How the Big Beautiful Bill’s Passage Will Reshape the Economy

26:18And just in general, anybody who had anything in a portfolio in the last 20 years has done awesome. And for planning purposes, don't plan on that keeping on going. Right. We have probably just lived through the good old days. And it's not to say the future is going to be bad, but we're not going to be ripping off tickets at 10 percent on the equity markets and like four and a half percent on the bond markets and just laughing our way to the bank and moving to Florida. It's going to be more it's going to be more historically normal returns in the next 20 years than in the last 20 years. Do you think that the U.S.

27:01versus foreign markets story has a part to play here? I mean, we're sort of framing it as if we're living in an inflationary world, but it could be, you know, we might be living in an inflationary America. It's true. And the historical returns in the U.S. will look more like what they look like, you know, in Europe and the rest of the world. American returns have been so good. Most foreign markets haven't had returns nearly as good. And just because it's simple enough for me to understand, I'm really into mean regression. You know, if something is really high, it'll probably get a little lower next and vice versa.

27:44Right. And I like that as a justification for the international strategy. The other side of me, though, is that the plain hard fact, you and I can sit here and moan all we want about the dysfunctionality of the American political process and our addiction to debt and everything else. But the fact is, our economy grows faster than the other developed economies. We are still, I think, a more innovative economy. We are a more flexible economy. You know, people move more easily here. People change more jobs here. We have a great job system. So like part of U.S. outperformance is undergirded by the fact that we have a superior, a structurally superior economy to most of the rest of the developing world.

28:31And that's I don't see that. I mean, barring stupidity on a previously undiscovered level, I don't see that changing. We'll be right back after the break with a pulse check on the economy. If you're enjoying the show so far, be sure to give Profit and Markets a follow wherever you get your podcasts. Thank you.

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31:42We're back with Profit Markets. Let's take a pulse check on the U.S. economy. The employment report came in stronger than expected last week, with the U.S. adding 147 ,000 jobs in June. But other indicators suggest that the broader economic picture looks more mixed. Manufacturing activity contracted for the fourth straight month in June, and the dollar is hovering near a three-year low. So, Rob, let's just start with this jobs data, because this surprised all of us, I think. Me, for sure. I was like, it's going to be 75 and everyone's going to freak, you know, and it was twice that. You had your takes ready to go.

32:25Yeah. Got to shift them. Exactly. So 147 ,000 new jobs in June. Economists expected 110 ,000. I think it's fair to say that this kind of blew past expectations. So going off of that, the economy maybe is in pretty good shape, but there are also just these other signs floating around that would, you know, be contradictory. Almost every indication of the job market shows this incredible resilience and steadiness. We've had all these shocks and it's tariffs and it's this and that and whatever. And the job market just churns along, creating jobs, beating expectations in an incredibly steady way. And if you look at other job market indicators, how many people are quitting jobs, how many people are getting fired from jobs, etc., all the sort of sub-indicators are also this incredibly steady picture.

33:28If you want to nitpick, however, about the jobs market, here is what you say about it. It is not very dynamic. not a lot of people are getting fired. That is good. Also, not a lot of people are getting hired. That is not good. So you might like more of both of those things at the same time, right? Because that means people are like, oh, but there's a better job over here. There's different opportunities. I can afford to quit or the company can afford to let me go because I'm, you know, and it's all, so there's something a little bit static about it. And the one official statistic that does not look good right now is continuing jobless claims.

34:07That means people, not people who are just entering the ranks of the unemployed, applying for unemployment insurance, it is people who have entered and are staying. Right. They still can't find a job. And the trend in that number looks notably bad. However, the numbers are low. So it's not been enough of those people to make the overall kind of some numbers, the aggregate numbers look bad, but the trend in people who have lost work and can't find new work is a bit alarming. So there is, there is something, again, it feels slightly stiff, the job market, you know, so don't get fired at that's my, don't make, don't make too many of those jokes about the professor.

34:50Disparaging jokes. I can't help myself. Yeah, yeah. So that's a thing. Yeah. We also saw this other data from the ADP, which I can't really figure this out. It said the exact opposite. I mean, ADP measures private payrolls. And I found that the private sector lost 33 ,000 jobs in June. And that came out a day before we got that official government data, which found that we added 147 ,000. There was a lot of state and local employment in the plus number on the official payrolls report. So that helped, but it wasn't the whole story. People in general like to hate on the ADP report. They think it's not very reliable and very volatile.

35:39Okay. But I don't think the differences are particularly easy to understand. I guess it's just a good point to remember that we are measuring something very big and very dynamic and very hard to measure, right? So it's not like some person has gone out there and literally counted every single job in the economy. It's sampling and you're depending on the quality of the data and, you know, you're using, you know, different information sources. And so, you know, you can't one month is just one month, as we like to say. And the reliable thing is to look at the three month moving average, the six month moving average.

36:20So these little bits of variation wash out, as it were. Just to go through the jobs data by sector, as you said, we saw this big increase in state and local jobs. Government added 71 ,000 jobs. And that was the biggest increase of any sector is government jobs, which is so interesting. After we've seen this, you know, we're going to make the government smaller. Yeah, but state and local, though. Yes. Yeah. Other big increases were in education and health. We added 51 ,000 jobs and also hospitality, 20 ,000 jobs. Where did we see decreases? We saw decreases in business services, minus 7 ,000 jobs.

37:01And also, and I think this is probably the most important, manufacturing, down 7 ,000. So I'd like to get your views on what this says about the tariff inflationary environment in general, because a lot of people look at this data and they say, oh, we're great. Unemployment's down. We're ripping. You know, tariffs aren't going to be a problem. And my whole thing has been, well, tariffs aren't here yet. And we're only going to start to see signs very slowly. And the first place you see those signs would be manufacturing. Okay, I do not want to join you and the president, by the way, in the general fetishization of manufacturing.

37:45Right, there is, we all have sort of romantic feelings about the good job, the good union job down at the mill kind of stuff. And like, you know, we live in a technological world. I don't want to get all misty-eyed about manufacturing. Manufacturing is important. You want to make stuff, et cetera, et cetera. It's one sector among many. I would rephrase your point slightly to say, where are the cyclical industry jobs? Where are the jobs for industries that are economically sensitive? Where are those jobs? So that's hospitality, that's manufacture, that's construction, that's, et cetera, energy industry, et cetera, et cetera.

38:31So if the economy was great, you would see people in cyclical industries adding jobs, not just healthcare and government and et cetera, et cetera. And I don't see a lot of that here. So it's hard to argue that this report screams that we're in a cyclical upswing. I think the the kind of consensus view that we are in a very, we are in a kind of slowdown from a very extreme cyclical high still holds and is totally consistent with what we see in this report. You know, if I'm worried about anything in this economy, it's not manufacturing. It's like housing and construction. The housing market is a bit of a shambles right now.

39:09And that is a super cyclical part of the economy. And when the, and it's not a huge part of the economy, but it's like a big swing factor for the economy. It's really bad when the economy is bad, and it's really good when the economy is good. So it can have a big influence on the cycle. And housing looks bad. And that has to do with high rates and a lot of other stuff. It feels like one of the things we're grappling with here is, can you make any conclusions from this report? And a lot of what you're saying is not really because it's kind of soft. You really want to look at the three-month averages.

39:49You know, some of these things are more cyclical. But yet, it's Jerome Powell's job to look at this data and draw a conclusion and then come up with a decision. Look, it does rule out the worst scenarios. Like, there's no way to make this report look awful. Right. And if the number had been 50, we'd all be having kittens. And that didn't happen. And once again, despite all the uncertainty and the bad sentiment reports and everything else, the number is fine. It is solid. So we cut the sort of horrible right tail off. And that's a good thing to do. where we are to the left of that in the good tale is definitely very much open to debate i mean there's no question i mean if you look at the odds the futures market is putting on a rate cut in july after this report those odds just fell through the floor we're not getting a cut in july and by the way we shouldn't you know like the economy just created 150 000 jobs in a month you know uh we we are worried we should be worried about tariff inflation and we shouldn't have a rate cut with the economy's doing pretty good we don't need to be in a rush to cut powell is right and trump is wrong exactly it's like not not a complicated situation at all you know and if and if things slow down next month there's always you know the next the september meeting or whatever We should talk about what this means for the Fed and for Jerome Powell.

41:24Because, yeah, as you say, the probability of a July rate cut, which, by the way, a couple months ago, it was at around 80%. We're down to 5 % after this. Everyone agrees this isn't going to happen because, to your point, the boogeyman for Jerome Powell is low employment and employment numbers are fine. but if you're trump and you see this data which i mean it's a tough thing because for trump he probably wants to say everything's great therefore stop freaking out jerome powell but at the same time there's the argument of everything's great therefore why should we cut rates he wants to celebrate how great his America is.

42:12And he wants rate cuts and he cannot have, he cannot have both in this circumstance. You know, I have a bit of, of course, as you I'm sure have talked about on the show, we've had a lot of noise from the white house and its allies. Jerome Powell is screwing us all. He's doing a lot of damage. You know, the guy who runs Fannie and Freddie is like going after the chair of the fed. Besson is on TV going after him. And I actually think this is fine because the superpower of Jerome Powell is being dull. And he's like this guy who sits there and says, we're following the data. Here's what the data says.

42:55And here's what we're going to do. Matt, see you next month. Right. And you have these, uh, you have Trump and everybody else. He cannot do our job. We are not, We're not going to be replaced by him. And, you know, he just is like, you know, and, you know, you can say, oh, he screwed up at the beginning of inflation. Fine. We can have that argument. Maybe you did. Great. But at this time, he's just saying we have a job to do. It's to balance our two mandates. Here's how we're doing it. And the more Trump and his minions scream and yell it to me, it underlines the independence of the Fed rather than it's like, oh, that's the reason we have to have an independent Fed because of those guys.

43:35Right. And I'm sure other people don't have the reaction I do. I'm a markets nerd. I'll look at it differently than Joe or Jane Public will. But I just feel like we're having this great civic lesson in why an independent Fed is good and how an independent Fed should behave. You know, Jerome is not out there. Jerome Powell is not out there being like, oh, Trump is stupid and this is an outrage. He's like, it's really not my job to think about what the president says. I just follow the data. I guess the thing that kind of upsets me about the Powell bashing is the possibility that people hear what Trump is saying and they agree with him.

44:13And maybe fewer people than I think are actually in agreement with him. But for me, it's upsetting because I'm like, this is the guy who a few years ago, everyone was saying was going to crash the economy with his high rates. I mean, I remember vividly reading this Bloomberg article, which said that the odds of a recession in the next 12 months were 100%. And it was a survey, and everyone said, I mean, he was getting criticism not just from Trump, but from everyone. And he said, no, we're going to stick with it. People said, soft landing, not possible. He got the soft landing. Here we are. And I guess it just upsets me to then have the president saying, this guy's doing a terrible job.

44:58He's too late. If Jerome Powell's superpower is being boring, Trump's superpower is not being boring. Right. And his superpower is like making you feel strong emotions. The yin and yang of boredom. Yeah. Right. He like he whether you like him or you hate him or whatever, he draws these powerful emotions out of us. And so my attitude is like, it's my job as a citizen and as a journalist to just be cool. I'm not going to be emotional about stuff the president says, because we need more people being cool on all parts of the political spectrum. I just want to shift us to how the markets are reacting to all of this, because, you know, we've got all these underlying economic indicators, which, to be honest, are not great.

45:46I mean, you've got GDP contracting, and it was just revised lower in Q1. You've got all these manufacturing indexes, which are shrinking. You would argue whatever, but I would argue that's the first place you look for inflationary impact in terms of tax. You also got the dollar, which is falling. It had its worst start to the year since 1973. And, you know, yes, we got this jobs report. But aside from that, it doesn't look incredible. And, you know, you could also add on the wars that are exploding all over the world as a reason to be worried. And yet, to your point from the previous segment, stocks and riskier assets are exploding.

46:36And you've got all of that happening. Meanwhile, the underlying indicators are telling you this is a little bit scary. What do you make of that? I'm slightly more glass half full on the economy than you are. Job creation is there and GDP, although it's decelerating, it's still growing. And in a pretty good clip, the economy of the United States, I don't know where the Atlanta fence GDP now is right now, but we're in, I think we're above 1.5 % anyway. And we might be a kind of 1.5 % real GDP growth economy. So we might actually be growing above potential a little bit here. So I think the economy is actually okay.

47:21Now, there is the bad stuff that you're talking about. But here, and I think we may have discussed this on earlier parts of the show, one of the most salient and interesting features of the economy we have right now is the big division between hard data and soft data. So if you look at hard data, which is like actual transactions, who got hired, who got hired, what profits are companies reporting and so forth, real facts, economy looks like, just as I said, pretty good. But if you ask people how they feel, they tell you they feel bad. And that goes for investors, consumers, CEOs, everybody. We're dealing with this uncertainty.

48:02And so the factory contraction you're talking about, I assume you're talking about the ISMs. And what that is, is you go to the factory manager and you say, do you think business is expanding or contracting? And do you expect it to expand in the next three months or to contract? And the factory guys have been saying, I expect it to contract. I expect to hire less. I expect to do less capital expenditures. But output is not as bad. It's not great, but it's not as bad. So it's almost like the tariff thing. When does this bad sentiment come to roost? And I think we know why there's bad sentiment.

48:41There's two reasons. One, within the last five years, we had an incredible economic shock, which was the pandemic and then the inflation. And so people are still finding their feet. And number two, we don't know what the heck the president's economic policies are from day to day. Tariffs being the most important one. So you're like, I don't know what's going to happen to my business. You know, what am I going to have to pay for inputs? Like factories in America import tons of shit. and there you know we know for a fact that people who run factories to say nothing of farms or whatever uh are worried about immigration and tariffs and they're feeling like crap but for now the factories are still cranking stuff out people are still buying stuff consumption is good but you you know it's weird that the sentiment is so poor across the board and while the sentiment is somewhat partisan.

49:37In other words, if you ask a Republican how things are going there, they are going to be a little bit happier sounding. They're still trending the wrong way too, right? And so, I don't know, like, at some point, if this cloud of uncertainty doesn't clear, I would have to imagine that bad soft data turns into bad hard data. That's exactly, that's the question. that when does the soft data become the hard data? I'm convinced it's coming. And the Fed would agree with their projections, specifically with inflation too. So let's get your prediction, if you're willing, on inflation. I keep on saying it's coming.

50:29Do you think it's coming? No, I don't think we're going to get another, spike. My prediction is we're never getting sustainably to 2 % in the foreseeable future. We're going to go along and it's going to be bad one month and it's going to be in that 3 % range and bouncing around. It's going to be basically just high enough to make your bond portfolio not work. I mean, but I, cause I think we just had this terrible experience. So Trump rattles on about how he's a low rates guy. And, uh, the chair of the fed is selling out the country. I don't think he's going to screw around, right? Whoever his guy is in the fed.

51:15If this happens after may, if we get an inflation spike, I don't think the president is going to stop, stand in the way of the Fed snuffing that shit out because he just saw inflation destroy Joe brought Biden's term and his legacy. I don't think he's going to touch the stove. Right. I mean, unless he's, yeah, unless he's a lot stupider than I think he is. I just don't think he's going to do that. So, but I think for the kind of systemic long-term grinding reasons we have, we're going to be kind of, it's going to be like having a low fever where you're like well enough to go to work, but you're like, I don't know, I'm like feeling kind of cruddy.

51:55And it's going to be like that. Sort of like how we all feel all the time. Yeah, exactly. So, and you know, that'll have some upsides. Like the economy is going to be a little bit hot. Employment will probably stay good, but I think we're going to be struggling with this because of low immigration, because of tariffs. And also like, tell me what the tariff policy is. We had this experience yesterday. Yesterday, I was working with one of the young people I work with, Hak-Yung Kim, who we just hired. He's great. And we were just, I was like, Hak-Yung, all I want you to do in this piece you're writing for tomorrow is give me a general sense.

52:30Give the reader a general sense, within an order of magnitude, what the tariff on the average American car is going to be when this happens. And I thought you need to hire like a team of analysts. Yeah, I thought we'd be able to get within five or ten thousand dollars one way or the other, like, you know, close enough for hand grenades. Well, the U.S. government couldn't do that. They tried to do it with the billboard and they couldn't do it themselves. And it's like, OK, it's the steel and aluminum and then the tariffs aren't stacked. So does the steel and aluminum count against the imported parts?

53:07Do those net out? But how would that work? Because where does the aluminum get imported? And then there's this other thing and the trade deal with Canada and Mexico. How do those adjustments play in? And you're like, how is a store manager supposed to figure it out? Yeah, yeah. And I wonder if the people are running the car companies are like, I don't know. And if that's true, that helps to actually explain why we're not seeing the inflation yet, because they don't know. That's what I think it is. Yeah. So they're not going to raise prices when they don't know if there really are tariffs yet because they don't want to lose market share.

53:41That's why my view on this is this is going to take a long time. You know, you need everything to funnel through. And you also need, I mean, Jerome Powell needs to have enough data to make an informed decision, which is why I predicted July rate cut would not come. But I think the same thing is true of every business. You're not going to raise your prices, especially after we've already had such massive inflation. You're not going to do it until you absolutely know what the hell is going on. And yeah, this is the question we're all arguing about. When is that going to happen? And all my predictions have been wrong up until now.

54:17So I'm going to abstain from predicting, but I agree. The logic that you lay out, Ed, I think is the right logic. We'll be right back after the break with a look at the great wealth transfer. If you're enjoying the show so far, hit follow and leave us a review on Prof G Markets.

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56:40We're back with Property Markets. We are in the middle of the largest generational wealth transfer in history, with$6 trillion set to be inherited this year alone. In 2023, 53 new billionaires emerged just through inheritance. And in the next 25 years, more than$83 trillion will be passed down through inheritance as well. Meanwhile, the Big Beautiful Bill includes a provision that will make it even easier for ultra-wealthy families to pass down their wealth tax-free. the estate tax exemption, will be increased to$15 million for individuals and$30 million for couples. In other words, you can give your kid$30 million and you pay nothing in taxes.

57:21So, Rob, this is a sort of larger, more generational story that Scott and I have talked about for a while, but that is now starting to appear in headlines. Baby boomers are dying. That's the summary. Baby boomers, dead. Right? Exactly. That is actually, yeah, that is what is happening. The baby boomers are dying. And as we know, the baby boomers have done very well. The richest people in America are, generally speaking, the baby boomers. And the wealth inequality has gotten insane. And just to go through some of the numbers, the top 10 % of Americans own 93 % of all US stocks. The top 1 % control$25 trillion worth of equities.

58:11That is roughly half of the market cap of the entire S &P 500. There are now 902 billionaires in the US, up 800 % since 1990. In sum, a handful of extremely rich people, and the majority of them are quite old. And just about now, they're dying, and they're giving it to their kids. And it is creating what some people are calling the inheritocracy. All of that wealth that was collected by this small handful of individuals is now being passed on to their children. So, Rob, just very general reactions. If America is becoming an inheritocracy, what does that mean? What does that mean for the economy, for society, and for investors?

59:00The rich have a lower marginal propensity to consume than the poor. So you give a rich person the next dollar, they invest it or save it. You give a poorer person the dollar, they spend it. and without going through all the mathematics or whatever that means on wildly unequal societies grow less quickly than they otherwise could right because you're not feeding the real economy you're feeding the financial economy at some point and in theory the financial economy should feed the real economy but for reasons that are not well understood the savings in america in particular doesn't go to productive investment in America.

59:44It becomes debt of poorer people or whatever. So that is bad. And agnostic to how you think we ought to solve this problem, I think it's important. Like I feel uneasy about redistribution. I'm a real capitalist. I'm a greed is good guy. But massive inequality makes our economy less healthy than it otherwise would be. It reduces opportunity and dynamism and all of that stuff. So it's bad. On a psychological point, I don't think it's fun to be the kid who inherits all the money and then never has to do anything for the rest of their life. Like I know a couple of those people and it's actually not that cool a situation to be in.

1:00:31You know what I mean? Like you want to be rich enough so like your parents pay for your college and maybe get you your first car. but you get a lot richer than that and it's like you know therapy and drug rehab and scott would say a range rover and a cocaine habit exactly so i don't think it's socially all that good um now one interesting question and i'd be interested what you feel about this are the baby boomers they the money goes from them to my generation the x's or maybe it skips generation and goes to the millennials or something, do they behave differently as rich people than the boomers did?

1:01:11That is the question. And I have no idea. I mean, I have never really thought about that. I mean, let's just put some numbers to it. So as I said, in advanced economies, $6 trillion will be inherited. As I said, 53 people became billionaires in 2023 because of inheritance. My favorite stat, by the way, those people represented 40 % of the newly minted billionaires in that year. So if you ever meet someone who just became a billionaire, basically now the chances that they got that money from their parents is 40%. Well, all of them are going to be in that restaurant that Scott is eating tonight.

1:01:51And so he'll be able to do a sort of sociological study, talk to them all, you know, see what they're all about. Yeah, yeah. And to that point, that is what I think will likely happen. It'll be like the Gilded Age, where these people who inherited the money, they don't actually understand the value of the money because they didn't earn it. And they'll be spending it at Sublimotion buying$3 ,000 dinners. I think that the money, just based on those psychological reasons that you just described, the money is going to be spent completely recklessly. It'll be crazy, crazy spending, which in a way, maybe that's a good thing because that's your redistribution mechanism.

1:02:36Look, somebody has to build the yacht. Somebody is the welder who builds the yacht or flies the helicopter to the yacht or whatever. Or is the person with the fan fanning the person while they're eating grapes? Yes, exactly. Someone has to hold the grapes. I'm not holding them. God, no. So it's not exactly the society we dream of, right? Exactly. You know, it is to these two sides for me. I think that, you know, I'm a big believer that capitalism is kind of the best idea anybody ever had. And that it just like, you know, if you go back to pre-industrial times, we were all dead at 35 and we had bad teeth and everything sucked.

1:03:15Right. And what got us out of that is two things. the idea of constitutional democracy and the idea that you ought to leave people alone and let them be greedy and get after it. Right. So and I feel great about that stuff. I love commerce. I love success stories. You know, it's like I could sum this up in one person. Like, I think Jeff Bezos, what he has done with that business is so awesome. Like the way he thought about it, the way he built that investor base, the way he thought about how to finance it, the way he talks about the business, what it's achieved in terms of like helping people and making our like lives better.

1:03:54I love all of that. I totally agree. And then he like rents Venice and like has the biggest, and it's just like the vulgarity of it all is just like his wife was basically married in a dress made of diamonds. You know what I mean? And it's like, what are you doing, dude? You know, come on you know so i i love the jeff bezos who built amazon and thought about amazon and you know i could i could talk for hours about the different choices he made and then it's like this is how you act he lost all of his sophistication in a heartbeat yeah on the way out the door it's like what are you doing man you know you're acting like a clown here you know and and so that so that that sort of sums up my split thinking about this.

1:04:42Loving capitalism and thinking a way there's got to be some kind of golden mean or balance or something that we can achieve, you know? I love your point, and it is true, about what happens when the rich get really rich. I mean, it's sort of the lie of trickle-down economics where you're so rich that actually you don't spend. And, you know, maybe you say, you're investing in businesses that maybe will become productive. But as you say, the stock market is becoming so incredibly financialized, it's often not actually an investing event. This is just trading events. And meanwhile, you've got things like Bitcoin and gold, which are skyrocketing.

1:05:28If your money's sitting in Bitcoin, that's not doing anything productive for society. No value is being created. it's negative value because of its environmental impact exactly and it's just wasting all the energy to keep it on exactly it's i mean gold is better because you can just put it in the vault and it doesn't take away but i think that is very true and just uh some some data here from from the imf which validates that point an increase in the income share of the bottom 20 is associated with higher gdp growth an increase in the income share of the top 20 is actually associated with a gdp decline over the medium term, which I think really proves that point.

1:06:08So, that's sort of the issue. And to me, it's all about how do you unleash the greed of human beings to create more value and expand the pie? That's sort of the question. And the trouble for me is when all of that value is being plowed into massively unproductive unproductive ventures. I would say that that's why I don't like gold. I think gold is an unproductive venture. I don't like Bitcoin. I think it's unproductive for similar reasons. I also think a$47 million wedding in Venice is an unproductive venture. I think a yacht and taking apart a bridge to get the yacht through the bridge, unproductive.

1:06:55And so this big question is like, how can you unleash all of that capital to be put to productive ends? And is it a problem that all of that money is going to go to these young people who will, let's face it, spend it on drugs and yachts and champagne? I think it's a really hard question. And the only, you know, I don't know what to do about it systemically. Like, do we need a new tax regime or do we need a different treatment of things or a new way of accounting for this stuff. I'm not sure about any of that, but I was actually talking about this very topic with my wife as we were driving out to where we are now.

1:07:34And we were talking about as a person, we all kind of fight this battle within ourselves. And what I mean by that is you have to know when is enough or you're never going to be happy, right? You can, we all get caught on what they call the hedonic treadmill, which is like if only I get one set of nicer things, if I go on one more nice vacation or I have one more pair of shoes than the pairs of shoes I have now, or one more picture to hang on the wall, then I'll finally have enough and I'll be happy. And then you get the next thing and you start running towards the next thing. And at some point, each of us has to step off the hedonic treadmill and be like, look, things are cool.

1:08:13You know, my family's cool. I'm cool. I've got books to read. I've got plenty to eat. I got a warm, dry place to sleep. I live in a beautiful city. It's enough. Right. And that's a psychological challenge that's kind of an analog to the economic challenge that you just described. I feel a little sappy even saying that out loud. Here I am. I've said it now and out there in the world. Let's just talk about the, I mean, in terms of what could be done about it. But my view is you go after the inheritance tax. I mean, that's why I was so shocked to see in this new bill that has just passed in the House that we are increasing the estate tax exemption.

1:09:02We're saying that$27 million tax-free to your children, that actually isn't enough. And what's hilarious is the reasons they've ascribed to increasing it to$30 million. is farmers, right? And they always talk about the farmers. Sorry, yes, farmers, but also because farmers need to pass on their businesses, okay? Inflation. They say, well, inflation has happened, so now we need to compensate for that by, you know, upping it from 27 to 30. It's like, hold on, inflation's also happened to the poor people. And it's happened to the financial assets that the rich people have. That's why they're doing this.

1:09:40And to me, when I think about how do you address this problem, how do you redistribute without pissing people off too much, the best time to do it is when the guy's dead and it goes to their children. I think you have a very good case there, but the right to pass on what we've earned to our children, like really strikes at people's emotions and their heart. And they're not thinking when they hear it about what the number is and how it will never apply to them. Like you get to the point about it was 27 million. Now it's 30 million. That's like, what they hear is they want to take your money away that you want to leave to your kids.

1:10:21So it's very politically a tough one. um you know a lot what a lot of people economists talk about is a wealth tax rather than an income tax because what we're talking about is not differences in income we're really talking about differences in wealth and if you could tax wealth that would be that would solve part of the problem and i think that you could maybe sell that politically more like we're not going to increase your uh income tax we're going to say you know people who have over 10 million dollars are going going to pay a little bit more. And if you don't have$10 million, maybe your paycheck will get bigger because we're going to lower the marginal income tax rate and we're going to do the wealth tax.

1:10:59The problem is that wealth is hard to measure. Your income is right there on your pay stubs and the government is like, okay, 35 % of that, no, no, no. Wealth, it's like, where is it? How do you value stuff? How do you prevent people from hiding it or putting it somewhere else or putting it in some weird tax structure. It's like a technical problem of instituting a wealth tax. One solution that I've thought about is a borrowing tax where, you know, a lot of these people, the way that you subsidize your lifestyle with cash is you just borrow against your holdings. And that's sort of how they don't pay taxes because there's no liquidity event.

1:11:42But if there was some sort of tax where it's like, okay, if you're going to borrow this amount, which you're literally going to use to buy your car and consume, then we're going to force you to pay a little bit more in tax. And maybe that results in you get to borrow less cash than you had originally hoped. Does that work for you? Yeah, no, I like that. And I mean, again, questions of structure, but it's very sensible. You know, what of course you wish as a capitalist is that organically somehow you built companies where the wealth, it expanded wealth at more strata of society. Like it's always by the time you're talking about redistribution, I'm already cringing a little bit, not to say that I'm against it at the end of the day, but you just wish that the economy itself was structured so that more workers got a bigger share of it.

1:12:39And, but I don't know, I mean, it seems like with technology, we have a very technologized economy and technology is set up to provide extreme rewards to a small number of people who own equity in a piece of intellectual property, basically. And, and, and so it's not, you know, that's, I don't know how you get to the economy that is organically redistributive, as it were. You know, that would be the dream. Well, maybe the answer is that we need to just let the kids have it and let them spend it like idiots. And that's how you do it. Yeah. Maybe that's the best we can do. You know, we got to get into the limousine business and the helicopter business and the yacht business and all of that.

1:13:24I'm telling you. You and me, Ed, we're going to sell it. We're getting into the luxury goods business. We're giving up the podcasting game and we're going into luxury goods. I am very bullish. Okay, Rob, let's take a look at the week ahead. We will see the minutes from the Fed's May meeting, also see the monthly U.S. federal budget. Rob, this is the moment in the show where I ask Scott if he has a prediction. Do you have a prediction that you would like to share as we wrap up this I've already made one, which is that life back at the 2 % inflation target is over for the foreseeable. I will actually take the other side of your luxury goods trade.

1:14:11I think the luxury industry has pushed their luck a little far. I look at the luxury industry quite a bit at the FT. I go to the big FT luxury conference every year, and this was actually a topic of conversation there. Like, have we pushed prices too far? And the industry is really reckoning with that. Have we gone, are we too vulgar now? And I actually think maybe the Bezos wedding in Venice was like the conspicuous spending peak. And now people are like, ew, we've got to try something else. So I don't know. I'm going to predict that there's reconsolidation in the luxury industry. I like that take.

1:14:52I would only amend that the question is, was Bezos's wedding true luxury? Was the leopard print, skin tight dress trend, the Dolce & Gabbana dress, is that luxury? Or are we going to see like a rise of the lower pianos and the more tasteful, elegant sense of luxury? Like three years ago, everything you would read in the style section of the FT was about quiet luxury. Quiet luxury. Yeah, yeah. And that trend seems to have stopped for now, but I think it's coming back. It's coming roaring back. Okay. Coming roaring back, yeah, quietly. Rob, this was wonderful. I think Scott is going to get a little anxious, is my guess.

1:15:39Yeah, man. Yeah, maybe he's the one who's going to be unemployed. Good luck to him. That'll show him. That'll show them. Rob, thank you. Thank you so much. And let's direct, or listen to some of your stuff. Unhedged newsletter in the FT. Unbelievable newsletter. I highly recommend it. And you also have your podcast, Unhedged. The Unhedged podcast, twice a week. That's free. You can find it wherever you find your podcast content. Rob, thank you so much. This was a lot of fun. And I can't wait to have you back again soon. It's always fun being on the show. This episode was produced by Claire Miller and engineered by Benjamin Spencer.

1:16:23Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel and Dan Shallan are our research associates. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Tune in tomorrow for a fresh take on the markets.

1:16:52You help me In kind Reunion As the world turns And the dark flies In love

1:17:42Thank you.

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