Kyla Scanlon on the “Vibecession”, the Vibe Economy, and the Path to Growing American Wealth

Kyla Scanlon is the founder of Bread, a financial education company where she brings economics to a wide and often younger audience, and is also the author of the book, *In This Economy? How Money and Markets Really Work.* Kyla joins David on Macro Musings to talk about a wide range of economic issues, including the case nominal GDP targeting, the basics of the “Vibecession” and the vibe economy, how to further build American wealth, and more.

Check out our new AI chatbot: the Macro Musebot!

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth: Kyla, welcome to the show.

Kyla Scanlon: Oh, thanks for having me.

Beckworth: It's great to have you here. We have a lot to talk about. Before we get into the economics topics, I want to talk about a connection that we have. We both are connected to Western Kentucky University, go Hilltoppers-

Scanlon: Go Hilltoppers.

Beckworth: -WKU, and I learned in preparing for the show that our paths just barely missed. We were there for a year at the same time, but you weren't an econ major. I was an econ professor. So, tell us about your WKU story.

Kyla’s Academic and Professional Path

Scanlon: Oh, it was great, yes. I was a presidential scholar, I think, and so I had a full ride and ended up getting a stipend to go to school, which was unbelievable, because I was really worried about student loan debt, and so, that was great. Then, I went into school thinking that I was going to be an engineering major. I didn't realize that econ and finance was something that you could study, and once I took Brian Strow’s class, Econ 203, I was like, "Oh my gosh, this is amazing." And so, I switched my majors over to the business school and just had a really great time. The professors were so supportive. I started a club there. I was an athlete there. It was just everything that I wanted to try, [and] everybody let me. I had a lot of free reign, and I just did everything I could on campus. It was a phenomenal experience.

Beckworth: Yes, so, some folks may not know that you're a D1 track athlete [and] star.

Scanlon: Retired.

Beckworth: Retired, okay, but you were competing at that level, both athletics, and then you did econ. You're a triple major, I understand. Is that right?

Scanlon: Yes. Econ, finance, and data analytics.

Beckworth: So, what was your favorite course when you were there at WKU, or maybe top few courses?

Scanlon: I really loved game theory. That was— Dr. Susane Leguizamon taught it, and it was really fun, because it sort of tied together what I was interested in, which was the behavioral psychology, but then how do you sort of quantify behavioral economics and psychology? So, I really enjoyed game theory. Then, there was a class, which was just one credit hour, that Dr. Chhachhi in the finance department taught, and it was called the TVA Investments Class. And so, you were able to manage a $500,000 portfolio, pitch stocks to a group of students, and you had to be selected to get into the class. That was so fun, because I love stocks and companies, just learning about companies. I'm a terrible investor, so I just do ETFs, but that was a really enjoyable experience as well.

Beckworth: Now, I reached out to Dr. Lebedinsky, or Alex as I call him, and he wrote this about you, so I'm going to read this. I'm going to brag on you as a former professor there and you're a graduate of it. This is what he had to say about your time there. "I remember my first conversation with her very well. She was a student in my financial data modeling class and wanted to do extra work for the class so that she could earn honors credit for it. I suggested various topics that she could work on and went on this long tirade about stock options, explaining to her what calls and puts were, starting from the basics. Kyla listened politely without interrupting my very long spiel, but when I finally paused to ask if what I said was making sense, she told me she'd been trading options in high school. That's when I realized she was on a completely different level than most students." Do you remember that moment?

Scanlon: I remember. He's so supportive. He's a great explainer. I just was curious, so I listened.

Beckworth: Yes. Then, he goes on to say more. "She is one of the most outstanding students I've ever had in my 20 years in academia. She earned three majors, econ, finance, and data analytics, and was chosen as an Ogden scholar, our equivalent of valedictorian for the entire university. She was an outstanding senior in all of her majors, [and] racked up a number of awards during the recognition ceremony when she was called to the stage to receive her awards. Every introduction sounded different, because her list of accomplishments was enough for about five outstanding students. I am thrilled that Kyla had the courage and drive to pursue her passion instead of following a traditional career path." So, he was excited to see you go and start this business, be entrepreneurial. So, how did that happen? How did you go from WKU into the place you are now?

Scanlon: Yes. So, I wanted to do a PhD, and I remember talking to Dr. Lebedinsky and Dr. Chhachhi about that, because I wanted to teach. I loved tutoring, and I just loved talking about econ, and Dr. Chhachhi was like, "You should probably go into industry and just see, just see if you like it. You can always get a PhD later." And so, I was like, "Okay, sure." I graduate in 2019, and I moved to Los Angeles in June of 2019. Six months later, the pandemic happens. I was at Capital Group on the buy side, did equity portfolio research, was on their macro team for a little bit, [and] was in a rotational program. So, the pandemic happens, and I was like, "Oh, no, what's going on? Things could end."

Scanlon: And so, for me, there was a big awakening where I was like, "What do I want to spend my time doing?" And I really enjoyed all of the learning opportunities at Capital Group and really enjoyed talking to people. I got in through a blind resume, so it was a really awesome opportunity, but I wanted to see what I could do by myself. I'd always struggled with a creative ceiling at Capital Group, because when you're an associate, you can't really have ideas. I didn't understand that at first, and then I was like, "Oh, okay."

Scanlon: And so, during the pandemic, I was like, well, I have all of this time. I'm all alone in Los Angeles in my 300 square foot apartment, and I left the company and started making videos about GameStop, and then just decided to transfer all of my economic knowledge and what I was learning from others to social media. It wasn't new for me to do something like this. I had a blog in college called Scanlon on Stocks, so I talked about options trading. So, it was just something that I'd always sort of done in the background, and I just wanted to refocus on it, and I've been so lucky and so grateful that so many people have believed in me along the way.

Beckworth: So, you just quit your job and you started posting. Did you have savings? Were you— [Was it a] leap of faith here? What was going on?

Scanlon: Oh, it was so scary. Yes, if I failed, it was over. I had nowhere to go. Home, I suppose, but it was very terrifying. And so, yes, it was partially a leap of faith. I was at a startup for a little bit called OnDeck, building out their investment education program. So, I had that as sort of a safety net. Then, every time I wasn't working on the startup, I would go and work on my own videos, and I left that company when the video started to gain traction. When I first started, I did skits. I pretended to be Jerome Powell.

Beckworth: I think I remember this.

Scanlon: I haven't done one in a while, but that's how I got my start. Then, I was able to secure a brand deal with a crypto company called Bankless, making videos for them, and that was enough to live on. And so, I was like, "Okay, I'll just do that on the side, and then just focus on producing daily economic videos," and it'll be three years, in October, since I left.

Beckworth: That's amazing. Living the American dream, huh?

Scanlon: Yes, entrepreneur.

Beckworth: That's great. So, let's talk through all of the different things that you're doing. So, you have a podcast, you have a newsletter, you have multiple channels on social media. Is YouTube your main one or TikTok?

Scanlon: I would say Instagram Reels.

Beckworth: Oh, Instagram.

Scanlon: Yes, that's a big one, which I know you want to learn about. TikTok is TikTok. It's a good platform, but it's definitely a different user base than Instagram, Twitter, LinkedIn. I have a Substack, a YouTube, and a podcast. So, I produce across a lot of different channels. Then, I also partner with Bloomberg Opinion with the Academy of Arts and Sciences. And so, I work with a lot of companies, and then also have Bread, which is the name of my company. I have that side of things, too.

Beckworth: What's it like, an average day in your life? You get up, you have all of these different platforms that you've got to post to, videos that you've got to make, news that you've got to read. How do you do it?

Scanlon: Oh, I think, like anybody else, I wake up pretty early. I'm an early bird, and I like to read the news first thing in the morning, which sometimes sets my day off in a weird direction. So, I read the news, and then I usually try to have a workout, and then I'll process what I'm thinking about during a workout. I find that movement helps me think. So, I ride my bike or I go to the gym or I do a yoga class. Then, I usually have meetings. I'm in a lot of meetings. Then, I will produce my video around 3:00 PM, and then, in the nighttime, I'd write.

Beckworth: Okay. So, when you make these videos, how do you find the inspiration, the material? Is it a hot topic of the day? Something you thought about during your yoga, your exercise, reading the news? How do you pick your topics?

Scanlon: For the daily videos, I'm usually news-responsive. So, I'll talk about rent caps, which came out this morning, I suppose, but the news came out yesterday. The actual press came out this morning as of time of recording. For the longer stuff, like my Substack, I'll do various interviews and sort of tell a broader story. I'll do an interview with the Deputy Secretary of the Treasury, Wally Adeyemo, about the housing crisis and talk about the policies that are being implemented to fix the housing crisis, but then I'll sort of build a story around what he's saying. So, I'll explain the housing crisis. So, the Substack and the podcast and the YouTube are a little bit more in-depth and take up more time and are not as news-responsive as the daily short forms.

Beckworth: So, I know that you don't like the term social influencer, but what does it take to do all of that? How much time do you put in, in a typical day, to post the videos, to post to your podcast, all of that?

Scanlon: How many hours a day do I work?

Beckworth: Yes. Is it like an 80-hour week to become— this kind of reach that you have?

Scanlon: I don't know. [With] a job like this, you never really stop working, and I'm sure that it's the same for you. You can just consume news and research all day long. Is that working? I don't know. But I would say that, yes, upfront, the time investment is high. It has to be. You just have to learn how to make videos. You have to be responsive on the platforms. Right now, I'm traveling quite a bit for the book and then just for interviewing people, which is just phenomenal. It's such an honor. So, yes, but I don't know what else I'd want to do with my time other than be on my bike.

Beckworth: So, you love what you do. When you wake up, you're like, "Let's go. Let's do this."

Scanlon: Yes.

Beckworth: That's awesome.

Scanlon: It's an honor.

Beckworth: In fact, today you were here, in D.C., visiting the NABE conference, presenting there. You mentioned that you visited the Deputy Secretary of the Treasury. So, tell us about that, being on the circuit, going around, promoting your book.

Scanlon: Yes. Well, the NABE conference was about the book, but they brought me and Joey Politano, who I think you had on the podcast. We were on stage together, and he's one of my best friends. So, that was really fun.

Beckworth: How'd you guys meet?

Scanlon: Through the Internet. I was one of the people who was like, "Joey, start your Substack. You're so good."

Beckworth: Really? Oh, wow.

Scanlon: Yes. He's great. Going back to your point about, how do you take the leap when it's so uncertain, and that's hard, and so, we talked a lot about that, what that looked like, me and Joey. And so, we were on stage together talking about, how do you discuss economic data on social media? How do you communicate these rather hairy ideas to a broad audience? One thing that I love about your podcast is that it's so dense and your guests are so technical and it's so good. But how do you take these really good ideas that people have— and this is what you do as well— and translate that? And so, that's what we were on stage talking about.

Scanlon: Then, the interviews with the Council of Economic Advisers and the National Economic Council were about housing policy, because one thing that's really tough right now is that there's a lot of policy being passed, but it's a translation issue. People don't know that it's happening. They don't know that there's been $35 billion allocated to convert commercial into residential. They don't know that there's going to be 2 million more units built based on the low-income housing tax credit. So, what I try to do is take these policy ideas, communicate them to a wider audience, and just let people know that the problems that they're facing are being worked on.

Beckworth: That's great. Now, I've had people tell me, my family members, that they can't understand my podcast.

Scanlon: I think you do a great job.

Beckworth: Even though I might make it accessible to a certain audience, there is a much wider audience that you do reach [and then] make these things accessible [to them]. But when you're talking about the Fed balance sheet, or you're talking about currency swap lines, or a nominal GDP target versus a price level target, there's only so much— I know that my parents listen, because they're my parents. But some people are like, "David, I tried," but that's okay. People like you and other people who care about this stuff, I know, listen. So, let's go back to your book, because you mentioned your book. This book is the basis of your tour. How did that come about?

Scanlon: Oh, the book? So, I coined this term back in July 2022, “The Vibecession,” and it took on a life of its own, which was wild. But I wrote this New York Times opinion piece about it. And so, Penguin Random House reached out to me, and they were like, "Have you ever thought about writing a book?" And so, for me, I'm a huge book nerd, I love reading, and I was writing books, when I was like eight years old, about penguins. And so, I was like, "Of course, I thought about writing a book."

Scanlon: And so, that was a very big personal achievement. But then, I really wanted to communicate these ideas in a book format, because all of my content is on social media, and you're a part of people's algorithm at that point. It's not static. They can scroll away at any moment, and, sometimes, it's much easier to scroll away and consume a video that isn't about nominal GDP targeting and is about something just easier to deal with, mentally. And so, I wanted to have a sort of foundational sandbox [where] people could go and sort of consume these economic topics, and then, yes, just a place for people to go that was outside of social media.

Beckworth: So, Kyla, we have been discussing all of the work that you are doing across the many social media platforms, at conferences, with your book, and it is amazing, all that you are doing. And this success seems driven, in part, by your curiosity and desire to better understand the world. You also are a great interviewer yourself, as seen on your podcast. So, between your curiosity and natural podcast-hosting abilities, I suspect you may be chomping at the bit to flip the roles here and host Macro Musings for a few minutes so you can ask me some questions.

Scanlon: Yes, absolutely, I do.

Beckworth: Okay, let’s do this. Ask away!  

Flipping the Macro Musings Script: David’s NGDP Targeting Pitch

Scanlon: I'd love to hear more about nominal GDP targeting— This mug is fantastic— especially with recent policy moves and what happened this year.

Beckworth: So, for those who aren't seeing the video, we have two nominal GDP targeting mugs. These are classic. People have asked me many times for these, and Kyla's getting her own.

Scanlon: So exciting.

Beckworth: Yes, so, we have that to share with her. So, I guess I can give the elevator pitch, and then I can give maybe a little bit of a longer version. The elevator pitch is, have the Fed focus on total dollar spending as opposed to prices, and depending on who you're speaking to, you could say total dollar income. So, if you're speaking to an industry group, we want to stabilize sales, in the aggregate. To a labor group, we're trying to stabilize incomes. That's the elevator pitch. Now, if you stabilize those over a long period of time, you ultimately stabilize the price level, too, because it's a nominal measure. So, that's the quick elevator pitch. We're trying to stabilize the growth of the dollar size of the economy, whether we measure it from the income side or the sales side.

Beckworth: But the longer pitch— and this would answer your question about how do we think about it in recent policy— would be that it's a tool that makes it easier for the Fed to work through supply shocks, for starters, number one. So, if you're focusing on just demand and a supply shock comes along, you don't worry about inflation. In fact, one of the, I think, features, the beauties of nominal GDP targeting [is that] you're just stabilizing the total dollar path. And so, if inflation goes up temporarily, that's okay. Now, [with] long-term trends, you might worry about that.

Beckworth: So, during the pandemic, for example, if the Fed had been following a nominal GDP target, they would have looked at, probably, the forecasted path of where nominal GDP was going, as opposed to trying to figure out, is this transitory or not? And I think that's the challenge. In real-time, how do you know if inflation is temporary, driven by supply shocks, or maybe fiscal policy checks? We don't know, and nominal GDP targeting says, don't try to know. Just focus on total dollar size and grow it. So, that's another angle.

Beckworth: There's other ones. During the 2010s, people like Michael Woodford were promoting it as a way to get out of the zero lower bound. So, it's a level target, which— you could do this with a price level target too, but makeup policy. And more recently, there's been a financial stability argument for it, that if you keep nominal incomes [and] you keep salaries on their expected path, people can meet their mortgage payments, and it preserves the financial system from cascading. So, that's the quick version of it.

Scanlon: What's the pushback against this idea? Is it just like, “Oh, we can't shift the path from what we're doing now,” or why would this not be implemented?

Beckworth: That's part of it. In fact, in 2011, they had the discussion. In 2012, they first introduced the official inflation target, and I was just looking at the transcripts from 2011, [and] they were discussing a number of options, including nominal GDP targeting. Bernanke goes, "Yes, this would not be a great time to suddenly go to something dramatically." So, it seems foreign. But [if you] put that to the side, I think that the big reservation you have, probably for most people, would be the data issue. So, GDP comes out quarterly, and then there's big revisions to it. And this is why I would prefer to look at a forecast of nominal GDP. So, for example, to make this concrete, if you look at a forecast of nominal GDP in 2021, you would have seen that the dollar size [of the economy] was going to really, really overheat, get much larger than a stable growth path would have suggested. So, you would do something like that.

Beckworth: So, I think that there [are] ways around it. The other thing I would note [is that] if the Fed were to adopt the nominal GDP target, I think that the data would be endogenous. They would find the data if they really wanted to do it. So, I think that you can put that one to bed. The other one— and I've had Chair Powell tell this to my face. He said, his exact words were, "David, I'm trying really hard to fall in love with nominal GDP targeting." I said, "Well, how can I get you into the end zone?" He said, "The communication, because how do I communicate this to people?"

Scanlon: Yes, it's complex.

Beckworth: I would never say [to] tell the public that we're doing nominal GDP level targeting. That is a mouthful, I agree. I would go back to what I mentioned earlier. I would say that we're targeting the dollar size. We're targeting the average income in America, the dollar growth of your income, and sometimes that's a lot easier, actually, than saying that we're targeting inflation. As an example, I believe it was QE2, and Bernanke was before Congress, and they asked, "Why are you doing more QE? Why more large-scale asset purchases?" He said, "I'm trying to raise the inflation rate," and they flipped out. “What are you telling me? We're in a weak economy. You want to [make] things more costly?” What he really meant is, "I'm trying to raise aggregate demand, the dollar level." And I say, just cut to the chase. Say, "Hey, I'm trying to get the dollar size of the economy [up], which means higher incomes, higher sales." So, in some contexts, I think that it's actually easier. But look, if we were committed to it, I think that there's a path forward through communication, but data and communication, I think, are probably the two biggest issues.

Scanlon: But if you're targeting incomes like that, how would you design policy around that? How would you--?

Beckworth: Oh, actually implementing it?

Scanlon: Yes.

Beckworth: You could do a Taylor rule version of it. So, I actually have some papers, and to be clear, I'm not the first person to bring this up, but there's been work done. In fact, going back to the 1980s, Greg Mankiw and Robert Hall had a paper. Now, they looked at using monetary aggregates to control those, but I would say the simple interest rate rule. Look at a target nominal GDP path versus what it actually is, and you can go with that. So, you have to come up with a measure. Here's the hard part, I think. Come up with a measure of where you think the optimal or neutral nominal GDP path is. I have my measure. We have it at Mercatus. Others have other ones. Athanasios Orphanides has a similar approach. So, there are rules out there, but I think that the data issue communication really is tough.

Beckworth: But here's what's interesting. There's been a lot of discussion recently on this Fed framework, which we're going to hopefully start soon. They review it every five years, their framework, and they had a session at Brookings recently, a conference. They had one at Stanford, at Hoover. And everything that was brought up is something that nominal GDP targeting could fix. They're like, "We need more symmetry, less asymmetry, because FAIT makes up inflation from below but not from above." A number of people were hung up about the asymmetric approach to maximum employment in the framework, shortfalls versus deviations.

Beckworth: Nominal GDP targeting is a way to have above or below you. You hit that target. And, again, the beauty, to me, of the past few years of nominal GDP targeting would have been that we wouldn't tighten in the presence of a supply shock. So, just because inflation is going up, you don't have to tighten if nominal demand—  And clearly, in 2020, real GDP collapsed. Prices begin to go up in 2021. You're okay with it as long as nominal GDP is on a stable path.

Scanlon: How long is that path planned out for? How big would the timeline have to be?

Beckworth: That's a good question. So, depending on who you ask, [there are] different views. One would be you that need a dynamic update of that path as potential real GDP changes. Then, the critique is, well, how do know what potential real GDP is, right? Athanasios Orphanides has done a lot of good work on this. He shows that the forecast error for potential real GDP is much lower than for like r-star, u-star, [or] even the output gap. [For] the output gap, which is in a Taylor rule, you need to know real GDP, precisely, and potential real GDP.

Beckworth: So, you do need to have an updated of potential real GDP. I argue that potential real GDP usually doesn't change dramatically overnight unless something really crazy were to happen, like a war or something. So, you can forecast it. I would say, go with the consensus forecast or where— The Survey of Professional Forecasters, they have like a 5, 10-year forecast. Go with where the market, or where consensus has it. Then, you would gradually update that and add 2%, and that would be your nominal GDP target. So, you would have— just to reiterate, you would have stable inflation over the medium run with that. You might, in the short run, have high inflation [or] low inflation.

Scanlon: That sounds, politically, like a tough thing to get through. Would that be—?

Beckworth: It would. I think, because it's so different, it might be a tough sell. However, it meets the dual mandate. It has both the real side and inflation in it. We've talked to a lot of Republicans who seem sympathetic to it. I think there are some Democrats who are sympathetic to it as well.

Scanlon: Do their sympathies lie in, oh, it probably does make sense to not target inflation, but instead to target income?

Beckworth: Some of them, though, the progressives more so on that point, yes, but I think that, [with] the Republicans, you often will hear, "Well, this is a version of money supply targeting," which, you would say that it's a velocity-adjusted money supply target, M times V. That's what nominal GDP is. So, you can appeal to that. There's different ways to sell it. I'm sounding very political here on this, but you've got to market what it is, and I think that it's robust. The thing is— what I would say is that it avoids deep downturns in the economy, avoids depressions, but it also avoids big overshoots. That's the thing. We want to avoid both extremes. We learned, painfully, that people really don't like inflation. Some of that, we may not be able to prevent. A supply shock is something [where] there's really not much we can do in a short run about it.

Scanlon: Where did this come about for you? When were you like, "Oh, yes, this is like something that we should--?”

Beckworth: Oh, good question. Oh, boy. Okay, the roles are flipped here. So, I was a graduate student in the late '90s, to tell you how old I am. It was 1999. I had just started my PhD program. And George Selgin— I don't know if you're familiar with him— He, actually, was an advocate of nominal GDP targeting back then, but for a different reason. His story is that if you have a massive productivity boom— So, in the late '90s, [during] the first tech bubble, there's talk of productivity gains, similar to right now. What do you do? Do you allow disinflation? What's the best approach? Do you try to offset it?

Beckworth: The concern is, if productivity is going way up, then maybe R-star, or the equilibrium rate, is going up as well, but if you lower rates to offset the disinflation, maybe you create an asset bubble. There are all of these trade-offs, and he argued that nominal GDP targeting is the easy way out. You keep nominal income, [and] you keep wages stable. Let the price level adjust, if it needs to, a little bit down. He would argue for benign deflation. In fact, he has a book that's really good called Less Than Zero. I recommend it to listeners. It's a really accessible book. So, that was my first introduction. How do you handle a period of really strong, robust growth? As opposed to, most of the discussions that we've had on nominal GDP targeting were after the Great Recession. How do you handle weak growth? Again, I think that it's good for both sides of the problem.

Scanlon: How long have you spent just working on this? Has it been since grad school, to refine the proposals?

Beckworth: I've worked on some other issues, but, probably, I started working on it most intensely during the Great Recession. So, I started blogging around late 2007, 2008. I was actually thinking— In late 2008, I was like, "Man, Fed policy is actually looking a little tight." I was really getting worried that we were going off a cliff, and nominal GDP targeting was, to me, one way to cross-check ourselves. And let me go back to the policy transition. You wouldn't have to necessarily go to a nominal GDP target immediately. What you could simply do is cross-check yourself. Where are forecasts for nominal GDP going? So, something as simple as that would have helped in '21, '22, and presumably would have helped in 2008.

Scanlon: Yes, because I think that a lot of the criticisms of the Fed have been that the toolkit is limited. Would you agree?

Beckworth: Yes. Now, there are also politics that they have to contend with, to be fair. Also, I think, over the long run, the Fed does determine the price level and the path of total dollar size. But clearly, in the near-medium term, fiscal policy plays a role, too. The stimulus checks, those things are important. The Fed can try to step in and offset that. So, we do need to be mindful of all of the stimulus and support coming from government.

Scanlon: Jerome Powell, he basically spoke out against that. I think that at his last testimony, he was like, “The fiscal deficit is too high.” 

Beckworth: I think that we also need to be mindful that there is an appetite, or there was an appetite for safe assets, for Treasuries. What's going to happen when we get to the other side of Fed's tightened policy? Are rates high simply because we're coming out of the pandemic and the high inflation and all of that's going to settle down, or are they permanently higher? [That’s], I guess, another question, but that is part of the story here, is what happens going forward.

Scanlon: Do you think that they can be permanently higher? Do you think that we can maintain? They're probably going to cut soon, right?

Beckworth: Yes, it looks like it. It certainly looks like it, and, I think, probably so. I guess my question would be, how far can they cut? Look, if rates are permanently higher because we're permanently more productive, because of AI, because the pandemic, in some way, made us more efficient, the spending stimulus, all of those things, [then] I would be happy to live in a world with slightly higher rates but where we're also growing rapidly. Economic growth is a cure to so many problems. So, that might be the case. They can't permanently lower rates below what is a sustainable amount without blowing things up.

Scanlon: How do you think about the delicacy of that? That's one thing that I've always struggled with. It's so delicate.

Beckworth: How do you know where, how far?

Scanlon: I guess there's math for that.

Beckworth: Well, I think that the practical side is that we don't know. How low can you go? Who knows? But I think that the best thing we have are asset prices. So, look at break-even inflation. Look at forecasts for nominal GDP, which, again, are not ideal because they're consensus and stuff. My former colleague, Scott Sumner, if you remember him, he really advocated for a nominal GDP futures contract, where the market would price in— based on Fed policy, fiscal policy— where they think that's going. That would be an even better gauge. Now, there's issues that people have brought up with it, but I think that asset prices are probably the best clue we have to how low or how high we can go, at this point.

Scanlon: That makes sense, and when you look at asset prices right now, the stock market is now rotating into small caps, but it's still going up. But, I guess, number one, are you talking about stocks specifically? Then, number two, do you think that they're pricing in something concerning?

Beckworth: I don't know. I'll turn that over to you. You probably understand the market better than I do.

Scanlon: Probably not, I don’t know if anybody does. 

Beckworth: But that's actually a great question for, maybe, a segue into a part of your book that I would like to chat with you about now, if we can flip the mics back around. So, in your book— and actually, you mentioned it already— you're well known for the vibe economy and the “Vibecession” that we arguably went through. Are we still going through a Vibecession, or is that behind us?

Breaking Down the “Vibecession” and the Vibe Economy

Scanlon: People ask me that. Well, now, it's tough, and this is something that I wanted your thoughts on, too, is that the data is making it difficult. So, UMich switched from phone calls to web-based surveys. And so, now, you have people being like, "Yes, I think that inflation is going to hit 15%." And so, it's just totally skewing consumer sentiment metrics. So, we're kind of back in a Vibecession, but it's because of the data messiness.

Beckworth: So, you think that if we had better data, then we would actually know more and [get] a better read of what's actually happening?

Scanlon: Oh, yes. And I also think that there's a gap between what people are saying and what they're doing. Retail sales came in today, at time of recording. They were strong. People are spending money. TSA had the highest day of travel on July 4, I think, ever. So, people are out there spending money. Whether or not they're happy about it, maybe not, but they're doing it. And so, that's where a weird discrepancy is also happening. It's like, at a data level, it's confusing. Then, at a consumer action level, it's confusing.

Beckworth: We are very confused people in America. Let me throw out the stories that I've heard for this. One is that it's levels versus growth rates, price level versus inflation, which, I can see that if it's a sudden— groceries are permanently higher, and we're still getting used to it. So, maybe, how long can that story go on? I don't know, but that would be one story. Another story— You probably saw the Larry Summers paper where he argued that if you include interest financing costs into a CPI measure, then some of that gap between the hard econ data, like sentiment and data, it closes. But that's not a typical CPI measure.

Beckworth: The other one that Paul Krugman gives— and I actually think that there's something to this, but I want to see what you think— it's just that we're more politicized. We live in silos. If you go back and look at those polls— maybe you've looked at this better than I have, like consumer sentiment polls. Right around 2000, right about at the time where Fox News, it's easier to find your tribe, comes out, we see swings between who gets elected, where you didn't see that as much before. Do you think any of those hold weight?

Scanlon: Yes. I think that the way that I talk about it is that there's definitely an element of polarization. That's no joke. We don't seem to like each other as much as we used to, and I think that a lot of that ties into media headlines. There's just a business model of clicks that exacerbates people's fear, and they want to scare you, because then you'll click. And so, that's just the business model, and you can see that in sentiment charts of headlines. It's trended negative for a long time.

Scanlon: What I try to always caveat the vibes discussion with is that we do have structural affordability problems. We have a housing crisis. Eldercare is through the roof. Childcare is extremely expensive. There are real reasons that aren't captured in the metrics as to why people would feel bad. They can be out there spending money but be unhappy about it, and then it's like, "Well, I do have to allocate this money towards rent, and I do have to allocate it towards childcare, and I do have to do all of these things. Economically, I'm okay, but, ouch." And so, I think that's a big part of it, too, is that people do have real economic pain. I think that the tough part of the Vibecession conversation is that the discrepancy is so large. People feel so bad that, if we do enter a recession, they're like, “What will happen?” I think that's what I worry about.

Beckworth: That's interesting. So, that could make the climate even more tense. If we're at this level and things are good--

Scanlon: Presumably, or it'll flip.

Beckworth: Right, okay, maybe we need a slap in the face to go the other direction. Wow, that's a very sobering thought as we head into election time, that season of our life.

Scanlon: Yes, I think that he polarization is a big point of it, too. I think that the average person is quite tired, and what do you do about that? I'm not sure.

The Housing Side of a Vibe Economy

Beckworth: Well, you answered a question that I was going to ask you, and that is, how far does the vibe economy take you versus hard physical constraints on the ground? You mentioned housing. So, if you weren't fortunate enough to refinance or lock in a mortgage in 2021 like I did--

Scanlon: Nice.

Beckworth: I mean, you're right. Rent is high, [the cost of] getting a new home is high. My dad is a realtor in retirement, and his sales [have] bottomed out, both because there's a shortage of housing and because financing is so incredibly expensive. So, that would be infuriating if you're trying to find a home for the first time or maybe even a second or third time. I mean, what do you do?

Scanlon: Yes, you can't do anything, and I think that that feeling of helplessness is tough. Anecdotally, that's what I get from the people who leave comments on my videos. It's like, "The American dream is a house, and I feel like I've been robbed of my future." I'm a renter, and I'm like, “I don't know if I'll ever own a home.” It just doesn't seem feasible, and that's tough, because the main way that we build wealth in the US is through homeownership, and for Middle America, that's what they know. Whether or not that's good is, perhaps, a value judgment. 

Scanlon: I think that we should talk more about baby bonds and, how do we get people into the stock market? How do we think about small business ownership, which is on the rise? But I think that it's a conversation about wealth building, and the traditional way of building wealth isn't working anymore, and maybe it shouldn't. Should a house be both a speculative asset and a place that you live? Probably not. And so, it's value judgment, but I think that there's a bigger conversation that has to happen in conjunction with the housing crisis versus just, "Okay, build more, and we'll just assume that everybody's houses will double in two years."

Beckworth: That's interesting. So, the question that you raise is, should our homes be our biggest investment? Because it is a speculative asset, at some level, and that creates the incentive for me to push back against you building a small house next [to me].

Scanlon: NIMBY.

Beckworth: So, I guess that that's another question I have is, as you communicate to this wide audience— whether [it’s] the older or younger generation— there is this disconnect, I think, for many people. You call them NIMBYs, but many of them are unconsciously, maybe, NIMBYs. Like, “I don't want multifamily housing going up down the street from my home,” or “I don't want that small starter home in my neighborhood.” Do you see this dissonance between what people want? They may be very progressive in their social values, but they don't want a small home built near them.

Scanlon: Yes, it's definitely a thing, and when I talk about the housing market, I get messages about that too, where it's like, "Well, I just built a home. I don't want a high-rise right next to me." And so, I think, for a lot of people, they are progressive, but housing gets really hairy, because it's where you live. And we are very individualistic in the US, and people really like their space. And so, parts of it make sense, but then I do think that there has to be an acknowledgement that [with] where you live, more people probably should be able to live there. We have to have dense infill in cities, and zoning reform is probably necessary if you want your city to thrive in the future. Constraining supply is the best way to kill a city. We're seeing that with San Francisco right now.

Scanlon: And so, I think, for people, it's just something to think about. I think that there's room for that conversation, about where they should be built, but, it's funny. You look to the past, and wealthy people were able to build ADUs, accessory dwelling units, in their backyard. And so, you usually had somebody on your property living there. But now, that's not as popular. We've really embraced the suburban lifestyle of a yard and a house, and there's room for that, but there also needs to be building within cities.

Beckworth: So, let me push that a little bit more. It's interesting. So, you think that another path forward might be good. We need to work with what we have [with] housing and promote more supply, but your point [is that] that may not be the optimal path forward permanently, because it's an investment as well as a place of residence. So, what would be your path forward to get the average American wealthy?

The Path to Growing American Wealth

Scanlon: I think that we need to build more housing. There's no question. It's too expensive. It's eating into people's income, and I think that the housing theory of everything is a true idea, where if you're feeling bad about your housing situation, you're probably feeling bad about economic circumstances and the economy as a whole, because it's gas prices and housing and grocery prices, too. And I think that, in order to think about building wealth, housing has been the way to build wealth, and right now, we have the greatest wealth transfer in history potentially about to happen, where a lot of boomers will pass on their homes to their millennial children.

Scanlon: And so, you were somebody who got in, at the market, at 2%. So, there's a bifurcation between you and a person like me who was not in the housing market at that time. But there's also going to be a bifurcation between the millennials who inherit homes from their boomer parents and those that don't. John Burn-Murdoch over at the FT has a graph of this. And for audio listeners, I'm separating my hands quite wide to show the discrepancy between the two lines, but I think that we just need to think about stock ownership on a big level. How do we get people in the equity markets? Because that's essentially a reflection of where you think that the United States is going to go, the US stock market, and it has been an incredible wealth-building opportunity.

Scanlon: I think that there's a metric out there, that 10 or 20 times more value is generated from a stock market portfolio than a house portfolio. I also think [about] baby bonds. How do we set up babies to succeed in the US? It is a great thing to think about. And I think [about] business ownership [and] employee stock option programs— which, I get a little bit of pushback on that, because people don't want to divvy up their business, which makes sense. But I really just think that it's time for a conversation about, what should housing be? And that's a really tough conversation to have, and I have not had it successfully yet, because nobody wants to talk about that.

Beckworth: One more question on this, and then we'll move on. Baby bonds or baby ETFs for the S&P 500? How would you proceed, equity or debt?

Scanlon: I think a mix of both.

Beckworth: A mix of both, a portfolio.

Scanlon: A diversified baby.

Beckworth: Okay, so, going from diversified baby portfolios to other issues related to babies, and that's population growth. So, that's something that really concerns me. I'm someone who's pro-population growth. I see all of these challenges. I know that there are degrowthers out there, but, to me, the labor force, idea generation— those things are important to long-term economic growth, and yet, we're having a decline in fertility, a decline in family formation, and we're also, it looks like, pushing back against even legal immigration. Is there interest in this? As you reach out to your followers, the younger generation, do they care about these issues?

The Issue of Population Growth

Scanlon: Yes.

Beckworth: They're concerned too?

Scanlon: Oh, yes, definitely. I think that there's a demographic divide, number one. So, people are just staying in their jobs [for] quite a long time, and so that creates a lack of mobility, I think, for younger people. And so, that's an element of frustration where the life path doesn't move as fast as it used to, because people are just living longer. But I think that a lot of people might want to start a family, but the cost of child care is prohibitive. Then, housing is also-

Beckworth: Back to housing.

Scanlon: It's always back to housing. I get criticized for this sometimes. I mean, it's true. Boomers own more three- and four-family bedrooms than the millennials do, and that's probably something that should have passed on at this point, but there's tax incentives for the boomers to stay in their homes. And why would they sell? They're sitting on a golden egg. And so, I think that a lot of people are concerned about demographics, because we are facing, essentially, a cliff with social security, Medicare is extremely expensive, and it doesn't seem like there's an investment towards the future sometimes.

Scanlon: When you look at how public education is sometimes treated, a lot of schools are underfunded. So, I think that a lot of people look around and they're like, "Maybe this isn't the best environment to raise a kid in." So, there's the economic cost of having a child, but then you also do see family formation happening much later, like people are having babies later, they're getting married later. I don't really know why that's happening. I have speculations, but I don't have hard data. I just think that people are taking time to make these decisions, and staying in school longer, or just taking a longer time.

Beckworth: But the opportunity cost of having a family is definitely higher because of all of these reasons you've outlined. So, one last question on the generation Z, or the folks that follow you. I know that it's wider than Generation Z, but I am curious, do they care about the issues that we care about? So, we'd like to talk about monetary policy.

Scanlon: Who's we?

Beckworth: The two of us, people in this world. So, you mentioned my podcast. It reaches a niche audience. I'm honest. I acknowledge this. My daughter, for example, she's a high school student, and she tries to explain to her friends what I do, and it's very hard. And even she has a hard time understanding everything that I say on the show. Does the Gen Z have an interest in monetary policy? Do they have an interest in fiscal policy and questions like that? When you do your videos, do you get the engagement on those topics?

Gen Z’s Interest in Macroeconomics

Scanlon: Yes, I think that a lot of people are very fascinated by monetary policy, but it is complicated. And so, that's what I try to do, is really distill it down to the bare forms.

Beckworth: Well, thank you.

Scanlon: Thank you. The way that I have thought about it recently is that everybody likes knowing that mitochondria [are] the powerhouse of the cell, and so that requires a baseline knowledge of biology, and that's all people want sometimes, is baseline knowledge. So, they want the baseline knowledge of how interest rates are going to impact them, what it means when Jerome Powell comes out and talks, and apparently, he's getting recognized at restaurants now, so people are paying attention. He can't go out anymore, which is kind of sad, but, yes, people want to know. They want to know about the policies that are being passed to help them, but it's foundational, because you do have to be kind of a super geek to listen to some stuff, like the depths of--

Beckworth: Like Macro Musings.

Scanlon: -the depths of monetary policy, and that's okay. That's where comparative advantage comes in.

Beckworth: Absolutely.

Scanlon: But I would say that a lot of people really want to know what's happening around them, for sure.

Beckworth: So, do you think that the inflation surge fostered more interest in some of these questions?

Scanlon: Yes, things were kind of boring-ish up in the 2010s. The 2018 debacle was quite interesting from a monetary policy perspective, when the Fed had to respond to the Treasury market, but things were kind of boring, I think. The stock market didn't move a whole lot. Things were just tepid.

Beckworth: You’re crushing me here, Kyla, because I thought it was very interesting in the 2010s. But looking back, you’re right. Compared to what we went through, it was— So, back then we were fighting over makeup policy. "Oh, we're 40 basis points below the inflation target. Woe is us. The world's coming down."

Scanlon: Well, post-Great Recession, I was not old enough to absorb that. And so, I'm speaking with bias, of course. But I think, now, recently, there's social media. People are seeing things on TikTok, which are just total lies, like [how] BlackRock runs the world, et cetera. And so, I think that people just want to know what's true, and they want to know the data sources. They want to understand.

Beckworth: Well, that's interesting, to hear that. When I started this podcast, it was in 2016, and it was really interesting, [because] a number of millennials were coming on the show, and they cut their teeth on the Great Recession. For them, that was very formative. Some of them were journalists, some were economists, and that really pushed them forward. So, it's interesting to hear your perspective as you come on. Do you think that the pandemic is the definitive experience for Gen Z?

Scanlon: Yes. Absolutely, because I was 10 during the Great Recession, and then I was 21 during the pandemic, or 20, so that was extremely formative, being a young adult. And then—

Beckworth: It was real, huh?

Scanlon: Yes, for everybody. You were stuck inside, and I didn't have a corporate experience, really, and all I know, as an adult, is inflation, and I think that that's a lot of people. And so, that totally shapes how you think about the economy.

Beckworth: One last topic from your book before we close, and again, your book's title is, In This Economy? How Money and Markets Really Work. You really love data. I can see you really getting into data, and you had several majors dealing with data. And that is labor market indicators. What should we look to when we think about labor market indicators? There's so many of them, and the Fed seems to pick the one that fits its narrative, depending on where we are in the cycle. So, how should we think about it? What is your suggestion to us?

How Should We Think About Labor Market Indicators?

Scanlon: Well, actually, I had the chance to interview Jared Bernstein today, of the Council of Economic Advisers, and I asked him basically the same question, because I was like, “JOLTS really doesn't do a great job at telling us what's going on. The quits rate tells, probably, a better story, but how should we think about the data sources?” And I think that his answer is very good, which is that you have to look at the tapestry of data. It's a mosaic. You have to look at job openings relative to quits, relative to wage growth, et cetera. And so, I think that that's the thing with the labor market, is that you have to take all of these things into consideration. Luckily, wage growth is still trending upwards, but job openings are funky. They're weird to measure. The quits rate is normalizing. We're seeing a cooling labor market, and the only way that you could come to that conclusion is by taking all of the different metrics into account. That's what he said about data, and I think that that's probably the best bet.

Beckworth: So, cast a wide net, and look at a dashboard of indicators.

Scanlon: Absolutely.

Beckworth: Alright, one more thing on labor markets, and my former boss here, William Beach, he was a commissioner at the BLS, I believe, under Trump, but he was someone that I reported to before he left Mercatus. He recently had a tweet, which was pretty surprising, and received a lot of attention— surprising for him— but he [posted] this. He said, "The BLS has taken a lot of heat for announcing that the CPS sample size will be reduced due to budgetary constraints. As the immediate past Commissioner at BLS, I'm here to tell you that the BLS is not playing politics and that we are, indeed, losing the CPS because of poor funding and slow modernization. Congress can help fix CPS by demanding change and funding a better survey." He goes on [for] several more paragraphs, but that's my former boss, from the Mercatus Center, saying that we need more government funding for this survey. [Do you] agree?

Scanlon: I asked Jared Bernstein about this as well, because I was like, “What the heck?” Data is the bread and butter of how we understand this stuff, and how can funding be cut, especially when we need the data? It's not that comprehensive in the first place. And so, he said that it's something that they're working on, something that they're thinking about. It's like, how do you get more funding to these data sources?

Scanlon: I was actually at the National Association of Business Economics, and the whole entire conference was about economic metrics and data. It was a data conference, and so the BLS was there, the BEA was there, the Census was there, several private sector companies were there. And there's a lot of attention being paid to data, and how do we fund it properly? How do you think about private sector data like Zillow and Redfin apartment data relative to the housing data that is collected via CPI and via the BLS? So, I think that a lot of people are thinking about it, but yes, data is one of the most important things to have funding for, because if we don't understand data, we don't understand the economy.

Beckworth: And we can't have the right debates.

Scanlon: Yes, seriously.

Beckworth: Okay, with that, our time is up. Our guest today has been Kyla Scanlon. Kyla, thank you so much for coming on the program.

Scanlon: Thanks for having me.