The Debt Ceiling is Dumb

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Speaker A: This ad free podcast is part of your Slate Plus membership.

Speaker A: Hello and welcome to the you can never have too many bananas episode of Slate Money.

Speaker A: Your guys that are business and finance, there’s news of the week.

Speaker A: I’m Felix salmon of Axios.

Speaker A: I have a British accent.

Speaker A: We will talk about that in Slate Plus.

Speaker A: I’m here with Emily Peck of Axios, who does not have a British accent.


Speaker B: Hello.

Speaker B: And I say bananas.

Speaker A: You say bananas.

Speaker A: And where’s your accent from, Emily?

Speaker B: Let’s just say New York.

Speaker B: We’ll just say New York.

Speaker A: And Elizabeth Spires, if you listen to Spike Plus, you will hear her desperately trying to do an English titan.

Speaker A: It’s kind of glorious.

Speaker A: You claim that your accent is mostly Southern still?

Speaker C: No, I think it’s mostly nowhere person now, but it’s got a little southern inflection.

Speaker A: So Elizabeth is going to explain to us all of the politics behind the debt ceiling and why it’s so stupid and why it exists and why it hasn’t been abolished.


Speaker A: We are going to talk about regulation of tech in general and of AI in particular and whether it’s a good idea and why at least one AI CEO seems to want it.

Speaker A: We are going to talk about greedflation, the idea that inflation is caused by companies raising their profit margins and their prices and just trying to make more money for their shareholders.


Speaker A: It’s all coming up on Slate Money.

Speaker A: Okay, everyone, it’s the debt ceiling.

Speaker A: It’s come back.

Speaker A: Those of us with long memories who’ve been financial journalists for a while, remember various other debt ceiling fiascos.

Speaker A: 2011 was a big one.


Speaker A: This one seems bigger than most.

Speaker A: There is this unbelievably stupid thing called the debt ceiling and we have hit it.

Speaker A: We have hit it for a few months now, but now all of the emergency measures that treasury puts in place when we hit the debt ceiling have run out, or about to run out.

Speaker A: Janet Yellen says we could hit the X date as soon as June the first, which is very soon.

Speaker A: And all manner of politicians and economists are busy parading out a classic parade of horribles of what happens if we hit the X date without raising the debt ceiling.

Speaker A: Emily, Felix, how are you thinking about all of this?


Speaker B: Wow.

Speaker B: Great question, Felix.

Speaker B: I’m thinking first along the lines of, this is so stupid.

Speaker B: I can’t believe this is a thing people probably already know, but the debt ceiling is congress says, we want to spend this money, and then we have.

Speaker A: To spend this money.

Speaker B: We have to spend this money, we’re going to spend this money, and then for some reason, they have to vote again to spend the money.

Speaker B: It doesn’t make very much sense.

Speaker B: It’s like you run up a credit card bill and then you have to decide whether or not you’re going to pay it.


Speaker B: It’s like the time for deciding how much to pay was earlier.

Speaker B: But there is this provision that says you have to vote to have a maximum limit on the debt ceiling.

Speaker B: Do I have that right?

Speaker A: One way to understand this is just to really understand where it comes from historically which is that back in the very early days of the republic if the United States wanted to borrow money congress would need to authorize a bill to borrow that money and the power to make such authorizations always resided in the Congress.

Speaker A: And then at some point in the sort of financialization of sovereign debt people realized that individual congressional authorizations for every single treasury bond issue would be infeasible and crazy.


Speaker A: So instead of authorizing every single treasury bond issue congress instead just said you know what, treasury, you can go ahead and just issue bonds as many as you like up to a limit of X.

Speaker A: And that’s basically what we’ve been doing up until now.

Speaker A: All borrowing is still ultimately authorized by Congress only instead of doing it on an issue by issue basis they do it up to a certain limit basis.

Speaker C: So basically instead of doing it in dumbest possible way we do it in a slightly less dumb way.

Speaker A: But ultimately yeah, what Emily is saying is right, which is that the spending decisions have been made.


Speaker A: So we have a legal obligation because these are laws that have been passed by Congress to spend this money.

Speaker A: And there is a finite amount of money that we bring in in that taxes.

Speaker A: And so that means that in order to fulfill our legal obligation to spend the money, we need to borrow the difference.


Speaker A: And the real rub comes when you hit the debt ceiling.

Speaker A: And Congress has to raise the debt ceiling.

Speaker A: It has done so many, many times in the past and it will do so again this time but the later it does that the more chaos it causes and the more that people worry that at some point they might raise it so late that there could be the D word.


Speaker C: I feel like this threat of default is always kind of a red herring because what inevitably happens is that Republicans especially now believe that there’s some political value in just obstructing anything that Democrats want to do.

Speaker C: So they opt for blocking any raising of the debt ceiling as a kind of nuclear option.

Speaker C: So they say we’re not going to compromise on anything and hope that they can back Democrats into a corner to get them to roll back spending commitments.

Speaker C: And then if they do that Democrats are less effective in this term and that’s part of what they want and especially if they can get them to roll back things around social welfare programs that aligns with their political incentives but they don’t actually have very much incentive to create a default.


Speaker C: That would be bad for everybody.

Speaker C: It would be bad for Republicans too.

Speaker C: So it always feels like a game of chicken to me where you do kind of know that the outcome is going to be fine.

Speaker C: There’s not going to be a default, but it’s all political theater in front of it, and it’s just particularly bad.

Speaker A: So let me ask you a question, Elizabeth, that Justin Wolf has put on Twitter, and I thought it’s a very good one, which is you don’t think there’s going to be a default?


Speaker A: Probably I don’t think there’s going to be a default.


Speaker A: But where would you put the probability of default?

Speaker A: And he said, would you say it’s less than 1%, less than 10%?

Speaker A: If he was saying, and I think he’s right, if it’s north of, like, 25%, then that’s really quite terrifying and way too high.

Speaker C: Oh, yeah.

Speaker C: I don’t think it’s ever been north of 25%.

Speaker C: Where would you say estimate now?

Speaker C: I think it’s very low because Kevin McCarthy just came out with a statement that he said he thought they’d reached an agreement in principle that’ll get hammered out this weekend.

Speaker C: And up to this point, he’s been waving around the nuclear button.

Speaker C: So by the point at which especially the Republicans are conceding that there’s probably going to be some kind of verbal agreement happening, I think that means that it’s happening.

Speaker C: We don’t know what it looks like yet.

Speaker A: And does Kevin McCarthy have the ability to deliver the Republican votes necessary to raise the debt ceiling?

Speaker C: Yes, he does.

Speaker A: Because they only need, like, five, right?

Speaker C: Yeah.

Speaker B: To get back to your original question, what do I think?

Speaker B: I think this is a self made crisis at a time which, as we discussed last week, of poly crisis.

Speaker B: There’s all kinds of bad stuff happening all the time.

Speaker B: There’s war in Ukraine, there’s a pandemic, all these kinds of things that shake global financial stability.

Speaker B: And here comes along this debt ceiling crisis, which is a completely man made, maybe Republican made crisis that threatens global financial stability a little bit, or at least threatens the dollar dominance that we also talked about last week.


Speaker B: Because even if we don’t default, this is a spectacle that I mean, in 2011, Moody’s downgraded the US.

Speaker B: Credit rating, and that’s not good.

Speaker B: You don’t want that.

Speaker B: We’re living in a time of instability, and this is just like one more log on the fire.

Speaker B: Right.

Speaker B: It’s just not a good look.

Speaker A: Yeah, this is definitely part of the new not normal and the radical uncertainty surrounding almost everything.

Speaker A: People really were freaked out by the prospect of the US.

Speaker A: Losing its AAA credit rating before 2011.

Speaker A: And people said that if the US.

Speaker A: Lost its AAA credit rating, all manner of terrible things would happen as a result.

Speaker A: In the end, the number of terrible things that happened as a result were de minimis.

Speaker B: Right.

Speaker A: And one of the reasons why we have people like Donald Trump coming out and saying, you know what?

Speaker A: We can default.

Speaker A: It wouldn’t be such a big deal, is because people do raise these scary specters and then nothing much happens.

Speaker A: If the US Were to default on treasury securities, which is not the same as the Treasury Department’s own definition of default, but if it were to miss coupon payments and principal payments, I do think that would cause major financial dislocations in the money markets and in the way that money moves around the world.

Speaker A: And it would have really nasty knock on effects in the world of finance and banking.

Speaker A: Given that the money would certainly end up getting paid back eventually, the long term damage would not be is hard to measure and it could be enormous and it could be tiny.


Speaker A: But the point is that we just don’t know.

Speaker A: And that degree of, like, we have no idea how bad it could be is very much part of what my book is about and is kind of terrifying and as you say, completely unnecessary.

Speaker C: Yeah, there are people who let’s say that we thought default was a probability and all the smart people also think that.

Speaker C: Should we talk about the potential workarounds there, mining the coin, issuing premium bonds, that sort of thing, where you’re not as reliant on Republicans in Congress too?

Speaker B: Before we talk about that, I’d love to just dig in a little more on what default actually means because I think that’s pretty interesting.

Speaker B: So Felix mentioned like the worst case from a financial and markets perspective is if the treasury fails to pay the coupon on its bonds, but the money that they need also goes to pay Social Security payments.

Speaker B: Medicare, Medicaid pay, federal workers.

Speaker B: Like all that stuff could get cut off as well.

Speaker B: And that comes at a time when people have lost a lot of trust in the federal government to begin with.

Speaker B: If Social Security recipients don’t get their Social Security payments, that’s a disaster.

Speaker B: It might not rock the markets, they’re still paying on the bonds, but it’s not a good outcome either.

Speaker A: Right?

Speaker A: And this is a conversation which I’ve been having with treasury at some length and going around in circles a lot, is precisely this question.

Speaker A: If you talk to Janet Yellen or listen to her speeches, and she has reiterated this over and over again, she considers that to be a default.


Speaker A: She’s like, if so if someone getting Social Security checks or even just a federal employee doesn’t get their pay that they’ve been promised, then that is the government reneging on a promise of the US.

Speaker A: Government and that is a default.

Speaker A: And that would be catastrophic in and of itself.

Speaker A: And she doesn’t like the idea of making a distinction between those kind of promises and the promises to pay the coupons on treasury bonds.

Speaker A: She’s like, it’s all default.

Speaker A: And the reason why I don’t buy it is because that actually happened as recently as 2013, we had a government shutdown and various federal employees weren’t paid.

Speaker A: They missed their pay for some time and so by that definition, on some level, we already had a default ten years ago.

Speaker A: Right.

Speaker A: And the sun rose the following morning and it was no big deal and it wasn’t catastrophic.

Speaker A: Now treasury will say that wasn’t a default.

Speaker A: That was because Congress had failed.

Speaker A: There was an appropriations failure rather than a running out of money problem.

Speaker A: And that it’s not about the cash flows.

Speaker A: You don’t look at like, do federal employees get their money to work out whether there’s a default?

Speaker A: You have to ask why did federal employees not get their money?

Speaker A: And if it’s because something appropriations, then it’s not default.

Speaker A: And if it’s something something debt ceiling, then it is a default.

Speaker A: But I feel like at this point the definitions start becoming very fuzzy and I’m sitting here going, if you’re an employee and you don’t get your paycheck, do you really care what the reason is?


Speaker A: And does it make that much of a difference as to one would be catastrophic and the other one isn’t?

Speaker C: I think that the optics are terrible and if you’re a federal employee, you don’t give a f*** which one it is.

Speaker C: But don’t you think that sophisticated people, the markets, differentiate between the two?

Speaker A: I really do think they differentiate, which is one of the reasons why 2013 was not catastrophic because the markets don’t actually care about anything other than the treasury bond market.

Speaker B: Right?

Speaker B: Yes, I think that’s right.

Speaker B: Then I think default should be confined to the bonds.

Speaker B: The treasury bonds and everything else is like a whoopsies.

Speaker A: And the treasury has said over and over again that they don’t have a mechanism to continue paying the treasury bonds to prioritize payments on the treasury bonds and to default on other people like Social Security recipients instead.

Speaker A: And no one believes them.

Speaker A: Yeah, and the reason no one believes them is because there’s actually a bunch of Fed minutes from 2011 where the Federal Reserve Board brought in a woman from treasury who went into some detail about how treasury had this contingency plan for doing exactly that.

Speaker A: You’ve already explained this plan exists.

Speaker A: You can’t pretend this doesn’t exist.

Speaker B: Also, there’s one additional hiccup that in the event of a default, some people think that investors would still keep buying treasury bonds because they’re considered like a safe haven asset.

Speaker A: Exactly.

Speaker B: In a crisis, you rush to Treasuries, even though the crisis is with Treasuries.


Speaker A: This is what happened in 2011.

Speaker A: If you had a flight to quality and Treasuries are the highest quality bonds and so Treasuries go up in price and down in yield, even if they’re the things that might be defaulting, because there is even in the event of a fault, there’s nothing safer than the treasury bond.

Speaker A: And ultimately you know that those payments aren’t going to end up being made.

Speaker B: Well, that’s bananas.

Speaker B: And you can’t depend on that belief lasting forever being bedrock.

Speaker B: That’s what I was saying.

Speaker B: We were saying before about instability and it’s testing a boundary and eventually you’re going to break it.

Speaker A: I do think that the boundary is fuzzy, though.

Speaker A: As I say, there was something which looked a little bit like a mini default in 2013.

Speaker A: There wasn’t a default on treasury bonds, but it was a default on federal obligations.

Speaker A: There was something which looked a bit like a mini default in 1979 when there was like some computer glitch which meant that various coupons didn’t get paid on time.

Speaker A: In 19 71 72, when Nixon came off the gold standard, that was basically a default on countries that had foreign reserves which they thought were convertible into a certain amount of gold, turned out not to be convertible into anything like that much gold.

Speaker A: And so they basically lost a bunch of money.

Speaker A: And that was an obligation of the US.

Speaker A: In some sense in 1933 when Roosevelt got rid of convertibility to the gold standard.

Speaker A: Like that too, was basically a default to anyone outside the country.


Speaker A: I think there was a default in the 19th century as well.

Speaker A: These things do happen occasionally.

Speaker A: But yes, I can’t remember the last time there was a real big, rich western country defaulting, with the possible exception of Greece in 2011, 2012.

Speaker A: And that was huge.

Speaker A: We all remember how catastrophic the Greece crisis was.

Speaker C: Well, it does help that a lot of developed countries don’t have a debt ceiling and find the entire idea.

Speaker A: No sensible country has a debt ceiling.

Speaker B: I guess now is the time to talk about the cuckoo bananas.

Speaker B: Did I say bananas already in this segment?

Speaker A: You can never have too many bananas.

Speaker B: Now we can talk about the kind of far out theories that people are floating right now, including 14th amendment and I guess the platinum coin.

Speaker B: Who wants to go?

Speaker B: Who wants to explain either one of those?

Speaker A: So I had a really interesting meeting a couple of days ago about the 14th amendment, and there are a bunch of super interesting stories behind how it was constructed and why it’s worded the way it is.

Speaker A: And as as with all of these constitutional amendments, they’re all written in this very sort of weird, concise, hard to pass language.

Speaker A: But long story short, it is almost certainly the case that a debt default would be unconstitutional and that therefore, treasury has the obligation to continue to borrow money, even if that means breaching the debt ceiling.

Speaker A: And what would happen if they did?

Speaker A: That would be that immediately various members of Congress or someone else would sue them and say, like, you’ve broken the rule because there’s this law about debt ceilings.


Speaker A: And then it would very rapidly go to the Supreme Court.

Speaker A: And probably, although no one ever knows anything with the Supreme Court, probably the Supreme Court in the interests of just preserving the stability of the planet would be like, yeah, actually you did the right thing.

Speaker A: You had a constitutional obligation to break the law, but no government wants to break the law, and so that’s why they’ve been taking these extreme measures up until now.

Speaker A: Then there’s another law which allows the government to mint platinum coins in any denomination they like.

Speaker A: And that’s not borrowing money, that’s minting money.

Speaker A: And so if they mint a coin and then deposit that coin in their account at the Fed, then that will give them all the money they need to do the spending without raising the debt ceiling.

Speaker A: For reasons I don’t entirely understand, there was more buzz around platinum coins last time and there’s a bit more buzz around the 14th amendment.

Speaker B: This time the shine is off the coin.

Speaker A: The shine is off the coin.

Speaker A: I think Janet Yellen used to run the Fed and she’s basically been saying, like, if I was at the Fed and someone from treasury came up to me and said, can I deposit a trillion dollar coin into my bank account, I would say no, but again, I don’t think she would.

Speaker A: But for that reason and various other reasons, the coin buzz has died down a bit, the 14th amendment buzz has gone up a bit, and there’s a little bit of sort of kick the can down the road buzz.


Speaker A: About doing these things called premium bonds or buying back bonds at below par and things that allow you to borrow a bit more money.

Speaker A: Because of the arcane rules about how public debt is calculated in terms of face value of the debt.

Speaker A: Blah, blah, blah, blah, blah.

Speaker A: But that doesn’t really solve the problem.

Speaker A: All that does is it just pushes it down the road a little bit.

Speaker C: Temporary solution, though the premium bonds idea seems like the least crazy one to me.

Speaker A: The correct and true thing to do is to eliminate it, right?

Speaker A: We can all agree on that.

Speaker A: We need to abolish the thing, but there has never been anything close to a majority of Congress who wants to eliminate it.

Speaker A: I don’t even think there’s a majority of Democrats who want to eliminate it.

Speaker B: It’s a tool of leverage, and that’s what it is, that Republicans use it as leverage to get things they want.

Speaker B: And the Democrats, one assumes, would like to use it to get leverage at some point too, perhaps.

Speaker C: Well, it’s not just that.

Speaker C: It’s that if one party is going to build support for it, they have to make an argument to the public that restricting the public views this as a way of restricting spending.

Speaker C: So even a lot of Democrats think that government institutions overspend in certain areas.

Speaker C: So you have to make an argument where you’re both educating the public about how the system works, the difference between the debt and the deficit, why we have a debt ceiling in the first place, what function it serves.


Speaker C: Because in theory, to the average person who doesn’t really understand any of this, saying congress should be able to approve how much debt we issue.

Speaker C: Sounds like a common sense.

Speaker C: Yeah, that sounds good.

Speaker C: Why not?

Speaker C: And you have to educate voters about this and get them behind it for it to be a meaningful electoral issue.

Speaker A: This is why we need every single American to listen to Slate money, and they will understand.

Speaker C: I’m all for that.

Speaker A: We can abolish the debt ceiling fine.

Speaker A: Or just raise it to a Google or something and we’ll be fine.

Speaker A: Okay, let’s leave that there and talk about tech regulation.

Speaker A: There seems to have been a bunch of news since last we talked about such things in the world of the government getting involved or not getting involved in what big tech companies do.

Speaker A: A couple of headlines here.

Speaker A: The European Union looks like it’s going to levy an enormous fine on Meta or Facebook, as it’s better known, for taking a bunch of information about European Facebook users and storing it in the United States.

Speaker A: And the Europeans are like, well, this is going to allow the Americans to spy on Europeans, and you’re not allowed to do that, and we’re going to find you.

Speaker A: And Facebook is saying, but this is what we do, is we have our servers in the United States.

Speaker A: We have a bunch of hearings on Capitol Hill about AI and whether it should be regulated and how it should be regulated and what the regulations should look like, which remind me a lot of the kind of hearings that we used to have about crypto, where you’d have all of the crypto people coming along to Capitol Hill and saying, please regulate us.


Speaker A: And the Congress doing absolutely nothing.

Speaker A: But there does seem to be this general consensus among both the AI crowd in Silicon Valley and Congress that AI should be regulated somehow, although there doesn’t seem to be any real expectation that such regulations are going to materialize anytime soon.

Speaker A: And then the third thing that caught my eye was Ron DeSantis, the governor of Florida, unilaterally banning something that doesn’t exist, which is kind of impressive, which is a central bank digital currency in Florida.

Speaker A: And he basically said, this is woke capitalism, and if we have a central bank digital currency, then the government will be able to stop you buying guns.

Speaker A: And so I’m banning it.

Speaker A: And none of this makes any sense.

Speaker A: But on a profoundly basic level, a central bank digital currency by definition is legal tender.

Speaker A: If it wasn’t legal tender, then it wouldn’t be a CBDC.

Speaker A: And if you ban legal tender in one of the states of the union, then that is basically civil war.

Speaker A: And I don’t think people understand how profoundly important this really stupid bill was.

Speaker A: And so there’s a bunch of stuff going on here, and Elizabeth is the kind of person who understands politics around these parts.

Speaker A: Is any of it constructive or useful?

Speaker C: I mean, it’s useful to DeSantis because there is a lot of anti central banking sentiment on the right.

Speaker C: And a lot of it’s just completely irrational.

Speaker C: A lot of it’s the bankers, the illuminati, the Fed is evil, blah, blah, blah.

Speaker C: And he understands probably that it would be unconstitutional and it would never go anywhere.


Speaker C: But as somebody who’s running for President and leaning hard into culture war issues, just passing a law that he knows is going to get overturned, still buys him some political currency with the people he’s trying to court because they just see it as like being an anti central bank thing.

Speaker C: They don’t really look at it any deeper than that.

Speaker A: So, Emily, given the way that this kind of regulation and these kind of laws can easily wind up just getting used for really dumb grandstanding, is there any reason to hope or believe that congressional or government regulation of the technology industry could or should be actually useful and a good idea somehow?

Speaker B: On the positive side, right, on Tuesday, Sam Altman, the CEO of OpenAI, went to the Senate along with a woman who heads up privacy at IBM and an academic.

Speaker B: And they were like, you know what, artificial intelligence is good, but it’s also very dangerous.

Speaker B: Please, we need regulation.

Speaker B: And why I’m saying this is positive is because this is a little bit unprecedented.

Speaker B: I know you talked about crypto people doing it, but they kind of did it a little after the fact.

Speaker B: And Mark Zuckerberg kind of did this too, went and said, please, we would love to be regulated.

Speaker B: But again, he did it after he got in trouble, after people started saying this Facebook isn’t as good as we thought it was.

Speaker B: Then he said, oh yeah, no, it can be bad, so you should regulate us.

Speaker B: So this is sort of and my colleague Ashley Gold had a nice piece on this.


Speaker B: This is sort of the case of the tech people getting out ahead of things and saying, look, we want to be regulated.

Speaker B: I think Altman compared AI to nuclear power or nuclear bombs and said, we need some global standards.

Speaker B: And the woman from IBM said you need to treat it like prescription drugs.

Speaker B: So that’s kind of positive, though I don’t think you want an industry deciding what regulation looks like.

Speaker B: That’s probably not a good idea.

Speaker B: But it’s good that they seem open to it.

Speaker B: And it’s still at a time when AI is relatively nascent.

Speaker B: So if you could get in early and regulate an industry, that’s probably better than coming in late.

Speaker B: So that’s like on the good side.

Speaker B: On the bad side is like Congress is not very good at regulating the tech industry.

Speaker B: I mean, we had this week a decision from the Supreme Court basically punting on section I forget what it’s called.

Speaker B: Punting basically, on this rule that really lets digital platforms get away with publishing whatever they want because that rule doesn’t make any sense anymore in the current Internet era, but made sense a long time ago.

Speaker B: But Congress never caught up on its own rules.

Speaker B: Like, Congress is just not very good at regulating tech.

Speaker B: That’s the point I’m trying to make.

Speaker B: That’s A.

Speaker B: And B, it’s just a little bit dysfunctional on getting anything done.

Speaker A: You mean section 232?

Speaker B: 30.

Speaker B: Thank you.

Speaker A: There you go.


Speaker B: Sorry, section 230.

Speaker B: The Supreme Court this week punted on Section 230 and didn’t say anything about.

Speaker C: It when people were there’s.

Speaker C: A self interested reason, though, I think, for Sam Alton to show up in Congress and say, I want to be regulated.

Speaker C: And it’s basically that if you’re the guy who’s running OpenAI, which has been heavily funded and is already entrenched as one of the larger players, if you convince them to regulate the industry, part of what you’re doing is blocking out smaller players that are going to have to pay to jump over those regulatory hoops.

Speaker C: So note that the people coming in and doing this are people like Zuckerberg or Altman, where their companies are positioned to be market leaders already, and they have an incentive to call for some level of regulation if it keeps out smaller competitive players.

Speaker C: So I don’t think it’s entirely Altman being concerned about AI, although maybe he is.

Speaker C: I think there’s a good business reason for them to do it because especially.

Speaker A: If you think let me push back against that a little bit.

Speaker A: Elizabeth.

Speaker A: I feel like the competition to OpenAI and the big US AI players is not small AI startups who would suddenly be drowned in compliance costs.

Speaker A: The competition is large Chinese AI companies who are already probably advanced further ahead than most of the Americans.

Speaker A: The AI arms race is very much a US versus China thing, rather than a big US companies versus small US companies thing.

Speaker A: AI is so incredibly expensive in terms of the amount of compute you need and the amount of money you need and the number of researchers you need, that it is improbable that some new startup is suddenly going to threaten OpenAI.


Speaker A: It’s much more likely that, especially if OpenAI starts having to move more slowly because of US regulation, that China is just going to move far, far ahead.

Speaker C: I just think that’s a different vector for regulation.

Speaker C: I don’t think you would do that in this hearing.

Speaker C: And also, I sort of disagree with you that OpenAI doesn’t really have any competition, if that’s what you’re saying.

Speaker A: Huge competition.

Speaker A: But it has competition from Google, right?

Speaker C: It has a lot of competition from research centers that can then spin out technology.

Speaker C: If you look at where all the innovation is happening in the US, it’s not just big corporate companies like Google.

Speaker C: A lot of it’s happening in academic institutions and being funded by defense contractors.

Speaker C: So I think Altman does have an incentive to have some level of regulation if it creates barriers to entry for stuff that OpenAI has already cleared.

Speaker A: My general take on all of.

Speaker A: This is that AI regulation is going to arrive at basically the same time as crypto regulation, which is never that it’s so difficult to implement that it’s not really going to happen.

Speaker A: It’s very easy for America to pass a law saying private companies are not allowed to build a nuclear bomb.

Speaker A: Right?

Speaker A: I’m sure that law is on the book somewhere.

Speaker A: It’s pretty obvious that you can’t build a nuclear bomb if you’re a private company unless you do it very unless you’re a defense contractor that does it very much like for the government within certain very, very tight constraints.


Speaker A: And even nuclear power stations are built by just a handful of companies and they’re nearly always paid for by the government in one way or another.

Speaker A: People aren’t just throwing up nuclear power stations as part of private sector entrepreneurship, right?

Speaker A: So if the government controls something like nuclear power, then the government can control it.

Speaker A: But the government does not control AI at all.

Speaker A: It has never controlled AI.

Speaker A: And I think that horse is out of the barn now and we’re not going to have that degree of government control.

Speaker A: And it’s all well and good to say AI should be regulated like nuclear power, but it’s not remotely similar.

Speaker B: I wonder if it’s comparable to the auto industry because when cars were first invented, it was mayhem on the streets.

Speaker B: There wasn’t like traffic rules really that took a while to all come together.

Speaker B: Seatbelts weren’t a popular thing.

Speaker B: There was no law that mandated seatbelt use until much later because the technology maybe wasn’t very good or the testing didn’t exist yet.

Speaker B: And it’s like when it comes to regulation and consumer safety and public safety, it’s kind of like it is kind of like move fast and break things or maybe it has been or like with this autos analogy I’m trying to blunder my way towards it’s like the industry kind of creates new technologies that makes it safer.

Speaker B: And then the US regulators kind of respond by saying, oh, that’s a good technology.

Speaker B: Seatbelts, airbags, whatever, we mandate it and it kind of like works hand in hand and you just kind of stumble through it and maybe it just takes a long time to kind of stumble through it.


Speaker A: I think that’s a really good analogy and I think that if AI was being developed as slowly as the auto industry developed, then that would be possible.

Speaker A: And I think AI is just moving too fast.

Speaker A: I don’t think the Congress can move that quickly.

Speaker B: No, they can’t even do this debt ceiling thing.

Speaker B: Or maybe by the time people listen to this it’ll be done or something.

Speaker A: With any luck from your word to God’s ears, or at least to Kevin McCarthy’s ears.

Speaker A: Let’s take a break and talk about greed.

Speaker A: Fllation emily, you had a great story about greedflation this week.

Speaker A: I really liked it.

Speaker A: Correct me if I’m wrong here, but the big idea is first of all, the definition of greedflation is basically the reason we have inflation is because companies are raising their prices and they’re greedy and they want to make more profits.

Speaker A: And the first obvious retort to that is, wait, what else is new?

Speaker A: Companies are always greedy and they always want to maximize their profits and they have some kind of weird fiduciary duty that they should maximize their profits.

Speaker A: And so why would that cause inflation now?

Speaker A: And your answer is basically the pandemic and all of the disruptions around supply chains and stuff basically allowed them to raise prices in a way that consumers wouldn’t bulk at because consumers believed in the stories they were being told about we have to raise prices because supply chain something something.

Speaker A: And so that gave them this excuse that they wouldn’t otherwise have had and then they took full advantage of that excuse to raise prices.


Speaker A: Have you broadly got that right?

Speaker B: You’ve broadly got it right.

Speaker B: So in the beginning there was inflation and it wasn’t profit seeking on the part of companies.

Speaker B: The economist at UBS Wealth Management actually had a really good research note on this.

Speaker B: But yeah, at the beginning there really was a surge in demand and supply was messed up because of the pandemic and supply chain.

Speaker B: So prices went up and then that kind of started getting untangled.

Speaker B: And then there was a war in Ukraine still going on that kind of messed things up for inflation.

Speaker B: And this, again, you could argue, wasn’t really a profit taking.

Speaker B: But what all this inflation did and all these snarls and all the demand, it created an environment, an inflationary environment, which allowed the companies to raise prices more than they normally could.

Speaker B: Their greed stayed constant, but their window of opportunity expanded and they mostly jumped to do it.

Speaker B: And I mean, no one’s really calling it greed fllation anymore.

Speaker B: I think that was part of the problem with this theory in the early days was people, more mainstream economists, people who were in Elizabeth Warren were like greedflation.

Speaker B: They just didn’t like painting companies that way.

Speaker B: Which I understand.

Speaker B: But yeah, companies are basically able to exploit this really unique moment in time, this inflationary environment.

Speaker B: And if you look at a chart of profit margins, the other time that companies were able to increase profit margins was right after World War II, which was also kind of like a weird time where you could get away with raising prices.


Speaker B: It’s all about what consumers will accept.

Speaker B: So some of the story is like, well, there’s inflation, so we have to raise prices, which kind of doesn’t quite make sense, like, well, inflation, blah, blah, blah.

Speaker B: We just have to raise the prices.

Speaker B: And so that is greedflation.

Speaker B: It’s real.

Speaker B: And more, I think economists now are sort of looking at it and studying it and trying to figure out how it works because the solution that we have in place to fight inflation.

Speaker B: It really fights it on the demand side.

Speaker B: Right.

Speaker B: It’s like you raise rates to kind of crush the economy, and then people have less money to spend, so the demand goes down and prices kind of fall.

Speaker B: But if the reason prices went up is because companies are doing it, there might be other less painful solutions out there than raising rates and, like, causing a banking crisis, blah, blah, blah.

Speaker A: Such as?

Speaker B: Such oh, such as.

Speaker B: Yeah.

Speaker B: Good.

Speaker B: Thank you.

Speaker B: And this is kind of interesting, if you don’t mind me backing up.

Speaker B: There is this economist at UMass Amherst named Isabella Weber.

Speaker B: And back in December 21, late December 21, she published this article suggesting one solution.

Speaker B: She called the solution price controls.

Speaker B: And all h*** broke out on this poor woman.

Speaker B: She was harassed.

Speaker B: People were like price controls.

Speaker B: That’s crazy.

Speaker B: That’s the worst thing that anyone’s ever suggested.

Speaker B: You’re so dumb.


Speaker B: Whatever.

Speaker B: They just was awful.

Speaker B: Paul Krugman wound up apologizing to her later because he just slammed and slammed her.

Speaker B: Solution price controls.

Speaker B: But kind of the irony is, after Russia invaded Ukraine and people were worried about energy prices, the EU and then ultimately the United States did what they did, price controls.

Speaker B: And we haven’t really talked about the cap on oil prices.

Speaker A: $60 a barrel, which is the most that Russia can sell oil for.

Speaker B: They cap.

Speaker A: So price control in it.

Speaker B: Price control, yes.

Speaker B: And it worked.

Speaker B: And Isabella Weber wound up working with the German government to work on these price controls, and they’ve been a big success.

Speaker B: So to answer your question, one of the solutions would be some kind of price controls in really important sectors that are inelastic, where the demand is kind of constant.

Speaker B: So monetary policy isn’t the best solution there.

Speaker B: Right.

Speaker B: People still need to use the energy.

Speaker A: My favorite example of price controls is in Mexico, where the government sets the price of tortillas.

Speaker B: Right.

Speaker B: Stuff like that.

Speaker B: I mean, the other sector that’s really important besides energy and which I think Professor Weber still doesn’t quite know exactly how it would work, is food, because there is some inelastic demand for food.

Speaker C: Right.

Speaker B: We all need to buy food.

Speaker A: We should set the price of tortillas.

Speaker B: Yeah.

Speaker B: And so she was telling me that in France now, they’re, like, experimenting with a basket of necessary food that they control prices on and stuff like that.


Speaker B: So yeah, I mean, it sounds really Stalinistic, I guess, but it could be.

Speaker B: And there’s probably subtler ways to control food costs and food prices, like going back to commodities or, I don’t know, something with grain.

Speaker C: We already engineer food consumption choices for poor people via Snap and restrict what they can buy.

Speaker C: So if you were going to create a discounted basket of goods yeah, we.

Speaker A: Already subsidize corn and all of these other things that brings down the price.

Speaker B: And another solution to great fllation, which I think we will all think is wonderful is that if you talk about it and people believe it’s happening, then it kind of starts to go away because companies can’t get away with raising their prices anymore.

Speaker B: It’s like we’ve seen through the magic curtain and that’s what the UBS guy was telling me because there’s been more attention about this in the UK and there’s been like a commission on food prices and the same week they had this commission met, apparently supermarkets started cutting prices.

Speaker B: All it takes is just like talking about it and recognizing it and that can help a little bit.

Speaker C: Segment on the Today’s show.

Speaker B: Amazing.

Speaker C: I have a question.

Speaker C: So let’s say for some inexplicable reason inflation dropped significantly.

Speaker C: There’s no real reason why or scenario where people drop prices again, right?

Speaker B: I mean, prices like used carb prices.

Speaker C: Never actually go down after they totally go down.

Speaker A: I mean, this is one of the reasons why Walmart was a major force in keeping inflation incredibly low is because they kept constant pressure on their suppliers to reduce their prices and would then I guess for food those prices through to their customers.


Speaker A: And things really did get cheaper at Walmart year in and year out.

Speaker A: You can get deflation.

Speaker C: It’s a thing I guess I’m more thinking about things like once you set the price of books at whatever felix, what is your book cost?

Speaker A: 32 50?

Speaker C: Yeah.

Speaker C: Is that ever going to go back down?

Speaker A: It totally does.

Speaker A: And if you go on to you can buy the Kindle edition for 1699.

Speaker A: Right?

Speaker A: And that’s deflation.

Speaker A: We’re creating new ways of getting that book at a cheaper price and in fact, if you look at something like Airfares, they go up and down all the time.

Speaker B: There are some things that go up.

Speaker C: There are some volatile anyway, like even.

Speaker A: If inflation but that’s the point that more and more prices in the economy are volatile.

Speaker A: There used to be literal costs to changing prices that you would have to walk around a store with a little gun and change the price tags on things and then everything moved to Barcodes and it was much easier and people could do it much more frequently.

Speaker A: But even then you would expect if you went to your local store that sold a widget for $5 yesterday, that if you went back tomorrow it will still cost $5.

Speaker A: So there is a price of that widget in the age of Amazon.

Speaker A: If you bought a widget on Amazon for $5 yesterday, you have no idea how much it’s going to cost tomorrow.

Speaker A: All of these prices move every day.


Speaker A: They move up and they move down and that’s largely stochastic, right?

Speaker A: It’s random, it goes all over the place and this idea of prices being sticky and they move up a bit sometimes and they never really come down.

Speaker A: I think that is gone and I think that in fact it is much easier to have deflation these days than it ever was in the past.

Speaker A: Precisely because prices do move down a lot on a regular basis, and overall they probably move up more than they move down.

Speaker A: And so overall, we get inflation.

Speaker A: But there’s no reason in principle why you couldn’t have just a small little change in the balance there and prices moving down more than they move up.

Speaker A: And you’d have deflation.

Speaker A: I think deflation is actually possible now thanks to Amazon and dynamic pricing in a way that it never was before.

Speaker C: I just don’t know what the corporate incentives are for.

Speaker B: But there are some big things that are still really sticky.

Speaker B: I think the big one would be rent.

Speaker B: Like if you look at a chart of median rent or average rent, it just goes up and to the right with almost no dip.

Speaker B: Not even during eight was there a dip in rent.

Speaker B: And that’s just a big component in inflation overall, you know what I mean?

Speaker B: So even if the stuff at Walmart gets cheaper, I think overall we’ve all level set at higher prices now.

Speaker A: Okay, numbers round.

Speaker A: Elizabeth, do you have a number?

Speaker C: Yeah, mine was 4800, and that’s a dollars.


Speaker C: And that’s the starting price for a couple who wanted to stay at the hypothetical Star Wars Galactic Super Cruiser, which was the luxury hotel that was being built in Florida that now Disney has canceled work on because of Ron DeSantis.

Speaker C: And they were going to transfer around 2000 employees from California to Florida to work on this thing.

Speaker A: Okay, disney is canceling a $4,800 per night hotel.

Speaker A: I’m suddenly coming around to run DeSantis at this point?

Speaker A: Come on.

Speaker A: The world does not need new $4,800 a night.

Speaker A: It could be.

Speaker C: Although the way Disney places work, they’re usually like full service, whole package thing.

Speaker C: So maybe it’s oh, you get a.

Speaker A: Free you get a free donut with.

Speaker C: Your 4000 and all the amusement park stuff.

Speaker A: That’s $4,800 a night.

Speaker A: Even if you get free access to Disney World is ludicrous.

Speaker A: Thank you very much.

Speaker A: No, thank you.

Speaker A: This is greedflation in action.

Speaker A: No one should be able to charge that much.

Speaker A: Emily, what’s your number?

Speaker B: Okay, my number is 78, which is interesting to me only because last week we didn’t have a numbers round and my number was 78.

Speaker B: And then this week I went searching for a new number and came up with 78.

Speaker B: So now you’re getting a double dose of 78.

Speaker A: Okay.

Speaker B: My last week’s number was $0.78, which was the wholesale price of a dozen eggs in the first week of May, per data from the USDA.


Speaker B: At Axios Markets, we had a piece about the wholesale price of eggs coming down, which, if you remember, eggs were more expensive than gold for a while in this economy.

Speaker B: And she Elizabeth, literally not literally, but basically they were gold.

Speaker B: And everyone dyed potatoes instead of eggs for Easter, blah, blah, blah.

Speaker A: Anyway, no one died potatoes.

Speaker B: No, I know no one did.

Speaker B: But people wrote stories about it or talked about it as a thing, so we’ll talk about it as a thing.

Speaker B: But that thing is coming down.

Speaker B: Egg prices are now coming down.

Speaker B: So that was 78.

Speaker B: And then my number this week that I thought of doing was 78%.

Speaker B: And that’s the share of Americans who say it’s a bad time to buy a house, which is the highest that percentage has ever been in the history of Gallup doing this survey since 1978.

Speaker B: So that’s 78% of Americans think it’s a bad time to buy a house.

Speaker A: I love that number because it’s way higher than it’s ever been.

Speaker A: But it’s also really hard to know what it means in terms of house prices.

Speaker A: Right.

Speaker A: Because these kind of indicators are often taken as contrarian indicators.

Speaker A: Right.

Speaker A: And if everyone thinks it’s a bad idea to buy a house, then probably it’s a good idea.

Speaker B: Yeah.

Speaker A: Did you actually look at that time series and see if there was any kind of correlation between whether people think it’s a bad time to buy a house and whether it’s actually a bad time to buy a house?


Speaker B: It seems to be actually a good indicator of it being a bad time to buy a house.

Speaker B: Like the time that it was the goodest, the best time to buy a house was, like, back in 2003, before prices surged in the housing bubble.

Speaker B: And as the bubble kept bubbling up up, then people started saying it’s a bad time to buy a house.

Speaker B: Not in the numbers we’re seeing now, but seemed to correlate with home prices going up too much.

Speaker A: Back in 2003, a lot of people thought it was a good time to buy a house yeah.

Speaker B: Before prices went up.

Speaker A: And it kind of we can take this at face value, then.

Speaker A: I mean, I like it.

Speaker B: Sure.

Speaker A: My number is 37.6%, which is this study that I wrote up in my newsletter this week, which is looking at a big UK bank, one of the five biggest banks in the UK, and looking at the traders, some of whom were forced to work from home during the pandemic and some of whom were forced to work from the office.

Speaker A: And that was a nice natural experiment to see which ones got more misconduct allegations against them.

Speaker A: And it turns out that if you annualize the probability of the workers working from the office of any one of those workers getting a misconduct ding for their trading activity, that is 37.6% chance that they will do that over the course of a year and have some kind of fraud or misconduct report.

Speaker A: If you work from home, your chance of getting that kind of misconduct alert was annualized 7.3%.


Speaker C: What?

Speaker C: Wow.

Speaker B: Why?

Speaker B: Because you don’t have your, like, crazy misconducting buddies at the office to misconduct.

Speaker A: Yeah, exactly.

Speaker A: Misconduct is contagious, it turns out.

Speaker B: That totally makes sense.

Speaker B: Of course, you have to be egged on to do bad stuff, right?

Speaker A: Yeah.

Speaker A: Less peer pressure.

Speaker B: Another reason people should just continue working remotely.

Speaker C: It’s feeling wrong.

Speaker C: Like this is a proof.

Speaker C: Less misconduct.

Speaker A: Yeah, less misconduct.

Speaker A: Exactly.

Speaker A: Okay, I think that’s it for us this week.

Speaker A: Thank you to Patrick Fort and Jasmine Molly and the Seaplane Armada crew and the whole village that it takes to put this show together.

Speaker A: You are all awesome.

Speaker A: We love you very much.

Speaker A: We will be back on Monday with slate money.

Speaker A: Succession.

Speaker A: We have Abigail Disney coming on to talk about episode nine, which is something you’re definitely going to want to listen to.

Speaker A: And then we’ll be back next week on Saturday with another Slate mike.

Speaker A: Okay.

Speaker A: Emily oy.

Speaker B: Felix oy.

Speaker B: Emily yeah.

Speaker A: Bros elizabeth in it.

Speaker C: I guess that’s more Irish.

Speaker C: I don’t know.

Speaker A: Oh, my God.

Speaker A: Elizabeth, what are you doing?

Speaker C: Welcome to Slate Money.

Speaker B: We’re doing British accents.

Speaker A: Why are we doing british Accent family.

Speaker B: Because I wanted an excuse to talk about British accents.

Speaker B: And The Guardian provided me with one, publishing an article entitled, why Are So Many Young Americans Adopting Fake British Accents?


Speaker B: Apparently, this is one of those things that’s happening on TikTok that we would know about if we were on TikTok.

Speaker A: But people I’m on TikTok and I have not seen this, but I am on the wrong side of TikTok.

Speaker A: Do your kids adopt fake British accents?

Speaker B: Well, we watched Ted Lasso in this house, which I think is part of the reason people are adopting fake British accents, although they attribute it to Love Island, which I’ve never seen.

Speaker B: And sometimes we do adopt British accents.

Speaker B: We do say oi or in it because it’s fun and it’s harmless.

Speaker B: Like.

Speaker B: Are you offended, Felix?

Speaker B: You’re British.

Speaker B: I believe you’re not offended if I do a fake British accent, right?

Speaker B: You don’t care?

Speaker A: No, it’s really not offensive at all, but it is hilarious.

Speaker A: And listening to Americans try to do British accents, my favorite one is Keanu Reeves in Dracula.

Speaker A: That one is really for the ages.

Speaker B: And what’s his name in Mary Poppins?

Speaker A: D*** van D***.

Speaker C: This is kind of how I feel about Southern accents whenever I hear actors try to replicate them.

Speaker C: What’s, like the worst British accent that you’ve seen in a very popular American movie?

Speaker A: Well keanu.

Speaker A: Definitely keanu 100%.

Speaker A: I have offended you with my ignorance, Count.

Speaker A: Forgive me.

Speaker B: And then the other thing I think about with British accents all the time is that I had a former colleague of mine who has a British accent, and I’m convinced that she was able to get better jobs and higher pay because of her British accent.

Speaker B: And I think there is some research to back me up on this, and I think the exact opposite occurs.

Speaker B: Elizabeth with Southern accents, where you’re joke.

Speaker C: With Nick Denton, who was the publisher Gawker, and one of my close friends whenever we founded it, that my accent subtracted 20 IQ points for me and added 30 for him.

Speaker C: And I still think that kind of holds.

Speaker B: But you don’t have an accent.

Speaker C: Yeah, I think I did when I was in my twenty S, or it was more pronounced I have one after two martinis or two weeks with my parents.

Speaker B: Yeah.

Speaker B: Like if Felix did an episode of Slate Money in a Southern accent, would people really believe what he was saying as much?

Speaker B: I don’t know.

Speaker A: Would you people believe what I’m saying anyway?

Speaker B: Yes, because the British accent, it lends credibility.

Speaker A: There you go.

Speaker A: This is why I have credibility when I go on the media.

Speaker B: And this is why people are doing fake British accents also.

Speaker B: Because it’s super fun.

Speaker A: Do you think people read my newsletter in a British accent, they think, oh, this is more compelling because it’s written in a British accent?

Speaker B: Yeah.

Speaker C: Now we’re going to talk about the debt ceiling.

Speaker B: Yes.

Speaker C: Why I can’t do it.

Speaker A: That’s keanu worthy.

Speaker A: That is right.

Speaker B: The this is good.

Speaker B: Thank you, Elizabeth and Felix, for indulging me and talking about this.