America Has Two Economies. Only One Is Thriving.

[00:00:00] Speaker 1: We're going to discuss this and, of course, the deficit, which is blowing through a whole new level. Joining me now, Justin Wolfers, professor of economics and public policy at the University of Michigan, and Ron Insana, MSNOW business analyst and publisher of The Message of the Markets on Substack. Justin, why don't you walk us through this? What do you think this will mean these days leading into this election? It is very clear we have two distinct economies. [00:00:25] Speaker 2: Yeah, absolutely clear. We've got two distinct economies with the way the economy is working. Which is owners, profits are on the up and up. In fact, taxes they're paying are on the down and down. And there's workers. And workers are seeing their paychecks not keeping up with inflation at all. That's from what the economy is doing. Then there's also what policy is doing, which is what you have is very large tax cuts for the wealthy. You've got cuts in benefits, particularly for low-income Americans. And then you've got the gimmicks. The president ran on no tax on tips, no tax on overtime, no tax on Social Security. What he actually implemented was quite different from that. But the important thing for the folks at home to understand is all of those benefits all of a sudden magically disappear the day after the election. Incredibly cynical stuff. Tax cuts for the rich, well, those were really, really permanent. And so there's an extra present at the end of all this, a present for our kids. Congratulations. Yet another ginormous budget deficit that your generation is going to have to pay. [00:01:28] Speaker 1: I want to talk about the budget deficit in a big way. But first, I just want to share what Treasury Secretary Scott Bessent said about the state of the economy. [00:01:39] Speaker 3: We will own the economy. We have so far this year, we've got a million private sector jobs. We've never had this many people working in the U.S. The net worth of American households are the highest that it's ever been. So, Kristen, let's be clear here. This is an energy supply side shock. We will get to the other side of this. This is one factor. [00:02:01] Speaker 1: A shock. We're seven months in, babe. [00:02:03] Speaker 4: Yeah, I mean, when everybody starts talking about one-time shocks and they last for up to a year or longer when you include the tariffs, it's no longer a one-time shock. It's a trend that's affecting inflation, purchasing power among consumers. And also, listen, this notion that it's some sort of golden age of the economy, you can go back two years and see larger job growths on a monthly basis. You can see larger GDP growth on an annual basis. And if you go back to the 90s or even the 80s, and in some cases, even the 70s, we saw much stronger economic numbers than we see today. So, this notion that the economy is firing on all cylinders and it's helping everybody out. is specious at best and quite cynical, to be honest, when you're trying to describe the actual growth rates of the economy and how it's affecting individuals at the household level. [00:02:53] Speaker 1: All right, let's talk about the deficit. Not sexy, but hugely important, okay? The U.S. budget deficit, Justin, is close to $2 trillion for the fiscal year. That is the highest it has been since the pandemic. I want to walk through how is this going to impact the average American and the overall economy? Because it's important to point out that the government is borrowing more at the same time that corporations, while are hitting record profits, are paying less and less taxes. [00:03:25] Speaker 2: Yep. So, I actually want to put it in an even more dramatic setting, which is, this is the highest deficit we've ever had outside of a recession or a war. If you looked at the size of the deficit, you must say, well, the government must be responding to some terrible, terrible emergency right now, or they're being wildly irresponsible. And it's very much the latter. How does this affect you and me? So, first of all, if one bloke's not paying taxes and we keep spending money, some other bloke's going to have to. So, if it's not corporations, it's you. It may not be you this year. There might be this cynical game of pushing it back till after the election or pushing it back to the next present or the long time into the future. But every dollar we spend, we eventually repay. What this is going to mean already, we're going to see cutbacks in spending, cutbacks in spending on things like Medicare, on booting people off of food stamps, the people who need it the most. Remember, this is going to fund tax cuts for the rich. And then the place that every American, in fact, people around the world are really going to feel it is, these enormous budget deficits. We're borrowing the money. That means the government's borrowing the money. Think of it this way. There's a line at the bank. The government's run to the front of that line and screamed, I want to borrow as much money as you can give us. That means if you're borrowing for a mortgage, if you're borrowing to go through college, if you're borrowing from a car, you're competing against the government. That's the story that goes by a fancier name, we call it, you know, bond yields are rising. But that fancier story means that for a lot of families, once they're paid their mortgage, there's going to be less left for them at the end of each month. [00:05:01] Speaker 4: Yeah, look, I mean, there's also, as you mentioned, corporations, particularly in the AI space, are borrowing trillions of dollars as well, hundreds of billions of dollars at a time, on top of what the government is borrowing. So all of that borrowing among those two groups is pushing interest rates up. And as Justin says, it's making it costlier for anyone else to borrow. The average car loan right now, Stephanie, is $1,000 a month. It's a six-year loan. The average car price is $50,000. [00:05:28] Speaker 1: And that's before you put gas on the car. [00:05:30] Speaker 4: That is before you put gas in the car. It's, aside from paying your now higher mortgage rate, which is approaching 7.5%. So that's having a, you know, a negative impact on housing at a time when we don't need that. And there's no plan. There is no conversation about either reducing annual deficits or creating any plan that would ultimately work to at least pay down some of the $40 trillion national debt. There is no conversation being had about this whatsoever. We had a plan in 2010, the Simpson-Bowles plan, when the national debt was $10 trillion. It is four times larger now and not a word. So if this persists, and it's not just a domestic phenomenon. We see this in France. [00:06:09] Speaker 1: That's what I want to ask you next. [00:06:10] Speaker 4: The entire world is heavily indebted. And so it raises serious questions as to what happens if economic growth slows globally. How do you pay back those very large debts that, again, are not just here but are abroad as well? [00:06:23] Speaker 1: I got 30 seconds. How much does the outrage, what's happening in France, concern you about what could happen here? [00:06:29] Speaker 4: Canary in the coal mine. I mean, you know, like the pitchforks are coming out over there and there's income inequality. There are educational opportunities that are disappearing. And they're having some of the same arguments that we're having here. I don't expect that we will see anything quite like that. But it depends how bad it gets. And that's when people hit the streets. We saw big no-kings protests, you know, recently. Those could get larger if the situation were to deteriorate as much as it has in a place like France. [00:06:53] Speaker 1: Mr. Insana, Mr. Wolfers, Professor Wolfers, thank you for joining me this morning.