Millions Will Lose Jobs

During their latest episode of the VALUE: After Hours Podcast, Kao, Taylor, and Carlisle discuss Millions Will Lose Jobs. Here’s an excerpt from the episode:

Jake: Right. And so, you end up in a very low trust environment at that point, because no one can trust each other longer than six months when the prices are moving that much. I think it’s very expensive to run a society in a low trust environment. I think that’s actually been one of the keys to the US’s success is that we have an extremely high trust environment, and it lowers the friction of doing economic activity between humans.

Michael: Well, that’s why I do think though that the Fed and Jay Powell in particular understands the cost of letting inflation expectations get unanchored, because at the end of the day, and I always have to caveat this by saying I don’t want to sound insensitive about job losses, but when you look at the unemployment rate at 3.4%, and the delta between that 3.4% and what the Fed has jawbone where it would like to see unemployment go, call it 4.6%, that’s not a job loss of 100,000 jobs. That’s a job loss of between one and a half to two million jobs. Why do people need to lose their jobs? Because, unfortunately, the Fed has one tool. It is monetary policy. The one tool that they have is to sledgehammer the economy into submission to lower aggregate demand up for goods and services. The only way to lower aggregate demand for goods and services is to create job losses.

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But I have to point out that inflation though is the most regressive tax at all. So, while it’s going to be brutal for the one and a half to two million people that lose their jobs, having inflation run rampant affects 350 million people just in our country, of course. Globally, it’s affecting the entire world. So, it’s not like we’re alone in fighting inflation. I think Europe and England have a much bigger problem on their hands, because they have much higher level of inflation and structural impediments that disallow their central banks to be as aggressive as our Fed, in my opinion.

Jake: What about the fiscal side? It seems like even if Powell wants to be hard, we’re still running trillion-dollar deficits.

Michael: Remember that song by Sammy Hagar, I Can’t Drive 55? I’ve got one foot on the gas and one foot on the brake?

Jake: Yeah. [laughs]

Michael: That’s what’s happening. I also call it the vodka Red Bull economy.

Jake: [chuckles]

Michael: It can’t be healthy for the heart. When you’re administering a depressant at the same time, you’re administering a stimulant.

Tobias: That’s a real young man’s game, those vodka Red Bulls.

Jake: [laughs] Yes.

Tobias: Jay Powell got a question from Elizabeth Warren where she said, “What would you say to the families, the one or two million families who are going to lose their jobs?” And he gave an answer that was very similar to yours. He said that he’s looking after the hundred million or so other families by raising rates to control the inflation. So, I think that that’s where he’s publicly that’s [crosstalk] he is.

Michael: That’s what I heard in this recent presser. I think, to me, the money phrase that I wrote in my recent Substack was exactly that he said that inflation is actually the most pernicious tax on the people least equipped to afford it.” Look, I think my trip to Egypt is a stark reminder of what happens when inflation gets out of control.

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