Prof G Markets
00:30:18 · Ed Elson
[00:30:18] S4: Yeah. I mean, we've seen income, inflation adjusted falling over the past six months, prices obviously continuing to rise. You said in May, said, quote, in my thirty six years as a professional economist, the stock market has never been more disjointed from the economy, which gets at what you've just explained there, this difference between the AI economy, the stock market economy, and I guess we could call it the real economy, the workers' economy. To what extent do you think that disconnect is going to play a role? Like, do you think that any Americans say, okay. Well, my wages are down. My grocery prices are up. Gas prices are up, but I have, you know, a more valuable stock portfolio, and I'm happy about that. Is that something that you think that that voters are actually gonna think heading into these elections?
00:31:14 · Mark Zandi
[00:31:14] S3: Well, I think, you know, three fourths of Americans don't own stocks of any consequence, and many don't own their own homes. So what's going on with regard to AI stocks means nothing. So the stock market can go up. It can go down. It can go around. It doesn't matter. What matters for them is what they're feeling, and that is, are my wages, you know, what I'm getting paid, keeping pace with the higher prices for the things that I'm buying? And that's real income, real... So called real wages after inflation wages. And there, you know, the picture is pretty bleak. I mean, real wages are going down. Inflation is faster than the rate of growth in wages. So people's purchasing power, their ability to buy things is declining, and they feel that. They know that. They sense it. They can... And that's what makes them upset. And that's why consumer sentiment surveys are as weak as they are. That's why, you know, the polling numbers are the way they are. That's why the Republicans are getting blamed for, you know, what's going on. For that... For for that three quarters of Americans, you know, the financial situation is pretty tenuous. And then you throw into the mix, more recently, the hot run up in interest rates. I mean, interest rates had been pretty low until the war. And now the fixed mortgage rate, which is kind of the benchmark rate that most people think about when they think about rate... Rates, the... You know, what they have to pay to get a mortgage, it was below 6% before the war started. It's now well above 7%. And, of course, that's just makes housing, home... Homeownership, you know, completely unaffordable. And that... That's just, you know, part of it. It's higher credit card interest rates, higher interest rates on home equity lines of credit, consumer finance loans. So for, again, for most Americans who don't own AI stocks, it's a pretty vexed time. They got a job, you know, okay, but, you know, their wages are just not keeping up with the pace of inflation. Their real standard of living is on the decline.
00:33:10 · Ed Elson
[00:33:10] S4: I'm just gonna read you a few quotes by president Trump that CNN collected. So this was in 2024. Trump said, quote, energy is going to bring us back. That means we're going to get gasoline below $2 a gallon. Gas was $3.33 at the time. It's now $4.22 nationally. He also said that we will, quote, slash electricity prices by half within twelve months at a maximum eighteen months. Electric prices have risen around 14% since he began in office. He said, as you point out, he said we're going to, quote, get mortgage rates back down to we think 3%, maybe even lower than that. He said that in September 2024, mortgage rates have risen to more than 7.2. I mean, just there... I could go on. We could talk about manufacturing jobs. We could talk about balancing the budget and the deficit exploding. There are so many promises that were not kept. I guess that happens a lot in politics, but what seems striking to me is the extent to which all of these problems seem to be almost principally his fault. Like, you look at gas prices. It's hard to say that that that that is a result of anything other than his geopolitical decisions in launching a war on Iran. Same with, you know, consumer prices. I mean, that's largely due to the gas prices, but also because of the tariffs. I mean, do you think that there is anything else out there on which we can place the blame when it comes to economic problems in America, or is it is it genuinely, the president's fault this time?
00:34:51 · Mark Zandi
[00:34:51] S3: Well, it's policy broad... Writ large. I mean, the Iran war is the most obvious, most immediate. I mean, inflation and interest rates have risen pretty much since the day the war started back on February 28. But there's other policies. I mean, there's the tariffs. We... We're not talking about the tariffs, but the tariffs, same kind of damage to the economy. It raises inflation. It's a tax on American consumers, raises inflation through higher prices, which weakens economic growth. So same same kind of dynamic is playing as a result of that. And, of course, the very heavy handed immigration policy, same result, you know, weakens economic growth because many companies that rely on immigrant workers just can't get them, can't find those workers. And, you know, they raise their prices for the things that they produce because they need to bring demand back down consistent with the amount they can supply with reduced labor force. So, again, you know, another policy that's causing the same kind of dynamic to play out, weaker economic growth and higher inflation. I mean, I think we'd... The whole narrative about the economy would be very different today if not for AI. I mean, if not for the boom in AI investment that we're observing that's come on very quickly and the boom surge in AI stock prices, the narrative around the economy would be really pretty bleak. It'd be pretty dark. We'd be talking about recession. So... And it does go back largely to economic policy. Now there's all kinds of other things going on, you know, other dynamics, but at the end of the day, I totally am sympathetic to what you're saying. It's it's policy that's at the root of what's going on.
00:36:29 · Ed Elson
[00:36:29] S4: Before we end, your economic scorecard, or if you had to give a grade to this economy heading into the midterms, what would it be? And then to close out, I'd love to hear if you have any predictions for the... For this election.
00:36:48 · Mark Zandi
[00:36:48] S3: You know, that's my that's my profession is predictions. And I do sympathize with the president. He's he got his forecast wrong, but, you know, forecasting is a pretty intrepid affair. You know, I give I give the economy a b because, you know, it's a plus plus when it comes to the AI economy. For the non AI economy, probably a d. So you take the average of the two, b minus, let's say, somewhere in there. But that doesn't do justice to the reality of what people are feeling. They're either in the a plus plus world or they're in the d world, And there's many more Americans in the d world than the a plus plus world, if that makes any sense at all. You know, I am an economist, and I, you know, look at the things like election results through the prism of the economy. And, you know, it's the economy stupid going all the way back to James Carville and the the Clinton election. And I think that still holds. And the economy for most Americans, not for all, but for most, the majority of Americans, it's pretty tough, and it hasn't gotten any better. It's getting worse, and people are connecting the dots back to things like the Iran war and the tariffs. They they know that that's behind a lot of what we're observing. So that would strongly argue that, you know, we'll see a change in government here on the other side of the election, certainly the house and very possibly the senate.