OE Lightning Round: Kathryn Edwards Takes Your Economy Questions

Kathryn Edwards answers listeners’ economic questions, with her co-host's stopwatch running. In under an hour, we cover risks to U. S. economic data, college tuition, taxes, bonds, degrowth, mortgages, tariffs vs. income taxes, wealth concentration, and why the future can’t be built on lies. Finally, for those of you not from Wisconsin, do you know how to pronounce Waukesha? Because Robin sure didn’t. And apparently it’s not Wauke$ha, either. You can also find Optimist Economy http://optimisteconomy.com/ on: TikTok https://www.tiktok.com/@optimist_economy YouTube https://www.youtube.com/@optimist_economy Instagram https://www.instagram.com/optimist_economy/ Substack https://optimisteconomy.substack.com/ Support us by becoming a paid Substack subscriber, or by making a contribution at https://buymeacoffee.com/optimisteconomy

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

• 0:00Speaker 00

  Mitt Romney and Ted Kennedy were about as different as two politicians could be. The lanky businessman and the stout old senator, the conservative darling and the liberal icon. But did you know they once teamed up to tackle an elusive challenge: universal health care?

• 0:16Speaker 01

  This is a politician's dream.

• 0:18Speaker 00

  In season four of the Big Dig podcast, we tell the story of Romney Care and the odd couple alliance behind it. Find Mitt and Ted wherever you listen.

• 0:35Speaker 02

  Hello and welcome to Optimist Economy. I'm Catherine.

• 0:37Robin Rauzi?

  And I'm Robin.

• 0:38Speaker 02

  On this show, we believe the US economy can be better, and we talk about how to get there, one problem and solution at a time.

• 0:51Speaker 02

  But actually, kind of not this actual show, because we wanted to do an episode where we just answer questions that we got at our email address, [email protected]. So this is a question and answer episode, and it remains to be seen if you all suggested either problems or solutions. So I just don't want to, I don't want people to think that we're going to do something constructive here. Like, I don't, I don't.

• 1:14Robin Rauzi?

  Yeah, we're going to see how this goes. Actually, this is also, for me, it's a game show. I'm going to turn on my stopwatch to see how much time it takes Catherine to go through the entire backstory of every answer she wants to give.

• 1:29Speaker 02

  Oh, God, that's rough, Robin.

• 1:32Robin Rauzi?

  I forgot about that.

• 1:34Speaker 02

  So you need to tell me right now, did my sister tell you to do this?

• 1:37Robin Rauzi?

  She did not.

• 1:38Speaker 02

  Was it my brother? Don't say mom, damn it.

• 1:44Robin Rauzi?

  Anyway, we have like about an hour to record this.

• 1:48Speaker 02

  Okay.

• 1:48Robin Rauzi?

  And

• 1:49Speaker 02

  I'm not nervous.

• 1:50Robin Rauzi?

  And so I think we're going to try to do that. So I did want to just say, [email protected]. I read all your letters. Catherine reads a lot of your letters, and we read your reviews, too. I'm going to share this one that we got on Apple Podcasts. It says, "Economist on Economics." Now, I'm just going to say, I'm an editor, so I'm going to tell you, there's only one economist on this show. I am not an economist.

• 2:13Robin Rauzi?

  Otherwise, this is a fantastic review. It says that for the past couple of decades of pop economics, where economists have gained large platforms for, quote, "applying economic principles to fields they know nothing about", that's left a bad taste in my mouth. This podcast is a breath of fresh air.

• 2:30Speaker 02

  Aww.

• 2:31Robin Rauzi?

  Anyway, that's really all about you, because, again, not an economist.

• 2:34Speaker 02

  Okay, but I mean, I think there's another lesson here, which is that if you do leave a review, like, get your grammar right. Because it is, we could call this optimist editor. And Robert's gonna check your shit.

• 2:45Robin Rauzi?

  Optimist economist and bitchy editor.

• 2:47Speaker 02

  Speaking of merch, that would be incredible.

• 2:52Robin Rauzi?

  Bitchy editor.

• 2:53Speaker 02

  Yeah, optimist economy and bitchy editor. So you could do a mug where it says optimist economy, and then when you turn it over, it says bitchy editor on the other.

• 3:04Robin Rauzi?

  It says bitchy editor on the bottom of the mug, once you finish all your coffee. Yeah. Excellent. All right, so we're gonna hit Catherine with your letters. I will say I have edited these, but I did ask people if I could use them and use their name and their location.

• 3:19Speaker 02

  Okay.

• 3:20Robin Rauzi?

  So first up, from Mark in Lincoln, Nebraska. Have you been tracking whether government cuts have made it more difficult to track economic data? Do you think slash have any concern that this kind of data that is published by the government is at risk?

• 3:34Speaker 02

  Did you just go on the timer?

• 3:36Robin Rauzi?

  I did.

• 3:37Speaker 02

  Okay, so the Bureau of Labor Statistics was started over 100 years ago. It was.

• 3:44Robin Rauzi?

  Yeah, yeah, I see what you're doing there.

• 3:47Speaker 02

  Uh huh, uh huh. Okay, so let's do bottom line up front. Yes, there is terrible concern about the integrity of statistical data that the US produces right now for a couple of reasons. The main being that the people who work on the data are being fired. The head of the Social Security Administration, who himself is a Trump acolyte, and was only elevated to the interim head of the Social Security Administration because he posted on LinkedIn about how great Elon Musk and Doge is, he himself was caught on a recording referring to the Doge staff that showed up to the Social Security Administration headquarters as the Doge kids. And he was like, yeah, the Doge kids, like, they don't know what they're doing, but they're trying to learn. That's not great. That's your data that they're learning with, or

• 4:32Speaker 02

  your social security payment. But I think that there's this concern of the Doge kids going into the data and messing with it. That is less of a concern because they're just not that sophisticated. Like, they might be like a 20-year-old programmer who had an internship at Tesla, but like, working with administrative government data is not something that you could just walk off the street and do. So them going in and manipulating data that the US produces would be much harder, probably than you think and what they think. Bigger concern is that the people who actually know how to use the data, both for internal and external publication services, those are the people who are being fired, or they're being asked to do something and they say no, so they are forced to resign. That is

• 5:16Speaker 02

  the bigger concern. The other thing you should know is that the US has multiple watchdogs for statistical agencies that determine the integrity of the statistical agencies and all the data that's produced. A lot of those people have been let go and fired, or the committees have been dissolved. The biggest concern is that career civil servants who are experts on the databases will be replaced by political loyalists in a permanent way, not just a Doge kid way, but in a permanent way. Okay, I'm done.

• 5:47Robin Rauzi?

  Nice job. 3 minutes 15 seconds.

• 5:49Speaker 02

  Okay.

• 5:50Robin Rauzi?

  Are there alternative sources of data? Like, are there ways that non-government, I don't know, universities or nonprofits are also reproducing this kind of data?

• 6:00Speaker 02

  No. No one's as good as the federal government in producing this type of data. And frankly, the US has, you know, with its storied Bureau of Labor Statistics, I mean, it has the best kind of public statistics in the world, right? Like, I would never trust too deeply statistics coming out of, you know, say, the Chinese or Russian government. The US has really high statistical integrity. I mean, we've had scary moments before. So a lot of people don't know that Nixon, much like Trump, really hated it when public data didn't go his way and attacked the people who produced it, just like Trump did at the The end of the Biden administration to say like the BLS was producing fake jobs numbers because they showed the economy was good. Nixon did that during his presidency,

• 6:43Speaker 02

  and he actually made one of his White House staffers go to the Bureau of Labor Statistics and fire anyone who had a Jewish sounding last name because he thought that they were in a cabal, a Jewish conspiracy to undermine Nixon from the Bureau of Labor Statistics. Like, people absolutely lost their jobs. People were demoted. People were pushed into early retirement. And afterwards, there were more, more walls built between the BLS and politics and the way that the commissioners appointed and so on. We put a lot of barriers and protections in place. And so what's going on now is that they're trying to get through those barriers and protections.

• 7:18Robin Rauzi?

  Yeah.

• 7:18Speaker 02

  But you can read all about this. There's a great slate write-up of this, but of course, it's not conjecture, y'all. He said this all and recorded himself, and then it was added to historical archives. So you can hear Nixon asking, like, very pointedly, like, "But the BLS, how many Jews are there?" So, yeah, I mean, this is, I don't know if that's comforting or not.

• 7:37Robin Rauzi?

  No, it's okay. All right, on to question number two.

• 7:41Speaker 02

  Got it.

• 7:41Robin Rauzi?

  Are you ready?

• 7:42Speaker 02

  Okay.

• 7:42Robin Rauzi?

  Are you ready?

• 7:43Speaker 02

  Okay. A statistics one first. I feel like we're, like, trying to see how, like-

• 7:45Robin Rauzi?

  I'm warming, I'm warming you up, actually.

• 7:47Speaker 02

  Oh, my God, spinning top. I have so much more to say about the BLS, but-

• 7:51Robin Rauzi?

  But we have more questions to get to. Are you ready?

• 7:53Speaker 02

  Yes.

• 7:54Robin Rauzi?

  Okay. Question from Teagan in Seal Cove, Maine. "Do you have a hot take on college tuition increases and student debt?" Go.

• 8:03Speaker 02

  Go. Okay. I will say, the way that I think about it, that might be different than the way that a lot of people think about it, is that, from your perspective, as an individual who's contemplating going to college, it's really a matter of risk versus reward. Will I make enough money extra from having a college degree to justify any expenses I have to take on, like, not earning wages for four years and foregoing a full-time job, plus the cost of going to college? I think what a lot of people notice and really just recoil at is just how unfair it is that that calculus varies so much by how much money your parents make.

• 8:40Robin Rauzi?

  Right.

• 8:41Speaker 02

  There's no risk if your dad pays and your mom and dad pays for everything. It's incredibly high risk if you're taking it all on your own and that this upward mobility vehicle that we have, it's both a way to become upwardly mobile, but it's almost like pulling up the ladder behind the people who are already upwardly mobile. I think the way that I think about it that's different is the idea of like, what does the government get from college? Right? If you think of the government as being a steward of the US economy, it needs college because it's a massive human capital investment. It pulls up the relative skill distribution and distribution meaning like the variety of skills that workers in the US have and which ones are associated with high levels

• 9:26Speaker 02

  of innovation, high levels of kind of productivity changes in the economy. We need people with a college degree in our economy and I think that I don't like that all of the risk is on the person, even though the benefit can be so large to the federal government. So like sending people who couldn't pay off their college loan, probably because they didn't make enough money, into debt collection is kind of the federal government saying, well, we mostly benefit from people going to college, but if it ever doesn't work out, it's entirely on them and it's their fault. And I don't like how they're in this like incredible position to gain, but even like the small risk that can be awful to a person, the government's like, nope.

• 10:06Robin Rauzi?

  Yeah.

• 10:07Speaker 02

  It's on you. You made bad choices. You know, it's a very kind of like one-way street selfish endeavor, especially because Pell Grants are like laughably too low and alone.

• 10:18Robin Rauzi?

  Yeah, Pell Grants just not kept up with the cost of tuition. Is that what's happened?

• 10:21Speaker 02

  Yeah, because tuition is spiking and the cause for tuition spiking is really multifaceted. I don't think I can give it quickly in an answer. What I will say is that something is going to change drastically for colleges in the US in over the next 15 years because if you've read about the baby bust and fertility declines in the US. The college-going population, in terms of age,

• 10:46Robin Rauzi?

  It's gonna shrink.

• 10:47Speaker 02

  It's gonna shrink. Just imagine the number of colleges in the country that are charging a fortune to a dwindling population. I just think that we're either gonna have a lot of colleges

• 10:57Robin Rauzi?

  Go out of business.

• 10:57Speaker 02

  Go out of business and close.

• 10:59Robin Rauzi?

  Or consolidate.

• 11:00Speaker 02

  And then you're also gonna have some, like, business model changes where colleges are gonna have to say like, okay, like, we can't charge people $60,000 a year. No one will come and will go out of business. So I think the elite colleges won't change much. But I think, when you think of college, the broader institution that has hundreds and hundreds of different types of colleges, I think you're gonna see changes on tuition to meet the reality of the moment, which is, one, the middle-class paychecks don't last forever, and neither do the kids that are gonna go.

• 11:29Robin Rauzi?

  Yeah, yeah. 3 minutes 55 seconds.

• 11:32Speaker 02

  Oh, my god, look at that.

• 11:34Robin Rauzi?

  See if I can just focus your mind. Can you imagine? Can you imagine? All of our episodes would be 20 minutes long. It would make that other guy really sad.

• 11:40Speaker 02

  It would make the guy really sad.

• 11:42Robin Rauzi?

  Okay, next up, from Ashley in Arlington, Virginia. "I have not yet found a successfully disarming way to get around the, quote, 'all taxes are theft' argument." I'm talking about responses to people who say, quote, "Tax cuts aren't a benefit because it's just the government giving me back my money." Or, "I want to choose the community projects, charities, et cetera, that I want to support." Have you found any way to get your toe in the door with anyone who is fully aboard that train?

• 12:10Speaker 02

  Hmm.

• 12:11Robin Rauzi?

  And...

• 12:13Speaker 02

  Okay.

• 12:13Robin Rauzi?

  Start.

• 12:14Speaker 02

  Okay. "All taxes are theft." I think there's a couple of tacks you could take here. One approach would be to say, wait, tack? Is tack the right word?

• 12:23Robin Rauzi?

  It's tack, T-A-C-K. It's from sailing.

• 12:27Speaker 02

  Okay.

• 12:27Robin Rauzi?

  We'll talk later.

• 12:28Speaker 02

  Okay. There are a couple of tacks that I've taken. One is, then are you stealing roads? Like, if taxes are theft, then are roads theft? Like, are you stealing a road from driving down it? And kind of bringing up all of the public goods that people enjoy? And, you know, did you steal your doctor's education? They went through public school. So did, you know, are you stealing that by benefiting from it? Or are you just kind of part of a society? And so I try to kind of bring up that they benefit from taxes and that they would get really upset if they called it, if I said that they were trespassing, if they went down a public road. And that this ownership over taxes can be a little incongruous with how they consume services in our society.

• 13:12Speaker 02

  Like, all right, well, you know, did you benefit from a medical breakthrough? Did you get a vaccine or a new drug? Like, it's always crazy when people say this and they're on Medicare. But, you know, I mean, just, you couldn't give back everything that you've gotten from the government and you couldn't count it. So are you just trespassing here? The other thing I'd point out is that they don't want to move. Like, if they want to move to a low tax country that doesn't have roads or public education, they are welcome to do so. If you want to go live in a place where the government doesn't support research, doesn't support science, doesn't support education, doesn't support public infrastructure, doesn't have pipes, you know, they don't move through your city, they don't collect your trash, they don't do anything, like, you are welcome to go. It sounds like you're

• 13:54Speaker 02

  going to live in a desert and die. But you're welcome to go there. Like, if people are robbing from you, like, go protect yourself and go move to a place that doesn't have public services.

• 14:04Robin Rauzi?

  Can I, can I, can I, I'm just going to back you up in one sec.

• 14:06Speaker 02

  Yeah.

• 14:07Robin Rauzi?

  Which is that I think people feel differently a little bit about the road and school and the local tax issue, because it really is concrete to them. I think the federal income tax maybe feels far more removed.

• 14:20Speaker 02

  Okay. Well, then, like, where are your principles? If all taxes are theft, except for the ones I like? Like, okay. Like, it's not, I don't know, it sounds...

• 14:28Robin Rauzi?

  I know. I mean, it's not like we all live in a city-state. Here in the city-state of Spokane, we have roads. But over in Idaho, I don't care if they have roads. Of course I care if they have roads.

• 14:38Speaker 02

  Yeah, you benefit from an economy, right? The US economy is the largest economy in the world and it's constantly growing. And it would not be the largest economy in the world that is constantly growing if it did not have basic infrastructure, intellectual, medical, health, educational, or just the true, like, you know, roads on the ground that have benefited from income taxes. So, so what I have said once to someone, and this was, I, sometimes I can be kind of mean, just because we're optimists doesn't mean we're nice. I was like, oh, well, like, have your cake and eat it too. I live in the, like, the largest and richest economy in the history of the world, but like, if I have to contribute to it, it's theft, but if I benefit from it, it's because of me. And so I, I said to this one person of like, that sounds like something clever you would

• 15:22Speaker 02

  say at a dinner party, but it really just means you don't have anything clever to say. And I did feel bad about it afterwards. I'm like, I'm sure that that sounds good. I was like, you could put that on a t-shirt and someone would high five you, but like, no one would give you a job. And I, I don't know, I think I was meaner than I meant to be, just because I, I think that it's, it's very short sighted. I don't know if that helps Ashley in Arlington, so just be like, a real loudmouth bitch at a party. That's the answer. But no, I think, I think the answer that is probably the best answer is, you know, those taxes have supported economy that have give you probably untold riches relative to a low-income country that doesn't have a tax base and doesn't have the economy that we have.

• 16:07Speaker 02

  So, if you want to go somewhere else, you know, nothing's stopping you.

• 16:11Robin Rauzi?

  Okay, four minutes, 35 seconds.

• 16:14Speaker 02

  I could talk about that one for like, a long time. Okay, keep going.

• 16:17Robin Rauzi?

  Okay.

• 16:18Speaker 02

  And then we'll have to do an, an episode of me continuing to talk afterwards of like, okay, don't go back to the first one.

• 16:22Robin Rauzi?

  Yeah, I wasn't sure if it was good, like, I thought, well, maybe I should tell her what the questions are in advance, and then maybe she'll, you know, have kind of a little processing time. But it's more fun to see, you know, sweat just a little bit. I think when you told me that you were a national, you went to Nationals and debate, was when I was like, I know exactly how we're gonna do this.

• 16:45Speaker 02

  Yeah, you know what? I think that that's all entirely fair.

• 16:49Robin Rauzi?

  Okay, next question is from Suda in Atlanta, Georgia.

• 16:53Speaker 02

  Okay.

• 16:54Robin Rauzi?

  Can you please speak to the linearity of the capitalist economy where the only way for it to survive is that it needs more growth and it doesn't handle degrowth well?

• 17:03Speaker 02

  Oh, it doesn't handle degrowth well. I would say no economy handles degrowth well. I don't know if that's necessarily a function purely of capitalism. So I'm going to do a capitalism talk and then I'm going to do a degrowth talk.

• 17:17Robin Rauzi?

  Okay.

• 17:17Speaker 02

  Okay, clock is running. So capitalism is far from perfect, but there is one thing that capitalism did that no other system of organizing an economy has done, and that is it creates an incredible amount of income and wealth. And the origins of capitalism, kind of in the Industrial Revolution, we think of capitalism as being not making and consuming things and not selling things, but organizing into a firm. And the real distinguishing feature of capitalism is having a firm structure where you aren't just like you make shoes and you sell shoes and that's it, and everybody else has kind of one task related to their income. You work for somebody else and that firm employs

• 17:58Speaker 02

  people as well as capital and innovates and absorbs technology and that produces goods. And that this, you know, kind of evolution from we're all subsistence farmers to we have small, kind of like market economies without firms to having firms generated more income and wealth than we can really possibly imagine. And it follows the world going from everybody is poor to almost no one is poor.

• 18:24Robin Rauzi?

  Right.

• 18:25Speaker 02

  The problem with capitalism is that it does not distribute that income and wealth well. That is what a government is for. And I think that the problems that a lot of people have with capitalism right now are for the things that they can see as failures, but they're really failures of the government to not step in when there are market failures, when there are kind of market disadvantages, when people, you know, should not be as low income or low resource as they are, and we have not had a government manage the capitalist economy and the wealth and income it distributes is different from I want a non-capitalist world. Now, maybe we're at a point where we transitioned beyond capitalism because now we have all the income and wealth. We don't need to keep generating it. I don't know

• 19:08Speaker 02

  how to answer that question. I could just say that I think a lot of the issues people take with capitalism are with capitalism not regulated the way that it could be.

• 19:17Robin Rauzi?

  Okay.

• 19:17Speaker 02

  Okay, so that's capitalism.

• 19:18Robin Rauzi?

  So that's, okay, good, you're at halftime, keep going.

• 19:20Speaker 02

  Okay, oh my god, okay, so degrowth. This is a question that almost every economy in the world has to answer because, you know, most Western economies and post-industrialized economies have seen a falling birth rate, but so have a lot of middle-income countries and low-income countries. I mean, fertility is falling everywhere, so we are going to have, in the world, smaller economies, probably. I think there's two things to keep in mind. One is that the population can get smaller even as the number of workers stays constant, and it's the number of workers who predict the size of the economy more than the number of people.

• 20:01Robin Rauzi?

  Okay.

• 20:01Speaker 02

  So like, your economy is basically the number of workers you have times average productivity equals size of economy. So when the US population starts to decline in about 15 years, that's not like a red flag moment because it shouldn't lead to a decline in the number of workers.

• 20:17Robin Rauzi?

  And we can increase productivity.

• 20:18Speaker 02

  And we can increase productivity. The other thing about degrowth is that there's degrowth that comes from an actually smaller economy, and then there's degrowth that happens to portions of the economy. So I think one way I get this question a lot is like, we don't need to consume as much stuff, but if we had less stuff, we'd have a smaller economy. That's not necessarily true if you consider the consumption of services. Like, maybe, and we've seen this happen in American consumption patterns. We, we used to be almost entirely consuming goods and like, going to the movies, going to a concert, going on vacation, and the idea of consuming experiences and services was less a part of our bundle.

• 21:02Speaker 02

  That shift can keep occurring so that we have these changes. I guess-

• 21:07Robin Rauzi?

  My grandfather used to say the perfect economy is where everyone makes a living cutting one another's hair.

• 21:11Speaker 02

  Yeah, that's a really good job. But I, yeah, I mean- I think that the actual economy getting smaller, reflecting that the population is decreasing, is coming, probably not as soon as people are saying. And then it's just a matter of managing expectations. I mean, the real risk is that if the economy is getting smaller, it sends you into like a price spiral. Where like you go into deflation and that basically cripples the economy because you kind of like limp from like one crisis to another of people waiting for stability and prices to start consuming again. And so it's, it can be managed and it is completely possible. We don't have a ton of experience with it because we haven't had to, but that doesn't mean that it necessarily spells doom.

• 21:55Robin Rauzi?

  Five minutes, 15 seconds.

• 21:56Speaker 02

  Oh, my God. Thank God.

• 21:58Robin Rauzi?

  And I interjected, so I think that that's a win. I think that's a win. Okay, I'm going to try to-

• 22:02Speaker 02

  Would you say like, Catherine, I think that's a bad answer, you should try again? If it was bad?

• 22:08Robin Rauzi?

  I guess maybe if I had really no idea what you were saying. But if it was a real train wreck, I don't know, maybe I'd just watch you go off the rails. I think I would enjoy that, actually, if I'm being honest. Okay, our next question. Our next question, we got an audio recording. Max in Philadelphia sent this as a voice memo to optimist@[email protected].

• 22:28Speaker 04

  Hey there, Keds and team. Love your podcast. I have a question for you. I don't know if you do this, but I'll give it a shot. So this is a proposal that was put forth by Clark Howard, who's a personal finance podcaster guy. And it was suggested as a way of ameliorating the frozen housing market. So setting aside that we're short millions of units, we also have all these people with homes that have really good, you know, 3% or 4% mortgages, but they'd love to move for one reason or another, and they can't because they'd have to get a much more expensive mortgage. So the proposal is this. What if lenders were allowed to make mortgages portable, but at a penalty of, say, two percentage points or something like that?

• 23:11Speaker 04

  So if I have a 3% mortgage, I could take my mortgage with me to a new property at 5%. That advantages the lender because then they have more interest coming in. It advantages me. Because then I can move and it would create a little bit more velocity in the housing market. So we wouldn't have all these people stuck where they are. I don't know about the legality or the regulations around this. And I don't think this would solve the housing market. Again, we need more housing units for that. But I thought it was an interesting idea and I was curious about your thoughts on it. Anyways, thanks. Keep doing what you're doing.

• 23:46Speaker 02

  Okay, this is called portable mortgages. If you do move your mortgage to a house, this is called porting a mortgage. So you port a mortgage.

• 23:57Robin Rauzi?

  I like it.

• 23:57Speaker 02

  Yeah, portable mortgages exist in a lot of countries in the world. You can port a mortgage in Canada. And it's exactly as he described. So just like a quick primer on mortgages, if you don't have one. A mortgage is just a house loan. And it is the loan you get from a bank to purchase a house. So if your house cost $500,000 and you had $50,000 in savings, you take out a $450,000 loan from the bank. The bank pays the seller and then you pay back the bank for what is typically a 30-year loan. Mortgages in the US are heavily regulated for lots of reasons. And the fixed-rate 30-year mortgage is where the market has kind of landed of being the gold standard of loans in the US.

• 24:43Speaker 02

  And what affects which mortgages exist in the US is a matter of which mortgages are backstopped by the federal government. So if a loan meets certain standards, the federal government, it's kind of hard to describe exactly how this works, but they basically approve it for resale. So the bank doesn't hold on to the 30-year mortgage. They can sell it to somebody else. So you probably don't even get a mortgage from a bank. You get a mortgage from a mortgage broker. And the mortgage broker then sells your loan to the bank after you buy the house. So it's not surprising as a homeowner that you go to like some lending broker in your city. They help you get the loan. And then like six months later, they're like, hey, you were sold to Wells Fargo. And then six months later, it's like, well, actually you were sold back to Chase.

• 25:29Speaker 02

  And your mortgage is sold from bank to bank if it meets these requirements.

• 25:32Robin Rauzi?

  Okay.

• 25:33Speaker 02

  Okay, so that's the debt. Now you have $450,000 on your home that you're paying down. A portable mortgage means you move physical locations and you keep the loan with you. So if you have another $50,000 in cash, you basically take that loan and buy another house that costs $500,000.

• 25:50Robin Rauzi?

  Yeah, but I mean, I just feel like so many of the loans here, they're very specific to that property, right? Like, that's the...

• 25:56Speaker 02

  Yeah, because they get appraised, they make sure that the property is worth that money. But I will say...

• 26:03Robin Rauzi?

  It's not like just a loan to me, based on the fact that, you know, whatever, I have good credit and a good history of paying my loans back or whatever.

• 26:09Speaker 02

  Yes. Now, they have, the FHA has been looking at portable mortgages in the US and whether or not banks would be interested in them, because it really comes down to the lenders. And there's been some studies that have found, like, as long as you put a fee on it that they can make money from, they'll do it. Yeah, that it's, there's not like a really an added risk, like the borrower's worthiness doesn't change. You might have to do like a refinance kind of penalty, but like you put some kind of reassessment, reappraisal and fee on it, you know, banks would go for it.

• 26:43Robin Rauzi?

  Yeah.

• 26:44Speaker 02

  Because the mortgage market is not necessarily drying up, but it's certainly slowing with mortgage rates what they are.

• 26:50Robin Rauzi?

  Yeah. Okay.

• 26:52Speaker 02

  Portable mortgages, great idea from Canada.

• 26:54Robin Rauzi?

  Okay. 3 minutes, 29 seconds. One of the things, by the way, I just want to say that I loved about putting these letters together, so we get these emails and, you know, they're just from a person with a name. And then I reached out to them to say, hey, can we use your letter on the podcast and can you tell me where you're writing from? People are writing from all over, including this person who is writing from, oh, damn it, I know how to say this, it's Soldatna, Alaska. This is from Jay. Could you do a brief explainer on the relationship, if there is one, between the bond market, mortgage rates, and things like money, market accounts and CDs? We got a lot of questions about the, about bonds, and I just sort of picked this one

• 27:37Robin Rauzi?

  because I thought it seemed also close to the mortgage question, as I'm building a flow here for you. Are you ready to go?

• 27:44Speaker 02

  Okay, I think so. Okay, go.

• 27:47Robin Rauzi?

  Go.

• 27:47Speaker 02

  The bond market. So what is a bond?

• 27:53Robin Rauzi?

  What is a bond?

• 27:53Speaker 02

  What is it? Whom amongst us have not wondered? So I heard this best explained by Stacy Vanek Smith, where she said in like an explainer video on TikTok that a US government bond is a tiny loan that you make the US government.

• 28:09Robin Rauzi?

  Sure.

• 28:10Speaker 02

  That's the way to think about it from like the buyer's perspective, is that you're basically lending the US government money and in exchange, they're going to pay you back later. And this tiny little loan that you make them ends up being really valuable as an asset when other assets seem more risky. Because these tiny little loans that you make to the US government tend to be considered or are broadly considered very, very safe.

• 28:35Robin Rauzi?

  So you're talking about like, you know, like a 10-year savings bond?

• 28:38Speaker 02

  Mm-hmm.

• 28:39Robin Rauzi?

  The 10-year T note?

• 28:40Speaker 02

  10-year T note is just a tiny loan that you make the government of like in 10 years, you're going to pay me back this money and you're the US government, so you're good for it. And the price of the bonds really tend to vary with how, what else is going on in the economy. And if I'm scared about the stock market, I'm going to go buy some bonds. If I'm scared about something, right? Bonds are considered a safe place to put things and so I'll go put things in the bond market. Now, if there's more demand for the bond market, the price goes down. And if there's less demand for a bond, the price goes up. So typically, when shit hits the fan and the economy doesn't look good, you see people kind of rush towards bonds

• 29:25Speaker 02

  and this pushes their price down.

• 29:28Robin Rauzi?

  You should explain why when there's high demand for bonds, the price goes down. I think that that's confusing.

• 29:33Speaker 02

  Yeah, so that's you, you're making a little loan to the federal government of the United States and you're doing so because it's a safe place to put your money and you think they're good for it. And so it's if a safe place to put your money, it sounds good. Well, now you're the US federal government and you're trying to sell these little loans to people. The more people who are demanding the bonds-

• 29:50Robin Rauzi?

  The less interest you have to pay-

• 29:51Speaker 02

  Yeah, the less interest you have to pay. Yeah, because the price from the federal government's perspective is what they have to pay in interest.

• 29:56Robin Rauzi?

  Right.

• 29:57Speaker 02

  So like, I've got to make this bond worth your while. So if the bond is 100 bucks with 2% interest versus 100 bucks with like 10% interest, yeah, I mean, it's more expensive for the federal government to pay you a higher return.

• 30:10Robin Rauzi?

  Mm-hmm.

• 30:11Speaker 02

  So if a bunch of people are rushing for bonds, it's like, super cheap for the US to borrow, because we're basically taking all this money from the bond market that is lower priced.

• 30:20Robin Rauzi?

  Okay. How does that relate to the mortgage rates?

• 30:23Speaker 02

  Mortgage markets. Okay, so, the US bond, federal government bond, is widely considered the safest investment that you can make. One of the next safest investments is into mortgage securities. Because the US mortgage market is so heavily regulated, you know, that you've got, you know, homeowners on 30 years of payments at a fixed rate that have been through just a very gutting appraisal and underwriting process. These loans are considered very safe. So, the mortgage market is basically competing for buyers with the bond market.

• 30:57Robin Rauzi?

  Oh, for the resale of the mortgage securities?

• 31:01Speaker 02

  For the resale of the mortgage securities. So, the interest that you pay on your mortgage is in part a function of its resale value on the market.

• 31:10Robin Rauzi?

  Mm-hmm.

• 31:11Speaker 02

  You, like, the mortgage market tends to trend with the bond market, because, one, they're both considered safe assets, but it's always going to be like, a little bit above, or a lot above, the bond market, because the bond market is safer. I think that's the, like, the, maybe the simplest version, is that they're two, like, yeah, for you, they're wildly different things, right? Like, this is your mortgage. It's the largest loan any of us will take out in our entire lives. But, it's also a financial instrument, and that sounds scary, but it's also what creates such a clear market for mortgages that are relatively cheap in the US. I mean, yeah, 7% is not great for a mortgage, but there were- I mean, there were decades where you couldn't get one below 10. So like, we have benefited from financial underpinnings of an investment market behind the mortgages we have.

• 31:56Speaker 02

  It is what helps makes them so cheap. But it is also on a market that does fluctuate, that does have investors that come in and out, and is competing with other investment vehicles. And so, all of that changes the rate.

• 32:07Robin Rauzi?

  Okay.

• 32:08Speaker 02

  Okay, next question.

• 32:09Robin Rauzi?

  Next, next question.

• 32:10Speaker 02

  Bonds. God, talking about bonds is terrifying on some level because I'm like, doesn't anyone want to talk about unemployment?

• 32:17Speaker 02

  Wage patterns, you're killing me.

• 32:19Robin Rauzi?

  I'm sorry, a lot of, you know, because a lot of these questions, first of all, I thought they were good to do now because they, you know, they're closer to the news, but not so specific to the news. And there may be things that we're not necessarily going to get to for a whole episode. So, anyway, are you ready for your next one? This is from Jessica in Waukesha, Wisconsin.

• 32:38Speaker 02

  Waukesha, I will say, I was mercilessly teased in showing up to Wisconsin and referring to it as Waukesha.

• 32:45Robin Rauzi?

  I would, because almost what I just said, right?

• 32:47Speaker 02

  Yeah, well, she, I mean, Kesha was really big at the time. And I was like, oh, Waukesha. My, my husband, who was then like, guy I was dating, was like, there's not a dollar sign in its name. He burned me bad about Waukesha. I now know, and not Waukesha. Anyway, that's just a little treat for our listener from Waukesha.

• 33:08Robin Rauzi?

  No, I don't even know how to say it. Okay. Trump seems to be returning us to the gilded age tax structure. Could you explain what this means and how a tariff-driven tax system could be bad for income equality or income inequality?

• 33:21Speaker 02

  Sure. So, a tariff is a tax. Your federal income tax is a tax. The state tax is a tax, and they're, they're collected by the federal government. And Trump is seemingly under the notion that if we raised enough money from tariffs, we wouldn't have to have an income tax anymore. So, let's take this question on two levels. One, Tariffs to the income tax, which one is better? If you're not a rich person, it's absolutely the income tax. We have a progressive federal income tax. Progressive is like in the name. The more you make, the more you pay. And even though the rich get all kinds of tax breaks, and even though they're incredibly savvy

• 34:04Speaker 02

  and they do everything they can to reduce their tax bill, if you look at the average share of income paid in taxes, it is perfectly linear. The top pays the most, the bottom pays the least. Is there squishy bad shit that happens in the middle? Absolutely. Because there is a lot of tax manipulation. But on average-

• 34:21Robin Rauzi?

  Technical economic terms, squishy bad shit in the middle.

• 34:24Speaker 02

  Yeah, I mean, people cheat on their taxes. They have weird tax structures. But the income tax is progressive. Tariffs are regressive because it's a sales tax for the most part. So the first thing wrong with moving to a tariff system over the only explicitly progressive tax that we have in the United States is you're basically relieving the tax burden from people who pay a lot under the progressive system and moving it into the tariff system. Now, what they would say is like, "But rich people consume more, so they'll pay more of the tax." It's not a dollar amount comparison. It's a share of your income. A sales tax, your share of income would be a function of how much of your income you consume.

• 35:09Speaker 02

  So if you live hand to mouth and you don't have any money in savings, basically every dollar you have will go right back out the door for some type of necessity, you would functionally be paying taxes on 100% of your income. Now, if you make a lot of money and you save about 10%, and then you invest another like 15%, and you use another 5% for kind of like real estate investments, and that means you only consume half your income, and you invest and save the other half, you're only taxed on half your income through the consumption side. Rich people have more money. They save more. They consume a lower share of their total income. So even though they are consuming more in dollars-

• 35:50Robin Rauzi?

  The tax is only hitting, yeah.

• 35:51Speaker 02

  The tax is only hitting what they consume. So sales tax are regressive because poor will pay a higher share of their income, which is what matters for the thinking about progressivity and regressivity. So- In effect, he is proposing we move from a progressive tax to a regressive tax.

• 36:07Robin Rauzi?

  Right.

• 36:07Speaker 02

  And fuck that.

• 36:08Robin Rauzi?

  And that would be bad for income.

• 36:09Speaker 02

  And it would be bad for income inequality and it would be, it would be bad for income inequality to make the poor pay more.

• 36:17Robin Rauzi?

  Yeah, full stop.

• 36:18Speaker 02

  Full stop, bad for income inequality. Now, the real question is, really quickly, in any given year, the US imports around $4 trillion worth of goods and services.

• 36:33Robin Rauzi?

  Right.

• 36:33Speaker 02

  Now, in terms of federal revenue, federal revenue is around $4 trillion. And the biggest portion of federal revenue is individual income taxes, which in, say, a good year where the economy is not falling, I mean, it can be $2.5 trillion. So if you have $2.5 trillion in federal income taxes, $4 trillion in imports, so we'd have to raise enough taxes on those imports to cover $2.5 trillion, which would be close to, I mean, we're close to 65% on every good that's brought into the United States. And we wouldn't see a reduction in those goods.

• 37:13Robin Rauzi?

  Which, which we, of course, we would.

• 37:14Speaker 02

  Which of course we would.

• 37:15Robin Rauzi?

  You raise the price by that much and conception will go down.

• 37:18Speaker 02

  Yeah, if you raise the price and we have retaliatory tariffs and all these things. So you wouldn't want it, one, because it's a regressive tax, and you wouldn't want it now, two, because it's never going to raise as much money as the federal income tax. And if it did, it would be, I mean, the amount of money that we would, there's no way to raise $2.5 trillion a year from tariffs and not have dramatic repercussions on our export market.

• 37:45Robin Rauzi?

  Yeah, yeah, 625.

• 37:47Speaker 02

  Oh, yeah, okay, all right.

• 37:49Robin Rauzi?

  No, I thought that was a good answer. Next question, you know, northern Midwest coming in strong. Tom from Minneapolis, Minnesota, wants to know, at what point does the concentration of wealth into the hands of fewer and fewer people become a critical problem? And what is an ideal wealth distribution?

• 38:07Speaker 02

  I don't think we know what an ideal wealth distribution is. Or people wouldn't agree. I don't think economists have like this is the one. We have ways of measuring wealth inequality, but I don't know if we have like the, and this is the distribution you're aiming for, because it's not static. I mean, you think of the distribution of wealth right now in the US. Yes, it reflects gross inequalities in our labor market and lack of opportunity. But, you know, most people consume all the wealth they accrue in their lifetime. And their peak wealth is the day they retire, and then they just fall from there. So to say, here's the ideal distribution of wealth, doesn't really take into account that you want wealth to change over people's lifetime to prepare for retirements.

• 38:51Speaker 02

  And so kind of like, you know, making a static distribution on a really dynamic process can be really hard.

• 38:59Robin Rauzi?

  Right.

• 38:59Speaker 02

  And then the economic problems with wealth and wealth distribution are, I think, are twofold. One, who gets to have it? Like, it's one thing if we have wealth inequality, but it's another thing if like no one else has ever had it except for like 100 families. Or like, is it a true aristocracy? Or do we have a lot of self-made wealth that is then like reborn every generation? How much wealth is dynastic versus how much wealth is a product of, say, market success? So that's one problem, is that wealth doesn't come from the same place. I think inherited wealth can be really distortionary to economies. But like, you know, I don't necessarily love Jeff Bezos, and he definitely had some upper hands, but like, that guy made himself into one of the wealthiest people. So did Bill Gates.

• 39:44Speaker 02

  And I think that process of being able to make wealth is generally considered to be like, good, I'm glad they could do it. Now, do we have corporate pay and tax structures that tend to basically, you know, lead to wealth kind of concentration? Yeah, I think that's the problem.

• 40:02Robin Rauzi?

  Exacerbate that, yeah.

• 40:02Speaker 02

  I think most economists would tell you, like, it's really good that anyone could get wealthy.

• 40:06Robin Rauzi?

  Yeah.

• 40:07Speaker 02

  And we want that to happen. And it's also really good that people can accumulate wealth, and the distribution could look off, but with distribution is off right now because we have a lot of old people, and they're at their peak of asset holding because they're at the start of retirement, and they did really well in the asset market. They all bought houses for like $50,000 in 1980, and they

• 40:26Robin Rauzi?

  They did.

• 40:27Speaker 02

  They'll tell you anytime you give them the chance that they paid 15% on their mortgage on their first house, and then interest rates went down and the house is worth a million and a half dollars, and they're like, I did it. They've had some true tailwinds when it comes to asset accumulation. They also got opened up to 401Ks, like, through some stock market booms. So they've done well. Right? We wouldn't want to dismantle wealth that supports retirement. And being able to accumulate wealth for retirement is good. I think the problem is the wealth accumulation that doesn't come from savings, that doesn't come from, like, very acutely labor market and market success, or like, business success, the wealth that ends up being protected by the tax system, or hidden from the tax system,

• 41:11Speaker 02

  or kind of like corporate pay structures that reward wealth over wages. Those are more of the problems. It's like, it's not necessarily the level or the distribution, but the process. And I have a problem with, you know, corporate stock buybacks.

• 41:24Robin Rauzi?

  Yeah.

• 41:25Speaker 02

  I think is a, is a big wealth problem. And then, of course, how we tax wealth at death is also a huge problem. And that has less to do with the amount or distribution of wealth, but kind of

• 41:36Robin Rauzi?

  The protection of it.

• 41:37Speaker 02

  Yeah, the protection of it. That's like the first part with the current wealth's distribution. And then there's the whole people who have no wealth. And that's a, that's a whole separate problem of who has access to savings, who has access to retirement accounts, who gets easier financing for home loans. And I think that this is kind of the, this is the part of the US economy that can make rich people really uncomfortable.

• 42:03Speaker 02

  Because I don't think anyone wants to admit that they've benefited from a world that discriminates against other people. And that's, and when you're wealthy, there's like nothing better than talking about how you earned it, and how you made it, and how you saved it, and you invested it, and it all comes back to you. And to point out, like, you know, half of Americans have never had access to a 401k. And they'll be like, well, they can go get an IRA. Like, not the same thing.

• 42:27Robin Rauzi?

  Yeah.

• 42:28Speaker 02

  You know, or, or to say, you know, if you were to look at credit applications of Americans who have equal income but different race, the financial system and the credit rating system is able to distinguish black people from white people because black people are rejected more, even if they have the similar income to white people. And we have legacy inequalities that like hold down wealth and asset accumulation at the bottom, whether that legacy inequality comes from how we pay workers, who we give access to benefits, how the financial system kind of carries on the legal segregation and discrimination of the past, and how it kind of lives on through their systems, and what that means.

• 43:12Speaker 02

  And so I think the two wealth questions are, we want to live in an economy where people can earn wealth, but we need to look very carefully at who has the door shut in their face and for what reason, who doesn't have the door open at all, and who basically closes the door behind them and like hides it. And that's much more problematic. Those processes are much more problematic to me than any like one distribution.

• 43:36Robin Rauzi?

  Okay, that did take you six minutes, but I thought that was a good answer.

• 43:38Speaker 02

  Oh, okay, great.

• 43:41Speaker 02

  I would really like it if there was one answer that you were like, nah.

• 43:47Robin Rauzi?

  Okay, I'm gonna call this our last question. Are you ready?

• 43:51Speaker 02

  I'm ready, okay, okay.

• 43:52Robin Rauzi?

  Okay. This one is also from Lincoln, Nebraska, Comen and Strong from Nebraska, from Joshua.

• 43:58Speaker 02

  Love it.

• 43:59Speaker 05

  This has been one of my favorite quotes ever since you said it. But you said, "The more lies you tell, the less of the future you get to be a part of." And I effing love that. I'd love to hear you deep dive on this topic. Where does this idea generate? Did you build this through your education and your, and your exploration and research? Or is this something like intuitive, more with like your moral philosophy of the world?

• 44:16Speaker 02

  Wow, what a banger. "The more lies you tell, the less of the future you get to be a part of." I'm trying to remember what video this was in.

• 44:25Robin Rauzi?

  Yeah, maybe we can find it.

• 44:26Speaker 02

  Not to say that I generate a lot of content and then forget about it, but.

• 44:32Speaker 02

  So I think this, in some ways, is an outgrowth of a basic belief that I have about economic policy and was in part the inspiration for making the show Optimist Economy, is that there are so many things that the government does, that politicians propose, that becomes policy, and some of them are solutions in search of a problem. Like, I want a tax cut. And so like, let's go figure out what that'll solve. Maybe it solves lack of savings. Maybe it solves lack of investment. Maybe it solves lack of economic growth. Maybe it solves economic insecurity. And over the course of 45 years, we've watched this evolution of what tax

• 45:13Speaker 02

  cuts are supposed to do. And here's the thing, they don't do anything like that. And they can be, they're relatively ineffectual, and therefore they're ephemeral to our actual economic history. The legacy they will have is that they've increased the debt, and they've reduced federal revenues. That's the only thing a tax cut will always do is reduce federal revenue. And every other miracle cure that a tax cut, that you say a tax cut will do for our economy, if it doesn't work, it doesn't work. And then you'll go look for the next cure and say it'll do that. In order to actually change the economy, you have to work backward from a problem and find the solution, right? It's not picking a policy you like and saying, you know, here's what it'll solve. It is looking at the problem and going backward of how you're going to solve it. And so what I, the more lies you

• 45:58Speaker 02

  tell, the more you're just out there searching for a problem to promote your solution, you know, the less effectual you'll be. The future is built off of what we can meaningfully change for the better. That has to come from actually solving the problem, which comes from being honest about what needs to happen. And so that's why, I think that's one way that I think about, you know, like the tariff, you know, it's like same with tariffs of like, and they're gonna do this, and they're gonna do this. You know, they're not, they're not gonna lead to like, a golden age of US manufacturing. And if they did, those factories will not have people in it.

• 46:32Robin Rauzi?

  Yeah.

• 46:33Speaker 02

  Because in the future, the factories won't have that many people in it. And so we can, we can bend our economy any which way we want, and manipulate currency markets, and manipulate bond markets, and, you know, risk all of these pillars of US economic security in the domestic and global setting in order to bring manufacturing back to the US. But like, It won't lead to 35% of Americans being in manufacturing, and that's the lie.

• 46:57Robin Rauzi?

  Yeah.

• 46:57Speaker 02

  And it

• 46:58Robin Rauzi?

  You're not building that future.

• 46:59Speaker 02

  You're not building that future because that future won't exist because you've premised it all in a lie that you know isn't true. And so if you sell the lie, you give up the future. I think that that, to me, is Trump's economic policy in a nutshell. And I kind of take a lot of gratification in knowing that like, this guy is going to cause a lot of damage, but like, his legacy will be erased. Like, he won't leave anything meaningful in our economy. I'm not, I like, look to the future and I'm like, okay, 2050, is there something that Trump is going to do through two terms of office that will have affected the economy in 2050? Nothing comes to mind. I just don't think anything is there. Whereas, whereas like, hey, man, you have paid family leave? Like, paid family leave will do more

• 47:43Speaker 02

  in a week than these tariffs will do in a year, or in, or in a term. Actually solving the problems leaves such a bigger impact than these like

• 47:52Robin Rauzi?

  And a compounding impact.

• 47:53Speaker 02

  And a compounding impact. Yeah, an absolutely compounding impact. So Josh, what I was trying to tell you is that it is really hard to live through the destruction, but you can rest in some type of positivity that that destruction, as horrible and painful as it is, it's not the future, because the future will eat it for breakfast.

• 48:17Robin Rauzi?

  Four minutes and 30 seconds. That's it.

• 48:21Speaker 02

  That's it? Oh, my God.

• 48:22Robin Rauzi?

  That's it.

• 48:23Speaker 02

  I feel like, I feel like this kind of feels like an exam of like, how

• 48:26Robin Rauzi?

  It was like, it was like Optimist Economy Jeopardy Edition.

• 48:30Robin Rauzi?

  Do we need to say anything else before we leave? I think, oh, you can continue to send us questions.

• 48:34Speaker 02

  Oh, yes.

• 48:35Robin Rauzi?

  At [email protected]. We have a newsletter. It's hosted on Substack, but you'll find that at optimist economy.com. We are running letters from you. So if you have some actually kind of complete responses to something you hear on the podcast, you can send a letter to us, or you can actually also message us, I think, on the Substack platform.

• 48:57Speaker 02

  And I have been getting some DMs on TikTok and Instagram of at Optimist Economy. Where you'll find us and some highlights of these videos. But I think one thing that made us really look forward to this episode is that we have always held the goal that this is not just about us talking and producing a podcast, but building a community of optimists wherever we can find them. And so, reading your letters and answering them and putting them on the website and sending you articles that we think are funny, or Robin putting up GIFs on our Substack notes is just a way of making this community more than one direction. It's not just us following down to you. We do want it to be a two-way street.

• 49:40Robin Rauzi?

  I just will only add that it is always really great for me to get to call people and say, "Hey, we want to use your letter." They're thrilled to be part of it.

• 49:48Speaker 02

  We are thrilled to have them here. We are thrilled to be building Optimists.

• 49:53Robin Rauzi?

  Sophie, we're done.

• 49:54Speaker 02

  Yeah, and Sophie, that's a wrap. And cut.