Are We Still In A 'Vibecession'? with Kyla Scanlon

0:00Tuesday on NBC, Jimmy Fallon and Bozma St John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere Tuesday on NBC. Good morning, Bird Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, an interview with economics educator and content creator, Kyla Scanlon.

0:39You'll hear about why vibes matter to the economy, if AI is a bubble, and the wisdom of the YouTube commenters. It's Monday, September 2nd. Let's ride.

0:54Happy Labor Day, everyone. Hope you are somewhere with friends and family enjoying the day off of work. We are pumped to bring you this episode with Kyla Scanlon, who has gained a massive following in just the last few years for explaining difficult economic concepts in ways anyone can understand. The amount of informative, entertaining content she cranks out every single day on YouTube, Instagram, her newsletter, and more is truly prolific. She even found time to write a book called In This Economy that Neil and I both read. It's fantastic. So if you leave today's episode wanting to dive deeper into any of the concepts you hear, definitely go check that out.

1:32But first, First, a word from today's sponsor, MassMutual. Neil, couldn't help but notice you were checking out some of the tools on the MassMutual website the other day. I was just playing around with their life insurance calculator, normal Tuesday stuff. It helps you figure out how much coverage you need based on your current financial situation. See, I'm more of a fan of the I'll figure it out later approach, but the calculator looked fun. You have a strange definition of fun. I just like it because then I have an idea of what kind of protection I might need, which is way better than guessing.

2:02Guessing is my specialty, but maybe I should leave the numbers to Neil. Just thought of a good segment idea. I'll always be more of a Toby's Trends guy. If you want to get a handle on your life insurance or just see what you're missing, head over to massmutual.com to check out more. I'm Christian McCaffrey, pro running back, and Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the internet last year, and I think this season's lineup is even cooler. And so does my wife, who keeps stealing all my hoodies. Stay fit for the season and Abercrombie's newest arrivals.

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2:46Kyla, welcome to the show. Thanks for being here. Oh, thanks for having me. All right, let's start off with some high-level questions about the economy. So in your book, you argue that vibes play a big role in running the economy. So what are vibes and how do they run the economy? Yeah, so vibes is just short change for consumer sentiment, basically how people feel. It's not a new idea. George Soros had reflexivity, which was, you know, how people feel ultimately really matters and dictates prices in a really big way. And then, of course, Keynes had animal spirits, which applies more to markets.

3:23But again, it was, you know, humans are emotional and that drives things. And so the argument in the book is that consumer sentiment really matters, right? Jerome Powell even referenced inflation expectations and his Jackson Hole speech, where he was talking about the new macroeconomic regime that's coming up soon. He was like, inflation expectations really matter. How people think inflation is going to move ultimately matters for the decisions that they make. And therefore, as policy units, they're paying very close attention to that. the federal reserve is. So vibes are just making sure that consumer sentiment is at the forefront of people's minds as we have conversations about the economy, as we have conversations about inflation, the labor market, the housing market, et cetera.

4:06Were you motivated to write this book because you think vibes, consumer sentiment, whatever you want to call it, is underappreciated as a driver of the economy? Yeah. So I wrote this book during the sort of like vibe session was what I called it, where there was a disconnect between consumer sentiment and economic data. And so I felt like then consumer sentiment was really ignored. Everyone was like, well, just look at the economic data. Everybody should be feeling great, but people weren't. And so it was kind of like, well, maybe we should listen to people. And there's something deeper going on, right?

4:40There's structural affordability problems that's not going to show up in economic metrics. There's media headlines, which has exacerbated how a lot of people feel about the economy. And so that's been my body of work over the past few years is just like, Hey, you know, maybe we should pay attention to people, which are ultimately, you know, consumer spending is 70 % of GDP, right? Like we should probably be paying attention to what people are feeling. Did we ever really land on a useful explanation about why there is a gap between that perception in the actual data? Yeah, I've been working on that for a while.

5:16No one knows. Yeah. Yeah. Nobody does know. And that's like, it's kind of like, nobody knows why people do much of anything that they do. Like a core thesis of economics is that humans are rational, but like they're kind of irrational sometimes. And so, I mean, I think like, like I said, structural affordability, housing, elder care, childcare, these things that are a little bit harder to track in economic data in terms of economic success. That's been a big reason why people feel bad about the economy and the negative media headlines. Media headlines have trended quite negative over the past couple of years.

5:55And of course, people are going to feel bad if all they're consuming is negativity. So clearly this idea of vibes, animal spirits has been around for a while, but do you think that it's always played such a big role or has it been supercharged by globalization, social media, the media, the internet in general? Yeah. I mean, things move at a lightning fast speed now and you can get all the information you want about anything whenever you want. You have the entire world at the tips of your fingers. And so I think that definitely has played a big role into Vibes because now you're consuming so much information about so many different things that it's hard to compartmentalize.

6:35And you're also absorbing stories outside of your locality and like, you know, you're absorbing the stories of other people and their economic circumstances. So I think that definitely has played a big role as we're just entirely globalized. And of course, you know, that's going to impact how consumer sentiment is. Is the stock market, the economy? No, no. I mean, so like, this is something that a lot of people will conflate is that like, if the stock market is doing well, the economy should be doing well and vice versa. And of course, the two are tied together. Economic conditions really matter for how businesses perform, how they get credit, how they're able to hire.

7:18Interest rates really matter for how they're able to borrow money. And so the two are definitely tied together, but the stock market should not be used as a representation of economic success or economic failure. What currently then is an aspect of the economy that no one is really talking about right now, but you think is a much bigger deal that deserves a lot more attention? Home insurance is something I've spent a lot of time on recently. And it's really tough because for a long, like I've always been an advocate of building more housing. I've done interviews with Jared Bernstein, the chair of the CEA at the White House, Wally Adeyemo, the deputy secretary of the treasury, to talk about the policy that's being developed around building more homes because there has been a lot of work both in the private sector and the public sector to like, it's like, we need more homes and you know, it's all hands on hands on deck right now, but you have an insurance crisis that's going on.

8:16The average home insurance has gone up 20 % over the past year. Like that's just not affordable for a lot of people. And the issue is that if you have a mortgage, you have to have insurance and it's 68 % of Americans who have a mortgage. And so insurers are entirely pulling out of states like California, Louisiana, Florida, for example. And so you kind of have this economic crisis that is bubbling in a really concerning way where it's like, hey, the bottom 50%, all of their wealth is in their house, which is unfortunate. We should consider diversifying that. But now all that could be taken away because if it's not insured, it's not yours.

8:57And so it's like, that's something I've really been paying a lot of attention to and has been quite concerning just because of how much risk is baked into the housing market just right now in general and how important it is as a wealth generational tool for the average American. Can you actually dive deeper into why it might be problematic that so much of the average person's wealth is tied up in their home as their primary asset that they own? Well, so housing is really difficult because it's both a speculative asset and a place to live. Derek Thompson of The Atlantic has written a lot about this, where it's like, hey, you know, maybe your house can't be both a retirement fund and a place to raise kids.

9:39Like those things just can't really reconcile. And they have been reconciling, but it's not a sustainable path. That median home went up by$55 ,000 between, I believe, 2020 and 2021. $55 ,000 median home increased. That's more than the median worker makes. And so that's just not something that could happen every single year. And a lot of people have looked to the home as a way to have a retirement. And it would really be ideal if that wasn't the case just because of the risk that's baked into that. Real estate is a volatile market. I think that's why it'd be really good if we focused on helping people have business ownership, invest in stocks, just diversify outside of the house as a wealth generation tool because it's just not a sustainable path to expect the home to massively appreciate value.

10:34I guess I'll follow up with an inverse of the original question too. What is something that everyone talks about that maybe isn't really that big a deal? What are all the sub stackers or CNBC talking heads fear mongering about? De-dollarization is something that gets on my last nerves. Yeah, a lot of people would be like, no one's going to use the US dollar next year. And the US dollar is going to explode. And if the US dollar explodes, just the way that the financial system is structured right now, everything would explode, including crypto. And so I think that's something that can be a little bit exacerbated by institutions like Zero Hedge, where there's just a lot of fear mongering around the dollar.

11:15The dollar will probably weaken as the federal reserve begins to cut rates, but the dollar is the reserve currency of the world, at least right now. And there's no clear alternative. The IMF has published quite a few studies on this. There's just no clear alternative to the dollar. And so a lot of countries hold the dollar. A lot of countries rely on the dollar. And so I don't think we're going to see a de-dollarization regime anytime soon just because of the globalized nature of currency and the role that the United States plays. I think we're going to see deglobalization of just in general, like the United States is reshoring.

11:50We're pushing a lot of manufacturing back into the U.S., and that could have complications for the dollar. But the screams of the dollar losing all its value, I think, are overdone. You say there's no alternative, but have you heard of Shiba Inu coin? I have, but I would argue Shiba Inu coin is just too volatile to, you know, if you took your Shiba Inu coin to go and buy a cup of coffee, it could be worth a lot less or a lot more than what you walked into the coffee shop with. And that's just not something that you would want from a currency. That's not a good medium exchange. That's not a good unit of account.

12:26That's not a good store of value. Right. And so like, yeah, sorry. I went a little too serious. I don't know. That's, name. It's just silly. It's just silly. Speaking of things people seem to talk a lot about, do you think AI is a bubble? You know, I think things definitely have bubbly tendencies in AI. What I think is bubbly is the amount of venture capital dollars that are going into the space. It's like, guys, look into something else. And that just means there's a lot of excitement and a lot of hype. I think we're still trying to figure out the use case for AI. Sequoia, a VC firm, had a good paper on it.

13:10And I believe Goldman Sachs had a similar write-up where$600 billion has been spent on AI, but there's only been like$100 billion or so in revenue. And of course, AI is going to continue to grow and that gap will close, but that's a$500 billion gap that has to close. And so I think that there are definitely bubbly tendencies just because is humans really get excited about various things, including the opportunity to make money. And it seems like AI is a fantastic opportunity to run a good grift scheme. And so I think that definitely is where you're seeing a lot of money go, and that can be bubbly.

13:48Let's talk about the Federal Reserve a little bit. You hear the Federal Reserve, monetary policy, Jerome Powell. These are words that are thrown around frequently on Morning Brew Daily, but might not be fully crystallized in some people's minds. So take us through just how important the Fed is in stewarding the economy. Is Jay Powell's speeches in Jackson Hole going to determine if people can retire at 65 with a picket fence or not? Just take us through some of those words that a lot of people hear day to day. Yeah. So the Federal Reserve is important. They're the people who dictate the path that interest rates are going to go.

14:22So they do quite a lot of work with their balance sheets, which determines liquidity, determines how markets move. And then what they say about the economy determines how the stock market moves in a very big way. They determine essentially your ability to finance a home. And so the Federal Reserve had this meeting at Jackson Hole where Jerome Powell was basically like, hey, we're going to start cutting rates. and they had held rates steady at a very high level for a long time because they were fighting inflation. That's the way that you fight inflation as I'm sure your listeners know, like raising rates make it more expensive to be alive.

14:58So people stop spending money. So the economy slows down. So inflation slows down, but now they're like, okay, you know, we're starting to see signs of concern in the labor market. Unemployment rate has ticked up. More people are entering the labor force, which is part of the reason the unemployment rate has ticked up. There's just more people who are looking for employment. But there are just, there are signs of deterioration in tech and finance and other professional services, signs of deterioration in hospitality and healthcare, manufacturing jobs. And so I think that, so Jerome Powell was like looking at this labor market data along with the other members of the Fed.

15:35And they were like, okay, we're gonna start cutting rates, make it easier to get money, kind of give the economy some breathing room. And so we're going to enter a new macroeconomic regime where there is going to be a rate cutting path. And so I think that'll be the thing to pay attention to over the next few months, the market's pricing in a hundred basis points of rate cuts, and they usually move in 25 basis point increments. So that means the market is expecting at least a 50 basis point cut, not one of the meetings, because we only have three meetings left this year. And so, yeah, we'll see how that ends up moving the economy.

16:09Rate cuts are pretty much a guarantee at this point. So I don't think it'll be a surprise, but hopefully that'll prevent further labor market deterioration. Inflation is already on a pretty good path. But yeah, a new cycle. We'll be back with more Kyla after this.

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17:12See a Lowe's Red Vest Associate or visit lowes.com slash holiday install to get started. Lowe's, we help you save. Basic install only, date restrictions apply, subject to availability. Install by independent contractors. See associate for details, contiguous US only. Now we'd love to ask you about you and your work as a financial educator. So what have you learned from YouTube commenters? What have I learned? There's a lot of good comments. I mean, I think a lot of people ask pretty good questions. It seems like there's a broad concern about the role of corporations and the influence that they have.

17:51The FTC hearing for Kroger and Albertsons just started on Wednesday, August 28th. I believe it started that day. And so people are very concerned about that. Like, you know, how monopolistic are these corporations? Do they have people's interests at heart? And that's what I learned from the comments is what people are concerned about and what they want to learn more of. So we post on multiple platforms. You post on multiple platforms. We see kind of the nuances of how YouTube commenters behave, how TikTok commenters behave. So what have you seen? Is one platform more economically literate than the other?

18:28Just break us down platform by platform in terms of your audience. Yeah. I mean, I think everyone is just genuinely curious about the economy. I would say TikTok is just, it's just TikTok. So it's prone to conspiracy. There's just like, sometimes I hear about stuff where I'm like, oh, I didn't know George Soros was doing that. That's interesting that you read that somewhere. So there's a lot of that kind of stuff on TikTok. But I would say like in general, you know, 95 % of people are just curious about the economy. It's something that they're a part of. And it's really tough to get information about it that's made palatable.

19:05So that's, I think, the main thing I see. Yeah. What about you all? I think YouTube's probably the nicest. Instagram's probably the meanest. TikTok is just... Instagram's tough. Kyla's answer versus yours. No, well, I was just, I'm going based on vibes, you know, I'm learning for, um, but yeah. Wait, who's the meanest? Instagram? Instagram is, yeah, they're cruel. Yeah. They're not economically curious. Right. They're just, they just want to get their, their likes on their, on their comments. Um, shifting gears back to economics. Do you actually, do you actively invest? And if so, can you tell us kind of where you are putting your money right now?

19:43Yeah. So not investment advice ever, but I do actively invest. I don't give financial advice, but I primarily invest in ETFs. I really love utilities. So I'm invested in some utility ETFs. I'm invested in basically the things that I use on a day to day. So like if I eat at Sweet Greens, which is a salad company, I own some sweet green stocks, but I just try to remain diversified. I would say probably most of my money is in an S &P ETF. That did not work out for me during the MoviePass days. I was using MoviePass a lot and the stock did not really go up. Well, that was kind of like too good to be true.

20:24That was an insane deal. I know. I think, I mean, the more everyone used MoviePass because they loved it, the less the stock was worth. You don't come from major financial centers on the coast. You went to Western Kentucky University. Go Hilltoppers. how has growing up and living in the middle of america shaped your perspective on the economy also i did work at a financial institution on the coast i worked at capital group out in los angeles okay but not until after you graduated and yeah yeah so like yeah i was in kentucky pretty much my whole life um and then went to wku i it was it was interesting um you know i moved to los angeles like right after i graduated pretty much five days and i'd never been to la so there was just a learning curve there.

21:10But I think it's definitely influenced how I see the economy, how I try to talk about this stuff, being people-centric. Kentucky is a state that has gotten the short end of the stick in a lot of situations. It's ranked very low in healthcare, very low in education. And I think all of that had played a big role in my desire to focus on economics education. Let's just do a hypothetical scenario here for a second. Let's say Janet Yellen wants some time off. She wants to go eat some magic mushrooms somewhere. And suddenly you are appointed treasury secretary for the day and can enact any policies you want.

21:51What's at the top of your agenda? Oh, I think I would just continue doing what she's doing to not disrupt anything. I think that that side of policy wouldn't be as interesting to me as like being Fed chair for a day. I think that what the treasury does, which is good as they try to, you know, play a big part in a lot of sections of the economy. So they play a role in the housing market. Like they've helped to build more homes to allocate money to those, those areas. Um, so I think that would be something that I'd focus on if that did happen. Um, where Jenny was like, here's the reins to Kyla, which I don't think will ever happen.

22:33But yeah, I think just focusing on the housing market a bit, focusing on home insurance, just figuring out along with the people that work at the treasury, sort of what policies can be passed to either provide more support to private insurers or build out the fair plans, which are government sponsored insurance plans. That would probably be what I would do with my treasury time. Sounds like she can take a day off. I know. I would just want to go ahead with Janet Yellen personally. Toby would just go clock in and be like, I'm done. What's up, Janet? Yeah, she's funny. She seems funny. And I know she's a big foodie.

23:11She's a food influencer. Yeah, she's a big foodie. You employ a lot of metaphors to explain economic concepts. There's this gingerbread Yeti to explain GDP, bananas and trucks to make sense of money. Is there one particular metaphor that you are especially proud of? I talked about my grandma's banana bread in the book to kind of talk about supply chains and inflation and dollars and stuff. And that was fun to talk about that because she does make banana bread. And how does it apply to supply chains? Well, so it applies to supply chains. Well, I think the way that I use that example in the final copy of the book was I was talking about the price increase in her banana bread over time.

23:54like how much bananas have increased in price since she started making banana bread. So that's just illustrative because it shows people, you know, there hasn't been a deterioration in purchasing power. But yeah, real wages have gone up. So that was a fun metaphor, gingerbread Yeti. And then at the beginning of the book, I did this attempt at a metaphor of the economic kingdom, like the interconnectivity of the economy. That's something I am still sort of working on because I think that's where a lot of people get tripped up is how all this stuff is so interconnected, like the labor market, inflation, federal reserve, fiscal policy, all of it's very tied together.

24:35So that was a fun metaphor to work on too, and a fun drawing. We'll take 10 banana breads. I know. I listened to your book and I was hearing you describe the banana bread and I legitimately was like, ah, that does sound pretty good right Yeah, I know. Because you kind of forget about banana bread until you think about banana bread. It's not something that I don't think is top of mind. It's not like an apple where you're like, okay, I know apples are part of my daily routine, but banana bread, it's like a nice treat. It's much like the economy. It's not top of mind, but it's always there whenever you want to think about it.