Brian: It's The Brian Lehrer Show on WNYC. Good morning, everyone. Everyone expected a recession. The Fed and White House found a way out. That's the headline on a Washington Post article that sums up one of the biggest things that did not happen this year. A recession did not happen. The problem for President Biden politically is things that don't happen usually don't make news. If the plane doesn't crash on the way to your vacation spot, you don't write home to say, "Hey, guess what didn't happen on my way here?"

If you're not diagnosed with cancer, you don't send Christmas cards announcing that you did not get cancer this year. When a recession doesn't happen, voters don't usually put that on their top issues list and it doesn't usually make headlines, except this week, it did in the Washington Post. Everyone expected a recession, the Fed and the White House found a way out. Jeff Stein is the White House economics reporter for the Washington Post and co-author of that article. He joins us now. Jeff, thanks for coming on. Welcome back to WNYC.

Jeff: Much having me back, it means a lot.

Brian: Who predicted what kind of recession in 2023?

Jeff: There was this news alert that I actually remember getting in the fall of 2022. The headline in Bloomberg was, and this is kind of a shock to read, especially because it came right on the precipice of the 2022 midterms but the headline said that the odds of a recession for 2023 had hit 100% in a blow to Biden. What that reflected was that the economists that Bloomberg had polled had all said, 100% of them had said to expect a recession this year.

That doesn't mean that every economist in the country, there are many who would say, "I got it right," but really, it was the mainstream consensus that Biden and the Federal Reserve were going to either oversee continuing elevated levels of inflation that were very painful, or they'd be able to bring those down, but at the cost of a recession and a financial downturn. That really felt like almost certainly the prospect we were looking at for this year and now we're heading into 2024 and that call has really, I think, quite decisively been disproven.

You have a labor market and unemployment rate that is still very healthy, growth in GDP that is very strong and robust, though come down a little bit. Perhaps more importantly, inflation has really subsided to a super manageable level and you put all that together and it really makes some of those predictions in 2022 look foolish. Not that I didn't make my own fair share of foolish predictions over time, but that this one in particular is really holding up quite poorly and it's questioning, throwing into relief a lot of questions about the economy.

Brian: Treasury Secretary Janet Yellen had this I-told-you-so moment at a Wall Street Journal event last week.

Janet Yellen: Many economists are saying there's no way for inflation to get back to normal without its entailing a period of high unemployment or a recession. A year ago, I think many economists were saying a recession was inevitable but actually, I've never felt there was a solid intellectual basis for making such a prediction.

Brian: Apologies, listeners, the beginning of that got clipped. She said, so many economists were saying there's no way for inflation to get back to normal without its entailing a period of high unemployment or recession and it went on from there but the end of it was really interesting to me, Jeff. She said I've never felt there was a solid intellectual basis for making such a prediction. How small a minority of economists was she in?

Jeff: It's a really good question. It's a little hard to quantify. My sense is really that she was in, I don't know, 10%, 15%, 20% in that range. I think, even as a reporter trying to assess this, objectively last year, I and many others thought that, it seemed so convenient for the White House and for Yellen who had, remember, so badly misjudged inflation when it first emerged. I think even some White House economists will tell you that they had said initially that inflation transitory that it would prove short-lived if it emerged at all, but in summer's another more conservative economists have been saying that that it would become a huge problem.

When they were wrong about that, I think Yellen was really on the back foot and toss it. Too many others it seemed like of course, the administration is going to say that they are going to find a way out of this without causing a recession but Yellen, as you can tell in that quote, she had a strong conviction that, as we can discuss, was really premised on a diverging interpretation of what caused inflation, and therefore, a diverging interpretation of what could bring it down.

Brian: Instead we get these metrics some of which you were citing earlier, inflation has cooled from 9% last year to 3% this year, unemployment is very low at around 3%, the Dow just hit a record high over 37,000 and you report that the Fed and the White House fought inflation on their own distinct tracks using entirely different tools. Can you summarize briefly what those tools and tracks were? Well, we know about the high-interest rates from the Fed. What was the White House's basic tool, Treasury Secretary Yellen's basic tool or tools?

Jeff: The main thing the White House really did to combat inflation besides doing what Trump probably would not have done and insisting on the sovereignty of the central bank and allowing it to do its own thing without political interference, the main thing the White House did was really mobilize a very aggressive government response to the supply chain snarls that were making things more expensive. There's lots of ways this manifested. Sometimes it manifested by really infuriating climate activists by greenlighting the release of the largest ever release of the nation's strategic petroleum reserves and greenlighting oil and gas expansions all over the country.

In other instances, it manifested by dispatching teams to increase the capacity of the ports. You remember a couple of years ago, we had huge supply chain issues where the ports were not getting things off the docks quickly enough and cheaply enough. The White House was very heavily involved in that. The administration has also focused really on expanding the productive capacity of the country. Remember, in 2021, we had this huge semiconductor shortage. The White House has passed legislation to aggressively expand that, as well as expanding infrastructure and clean energy production.

All of these things are intended sort of, if you think of the Fed as sort of taking out some of the heat in the economy by making it more expensive to borrow by raising interest rates. What the White House is doing is really targeting the supply side of the supply and demand mismatch that caused inflation, really focused on allowing businesses to send things more cheaply in a way that consumers will see some relief from.

Brian: Listeners, help us report this story of the economy in 2023. Are you better off here on December 19th than you were at the beginning of the year and who do you credit or blame? 212-433-WNYC, 212-433-9692. We haven't yet gotten into the things that haven't gotten as much better as people certainly would like them to be. We will get to those, but here's the question. Help us report this story of the economy in 2023. Are you better off here on December 19th than you were at the beginning of the year and who do you credit or blame?

There has been no recession. At least we can say that. 212-433-WNYC, 212-433-9692 for Jeff Stein, White House economics reporter for the Washington Post. He's the co-author of a new article called Everyone Expected a Recession: The Fed and the White House Found a Way Out. I want to take a call right away from somebody who called in to say the data indicate that it might still happen. Gary in Little Ferry, New Jersey. You're on WNYC. Hi, Gary.

Gary: Hello. Look, we have it still inverted curve for interest rates. The two-year is much higher than the 10-year which indicates a long-term likelihood of recession. If we have a recession in 24, that's not going to be good news for Biden, and God save us if Donald Trump becomes president, even though I'm a lifelong Republican, this man cannot be trusted with power.

Brian: Gary, thank you. We'll leave the Trump part out of that. We do plenty on that topic but what about what he calls the inverted pyramid there of long-term interest rates being lower than short-term interest rates? People, you could see this at your bank. You walk by, look in the bank window. You can get up six-month CD for 4% or 5%, but if you want to get a two-year CD, it's going to be less interest rates than that, even though the bank cap gets to keep your money for longer. Jeff, some people say, like that caller said, that indicates a recession is still likely. What do you say?

Jeff: I don't know. It's a very good point. This idea of the yield curve correlating with recession odds is very hotly debated in the economics literature. I think it's certainly possible that the caller is right. The Fed chair himself was saying, "Look, we are not out of the woods yet, and I think this is a risk of even writing headlines like ours where people can legitimately say that investors appear to still be pricing in a significant chance of a recession."

We've seen some slowdown in the job market, but I think overwhelmingly, the consensus has really shifted towards-- Not that a recession is impossible, but that it's so much less likely than was being talked about. The yield curve was extremely inverted, even more than it is now, going back if you look at the summer. That was part of the reason so many people were so strongly predicting recession at the end of last year, and through many points in the last year, you had this weird dynamic in markets where investors seem to be pricing this in.

While it's still the case that the curve is inverted, it seems like it's best treated as one indicator of many. You look at the number of Blue Chip forecasters, Goldman Sachs, JP Morgan, the Fed itself, all these macroeconomic indicators have increasingly suggested that a recession is unlikely in 2024, I think the latest report put it at something like 20%, 15% compiling of the different macroeconomic predictions that again that doesn't mean that it won't happen and that it couldn't change.

One crucial thing to keep in mind here is that in 2022, a big part of the reason people were predicting recession was because inflation was significantly outpacing wage gains. That meant people had less and less money to spend, and at some point, you think that's got to give and people will slow down their spending, and then the economy will short circuit. What we're seeing in the last few months is the opposite, where wage gains have far outpaced inflation, and people are seeing a little bit more money in their bank accounts.

As a result, in part, consumer spending continues to be very, very robust, and very strong, and as many people know, consumer spending accounts for about 70% of the nation's economy. As long as that stays healthy, it seems quite likely that we stay out of the woods.

Brian: By the way, we haven't defined recession in this segment. For people who aren't economics majors and think, "Oh, recession means the economy is bad," and that's all they might think, but for a lot of people, the economy has been bad because of inflation. Is the simplest way to define recession by saying that it's a period where the total economy shrinks to a point where unemployment goes much higher?

Jeff: Yes. I hope this is not too long-winded of an answer, but the definition that a lot of lay people think of in their head for a recession is two consecutive quarters of negative economic growth of GDP growth. The actual way a recession is defined by economists comes from this body called the National Bureau of Economic Research, and they have a panel of non-partisan economists that comes up with-- They technically declare recession, and they look at a broad range of factors including GDP, but also unemployment, and other labor market indexes.

The general way to think of it is right when we have-- Throughout the history of capitalism, we have business cycles where you go in and out of these periods where businesses are spending, consumers are spending, where businesses are hiring, and then at some point, the music stops and the process goes into reverse. People get fired, then consumers stop spending, and you have this tailspin. There are so many ways to measure that tailspin, but economists like to come up with a holistic picture of when the business cycle overall is turning down, and that's how they think of recession.

It's actually less of a technical set of circumstances than people might imagine.

Brian: You talked about wages starting to increase faster than inflation, but not for everybody. Jim in Chatham, you're on WNYC. Hi, Jim.

Jim: Hello. Thank you for letting me speak. First of all, great session. I don't really care whether we're in a recession or not. My wages have not increased in three years, actually in five years. Expenses overall continue to escalate. The Biden plan-- Biden said there was that inflation was transitory three years ago. That's not the case. Whether we're in a recession or not, all I know is that my savings have been depleted because I have to spend more money on essentials and every expense has gone up.

I'm not a senior citizen, I don't qualify for Medicaid drug subsidies. The economy stinks and there's no plan to get it to improve. I'd like to get your thoughts on it. Thank you very much.

Brian: Jim, let me hear one more of your thoughts. Who do you blame?

Jim: I blame COVID. The PPP loans, the American Rescue Act, that started the inflation, and it was needed at the time. Government spending is reckless. The Infrastructure Act is a blank check that we don't have money to pay for it. The employment numbers are a part of GDP. Sorry about that. The federal spend of GDP is about 25%, so federal spending is boosting our economy but we're paying for it in years to come.

Brian: I don't know your political history, of course, but have you voted for Republican presidents in the past, and does the scenario that you just laid out and how it's affected you make you think in a certain way about 2024, assuming Biden, Trump, or just assuming Democrat/Republican?

Jim: I'm not a fan of Trump. I am a fan of Republican, smaller government, and it's going to be a tough decision because if it comes down to Trump or Biden, neither of them are my preferred candidates.

Brian: Jim, thank you very much. There are a lot of Jim in Chathams out there. Jeff, for you as a White House economics reporter, you hear narratives like that a lot.

Jeff: Completely common and extremely understandable how frustrating and painful inflation is not just him, of course, but for tens of millions of people. Putting aside the important vital questions about what caused inflation just for a second, I think the listener really captured the messaging struggle, I think that the White House is facing because they're simultaneously proud of a lot of the things they've done and think that they deserve credit for avoiding a recession and credit for some of the legislation they've passed.

But Americans are very, very bitter about the economy right now and very, very upset, and psychologically seeing inflation is extremely destabilizing. Some of the White House officials will look at some macroeconomic data that suggests that people are doing well and doing, in fact, maybe even better than they were in 2019 by some metrics. Even if that might be true in the aggregate, and we can debate whether it is, I think there's a valid case to be made that it's not, but putting aside that debate, even in the most rosy interpretation of the data, there are going to still be tens of millions of people who are worse off.

Just because it's a huge country, and there are lots of people in it who will not have benefited and seen their incomes rise. I think it's also a time where people are hyper-aware of their economic circumstances because to the totally understandable reason that you're seeing these very psychologically destabilizing price increases, and to the caller's point, it's really hard to know when they're going to end. Yes, the rate of inflation has come down, but if something goes from $10 to $20 and then only to $22 after that, an economist might say, "Look, you slowed down inflation from 100% to 4% or whatever that would be."

That doesn't mean that the person will feel better. They'll still remember my prices. They'll see that their prices went up from $10 to $22. That I think is super legitimate, and I could forgive this long-winded answer again, but we've seen real disposable income decline relative to 2021. We put tons of money in people's bank accounts, and then that money has largely dissipated. The White House will say, "Well, that money was always intended to be temporary." It's been, I think, genuinely and understandably traumatic for a lot of people to watch their savings be reduced and the value of it go down.

I think for the White House, they want to crow about all they've done, but I think they also understand that there's political danger in dismissing the real and valid concerns of people that people have like this caller.

Brian: That caller mentioned healthcare costs as one of the reasons that he feels worse off or no better off. Another listener writes in a text message, "I'm worse off at the end of 2023 because I spent over $10,000 on surgeries to save my cat. We talk about the unaffordability of healthcare, but an emergency for your non-human family members can really decimate your financial situation. Kitty is fine, but everything else has slowly crept up in pricing too, including human healthcare costs for next year." Ethan in Jersey City, you're on WNYC. Hi, Ethan.

Ethan: Hello. Hope all is well with you guys. Just a very quick question. As on the border of millennials and Gen Z, I feel like the economy is really almost against that entire younger age group right now. I'm wondering if you guys have any numbers or details or even opinions and thoughts on how the younger generations can get out of debt and experience wage growth, et cetera, and if that stuff can be on the horizon and how can actually get there because a lot of people in my age group feel a little trapped and unsure on how to get by.

Brian: Jeff.

Jeff: Well, I think this manifests in a lot of ways. I think the really big one is in the homeownership and rental markets, where you've seen staggering increases in cost completely disconnected from wages, and that are unavoidable. You need a place to live. Forgive me if the statistic is not precise. Off the top of my head, we had a story recently about how rates of homeownership among millennials, which is my generation as well is something 15% to 20%. Forgive me if that figures off by a little bit, but that was generally the number for our generation relative to Gen Xers and baby boomers.

That's an incredible stress on people because the rental market has also gone completely bananas. Now, I think sometimes this gets exaggerated a little bit. You see on TikTok, for instance, people say that we're in The Second Great Depression and that living standards are lower than they were in The Great Depression by any real-world economic measure. That's not true. I think the hope and the expectation we all have in this country is of linear and continued economic progress.

I think for good reason, there's so many components of this question that are worth talking about, but so much of the wealth in this country is essentially trapped, not trapped because this generation needs money too, but is being held currently by baby boomers, something like two-thirds of the net wealth in this country remains in about 20% of the oldest part of the population. Eventually, that will be dislodged, but it's quite painful for people right now who are unable to access any of that.

Obviously, within that group, it's incredibly concentrated. You've seen the percent of the economy and the national wealth controlled by the 1% really skyrocketed over the last 30 years. That is for sure a real trend. When you layer on this generational wealth divide, it becomes more painful.

Right now, we are seeing the Federal Reserve have raised interest rates quite high, and that's just further priced millennials out of the housing market and somewhat amazingly not yet really led to a substantial reduction in housing sticker prices, which means when you add in the fact that the loans are so much more expensive, it just makes something that seems so tied up in the American dream, the idea of having a home just feel completely out of reach.

Brian: We'll continue in a minute with Jeff Stein, White House economics reporter for the Washington Post. His new article called Everyone expected a recession. The Fed and White House found a way out. We'll take more of your calls. Another thing that you wrote about actually in another article recently, but it relates to this Biden pointing out price gouging on the part of corporations and that's contributing to inflation. Stay with us. Brian Lehrer on WNYC with White House economics correspondent for the Washington Post, Jeff Stein. His latest article, Everyone expected a recession. The Fed and White House found a way out.

Yes, no recession, but as we're hearing from our callers and seeing on text messages, a lot of people still feel personally plagued by inflation and like they're not getting ahead this year. Let's take Marvin in Brooklyn who is going to speak for a whole bunch of people who are calling and writing in. Marvin, you're on WNYC. Hello.

Marvin: Thank you very much and thanks for this segment. Again, I think one of the under-reported aspect of the current situation is the role of large corporations that use inflation to raise prices way beyond their additional costs and have kept them high. In their reports to stockholders, they brag about the fact of how much more money they're making, even if they're selling fewer products and so on.

Other countries have taken steps to not allow this level of profiteering, but we have enacted on even having public pressure on companies to roll back excessive price increases. I think that's a critical part of both reducing inflation and also reducing the cost of living for ordinary Americans.

Brian: Marvin, thank you very much. All right. Price gouging. You did write an article about Biden targeting that in 2024. We have many text messages coming in on this like one that says, "What about corporate greed enraging, but we are a capitalist society. What do we do?" Another one that puts a fine point on it says, "How are companies having record profits if we are experiencing inflation? Is it not supposed to cost more to produce things?" Here we are.

Are companies raising prices in a way that you, at the Washington Post or anyone else has documented that you've seen that are faster than the rate of inflation that those companies are putting up with in the production process?

Jeff: Let me just start my answer by saying, Marvin, thank you because I have a story on this that I've forgotten until you just mentioned it. Now, as soon as I get off this call, I'm going to go back to my editor. This is something we hear a lot and the polling is unbelievably clear. The huge numbers, majorities of Americans and even Republicans blame corporate price gouging for inflation. Economists are divided, I think it's fair to say.

You hear from Republican and even some democratic economists like Jason Furman or Larry Summers, who served in the Obama administration, that high corporate profits are more of a symptom of the same thing that causes inflation rather than the cause of inflation. The same force here of excess demand causes inflation to rise, but it also creates so much demand that corporations have an easier time increasing their share of profits. That's the argument that you get I think it's fair to say from a more traditional economist that corporate price gouging is not really this unique phenomenon, but response to macroeconomic pressures and doesn't reflect really the cause of inflation more.

I think leftwing economists will strongly dispute that and actually, as our story talked about that, Brian is alluding to, corporate profits are up substantially and quite robust. In the most recent quarter, corporate profits accounted for slightly more than 15% of the national income which is a huge number. That's about $3 trillion over the course of a year, and that's up substantially. Now, what the Biden administration does about that other than yelling at corporations is a little hard to know.

There were proposals at some point that the White House did not really embrace for a corporate profits tax, which would tax the increase in profits relative to what they were before the pandemic of corporations, but Republicans have no appetite for that kind of measure. What do you do about it's hard to say, but rhetorically, it could be very significant if Biden continues to talk about corporate price gouging as he started to do a little bit more recently.

Brian: We're going to run out of time pretty soon, but what are the Republicans promising by contrast at the policy level? The main thing I feel like I hear all the time regarding inflation is drill for fossil fuels to lower gasoline prices, but gasoline prices have come down and lower federal spending. Is there really a case for a connection between federal spending and inflation especially in the short term? What do economists say about that? Because here's another text that came in and I apologize. This has been happening a lot lately, where the texts come in so fast that I can't get the one that I'm looking for.

Anyway somebody wrote that, wait, "Lower government spending is just going to mean less of a safety net and more people in poverty. That's not going to help the economy. That's just the Republican talking point for the rich. What about the tax cuts for the rich also taking money out of the economy for everybody else?" Specifically, on what are the Republican proposals that really contrast with what Biden would say he wants to do in a second term?

Jeff: I think there are a lot of super legitimate criticisms and questions about Trump, in particular, who talks all the time about how Biden is responsible for all this inflation that he'll fix it. There's really nothing I've seen yet from the Trump campaign to legitimize or legitimate that. As you said, expanding energy production and reducing government regulations could theoretically lead to a reduction in business costs that get passed onto the consumer. The idea that government spending is going to prevent, or reduce inflation, I think even most Republicans are going to be reluctant to, in fact, go there.

If I'm really bending over backwards to give them the benefit of the doubt a little bit, I think what they would say is, there are many mainstream economists including many Democratic economists who have said that Biden's American Rescue Plan $1.9 trillion in the spring of 2021, in fact, dramatically exacerbated inflation, and that they would not have done that. In fact, they all voted against it. You have a legitimate potentially argument that there is genuine economic support for the idea that measure increased inflation that Republicans opposed it.

That said, it doesn't say anything about what to do going forward. As you're saying the affordability crises will get a lot worse for people at the bottom, in particular, if Republicans cut food stamps and cut Medicaid and cut other safety net programs.

Brian: Last thing, you're right that as 2023 winds to a close, Powell at the Fed and his colleagues are far from declaring victory on inflation, and yet, we hear that interest rates are likely to come down multiple times next year. I think he might've said that himself the other day. What is victory over inflation supposed to look like, and where are we in relation to that?

Jeff: Well, I guess economically, the idea is that the Fed is supposed to get inflation down to 2%, and so far, it's fallen from about 9.1% to around 3% although there's some indicators that the most important drivers of inflation are headed closer to two, which is a really great sign. Politically, people are still upset that prices haven't fallen, and nobody in the economic policy world wants prices to go down because if prices to go down, it's almost certainly reflective of we haven't seen prices decline really since the Great Depression.

That will be an environment that nobody wants where millions of people get thrown out of work, and the economy is really in a tailspin but it's a very difficult puzzle to solve because people might want to go back to the prices of 2019, but to get there would be extraordinarily painful.

Brian: Many text messages still coming in. We'll close by reading just a few. Listener writes, "As a commercial interior designer, I'm seeing small businesses like bars and restaurants flourish in many open, which I think tracks with the data we're seeing. I'm lucky to be a business owner who can set their own rates in line with inflation, but my point of view is a lot of small businesses are doing quite well, and as such we can assume that people are spending more out than before." Another listener writes, "Disgusted with Biden for squandering the opportunity on student loans. A $10,000 forgiveness is a drop in the bucket."

And the conversation goes on from the many points of view. For now, we thank Jeff Stein, White House economics correspondent for the Washington Post. His new article is called Everyone expected a recession. The Fed and White House found a way out. Thank you very much.

Jeff: Thanks so much, Brian. Appreciate it.

Brian: Brian Lehrer on WNYC. Much more to come.