked this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to

this is the current president.


  • Jeff Schechtman

    Jeff Schechtman’s career spans movies, radio stations and podcasts. After spending twenty-five years in the motion picture industry as a producer and executive, he immersed himself in journalism, radio, and more recently the world of podcasts. To date he has conducted over ten-thousand interviews with authors, journalists, and thought leaders. Since March of 2015, he has conducted over 315 podcasts for

    View all posts

Comments are closed.