Warsh's Jackson Hole Debut; Harvard's Rogoff Says US Needs 'Shock' To Fix Debt

18:45Kenneth Rogoff:But a war kind of shock, that's the scenario that pushes up interest rates. And that makes it hard to—the Fed can't just cut interest rates if the market's pushing them up. The government can't just print money if the market's pushing them up. And I think in our environment, that's a big risk. The charm of this time is different, Reinhardt and Rogoff, is you combine, you conflate together responsibly public and private investment. So right now, if we conflate together$40 trillion plus private this, private that, with Wall Street's new addiction, private equity and private credit, are we doing a this time is different path right now?

19:23Kenneth Rogoff:Well, look, I mean, of course there's going to be some kind of spectacular collapse in AI at some point, which doesn't mean you should take your money out of AI. Shiller and Greenspan famously predicted the collapse of the stock market when I was at around$4 ,000. Then it went to$8 ,000. And they were right. And then it went to$6 ,000. It collapsed. But timing was terrible. And I think that's difficult. But the U.S. government needs to take steps. They'll be much smaller and easier steps if you do it sooner. I don't see any signs of that happening. You and I grew up under the shadow of Barbara B.

20:00Kenneth Rogoff:Connable. He's the one folks who told Nixon, here's the door, what's your hurry? There used to be a normal process here of, say, Barbara Connable House Ways and Means. Where does Congress fit in to the crisis that you see coming? Well, you know, at the moment, they're kind of sidelined and paralyzed. But there are many people in Congress on both sides of the aisle who are aware of this. But again, you know, it's hard to catalyze action. By the way, we're talking about the United States. We could go to the UK. hey, we could go to France. Look what happened to Macron when he tried to raise the retirement.

20:34Kenneth Rogoff:And the French election's coming up right now. It's going to get murdered. And so it's the same thing all over the world. Jason from Cambridge emails in and says, Tom, you trashed me with Act 10. To Ken Rogoff, the question of the afternoon here, Scarlett, is there great inflation at Harvard Economics? Well, we have a new policy coming in place to try to deal with it. but you know absolutely there was i will say when i came to harvard i learned from complaints from the dean that i was one of the easiest graders i didn't change a thing and then over 20 years i find out from some of the kids you're the hardest grader at harvard so that tells me i've been told you're ruthless i mean i'm not trying to be i'm trying to be fair and you know reasonably you honor.

21:22Kenneth Rogoff:Brutal and ruthless, Ken Rogoff. Thank you so much. My high point here at Jackson Hole today, Scarlet Fu in New York.

21:29Nela Richardson:Thank you, Tom, for that conversation. And by the way, if you listen carefully, you can hear the raindrops falling, certainly as you were talking to Ken. And we saw earlier that you were holding an umbrella for Lisa Bromowitz, who you're hosting the surveillance special with. Quite the gentleman there. Tom, as you wrap up your time in Jackson What are your final thoughts?

21:48Kenneth Rogoff:My final thoughts are Ken Rogoff's not the most important person here. Neither is Chairman Warsh. The most important people here are the media. End of Curran just on with us. The grind that Michael McKee goes through each and every day. The simple distinction here is the press's coverage of this huge public institution. It's vital that the press keep the message going in this time of distraction and tumult.

22:16Nela Richardson:All right. Well, you and Lisa and Michael McKee are doing your parts. Thank you so much, Tom. We're going to check in with you when you come back to New York.

22:26Nela Richardson:Bloomberg Money is your destination for personal finance. It's a cross-platform effort that goes beyond your TV screens because it includes our new digital hub at Bloomberg.com slash money. And this story got my attention. More and more U.S. employers are opting out of group health insurance plans as they brace for large price hikes. Instead, they're going to provide stipends for employees to buy health insurance for themselves. Bloomberg's Taylor Nicole Rogers joins us now with more on this. I didn't even know that this was an option for employers. It's a pretty new option. It's only been around since 2020.

22:59Kenneth Rogoff:But it's something that people have been looking into because health insurance has just gotten so expensive. Companies are spending almost$19 ,000 per employee these days.

23:09Nela Richardson:So can employees pocket the money or do they actually have to go to a marketplace to buy their own insurance? And is there even a thriving marketplace? Well, there are the Affordable Care Act marketplaces. I meant thriving, though.

23:21Kenneth Rogoff:Whether they're thriving or not is in the eye of the beholder for sure. But employees are required to spend the money on insurance. Depending on the plan, if they have anything left over, they can use that for whatever they want or just take that home.

23:34Nela Richardson:Don't the economics of health insurance argue for big groups to get insurance coverage so that the young and healthy help subsidize the older and more fragile? Exactly.

23:43Kenneth Rogoff:But another trend employers have been seeing is that those healthy, more profitable workers have been jumping off of plans altogether. So the economics are breaking to the point where some employers are saying, you know what, I'd rather be out of this business altogether.

23:56Nela Richardson:I think clearly employers are doing this out of necessity. What does your reporting show whether employees like this change? Some employees do like it because it gives them more control over the benefits they get.

24:07Kenneth Rogoff:For example, if they would like to be using a GLP-1, they can choose a plan that uses that. But from the vast majority I've heard from, they're annoyed that they have to go through the administrative hassle of sorting through a marketplace. Marketplace plans are more expensive sometimes. They have smaller networks of doctors and hospitals, and they tend to have higher deductibles. So it doesn't work out for everyone.

24:29Nela Richardson:Yeah, you take on the risk, you take on the responsibility of everything related to health care. It's kind of the same way that we transition from traditional pensions to 401ks. Exactly. All right. Taylor Nicole Rogers, thank you so much for bringing us this story. It's a fantastic read. You should check it out on Bloomberg.com slash money. Joining us now is Neela Richardson. Neela is chief economist and ESG officer at ADP. She is also a contributor to Bloomberg. Great to see you here. Welcome to Bloomberg Money. It's great to be here with you, Scarlett. We know ADP is a payrolls company. That's kind of like what everyone knows it as, automatic data processing.

25:01Nela Richardson:But you do also manage workplace benefits like retirement accounts and health insurance. Is that right?

25:06Kenneth Rogoff:We do. We do. We offer a lot of solutions for small businesses who are looking to offset health care costs. And that is where we are right now. These health care is climbing. And whether you shift it to the work or you assume it as a small business, they still have to be dealt with. And a lot of people work just for benefits. It's not just about the paycheck. And so we do offer a variety of solutions for small businesses for just that reason.

25:33Nela Richardson:Yeah, a lot of people go work at Trader Joe's because they can get health insurance. When employers tell employees, go figure out your own health insurance because costs are rising too much for us. Is that just exposing individual households to inflation in a more direct way?

25:46Kenneth Rogoff:I think so. I think so. I mean, there is something about combined care and having a managed service. And I think there are solutions. ADP has a variety of them, but there are others in the marketplace that serve as an alternative. But no one is really escaping the elephant in the market, which is healthcare costs are climbing. And a lot of these drugs, whether it's GLP-1s and obesity, or if it's even cancer treatments that are really revolutionary, they all come with a price tag. Pharmaceuticals have a seven to eight year span in which they can recoup cost. And that is what employers and employees are facing to take advantage of these next level care.

26:30Kenneth Rogoff:You really have to pay up. And that's what's really challenging in this moment.

26:35Nela Richardson:Also challenging is the overall affordability picture. Consumers say that they're feeling lousy. We know that they're seeking value. Walmart, McDonald's have certainly benefited from that, but there is new data showing a rise in fast food restaurant bankruptcies, including some Popeye and Subway franchisees. How do you read into this kind of development?

26:54Kenneth Rogoff:You know, first of all, the restaurant industry is a hard industry, and not every restaurant, even a franchise, is a successful franchise. But when I talk to restaurant owners, it seems to be that fast casual segment that's doing better. But one of the things that surprised me when I talk to these real restaurant conglomerates at the fast food level is that they're really concerned about affordable housing. Now, you think about where these restaurants are located. Location drives the consumer, you know, consumer demand. If they're not well located, they're not going to get the traffic. If you're not seeing the Popeyes on the way home, you may not think Popeyes on a Saturday evening.

27:36Kenneth Rogoff:But so they need workers to live where their customer bases. And if there is a disconnect because it's too pricey in San Francisco or Los Angeles or New York City, it's going to be hard to get the workers inside that door.

27:48Nela Richardson:I think that's a really important point because franchisees say that they're seeing elevated costs for rent, for wages, for food as well. The question I have for you is that owning and operating these businesses has been one of the tried and true ways for Americans to build wealth, isn't it? I mean, when people say they're business owners, small business owners, a lot of them own franchises?

28:07Kenneth Rogoff:You know, historically, there's only been two real ways to create wealth in the United States. And incidentally, it's the reason why millions and millions and millions of people come to the United States. The first is through entrepreneurship. The second is through housing. Most of us choose the housing option that for savings. And that used to be the old school way of building wealth. Well, now look at new business formations. They have not receded. They have stepped up since the pandemic. They keep growing. AI has enabled a lot of small businesses. I think the silver economy and the aging workforce and now tanking that talent and opening a business is part of it.

28:46Kenneth Rogoff:And so, yes, having that small business is a way of wealth creation, and we're seeing it becoming more popular, maybe tapping into some of that home equity for boomers who

28:56Nela Richardson:have it. Absolutely. For those who do get a paycheck and have to get a W-2, inflation is proving to be pretty sticky. And a lot of people get wage increases, jump condition wage increases by changing jobs. Does changing jobs still produce a pay bump? What are you guys seeing in ADP on that?

29:13Kenneth Rogoff:Yes, it does still produce a pay bump, but the premium for that pay bump has narrowed significantly. How much? We're looking at about 2 % between switching and just changing for the average worker. Now, it matters a lot what kind of industry you're in. If you're a construction worker, expect almost 14 % increase from your old job to your new job. If you're in retail or leisure and hospitality, the restaurant business that we were just talking about, you'll actually see negative earnings for the typical worker, negative growth from switching jobs, because that is an industry that rewards loyalty and service over fast switching.

29:51Kenneth Rogoff:So it really depends where you are. Older workers don't switch jobs as much. And this is really an important issue, because if you look at the cumulative inflation that we've seen over the last five years, my colleagues at ADP Research and University of Chicago just put out a paper on this last week. 47 percent of Americans, according to our research, saw real wage declines over the last four years because of inflation. So this is why consumer sentiment is dismal. People's salaries are just not. So you may have gotten that raise, that 3 % raise that most companies give, but it's not enough to compete with 7 % inflation, even as inflation was lowered through those subsequent years.

30:34Nela Richardson:Those are people who work at companies and are on the payroll. What about independent contractors? What can you tell us about the wage trends for these folks? I mean, is that captured in the same way?

30:44Kenneth Rogoff:You know, yeah, well, at ADP, we see everybody, and we also see single-person and proprietorships. And so what's happening with the contractor, with the vendor set, is that they're building in their contracts. So unlike workers, they can say, hey, please put in a 3%, 6%. I actually have seen a 7 % in the heart of our inflation peak where contractors were asking for multi-year increases based on inflation. So contractors, the savvy ones, have been able to index their wages to inflation in a way that no worker would be able to do in a regular contract.

31:22Nela Richardson:Okay, so employees should be taking their cues from these contractors and these construction workers who seem to see outsized wage gains.

31:29Kenneth Rogoff:We have to go back to our previous conversation. Those jobs come without health benefits, by and large.

31:35Nela Richardson:Before we wrap up our conversation, Nila, we always ask our guests here on Bloomberg Money how you approach managing your personal finance. Are you kind of a set-it-and-forget-it investor? or are you making adjustments on a regular basis, a quarterly basis or annual basis? How do you think about it?

31:50Kenneth Rogoff:I do both. I'm a big believer in dollar cost averaging. And this is where the housing moment is important. The importance of housing was not just the house and the appreciation. It was the fixed savings, the discipline of putting the same amount of money into equity eventually every single month. Well, even if you don't have a house, you can have that same discipline in the market. And that's called dollar costs averaging, where you're putting in a fixed amount of money into the market, whether it's an ETF or some other broad based equity and bond portfolio every single month. And I'm going to speak an old book.

32:29Kenneth Rogoff:It's not timing the market. It's time in the market. So if you can do that at a younger age, you can build wealth over time. But you know what? I'm all about selective bets. And we've seen some startups that are really appetizing in terms of an investor portfolio, especially if you're young enough to see it pay off.

32:46Nela Richardson:All right. So disciplined investing is Neela Richardson's approach here. Neela Richardson of ADP, she's the chief economist there. She's also a Bloomberg contributor. Thank you so much for stopping by. It's great to be here, Scarlett. You're listening to Bloomberg Money. Stay with us for more to come after this. Some people treat ChatGPT like some kind of smart search engine, And some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version.

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33:51Nela Richardson:All right, another story that caught my eye this week comes from Bloomberg's Sarah Foster. Her article covers how after Congress tweaked the rules covering 529 plans in 2022, people without kids are now able to put money into those accounts after hitting the annual limits for contributing to their retirement plans. So in a way, they treat the 529 as a backdoor for funding a Roth IRA. Sarah joins us along with Bloomberg's Zijia Song. So Sarah, let's just back up a little bit. 529 accounts are for you to put money away for your child or unborn child's college savings, or maybe even their high school savings if they're going to, go to a private school.

34:27Nela Richardson:But if you were an avid saver, you could use it for something else as well. Yeah. I think what's really interesting about the 529 is kind of this misconception that it's

34:36Kenneth Rogoff:actually for your children. Actually, anybody can have their own 529 account. I can open one right now. You can open up one for yourself. You can open up one for your children as well. Open one up for a niece or a nephew. And I think a lot of people are really discovering here that Since Congress tweaked the rules, there's a new way that they can kind of use it as like a wealth building strategy. So we spoke with people who are either opening these 529 accounts before they have children or before they even know they want them because they're using it as a way to maybe kind of put extra funds into a Roth IRA if they go unused.

35:11Nela Richardson:What are the limitations to using a 529 account to fund retirement? It's a very complicated process.

35:17Kenneth Rogoff:And a lot of the financial advisors that we spoke with say that it should probably kind of come in at the end, you know, after you've maxed out these other accounts. But you have to have the funds in your 529 plan for five years. You can only move up to$35 ,000 over a lifetime. And you also have to hit the Roth IRA annual contribution limits, which this year is$7 ,500. So you have to do it in increments.

35:40Nela Richardson:All right. So you have to keep a spreadsheet on this in order to really take advantage of it. But again, for people who are aggressive savers, and there are a lot of them out there, this is one way of doing it. All right, Zijia, you've been writing a story about how there's still a lot of consumer spending going on. I mean, this is a nation of consumers, but people are starting to feel bad. They're starting to feel guilty when they spend money on things that are fun. What happened to Treat Yourself? So the new research by IY Bank actually shows that 72 % of Americans feel guilty about spending money on joy, things that bring them happiness.

36:13Nela Richardson:even when they can afford it. I think that disconnect is really interesting because being able to spend money on something doesn't mean that they have to feel comfortable about doing it. And of course, there's this deeply ingrained money belief that if you're saving, you're being responsible about your future. And if you're spending, something needs to be really well justified. But it's also happening at a time of when we have a lot of anxiety about cost of living, rising, about unaffordable housing, and uncertainty about economics in the economic future in America. Yeah, it's certainly a sharp turn from the YOLO days after the pandemic when everyone was going out and living their best lives and traveling everywhere.

36:58Nela Richardson:How does it break down in terms of demographics? Are young people more susceptible to this than, say, the retirees, the boomers? So older Americans, like baby boomers and older, they feel slightly more comfortable about spending, but they're still very conscious about what they're spending money on. Especially right now, I feel like a lot of people, even the older Americans, they have anxiety about retiring with a regular paycheck. So they are maybe just slightly more comfortable. And the younger adults are definitely more conscious. So people will spend money, but they just go through a lot of internal debate and stress that goes along with it.

37:38Nela Richardson:Does travel get caught up in this? Because for so long, people were saying they will bypass the small treats, but they will put their money into experiences like travel. Actually, yeah. We talked to a few people in planning their travels, planning their leisures. And they mentioned that traveling and having that experience that they think is really worth it is probably better than maybe just spending money on a weekend out on a night out having dinner. I think people, the trick that they use is that they plan out a budget. each month so that they have a designated money in their savings or in their portfolio that's for fun specifically so that they feel a bit less guilty about it.

38:21Nela Richardson:The fun bucket, it just depends how much money you put in that fun bucket. For some people, fun involves going to the bookstore and buying books. I think Tom is in that category. So we want to get to our book picks. And because Tom's not here, I'm going to introduce his pick. He's out in Jackson Hole, Wyoming. So he picked something that was appropriate for that. It is, get this, Back of Country Bear Basics, the definitive guide to avoiding unpleasant encounters. No word from him on whether he encountered any grizzly and black bears, but nevertheless, that's Tom's book that he's reading this week.

38:51Nela Richardson:My pick for this week is Prairie Fires by Caroline Frazier. It's a biography of Laura Ingalls Wilder. I don't know if you guys know her, the author of The Little House on the Prairie books? Anyone? Anyone? A little bit. I grew up watching the show. I was a big fan of the books. I watched the TV show portrayed by Michael Landon, produced by him. And so, of course, I watched the reboot on Netflix, where an Aussie actor portrays Pa. Basically, this book tells the bigger story of what was happening in the country as Laura and her family were traveling from Wisconsin by wagon to Kansas, to Minnesota, and to the Dakotas.

39:23Nela Richardson:And it turns out in real life, when you look at the history behind it, which the author does, the Ingalls' life on the prairie was painfully hard. It was a constant struggle. The family was impoverished. They were perpetually in debt, perpetually hungry, and not at all like the books and the TV shows depicted. So there's very little good vibes going on there on the prairie. What was your book? I promised I would bring a summer-themed book, and this is going to be a little bit hard to make the connection, but I will explain. It's fixed. Why personal finance is broken and how to fix it. This is what you're reading in the summer, Sarah?

39:56Nela Richardson:It's really, you know, I always feel kind of internal guilt because I take a lot of vacations in the summer and I always use points and miles to pay

40:04Kenneth Rogoff:for them. I haven't paid for a vacation in four years just because of my own spending. I got to see our credit cards. But it also kind of weighs on me because I know that a lot of the points and miles that I'm rewarded with are, you know, financed through the credit card companies from, you know, people who are in debt. And it's just one of these ways that I think a lot of

40:23Nela Richardson:disproportionately lower income households sometimes don't reap the benefits of our personal finances. Yeah, it's a good way to understand how that whole ecosystem works. So, Jai, you also have a book that you brought with you? Yes, I brought The Trolls of Wall Street. It's actually by our own editor, Nathaniel Popper. It's because I spend so much time nowadays on Reddit, just sliding into people's DMs. And some of the most colorful stories for my stories came from Reddit. And this book is actually about the subreddit community WallStreetBets, which kind of made a splash in 2021 during the GameStop trading frenzy.

40:59Nela Richardson:And it's been really interesting seeing kind of like the history and culture of it and the personalities and characters in this community. And also right now, as this community has evolved, how they are really savvy in trading now, they're using AI technology to inform their own trading. their relationship with Wall Street has also changed as well. No one's calling them the dumb money anymore. No. I think it's pretty safe to say. Sujia, thank you so much. Sujia Song and Sarah Foster from the Bloomberg Money team joining us with their book selections for the week as well. For the latest reviews and recommendations from Bloomberg, be sure to subscribe to the On Books newsletter.

41:37Nela Richardson:You can subscribe at Bloomberg.com slash newsletters. We're going to look ahead now to what you can spend your money on for the weekend. And joining us right now is Bloomberg This Weekend's Christina Ruffini. She works all weekend. Before we get to any of what's happening, you're going to show us what you spend your money on. Because that's what this show is about. Right. Your producing team was like, what do you spend money on? I was like, I am so cheap. I spend money on nothing. And then I was like, wait, this is not true. I have an extremely, ridiculously expensive pair of cowboy boots. So I told them I would.

42:05Nela Richardson:I actually put pants on because I had a skirt on and we thought that would get us all fired. But here are my fry boots. I bought them 10 years ago. I think they were like on sale for$350. I Googled them before I came there now. They're now$500 for these fry harness boots. They still make them, but they look the same as the day I bought them. I will never need another pair. And you know, I've worn them to floods. I've worn them to Haiti. I've worn them to bars, you know, cowboy boots. Would these be boots that you would wear to Burning Man? Because Burning Man begins this weekend. And okay, I personally cannot think of something I would less rather do than go to like...

42:45Nela Richardson:But do you feel appropriate to that? I think I could. I think here, I'll put them up here like this. Okay. I think I could burn in these boots. I mean, have you been a burning man? No, I'm not a burner, which I just learned was a term. You could be a burner. I don't know if they're crazy enough, but they do work well in a desert climate. But I'm always surprised by the people who are like secretly going to burning man. And apparently... There's a big crew of them. There are now a lot of tech pros going to burning man. There are. Well, you know, the finance pros will be going to the U.S. Open, which officially kicks off this weekend.

43:13Nela Richardson:Are you guys going to be doing anything with that on Bloomberg this weekend? I think we're working on it. We actually had the head of IBM, they've launched their new app. He was on last week talking about the app is now crazy for the U.S. Open. You can, like, clock people's shots, and it breaks it down with all this data. And so we also had a professional tennis player on who was saying the tennis players themselves don't really have the capacity to use it, but the coaches are using it. Interesting. To help guide the players, the serves, and things like that. and it helps audience engagement is what they're trying to drive.

43:38Nela Richardson:And final item, Coyote vs. Acme hits the theaters. This sounds like a fun one. I think the drama about this is that they're making the executive of the studio the villain for this because they were going to shelf this movie and take the loss. And Will Forte's been giving interviews saying Zaslav is like the enemy for this movie because they had to fight to get it released. But it's getting good reviews and hopefully it'll be worth the push. All right. Look for that in your local movie theater, but it's not a big studio release. Christina, thank you so much. And make sure to watch Bloomberg this weekend, every Saturday and Sunday morning, starting at 7 a.m.

44:12Nela Richardson:That does it for Bloomberg Money this week. Enjoy your weekend. This is Bloomberg.

44:25Nela Richardson:This is the Bloomberg Money podcast, bringing you a smart look at the forces shaping your financial life. I'm Scarlett Fu with Tom Keen. You can watch the show live on Bloomberg Television every Friday at noon Wall Street time. Subscribe to the podcast on Apple, Spotify, or anywhere you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business app.

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