What’s the Biggest Threat to the U.S. Economy’s Soft-Landing? — ft. Mark Zandi

Scott and Ed open the show by discussing Starboard Value’s activist stake in Pfizer, the end of the Longshoremen’s strike, and Ben Horowitz’s decision to donate to Kamala Harris’s campaign. Then Mark Zandi, Chief Economist of Moody’s Analytics, joins the show to discuss the recent jobs data and why he’s confident that the Fed has stuck the landing. He also shares which Presidential candidate he thinks would be better for the economy. Finally, he breaks down where he thinks the housing market is headed and offers a solution to the housing affordability crisis. Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

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• 1:29Scott Galloway?

  Today's number, 75%. That's how much Miami's millionaire population has grown over the past decade. True story, Ed. I like to go out to parties in Miami where I approach a lovely young lady and I say, "Pretend I'm cocaine and do me in the bathroom."

• 1:55Scott Galloway?

  A little creepy, Ed. A little creepy. Let's be honest.

• 1:58Ed Elson?

  Especially creepy given the outfit today, no?

• 2:01Scott Galloway?

  I'm glad you brought it up. Ask me about my outfit. Ask me about my outfit.

• 2:06Ed Elson?

  Yeah, so for those who can't see, if you aren't watching YouTube, we've got what looks like a... A physical education jacket and Kara Swisher aviators. Why are we wearing these today?

• 2:21Scott Galloway?

  Physical education. So my good friends, David Frey and Eddie Blau, who I met my sophomore roommates in the fraternity, had an eighties party for their 50th, 60th birthday. And I took it very seriously. It was an eighties party. I have the polo shirt. I have the Ray Bans. I have the Adidas Superstars. These were more junior high school for me. I wore topsiders in college, but I still like the Superstars a little bit more like calling more attention. And then, oh my God, the money shot, the coup de grace, the cherry on top of the eighty Sunday, baby blue members only jacket. Boom. That's how you lose your virginity at 19, Ed. I used to use technology to try and score with women.

• 3:06Scott Galloway?

  We'd be dancing and I'd say, hey, do you want to come to my room for a drink? I have an ice machine, you know, for drinks. That was my big hook, an ice machine.

• 3:15Ed Elson?

  Was that true?

• 3:16Scott Galloway?

  Ice machine. Yeah, we had me and my roommate invested in an, we literally, we spent, we got student loans and the first thing we did was buy an ice machine, thinking that would be, that would make us just the most popular guys in the fraternity. It wasn't like-

• 3:31Ed Elson?

  The real question is, did it ever work?

• 3:33Scott Galloway?

  You know, I don't like to talk about my, my sex life. All I can tell you is-

• 3:38Ed Elson?

  A little too private.

• 3:39Scott Galloway?

  All I can tell you is if you want to lose your virginity at 19, just give me a call.

• 3:44Scott Galloway?

  Yeah, no, there wasn't a lot of, wasn't a lot of action in the room of the eighties. We had a great time though. Ed, do you have, I've been thinking a lot about this. Do you have a tribe? Do you have a posse of close friends that you have sort of a, I don't know, that you roll with from college or outside of college?

• 4:00Ed Elson?

  Yeah, for sure. I, I hang out with my college friends all the time.

• 4:03Scott Galloway?

  That's nice.

• 4:03Ed Elson?

  Sometimes I think I need to hang out with, with other people because I feel like all I hang out with are my, my college boys.

• 4:10Scott Galloway?

  Your buddies.

• 4:10Ed Elson?

  But, you know, maybe it's supposed to be that way.

• 4:12Scott Galloway?

  I think it's really important for young men to find a fraternity, whether it's through church or sports league or work. But I am very, very majestic this weekend or very sentimental. I just have-

• 4:24Scott Galloway?

  You know, it's so nice. We went, not that you asked, but we went to this party and it was literally 30 or 40 guys from college, some younger, some older, and they brought all their kids. And everyone's doing pretty well and all the like bullshit when we were younger, the competitiveness and you know, so and so doesn't like so and so, and he's such a, it just all melts away. We were just all so happy to see each other and.

• 4:48Ed Elson?

  That is the best. I do wonder if I'm gonna be hanging out with my fraternity brothers when I'm, when I'm your age. It sounds like maybe I will, but did you make a concerted effort to stay in touch?

• 4:58Scott Galloway?

  You're, I think what you're saying is it's a little bit pathetic. Is that what you're saying?

• 5:03Ed Elson?

  That's it. I'm taking off my members only jacket.

• 5:08Ed Elson?

  No, but I, I, I hope that I am. And we, we always talk about like, you know, are we all gonna be friends when we're older?

• 5:14Scott Galloway?

  This one guy in my house, David Frey, just calls me every few months just to kind of check in, just no matter what.

• 5:21Ed Elson?

  Yeah. It's also like they know who you really are. Like just, that's the great thing about old friends. It's like, you can sort of always pick up exactly where you left off because they just know the real you and they're not gonna fall for any of the bullshit. I find it's like, it's always kind of like humbling to just talk to old friends.

• 5:39Scott Galloway?

  It's so true. You, I gotta tell you this. So they were giving, the two guys were gonna party, party. Were giving a speech and basically one of the guys, my friend Mike Brooks said, they're just like, they both said the same thing and they said, and Scott, who's just registered, this unbelievable success. And we're all talking about it. And if there was one thing we all agreed on, we didn't see it. We didn't.

• 6:03Scott Galloway?

  It really is a surprise to all of us because everything you're doing now, that you get paid a lot of money for expressing opinions. They said, we just described that as annoying when we knew you. That you were constantly telling us, you know, what you thought about everything and now you get paid a lot of money. We're just like, we called that annoying back when you were a kid, back when you were in college.

• 6:29Ed Elson?

  One of my, one of my friends saw the sort of picture of me doing a speaking gig and he just texts me the picture. He's like, what in God's name are you talking about?

• 6:37Scott Galloway?

  Yeah. It's really funny. There's no, there's absolutely no fooling them. Anyways, with that, Ed, get to the headlines.

• 6:48Speaker 04

  Now is the time to fly. I hope you have 20 of the well of all.

• 6:54Ed Elson?

  Activist investor Starboard Value has taken a $1 billion stake in Pfizer. The fund has reportedly reached out to two former Pfizer executives to support its agenda, which is not yet public. Pfizer's stock has been cut in half since 2021 and is flat this year, though it rose 3% on this news. The International Longshoremen's Association ended a three-day strike after securing a 62% wage increase over six years. While the ports have reopened, the ILA will continue to negotiate outstanding issues, including automation on the docks and retirement benefits. And finally, Ben Horowitz of Andreessen Horowitz told employees he is making a significant personal donation to Kamala Harris's campaign. That news comes three months after his firm

• 7:39Ed Elson?

  announced it was endorsing Donald Trump because Trump would be better for tech startups. Scott, your thoughts, starting with this new activist stake from Starboard Value in Pfizer?

• 7:50Scott Galloway?

  Essentially, we've seen a pretty significant reversal of flows of capital out of vaccine-related treatments or COVID-related treatments into GLP-1 treatments. We could and did see it coming, but it's been pretty dramatic. Moderna's lost four fifths of its value in the last three years, while Novo Nordisk and Eli Lilly have increased 163% and 305%. I think Novo Nordisk is the most valuable company in Europe now. And Pfizer tried to get into the GLP industry, but stubbed its toes. Trials showed that its weight loss pill stopped early due to adverse reactions. Pfizer was hoping that this would be a $10 billion product in a potential $90 billion market, and it just didn't, just didn't work.

• 8:35Ed Elson?

  I would like to get your take on Starboard's stake here and how Starboard is going about this, because the last time we talked about Starboard was when they were buying up a stake in News Corp. And, you know, your argument was that it wasn't a very serious activist play because the board or the Rupert Murdoch family already controls more than forty percent of the votes. And Starboard came in and said, we want to remove this dual class shareholder structure. We want to shake the whole thing up, but they had only accumulated less than a five percent position in the company, which just wasn't enough. And then the board came back and they said, yeah, thanks, but no, thanks. We like the way the current shareholder structure

• 9:16Ed Elson?

  works. And I look at this stake that they have accumulated in Pfizer. It's a billion dollar stake, which sounds big until you realize that the company is worth more than a hundred and sixty billion. So this is a less than one percent stake in the company. It's about half a percent. And the average stake taken up by activist investors is six percent. So if they wanted to just play, keep up with the average, they would need to ten X their investment here. I feel like it reflects quite poorly on the firm, which has had some success in the past, but don't they need to just be upping their numbers here?

• 9:49Scott Galloway?

  Well, so first off, this year, only eleven percent of activist investor campaigns have been successful versus forty six percent average across the seven prior proxy seasons. And mostly that's because the household is doing fairly well. What I mean by that is that markets are touching new highs. And so investors aren't in an angry mood. They're not in the mood to kind of kick out management. They're showing management teams a little bit more grace. Generally speaking, as an activist investor, I don't know if you know this, Ed, I used to take large stakes in companies and go on the board. In the case of a company that has hundreds of billions of dollars in market cap, it's very difficult to show up with twenty percent of the shares. These companies just don't sit on that kind of capital. So what they do is they show up with a really cogent argument. The folks

• 10:33Scott Galloway?

  that have gone into Salesforce, including Starboard, didn't own a control or a brute power stake, but they made a very cogent argument that you have just spent too much money. This isn't difficult. You just need to scale back. You need to cut costs. You're in too many different things. You need to focus and bring your costs in line. And they did that and they all made a lot of money. And that was only credit to the activist investors.

• 10:56Scott Galloway?

  The credit to Marc Benioff, who said, they're right. I'm going to try and get along with them because the rookie move of CEOs and boards is boards generally consist of what I call FIPS, and that is formerly important people. And even worse than that, they don't own a lot of shares themselves. So all they're thinking about is their ego and I'll show him I'm right, saying no, regardless of what is right for shareholder value. And Marc Benioff didn't have that ego. He said, okay, do they have a point? Yes, I'm going to use this as cloud cover to make some hard decisions around cutting costs. The underlying technology was strong, the underlying business model was strong. And when he cut costs and was able to continue growing the company, earnings exploded and the stock recovered.

• 11:40Scott Galloway?

  But this has been a difficult 10 years. Typically, when the markets rip up, it's a difficult time for activist investors because the whole activist investor is, I'm here to fix this problem. And when there's an absence of problems, because everyone makes that money or everyone's making money, it's hard to convince shareholders to kick existing management out. Anyways, that was my lesson on activist investing. Do you have any thoughts, Ed?

• 12:05Ed Elson?

  I think that covers it. But I'd like to move on to the Longshoreman's strike. Speaking of ego and getting things right, we were right.

• 12:13Scott Galloway?

  There you go.

• 12:14Ed Elson?

  This was exactly our prediction that this strike, unlike the writers' strike, would result in a meaningful increase in compensation for the dock workers because unlike the writers, these guys actually had some leverage by striking. They were freezing up 6% of our GDP every single day. That is leverage right there. What is your reaction to the reported agreement? Not officially confirmed, but reportedly they have secured a 62% wage increase over the next six years.

• 12:47Scott Galloway?

  What are the dynamics here around leverage? It's timing. You want to strike when obviously it puts you're the person on the other party at a real point of disadvantage. And two, you want to be in an industry where the atmospherics are strong and the industry is growing and there's money to go around. So let's talk about the WGA strike. The riders got, the riders' union managed to get them a 5% raise, 12% over multiple years. And the longshoremen got 62% because, one, the industry, or specifically, American economy and commerce is growing at a really good clip. These ports are making a lot of money, retailers are making a lot of money, and they had incredible leverage.

• 13:28Scott Galloway?

  They were reducing the economy by $4.5 billion a day, whereas the riders had decided to increase Netflix stock by a couple billion dollars a day. So this was an entirely different dynamic. Now, similar to the rider's strike, there was a ridiculous demand to try and stave off automation. That, that dog just won't haunt. The notion that you're going to tell an industry to stop using technology to increase efficiency, I think the best you could hope for is to deploy funds or negotiate funds for worker retraining. But I think this is just a really interesting example in strategy and when, and when not to strike.

• 14:13Ed Elson?

  Let's finally move on to this announcement from Ben Horowitz, the founder of Andreessen Horowitz. I assume you have a hot take here, but let's hear it.

• 14:21Scott Galloway?

  Breaking, VC covers his ass. First off, these firms have absolutely no business on a risk-adjusted basis, this strongly endorsing a candidate from either side. That's just, that's just not what they do, and no one cares. And this is part of a virus that infects tech bros, is that they're the, under the, it's the perfect example of the Dunning Kruger effect, where they think, I just have more insight into the world and I need to share my views on politics. Boss, you have the right to endorse whoever you want, you have the right to vote for whoever you want, but do it on evenings and weekends and don't put it on Andreessen Horowitz letterhead.

• 15:02Scott Galloway?

  There are about a million funds that aren't this fucking arrogant or stupid. And my guess is they got a lot of shit for it and thought, oh my God, shit is about to get exceptionally real if she wins. And we're known as the VC fund that went all in on Trump. And so they said, I know, let's counteract our investment. Let's get an insurance policy and let's pretend somehow we've rethought the situation and that we like Vice President Harris. Stay the fuck out of politics.

• 15:34Ed Elson?

  The timing here is it feels very important. So you need to understand when Andreessen Horowitz said that they were backing Trump. It was about a week to two weeks after the catastrophic debate between Trump and Biden, wherein Trump was leading the polls by his widest margin ever. And a lot of us, including me, were saying, okay, this is going to be our next president. Now the picture is very, very different. Biden has dropped out. Kamala has come in instead and she looks as if she might be pulling ahead. At the very least, it's very, very tight. And so this actually has nothing to do with policy. It has nothing to do with political values. It all has to do with power.

• 16:17Ed Elson?

  The question he is asking is how can I position myself such at the president of the United States is just a phone call away. And I hope that this story and the way this is played out will sort of expose that reality and make it clearer that this is the way these people think.

• 16:35Ed Elson?

  Okay, we'll be right back after the break for our conversation with Mark Zandi. And if you're enjoying the show so far, hit follow and leave us a review on Prof you Markets.

• 16:53Speaker 05

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• 17:22Speaker 00

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• 18:27Ed Elson?

  Welcome back. Here's our conversation with Mark Zandi, Chief Economist of Moody's Analytics. Mark, thank you very much for joining us.

• 18:34Mark Zandi?

  Thanks, Ed. Good to be with you.

• 18:38Ed Elson?

  So we're just going to start with the economy here. I'd like to get your reaction to this recent jobs data, which was pretty great. The US economy added 254,000 jobs, which was a 60% increase from the month before. The unemployment rate fell to 4.1%. Let's just get your reaction on that jobs data and what it says about the economy right now.

• 19:01Mark Zandi?

  Yeah, I think you used the word "pretty great," right, Ed?

• 19:03Ed Elson?

  Yeah.

• 19:04Mark Zandi?

  Pretty great. That sounds good to me. Pretty great.

• 19:08Mark Zandi?

  Yeah, I mean, lots of jobs across lots of industries. You mentioned unemployment, down to 4.1%. That's very consistent with a full employment economy. Wages, you didn't mention wages. Wage growth was 4% year-over-year. That's right down the strike zone. That's, you know, strong enough to allow people's purchasing power to continue to improve. It's well above the rate of inflation, almost double the rate of inflation. So that's good news. But it's not so strong that it would incite or incent or recreate more concerns about inflation down the road. So. Lots of other detail in the report. You know, there's always a blemish or two, but this this really was pretty good.

• 19:53Ed Elson?

  Is this confirmation of soft landing or indication that the soft landing is coming? Where do you stand on how Jerome Powell and how our economy has stuck this landing?

• 20:04Mark Zandi?

  Yeah, I think so. I think recession risks have receded considerably. Just to give you a number, the in a typical time, the probability that the economy would enter into recession in the coming year is about 15%. We get recessions once every six, seven years. So about 15%. I say the probability of recession in the coming year is just about 15%. I mean, there are threats, there's risks, there's things that go wrong. Obviously, the election and the outcome and the aftermath would be at the top of the list of concerns. But, you know, barring something really going off the rails, yeah, I think we've, we can say with confidence that the economy has soft landed.

• 20:43Scott Galloway?

  I think you could, I believe fairly call this economy the Goldilocks economy, strongest growth in the G7, lowest inflation, which is very hard to pull off, markets at all time highs. And there's that saying that the future is here, it's just not evenly distributed. The person running for president against the current incumbent vice president leads on the economy. What is the consumer dissonance or the disconnect between what appears to be a great economy and a great deal of Americans who feel like the economy is actually a problem?

• 21:17Mark Zandi?

  Yeah, good point. I mean, there's, you know, all this happy talk from economists like myself, and that doesn't seem to be resonating with many Americans. They're still very pessimistic about how things are going. I ascribe it to two things, Scott. One is the high inflation that we suffered back a couple, three years ago, you know, particularly for things that people need to buy groceries and rent into a less extreme gasoline. And while the prices for those things haven't risen to considerable, to any significant degree over the past year or so, they're still a lot higher than they were two, three years ago. I mean, grocery prices are up 20, 25% from three years ago. Rents are up 20, 25% from three years ago.

• 22:00Mark Zandi?

  And so people still feel that that financial sting and it's almost like everyone's got some item, generally a food item that they buy on a regular basis that they're using as a litmus test for, you know, how they're feeling about things and they're still paying a much higher price for that. And there's no solution to that, that, you know, there's no convincing people of anything. It's just going to take time. Hopefully wages continue to outpace inflation and that financial sting will continue to fade. So I think that's the one. The second is just our politics. I mean, I think people look at the world, particularly the economy through their own political prism. And you can see that in consumer sentiment surveys. If you go look at the University of Michigan survey, they

• 22:41Mark Zandi?

  that's a that's a survey that's been done for decades, every month. They the folks at University of Michigan asked respondents, are you Republican, Democrat, or independent? And if you look at the responses from the Republicans, they're saying the economy is as bad as it was in the teeth of the financial crisis or in the middle of the pandemic shutdowns, which is, you know, objectively not the case, but obviously is reflected in their politics. So I think those are the there's probably other reasons, but I think those are the two key reasons for that that so-called disconnect.

• 23:12Scott Galloway?

  Mark, I was worried if there's a bit of a hidden hidden truth here. And that is, if I had a credit card, if I was, if I was spending 40% more than I was making with a credit card, I could create the illusion of prosperity in my household. We're taking in $5 trillion in revenues through taxes and we're spending $7 trillion. That strikes me as just pulling the future or borrowing from people's futures to create the illusion of prosperity now. How much does the deficit worry you?

• 23:46Mark Zandi?

  It does. I mean, I think that is the point you just made is overstated. I mean, the It's really the change in the deficit that is reflected in growth. So with these strong growth rates we're experiencing now, all those jobs we're creating, it's not because of an increase in the deficit. The deficit is large, it's been large since the pandemic and that has not changed. But regardless, as you say, we are borrowing a lot of money as a nation and it's not sustainable in the long run. We do need to change policy.

• 24:28Mark Zandi?

  We've got to change, we need more tax revenue and we need spending restraint. We need both of those because the size of the deficits are very large. I mean, just again, give you a number, the federal deficit to GDP ratio, let's take the amount we're bringing in revenue, subtract what we're spending, divide by GDP, the valuable things we produce, that's 6%. Yeah, that's in a full employment economy. Typically, when you're in full employment, the deficit is 1% or 2% of GDP. So we're in a very difficult spot if we don't change policy. And obviously, if we get hit by another crisis or the economy doesn't cooperate and I'm

• 25:12Mark Zandi?

  wrong about a soft landing and we suffer a recession, then we've got a boatload of problems. So I view this as a very serious problem. I will say, Scott, though, I don't know that it's a problem for next month, next quarter, next year, maybe even not the next decade. But if all the trend lines here, if they don't change, then at some point in our future, we will have a day of reckoning. Bond investors, the people who are investing in that debt will say, no more, I'm not going to buy that debt until you pay me a much higher interest rate. And that will be the crisis that we face. But that's probably further down the road here.

• 25:52Mark Zandi?

  But no doubt about it, that is a significant threat to our prosperity in the long run.

• 25:58Ed Elson?

  Just going back to the idea that we have reached the soft landing, that number that we saw in that jobs data, which was, as I said, it was a great number. But I think back to a couple of months ago when we had A couple pretty bad employment reports and jobs reports. And the stock market reacted pretty terribly. I mean, the Nasdaq had one of its worst days in a few years, same with the S and P. I thought it was sort of a buying opportunity because my sense is that it's very month to month and it's very sporadic. And I was thinking that we'd probably see a resurgence and that it's a little bit more random.

• 26:42Ed Elson?

  This probably isn't as structural as we think. And, you know, I thought that we'd see a rally in the markets and we'd see a change in the numbers and that's what happened. Having said that, I look at this number here and I'm wondering, you know, how seriously should we take these numbers when we're seeing 115,000 in one month and then suddenly it's up to 250,000? Why wouldn't it just swing right back?

• 27:06Mark Zandi?

  Well, it might. I mean, I do think that argues for not getting caught up in the month to month movements in the data, try to get to the underlying trend. You know, one simple way of doing that is just take a three month moving average, six month moving average, take the past three months, take the past six months, divide by three or six, and that gives you a sense of underlying trend. And I think that would, that'd be help, that would give you a much better sense of what's going on here. And it's, you know, if you do that, it says the economy's creating 150K, 175K per month. And I think that's reality. That's roughly where we are.

• 27:45Mark Zandi?

  Having said that, though, you bring up a kind of a broader point, and that is the quality of the economic data that we're looking at to try to make really important decisions around monetary policy, interest rates, you know, what the, which kind of tax and spending policy should be, is eroding because response rates to the surveys that the government uses to collect and produces this data are falling, like all surveys. I mean, you can see it in the polling related to the election, you know, marketing polls or surveys to try to get a sense of what consumers are thinking and what they like and don't like. You know, they, the response rates to those things have fallen very sharply since the

• 28:29Mark Zandi?

  pandemic and becoming increasingly difficult to get good quality data, at least in a timely way, which is what we really need to make good policy decisions.

• 28:39Ed Elson?

  One thing I wanted to bring up are these revisions that we're seeing from the government, especially that one back in March, I think it was, where the government, the Bureau of Labor Statistics, had overestimated the jobs data by 818,000 jobs. And it's become a big talking point in politics and it's become a criticism against the government. One, that, you know, perhaps the government and these numbers, perhaps these numbers are fake. Perhaps the government is lying to us. Or two, you know, if they're, if they're swinging this much, perhaps they're just meaningless. And in fact, Trump actually brought that up in one of the debates, not very coherently, but he mentioned that number, 818,000.

• 29:21Ed Elson?

  I don't think the government is lying, but I do think that it's a fair argument that what are you supposed to do with those numbers if you can't trust them? Especially for you as an economist. I'd just love to get your take on how are you, how are you grappling with the pretty important issue you just brought up?

• 29:38Mark Zandi?

  I mean, that 818,000 job number was no surprise. I mean, we've, we've had these revisions since the beginning of time, right? These are surveys. The government's going out surveying businesses in this case and the economy's a big place. So the survey isn't going to be a, you know, picture perfect representation of the reality of what's going on in the entire economy. So there's always revision.

• 30:02Ed Elson?

  But that one was the biggest ever, right? And I think that would be the criticism.

• 30:06Mark Zandi?

  Yeah, yeah, but you get really big revisions when the economy's moving up or down in a big way, right? In this case, it's slowing down by design. The Federal Reserve raises rates, slows things. So you would expect, you know, a downward revision in the data and a pretty big downward revision. So no surprise there. The other thing that's going on is the economy's being buffeted by all kinds of massive shocks that are disrupting things. I mentioned the pandemic, but the other thing that's going on is a surge in immigration that we've experienced that's finding its way into the surveys in different ways. And that's also complicating things in terms of measurement. But, but regardless, you know, and no one's making up anything here. I mean, because there's an army of people that are involved in making, coming up with

• 30:49Mark Zandi?

  the estimates, doing the calculations and making sure their surveys are done properly. And that would be a conspiracy on the grandest scale of mankind, you know, if that, that were happening. So I am not at all fearful of that. And at the end of the day, we are going to get Actual employment counts based on unemployment insurance records, which are not a survey, a sample survey, based on the entire population of workers out there. So it's all gonna ultimately be represented accurately. But having said that, I do think we need, if I were king for the day, I would be investing a few more dollars in trying to improve the way the government collects the data. Because again, we're making very important decisions based on this data, and the better

• 31:33Mark Zandi?

  the data you have, the better the decision you're making. And the other thing is, it's important to start using other private sources of information and data. Because of the changes in technology, we are now collecting lots of information all over the economy in the private sector, and we can use that. So for example, I get all the credit files in the country from Equifax every single month, anonymized, obviously. But I know exactly how many credit cards are out there, who's borrowing, how much. And I actually can see, based on that information, where people are living and where they're moving to. So how many people are moving from a ZIP code in New York City to a ZIP code in Miami? I can tell you that almost real time.

• 32:14Mark Zandi?

  So there's a lot of other data and information out there that I think is available, and the government is starting to avail themselves of that and trying to understand what's going on. And I think that's entirely appropriate and prudent in the context of the information that is available out there in the private sector.

• 32:29Scott Galloway?

  You brought up immigration. I want to put forward a thesis and get your response. I believe the reason that we haven't been able to solve this problem is that we don't want to. And that is, while I believe we shouldn't have open borders, I believe we purposely don't get serious about addressing it because while immigration has been arguably the secret sauce of America, the most profitable part of immigration has been illegal immigration. In that we have this flexible workforce that doesn't call on social services, arrested at a lower rate, and domestic citizens typically don't stick around for social security, don't call the police department, don't call the fire department, yet pay taxes.

• 33:10Scott Galloway?

  And when the crops are picked, or that industry declines, we have this flexible workforce that just melts away. Have we purposely avoided addressing this problem because illegal immigration is just too damn profitable?

• 33:25Mark Zandi?

  No, I don't think so. I mean, if you go back, you know, prior to this post pandemic surge in immigration, we were getting about a million immigrants, legal plus illegal or undocumented immigrants a year. A little stronger in some years, a little weaker during the Trump years, but about a million per annum. The surge took off post pandemic, and I think, you know, that was created in part by the pandemic dislocation and other things coming, other factors coming together. And then our, you know, our asylum laws and rules are, you

• 34:06Mark Zandi?

  know, very difficult to navigate around, and immigrants took advantage of that. So, of the fact that we really had to nail down, you know, the asylum process. So I don't think it was intentional. I think it was a matter of circumstance. And I do think there's a great deal of interest, both on the Republican side and the Democrat side, to address this. And in two ways. One, control the flows of people coming across the southern border. In fact, you know, Biden's executive order that he put into place around asylum seekers back a few months ago appears to be working. The number of immigrants coming across the

• 34:47Mark Zandi?

  border has fallen off quite sharply. But we need, and we do need to address the flows across the southern border. And I think there's a consensus that that's now a national security issue, and that has to be done. But the other aspect of it is actual immigration reform. And Scott, we got really close to that back a few months ago. You remember Phil, excuse me, Senator Langford from Oklahoma, very conservative Republican? Fashioned the bill in cooperation with other Republicans and got Democrats on board. And we were going to, it looked very likely, we were going to get a reasonably good immigration reform bill. Of course, President Trump put an end to that and said, I don't want to do that for various reasons. But that, the fact that we got that close, in my mind, suggests, on the other side of

• 35:32Mark Zandi?

  this election, depending on the makeup of government, there's a reasonably good chance we're going to get substantive immigration reform. And by the way, you said it, and I agree with it, immigration is the secret sauce. That is what is critical to driving growth in this country, both in terms of just workers, but also in terms of productivity, because immigrants tend to be

• 35:54Scott Galloway?

  Best and brightest.

• 35:55Mark Zandi?

  Yeah, they tend to be entrepreneurial, they're risk takers, they start businesses at a higher rate, and ultimately, they're key to underlying productivity growth.

• 36:03Scott Galloway?

  So, just as it relates to the presidential election, as an economist, when you look at the economic plans proposed by both campaigns, if you were, if you were to guess which most likely results in the greatest economic growth and the greatest economic health in the United States over the next several years, is there one campaign that stands out to you, or the best the other?

• 36:26Mark Zandi?

  Well, we've run a bunch of scenarios, and I'll have to say, the scenario where Harris wins the presidency and the Congress is divided, in all likelihood, that would mean the Senate goes Republican, the House goes Democrat, and that, in my mind, is the most likely scenario. That's the policy status quo, right? That means the policy we have today is roughly the policy we're going to get, going to have going forward. It doesn't help us with that, those deficits and debt that we were talking about earlier, but, you know, it will, it will result in policies that are consistent with the economy that we're experiencing today, which, going back to Ed's comment, first description of the economy, pretty good. In my mind, that is the best outcome, because that'll lead to an economy that is performing

• 37:11Mark Zandi?

  like the one we got, we've got now, and that's a pretty good economy.

• 37:14Ed Elson?

  You mentioned earlier, this idea of, you know, recession tail risk, and that that was pretty related to what's happening, what's going to happen with the election. Could you describe how those are linked? I assume what you might be saying is that if Trump wins, there's a greater recession risk, but maybe not. How are those two linked?

• 37:36Mark Zandi?

  Yeah, I worry about three things. One is this this election is going to be really close, right? I live in suburban Philadelphia. I'm I I this is ground zero. I think I think my street is going to determine who's the president of the United. Maybe my wife is going to determine who the president of the United States is. It's going to be that close. It's going to be PA. And by the way, in PA, we don't count mail in ballots until the day of election. So we're not going to know who probably not going to know the president is for, you know, at least days, could be weeks, could get in the court system. There is absolutely no upside to that. There's nothing but downside. So I worry about that in the context of the fragile collective psyche and the political fracturing that, you know, that we're living through today. The second thing is in that status, in that Harris divided government scenario, the status

• 38:20Mark Zandi?

  quo, the next thing that's going to happen on January 1st, 2025 is the debt limit is going to be reimposed. The treasury is going to run out of cash by summer of 2025, and we're going to have a doozy of a debt limit battle. And I've seen a lot of debt limit battles over the years. Each one feels scarier than the one before it. And, you know, because we we think there's no big deal here, and we get closer and closer to the so called X state, when somebody's not going to get paid on time, and that's a big problem. And the third thing, this goes back to Scott's question about deficit and debt. We're not going to address deficits and debt here. We're not even talking about that. Nobody's talking about that. And that's just going to get worse. And by the way, I'm just going to put a stake in the ground so you heard say if this happens, I heard this from Zandi first.

• 39:03Mark Zandi?

  Liquidity in the bond market, the treasury market and the corporate bond market is very, very tenuous. The big, this is a little bit in the plumbing of the system, but the big financial institutions, broker dealers, the JP Morgans of the world that make markets, the treasury market, their balance sheet has not grown consistent with the amount of debt outstanding. So they're having trouble making the trade. It's because of liquidity requirements and capital rules that just make it uneconomic. Then you throw into the mix that the Federal Reserve is through quantitative tightening allowing, is pulling out of the treasury market and it's it's and the foreign investors are not coming in, China's pulling out, and it's hedge funds that are coming into the market. They're very price sensitive.

• 39:47Mark Zandi?

  They're there when things are good, they're out when things are bad. You bring, throw that all into the mix and a debt limit battle, you know, that that's the prescription for some kind of financial event. And, you know, that could be something that happens in 2025. So, yeah. In my mind, the number one threat to my optimism about the economy, about the soft landing, is that we screw it up, that lawmakers just make a real blunder here and the election undermines confidence and we go recession. I think that's the biggest threat to the economy here in the next 12 to 18 months.

• 40:24Ed Elson?

  Stay with us.

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• 42:12Ed Elson?

  We're back with Prof G Markets.

• 42:14Scott Galloway?

  So, Mark, I think of you as one of the brighter minds around the housing market. Everything is a crisis, but I generally think it's fair to call the housing situation in the US a crisis, affordability crisis. And by most metrics, housing prices are at historic highs. Only one third of Americans can afford a home, whereas not that long ago it was two-thirds of Americans. What are your, what is your best guess as to what you think is going to happen to housing over the next 12 or 24 months, residential and commercial? And obviously, talking about housing in America is like talking about housing in Africa. There's a lot of different sub-markets. But I would love to get your general view on state of play in housing, your predictions for it, which sectors and markets are most vulnerable or most resilient.

• 42:59Mark Zandi?

  Well, when he said, "You're one of the brightest minds," I go, "Oh." If he just stopped there, I would have taken that. But because brightest minds on housing.

• 43:06Scott Galloway?

  That wasn't enough. Just one of the brightest minds ever.

• 43:12Mark Zandi?

  I'll take it. I'll take it. I'm just joking. I'll take it. I gotta stay humble. Look, I totally agree with you. I think this is a massive crisis. I mean, housing is the single largest budget item in nearly every American household, right? I mean, rent or the mortgage payment that people are making, and then all the costs associated with maintaining a home and living in a home. So this is vitally critical. And we've got two big problems. One is so-called interest rate lock. You have a lot of homeowners that refinance their mortgages when rates are very low. They've got a mortgage with an interest rate of 3%, 3.5%. Market rates are now a lot higher.

• 43:56Mark Zandi?

  They're 6.5%, 7%, 6%, 6.5%. So it doesn't make sense for those folks economically to sell their existing home and get another home with a new mortgage at a higher rate. The monthly mortgage payment rises to such a degree, it just doesn't, doesn't work. Too difficult. So people aren't moving. Second, and by the way, that becomes an increasing problem over time because life happens. Divorce, death, children, job change. So increasingly, people are living in homes that aren't suited to their housing needs. And that's a, that's a big deal. Second problem is we just have not put up enough homes since the financial crisis, you know, given... Demographics, given the number of households that are forming the population growth, given

• 44:38Mark Zandi?

  obsolescence, given, you know, you see these hurricanes and storms are wiping wiping out a lot of housing stock, you know, this is where people live. And, you know, the result is we have a very severe shortage of housing, not at the high end, you know, not for luxury apartments, because you've seen big towers go up in my hometown of Philly or LA where you are. If you've been to Miami recently, there's, you know, apartment towers everywhere. But in the affordable part of the market, the lower end of the market for, you know, lower and middle income households for renters and for people who are trying to buy a home. So, really severe shortage that's been created since the financial crisis for lots and lots

• 45:19Mark Zandi?

  of different reasons. The solution to the problem, in my mind, is we got to build. We need more housing. And, you know, in fact, going back to Harris, you know, she does have a, and I recommend people go take a look at it, a plan to incent builders to put up more homes, to incent the private sector to put up more affordable rental and more start arms through tax subsidy. And by the way, this was kind of a really key lesson we learned from the Biden policies, like the Inflation Reduction Act and CHIPS Act. If you incent the private sector to go do something with tax subsidy, they do it. I mean, look at all the chick plants that are being built. Look at all the EV stations that

• 46:00Mark Zandi?

  are being put in, the transition from clean, from fossil fuel to clean energy. That's the private sector on steroids juiced up by the, by, by federal tax subsidy. So I think this, if I were going, again, going back to being king, I would, I would spend resources there. That's where I would focus, you know, my energy. Because, by the way, if everyone's, doesn't believe in the, the economy's any good because of their cost of living, here's the way to reduce the cost of living. Get the cost of housing down, because that's the, again, the number one budget item for most Americans.

• 46:34Ed Elson?

  As you look at the global economy, what do you think the US is doing right that the rest of the world isn't?

• 46:40Mark Zandi?

  You know, at the end of the day, we attract the best and the brightest from all over the world. You know, I travel the world. And everybody ultimately wants to come to the United States. You know, you know, it's just a place where

• 46:58Mark Zandi?

  there's a rule of law. Historically, there's been a rule of law, a well-functioning capital market. You know, if you have a good idea, you can find capital. There's the capital that will come to you to help you work through your idea. We have laws that allow for failure. You know, our bankruptcy laws are very different from the bankruptcy laws around the world. When people fail, they they can get a clean slate and they can start again. And that's exactly what you know. If you're an entrepreneur, if you're an innovator, you're you're going to invariably fail by definition because you're swinging for the fences. And that's OK, because you can get you can right yourself, clean your your balance sheet and start all over again and go try swinging again.

• 47:43Mark Zandi?

  And that you don't see anywhere else on the planet. And we've got, you know, I think, a culture of innovation entrepreneurship. We, you know, I, you know, I, my son, who's now

• 47:56Mark Zandi?

  an innovator and entrepreneur, you know, he reveres the people that have succeeded here. And he he he values what they say and he listens to what they say and he takes it in. And it's, you know, that's who his heroes are, the people that are innovating and trying to advance the ball here in in technology. So we have a culture of of revering that kind of risk-taking and taking those chances and trying out new ideas. You know, every culture is a little bit different. I don't, but I don't sense that in much of the rest of the world. I sense that here in the United States. So I think I think, you know, going back to my fundamental optimism, as long as we are able to continue to attract

• 48:40Mark Zandi?

  the best and the brightest from all over the planet, we will be just fine. We will solve a lot of problems. And by the way, going back to Scott, going back to the question of deficit and debt, the easiest way out of that problem is immigration. You allow immigrants into the country, let them do their thing. Do it in a rational way. We need to make sure we have a rational immigration policy and system so that we bring in the people that have the right skills and talents that we need, which by the way, is across the skill spectrum. We need low skilled workers in agriculture and leisure and hospitality. We need high skilled workers. We need CEOs. We need everybody in between. But you allow that to happen, we're going to get one to two tenths percent more GDP growth every year. And I assure you, that makes that deficit debt problem look a lot less daunting going forward.

• 49:26Scott Galloway?

  And just to wrap up on that, Mark, you know, we always talk about a younger generation being entitled. I feel as if Americans are entitled in the sense that we have our problems. We're 190 nations. I feel like 189 would kill for our problems. So let's just talk about the economy. Is there any economy in the world that would, that is performing better on a balanced scorecard, the United States of America right now?

• 49:56Mark Zandi?

  I'm hard pressed to, I don't know, a whole 189. But let's say I know the top 89.

• 50:03Scott Galloway?

  But it's not China. It's definitely not Europe.

• 50:06Mark Zandi?

  There's nobody. There's nobody. But you know, Scott, it's okay if we're unhappy with that and not, and we're dissatisfied with that. That's exactly the state of mind we should have, right? Because it's only with that state of mind that we're, that ensures that 10 years from now, we're still the top dog out of the 189 countries that are out there. You got to run scared and run nervous. And I think that's the, that's the place where we should, we should stay there. We're, we should not be satisfied. We got our problems. I mean, a lot of issues we got to grapple with. So we shouldn't be satisfied. But I don't, I totally agree with you. Hard pressed to find anyone else on the planet that's performing nearly as well as we are.

• 50:44Ed Elson?

  Mark Zandi is the chief economist of Moody's, a leading provider of economic research, data and analytical tools. He also hosts the Inside Economics podcast and serves on the board of directors of MGIC, the nation's largest private mortgage insurance company. Mark, this was really great. Thank you for joining us.

• 50:59Mark Zandi?

  Hey, anytime. I really enjoyed it. Thanks for letting me get on my soapbox.

• 51:03Scott Galloway?

  Great to see you, Mark.

• 51:13Ed Elson?

  Algebra of Wealth. Scott, Mark said something interesting about the US economy, that we are the best performing economy in the world, but one of our strengths is this certain level of paranoia, that things aren't good enough and that we need to keep improving. I'm wondering how you balance that paranoia in your personal life when you're building your own level of wealth. How do you balance feeling grateful, but then also thinking it's not enough?

• 51:41Scott Galloway?

  I would flip it. The rubric, and I'm not sure this is how most people feel, I guess it's a part of paranoia. It was a mix of insecurity and fear, especially once I had kids, that I wouldn't be able to fulfill my obligation as a good provider. I had tremendous anxiety around that because, especially when they were little in the Great Financial Recession, I wasn't in a position to support them or create the lifestyle I wanted for them. And for me, it was very shameful. It felt like I'd failed as a father. That was literally the first emotion I felt when my son came marching out of my girlfriend, day one, that I'd already failed him because my companies weren't doing well and I'd taken all these big risks and they hadn't paid off.

• 52:25Scott Galloway?

  The thing that really drove me, though, was ambition. And that is, I wanted to have a certain life, a certain level of influence, a certain level of recognition. Quite frankly, that involved, and a big part of that was a number, and that number was my wealth.

• 52:41Scott Galloway?

  And at some point, the terrible thing about numbers is you can always imagine a bigger number. And what you need to do, and this is a good problem, once you get to a certain level of economic security, realize that money is the ink in your pen and it can write certain chapters that might not otherwise be written. It can make certain chapters burn brighter, but it's not your story. And as soon as you have some level of economic security, maybe before that, you need to find where you get reward, what makes you feel better about yourself, what makes you feel better about others, what makes you a kinder person, what gives you fulfillment, what gives you happiness, and start to focus on things other than that hamster wheel. I have been so focused on career success and economic security.

• 53:25Scott Galloway?

  That I kind of woke up in my late 40s and early 50s and said, I'm going to die with a lot of money and never really have enjoyed any of it. And my relationships will have suffered and I would have never been in the moment. I would have never really lived my life. And so in a society that encourages you to stay on that hamster wheel and go hard and go constant, always can imagine more money. You get to X, I can imagine two X. Well, imagine what I could do with 10 X. At some point, taking pause and saying, if I have enough money to support my family, if I have enough family to absorb a healthcare risk, have a nice home, take nice vacations, give some money away. And by the way, that's

• 54:04Scott Galloway?

  a lot of money. Then you really need to slow down and say, how do I focus on my relationships? How do I focus on the things that really give me reward? Because it's easy to get caught up into this very American hamster wheel of more money, more ambition, more innovation, more power.

• 54:30Ed Elson?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producer is Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on the markets on Monday.

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