Chapter 1: What is the main topic discussed in this episode?
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This is a blur. For Paul and I, it is just an extraordinary advantage of wonderful conversations. And then somebody will say something which sticks with me. I'm walking down the street six months later and I'm going, damn that Nancy Lizard. That's right. She said something last year that made it my interview of the year of this American labor economy.
Joining us now from Piper Sandler, their chief global economist, truly iconic, Nancy Lazar. You basically said the strong labor economy is a fiction, it's all government and healthcare supported, and that the private investment in private jobs formation is broken. What does a war do to that?
Well, that was a year ago, as you said. And I would actually argue that you're starting to see a healing in the private sector labor market. Now, a war, to be sure, will curb business confidence. But wait a second. I just got a bunch of business confidence surveys, a group of manufacturing surveys through March, which captured the war and the increase of the price of oil.
And their employment indices actually rose. So I think you have to look at the economy broader than just a war and increase in the price of oil.
I look at the Guadalcanal low, how miserable we were in 41, 42, into that battle in the South Pacific that we didn't want to talk about at the time. And then up, up and away we went for a year, basically for years into the deflationary fifties, I guess. Is it the same thing as well that this war could be a stimulus of sorts?
I'm not sure the war itself is a stimulus other than the backbone of the U.S. economy is indeed strong. We've had surges in the price of oil several times over the past 30, 40 years. Obviously, in the 1990 Gulf War, the economy wasn't as strong then as it is today. But boy, as that thing ended, oil prices came down strong. Obviously, the next leg was the U.S. tech revolution.
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Chapter 2: What is the state of the US labor economy according to Nancy Lazar?
We have a daily survey of consumer confidence, which is a little nuts, but it works. And it is down about 15 points, but it's still above where it was during the government shutdown, way above where it was during the COVID low. way above where it was during the GFC. So consumer confidence has gotten hit. But at the same time, we monitor your weekly retail sales data.
And actually, through mid-March, we're on the stronger side. That is, again, consumer is driven by more than just gasoline. We have these tax refunds. To be sure, some of them are being eaten up by the higher gasoline prices.
But the labor market, as I mentioned, if you look at unemployment claims, and I'm seeing more and more commentary on Bloomberg, on other news programs, that, wow, the labor market may not be as weak as I thought. Claims are indeed in a declining trend. That's helping the consumer.
So how do we think about inflation here? Because we did mention consumers are seeing it at the pump, a big increase, and we'll probably see it in other parts of the economy as higher energy costs flow through to, you know... you know, fertilizers and food and all that type of stuff. How do you think about inflation?
So first, energy spikes are a tax on the U.S. economy unless the Fed monetizes them, as they did during the 1970s. So you do that by just cutting rates, cutting rates. putting liquidity in the economy. You had double-digit money growth in the 70s, very, very, and you had double-digit money growth 21, 22, which is why inflation was indeed more sticky.
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Chapter 3: How does the war impact business confidence in the US economy?
But similar to a year ago when you had the tariffs, almost a year ago, you had the tariffs. Our point then was it was a tax. And you did see one price went up, other prices went down. And so I think you're going to see the same thing today. Energy takes time to flow through to overall GDP, consumer spending. It very quickly impacts the CPI. So the March CPI will be bad, 0.6% or 0.7%.
But again, it's a tax. I think as you go through the year, you can see other prices go down.
What's the state of American capitalism now? You've done so much thinking about the arc of the larger picture now. How do we incentivize ourselves to better productivity, better prosperity?
So I was actually in Europe last week, and I have a chart of U.S. productivity relative to Europe and the rest of the world.
Yeah, no, it's... Do we just work longer hours as I look at Alexis Christophers over there? The French have the same productivity we do. They just work less hours. They're smarter than we are.
Actually, they don't. But we also invest in technology. I'm just sitting in this beautiful room, and... Again, I heard over and over again that Europe is indeed way behind from an investment perspective, from a technological innovation, embracing it, allowing creative destruction, which they don't allow, which we do. And so productivity has been an accelerating trend for about 10 years.
We're back up to something close to 2, 2.5%. And given all the R&D that's going on right now within corporate America and being incentivized to do more R&D to the tax legislation, We think productivity growth can move up towards 3%. So the state of American capitalism with these CapEx incentives, with deregulation, we think is pretty healthy.
There's little to no population growth in this country these days. So for this economy to grow, can it grow because of increased productivity, maybe AI enhancing that?
Bingo. I mean, so much I hear from Wall Street, oh, the Fed has to cut rates because there's no labor force growth. And it's like, wait, potential GDP growth has two components. One is labor force growth, population growth, and the other is productivity growth. And they seem to forget about that. And productivity growth is boosting. All you have to do is look at the CBO data.
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