Episode 320 - Kyla Scanlon: In This Economy?!

24:50Oh, I get into fights with people about this stuff. So like I get into arguments about this sometimes because I think everybody does want things to be different all the time. But there's this really good quote from James Baldwin, and I'm going to paraphrase it, but essentially it's like everything that's happened to you ever has happened in literature. You'll read a Russian lit novel and be like, oh my gosh, this character had the exact same feelings that I had. And so I think that's kind of the thing. It's like the world is cyclical at the end of the day. We kind of keep on making the same mistakes.

25:21We sort of trend towards the same successes and everything is an element of progress. But I think thinking that this time is different can lead to complacency where people are like, oh, it won't matter this time. Things will be different. Elements have changed. But at the end of the day, we do trend towards an average law of large numbers, right? Interesting. So you talk a bit in your book about cryptocurrency. Where do you think crypto went wrong? Crypto went wrong when it tried to ask the US government to backstop it. Yeah. I used to think crypto was very cool. And I worked with some crypto companies very early on because I think the technology is really interesting, like blockchain.

25:58The idea of peer-to-peer payments is very interesting. But crypto lost the plot and it lost the ethos of what it was meant to be. You can't really call yourself a decentralized currency. It's going to make people mad. But you can call yourself a decentralized currency and then be like, like, oh, the US government should just work Bitcoin in its reserves. Those two things probably don't square very well. That's one element of what happened to crypto. And then with everything new, there's always the opportunity for bad actors to rise and take over. And that's what you saw with Sam Binkman-Fried with CZ over at Binance.

26:34These people who were making terrible decisions were the face of the industry. And so when you have really bad actors making really bad decisions is going to make your industry look really bad. And I still think there's really exciting parts of crypto. There's a lot of really fun people who are building in the space and there's people who still believe in the ethos. But I think crypto has forgotten what it's meant to be and also bad actors to govern. And that's really tough to navigate as an industry. I'll make people matter. I don't think crypto was ever decentralized. So it started out as decentralized, but I don't think it ever had a hope of maintaining decentralization.

27:13There are lots of points of centrality that develop naturally. And then, of course, asking for the government's help doesn't help. It just doesn't know what it is either. Bitcoin was meant to be developed as a currency. And is it a currency or is it a store of value? Is it gold? And I just don't think anybody knows because you wouldn't be celebrating the rise of Bitcoin if you wanted it to be a way to transact with people. So I think that's kind of the bummer is that it became, as with anything, get rich quick schemes. And there was so much noise around it in 2021. It just got so silly with Doge and the NFTs.

27:54And I don't know, I wrote quite a bit about it in my newsletter because I was trying to justify it to myself. Oh, there is still hope. But I totally agree with you. There have been so many points of centrality and something that could have been really interesting just isn't. That's an interesting perspective. So you said you used to think crypto was cool. Have you changed your mind on it? Yeah, I still buy it. I used to think it was a diversification, but not anymore. After what happened on Monday, Bitcoin went down with the rest of the market, basically trades relative to the queues. And so I think that I had big hopes for it just because I think new technology is always interesting.

28:36I thought that it could be something that could be applied towards some of the payment issues that we do have. The Fed has been working on FedNow forever. And when you look at the way that we have like Venmo and Zelle and Cash App here in the US and like other countries, their banks do that for them versus having these outside vendors that would make crypto not decentralized if the government implemented it like that. I just think thinking about ways to transfer money is quite interesting. Thinking about different stores of value, thinking about how do you build relative to the blockchain? How do you build with transparency?

29:10But it just ended up being none of that. Totally agree. I've been a skeptic for a long time. We've got a whole podcast series on crypto. Worst kept secret. But the price keeps going up. So, I mean, I don't know. Dropped, like you said, recently. The ETFs helped a lot. It's like BlackRock, once those ETFs were approved, it got institutional adoption. And at that point, I was like, oh my gosh, I'm putting all my cards on the table, I guess. But you can't call yourself decentralized anymore. Larry Fink is buying you up. And that's just not the ethos. But that's a value judgment, not fact. Yeah. Okay.

29:44Changing the topic from crypto. Although I could keep talking about that for a while, but we'll change the topic. How do we know whether we're in a recession? The National Bureau of Economic Research is the group of people that decide if we're in a recession. They have a variety of numbers that they look at that they have listed on their website. It is not two quarters of negative GDP growth, as some people might think. I don't know where that misconception came around, but that's what a lot of people think a recession is, and it's not. It is determined by the National Bureau of Economic Research, at least in the United States.

30:16And so, yeah, they look at personal spending. They look at a bunch of different numbers. Justin Wolfers tweets out a chart of their metrics every once in a while, and you can that it's basically trended upwards, that we're not in a recession right now. But the problem with recessions is we oftentimes don't know that we're in one until we're in one, just because those metrics do kind of take a long time to catch up to reality. So I think that's the really tough part about that. When we entered a recession in 2020, one thing that was talked about quite a bit is the semantics of a recession. We can be in one and calling it one doesn't really change the fact that we're in one.

30:58And so that's what I try to talk about a lot with my audience is like, we are not in a recession, but even if we're in one, we won't know. It's just pure semantics at the end of the day. And you just say, focused on understanding what's happening in the economy, understanding your portfolio and not get too caught up in a word. That doesn't go over super well though. And that's why I try to remind myself. Why doesn't it go over well? Because I'm basically being like, don't worry. When you do have a recession, there's a lot to worry about. And so I think it can be misconstrued as me minimizing that pain.

31:32And that's not the goal. It's just, we don't know what's happening. And a label doesn't really matter at the end of the day, like your actions do. What is a vibe session? So a vibe session is a disconnect between consumer sentiment and economic data. There's a lot of different reasons for the vibe session. A lot of people have talked about it in ways that don't necessarily reflect what it is based on what I wrote about back two years ago. But the vibe session is essentially that people are feeling much worse about the economy than the economic indicators would suggest they should be feeling. And there are a lot of different reasons for that, including structural affordability, like a housing crisis, elder care costs are$10 ,000 a month in the United States, Child care costs are up 32 % since 2019.

32:16Of course, people are going to be feeling bad and none of that's really captured in economic indicators. GDP can be growing fine and elder care can be extremely expensive and housing costs can be through the roof. And then it's also media headlines. Media has trended quite negative for a long time. I think the click-through rate for a negative headline is if you have a negative word in the headline, the click-through rate increases by 2.7%. And if you have a positive word in the headline, the click-through rate decreases by 1.9%. That's human behavior to crave negativity. But that obviously influences the quote-unquote vibes that people are feeling.

32:52But really, the idea behind a vibe session is like, hey, look, people are feeling pretty bad. And the worry is, if the economy does enter a downturn, how bad will people be feeling then? And how can we get in front of this right now? What do we need to do to help people feel better? And how do recessions affect the economy? Gosh, they impact everything. They impact hiring, they impact spending, they impact saving. They basically put the economy on hold for a little bit. It depends on the severity of the recession. We had a recession in early 2020 when the pandemic happened, where there was a recession because the world stopped.

33:30And then we had a recession in 2008, which was because of all sorts of reasons, including the housing bubble bursting. And so it just depends on what sort of recession it is. But I would say that most of the time, you just see a massive slowdown in economic activity. You see people spending less, businesses investing less, and you just see a general sense of worry. I'm looking forward to your take on this next question. How much of a problem is the US national debt? Oh, why were you looking forward to my take? Just curious. I've heard you talk about it. Oh, okay. I like what you have to say. Okay.

34:03Well, remember what I've said before. Yeah. I mean, I think that the national debt, there's a few different ways to look at it. I mean, I think number one, as long as the debt is productive, if we're spending the money on productive things, that's okay. And a lot of people don't like that because they're like, oh gosh, what do you mean that that's okay? But if you're spending it on growing the economy, the debt is going to essentially pay itself off over time, hopefully. So I think that's one way to look at the national debt. As long as we're spending it productively, it should be relatively all right.

34:36And I think the other thing that is concerning that has popped up more recently with the national debt is that interest payments have risen quite a bit. So with the Fed raising rates, that's raised the rates for everybody, including the US government and the rate that they have to pay on their debt. And that's gotten quite expensive. And I think interest payments have now outpassed at one point military spending. That's not great. We don't want to be spending a bunch of money on paying off our debt. We want to have our debt be allocated to productive uses like investing in green energy, like building housing, investing in manufacturing, which is what a lot of the expansion of the debt was.

35:12It was things like the CHPS Act, IRA, the IIJA. But yeah, interest payments are not so good. So it's always a trade-off. I don't think that you can point at the national debt and be like, oh, it's good or bad. Because the US is so powerful, there was this quote in this Bloomberg article that was like, the next time the Bank of Japan raises rates, they should think about the U.S. economy a little bit more. And I was like, okay, that means like the U.S. is so powerful at this point, but other central banks have to take into consideration where the U.S. economy is at. And so I think that's the other thing with the national debt, as long as other countries are continuing to buy it up, as long as investors are continuing to buy it, as long as there's still people who are willing to finance the U.S.

35:54debt, then it's also relatively okay. But there's a chain of events that make it important to You have to be spending it productively, as I said. Ideally, it would not be going towards interest payments in a big way. But as long as it can be supported by markets, I think it's okay. But of course, nobody wants a huge giant debt load. That makes it difficult to have mobility in the future as well. Why does the Fed exist? So the Fed is really interesting because during the late 1800s, there was all these like wildcat banks and everybody had their own currency. it just became totally untenable because everybody was dealing in their own currency and there was no stability.

36:34And so all these banks were failing. And then in 1907, I believe the San Francisco earthquake happened and like all these banks were failing again. And so there's all these bank runs. And JP Morgan, the founder of JP Morgan Chase, was like, I'm really sick of bailing everybody out. We need to have a centralized entity that's going to take care of this so I don't have to. And so the Federal Reserve was essentially established because of that. They wanted to provide support to the financial system. They wanted to standardize some things. And that's why the Fed exists is to provide stability to the economy.

37:07So there aren't all these bank runs so that we can grow because it's really difficult to grow in the economy if everybody's transacting in a different currency. And so that's why the Fed was established was to provide that. And since then, they've evolved quite a bit. I talk about it pretty in depth in the book because I think the Federal Reserve is really interesting. But their dual mandate evolved since then too. They're focused on price stability and maximum employment. They're also focused a little bit on long-term interest rates and stability there. But at the end of the day, the Fed exists to push the economy in the right direction.

37:41A lot of people think it's the worst thing that's ever happened, which I don't know if I entirely agree with that. I think worse things have happened. But I think it's important to have some sort of centralized entity sort of managing these things. How does the Fed do that? How does it affect the stock market and the economy? So the Fed has their toolkit. They can raise and lower interest rates, the Fed funds rate. They can shrink and grow their balance sheet. And then they also have forward guidance, which is essentially them coming out and talking at meetings. And so if they choose to raise rates, which they were doing up until about a year ago, that was them looking around at the economy and being like, okay, we need to slow everything down.

38:19So inflation slows down. We're going to make everything more expensive. So it's more expensive for you to be alive. So hopefully you stop spending so much money. So the economy slows down. So ultimately inflation slows down. And if they wanted to speed the economy up, not necessarily speed it up, but if they wanted to not slow the economy as much anymore, If they were looking around and being like, okay, things need a little bit more help, that's probably when they would start cutting interest rates, which is what we're about to probably enter into. And then shrinking and growing the balance sheet is sort of the same mechanics, but providing more support or less support to certain aspects of the market.

38:54And then they come out and talk, give people a good sense of what's happening. So they're going to have a meeting in Jackson Hole in the next few weeks. They're probably going to talk about how they're feeling about the jobs market. They're going to talk about where they think inflation is going. And a lot of people say that forward guidance is now more important than rates or their balance sheet. So yeah, memes, I guess, at the end of the day. And there are so many memes about the Fed. Yeah. Yeah. They've become sort of an enigma in people's minds, for sure. They're kind of like this big, I always mess up this word, pseudo-governmental, suedo-governmental, pseudo.

39:32They're pseudo-governmental in the sense that they're not technically a part of the government, but they do respond to Congress. But a lot of people are like, oh, no, the Fed is beholden to whatever side of the political aisle, but they're not. What problem is going to rise from strictly adhering to economic beliefs? I think this is where the Fed is at right now. So the Fed has a goal of 2 % inflation. And so for them, they're going to do whatever they can to get to that goal. And if inflation is above that 2 % number, they're like, well, we're just going to keep rates where they're at, or maybe we'll do another hike again.

40:04And so that's the issue with adhering to strict economic beliefs for the Fed is that there's that trade-off between managing inflation and managing maximum employment. And I think a lot of people are looking at the Fed, they're like, you're thinking about 2%, like a little bit too strictly right now. Maybe you could have a little bit more flexibility. A lot of people talk about long-term average inflation targeting, like getting around 2%, which is what the Fed ends up doing right at the end of the day. But I think that's the tough part. And a lot of people are pushing back too, is like 2 % even the right number.

40:37I think the 2 % number was established by some guy in New Zealand going on TV and being like, yeah, inflation should be around 2%. That seems to be the old wives tale around inflation targeting. But a lot of people, I think Jeremy Budd even wrote a paper saying that maybe it should be around 3 % inflation targeting versus 2%. And I think that's the trouble with adhering to strict economic beliefs is that we do have a dynamic economy. Things are massively changing with AI, they're massively changing geopolitics. And if you're staying stuck in the same economic mindset, it can be very difficult to be reactive to that.

41:13And so I'd say that's just one example of that. Interesting. Pretty sure New Zealand was the first country to put an inflation target in place. I think it was in the 1980s. Yeah. Yeah. Late 80s or 90s maybe. Yeah. I remember reading an article about it and then looking it up and it seems like everybody was like, yeah, that's where it came from. But then I also remember that not being true. So it's one or the other. Yeah. One or the other. Yep. Usually it's one of those two. We had an economist a while ago tell us that their view is that the inflation target should be 0%. I'm sure there are many different opinions.

41:50interesting i don't have one but i don't know where two percent came from either well wouldn't that like disincentivize spending i think the argument was that it would not and that's why they were advocating for it i don't know people would like that i think you asked me earlier how people understand economics and a lot of people struggle like not only with inflation as a word but also the two percent target they're like well why should things get more expensive over time and it's like well in a growing economy that's kind of like what you have to do and then i think a lot lot of people hear inflation going down and think that that means that prices should be going down.

42:25There's actually quite a bit of confusion around the macroeconomic circumstances right now, because people are like, well, I hear on TV that inflation is going down, but my box of cereal is still$7. When is that going to change? And that's like, well, no, that's deflation. And so the terminology can be quite hairy to navigate. And I think it's just a different language. And so when you're talking to a person who isn't entrenched in, or even a person who is entrenched in economics, sometimes the terminology can be quite hairy. How is the economy related to the mental health of citizens? I talk about that in the book too.

42:58Towards the end of the book, I got, or in all my work, I get a little bit philosophical. I really like to try my best to be cross-disciplinary. And I think talking about mental health is important because I wrote this piece for Fast Company about a year ago talking about how Gen Z, which is, I'm a cusper, so I'm technically Gen Z, but like how Gen Z works and like part of how Gen Z works is impacted by their mental health. How everybody works is impacted by mental health and work ultimately influences the economy at the end of the day. And so I think mental health issues have been a huge expense.

43:33It's been very expensive to care for people, to care for anxiety, to care for depression, to care for the other issues that come along with that. And there doesn't seem to be any widespread treatment for it. anxiety and depression have been diagnosed at sky high rates, especially amongst our youth. And so I think number one, as I was saying, it impacts the way that people work. Number two, it's extremely expensive. And then number three, I just think it impacts how people show up in the world. If you're dealing with anxiety and depression, it's going to impact the decisions that you make, which ultimately impacts the economy.

44:11And so that's something that I think other people who study economics have spent a lot of time thinking about and it's something that I wish I could spend more time thinking about. But I think it's really important. We have this loneliness crisis too that a lot of people push back on. They're like, what do you mean there's a loneliness crisis? But the number of children that are reporting that they're lonely, spending time alone is also extremely high. People instead turn to their devices. And it makes sense. You have the whole world in your hand with your phone. Of course, you're going to turn to that at the end of the day.

44:42But the loneliness crisis is a great market opportunity too. Jules Terpak has a very good YouTube video on that where people will monetize people's loneliness. And that's kind of a feedback loop of sorts where it's like, okay, people are lonely. We're going to make them lonelier through certain products that can worsen the mental health issue. So I think, yeah, it's work, it's young people, and then it's the market opportunity of bad mental health. So we've talked about vibes and social media and memes. How does social media impact people's vibes? Whenever I get asked this question, I always try to say that I'm a hypocrite because I am with what I'm about to say, because my job is posting videos on social media, talking about the economy.

45:29And I do think that social media ultimately is a tool, but it is one that is oftentimes used for harm. The way that it impacts the economy is like, it's an incredible market opportunity. If you build an app, you can sell that app for quite a bit of money. Your eyeballs are the most expensive part of you because people really want to advertise to you. So that's how social media impacts the economy. But in terms of its impact to the world at large, it is, I think, something that can be used primarily for bad, but it is a tool at the end of the day. And it is important to try to use it for good. And so social media is primarily the way that we connect with one another.

46:07It's where we learn a lot of things, where people spend a lot of time. And of course, where people are is where advertisers are going to go. It's where people are going to try to launch products. It's where big parts of the economy end up existing. Meta, for example, is social media. And they're one of the biggest companies in the world. Apple is the facilitator of social media through the iPhone, and they make a ton of money off the app store. and yeah, that are one of the biggest companies in the world too. And so social media is a huge part of the economy. I just don't know if we know how to navigate it.

46:42Can you know how the business model of media today is affecting Vibes? I mean, the business model of media is quite difficult because it's based on clicks. It's based on advertising dollars and it's based on clicks. The way that you get people to click on something is to make it scary or something that they want to click on, which can be just usually something scary. And so that ends up influencing how people write headlines, which is what most people read. Most people do morning headlines scroll to figure out what's going on in the world. They don't necessarily read the articles. And that impacts how people feel about circumstances.

47:19As I said, there's this really good research paper talking about how media has gotten so negative. and you just see the sentiment of headlines straight line downwards. The business model of media being reliant on clicks and therefore being reliant on presumably making people feel bad has absolutely impacted how people feel about the economy because there's sort of an incentive model in place to make people worry about the economy. There was a Bloomberg headline back in October 2022 that said that there would be a 100 % chance that the US entered a recession by the end of the year, a 100 % chance.

47:54And we didn't enter a recession, but a lot of people saw the headline. That's the business model. And I think Bloomberg, they do a great job. I work for the opinion section. It's good stuff. But I think that the headlines can oftentimes misconstrue the actual reality because you got to have people click. I tweeted out an article that I found yesterday, and it was how to become a millionaire in a particular stock in 10 years. And it said, all you have to do is invest$50 ,000 in this one stock and then add$500 a month, you'll be a millionaire in 10 years. I went and worked it out and it worked out with 31 % annualized return over 10 years.

48:27I think the media gets clicks by making those types of claims as well. Not just always negative claims, but then when you get beneath the surface, it's a little bit too good to be true. It's advertising based model. Yeah. And there was other stuff in the article that it was quite clickbaity, but a lot of people I'm sure clicked on that article because it's what a headline, right? Yeah, of course. Yeah. Yeah. You've been talking to people about economics and markets. What have your biggest learnings been from doing what you do? My biggest learning that there's always something to learn about. I have a background in econ, but I'm always learning about the best way to talk about the economy.

49:00I'm always learning about different aspects of economics and reminding myself of that. I think that the biggest lesson is that people really do want to understand this stuff. And oftentimes, we just don't give them the chance. I've kind of been shocked by how many people have been interested in just hearing about the Federal Reserve. And I think that we just, for a long time, were like, well, it doesn't really matter. It doesn't really impact people. But the economy is everything that we do. Buying a cup of coffee is a massive economic transaction. If you think about the labor and the beans and the shipping and logistics that are required to get that cup of coffee to you.

49:36I think that's been the most pleasantly surprising thing is that people are very interested and they do want to understand the world around them. You just have to give them the tools to do it. Our final question for you, Kyla, how do you define success in your life? For me, it's always having a new project to work on. That sounds sad, but it really is. How can I keep on finding new ways to talk to economists about the economy and explain it to people? how can I find a new medium to simplify this for people? How can I find a new way to explain this kind of like tough economic concept, like the end carry trade?

50:18And how can I do it all in less than 90 seconds? And so I think success for me is number one, always having a new project to work on. But then number two, success also comes in the form of the messages that I've been so grateful to receive, where people are like, oh, I've switched my major to economics because I didn't No, economics is something you can major in. Or I've decided to work in economics because I think it's really interesting and there's so much work to be done. And so that success is just knowing that people are interested. They do want this in their lives and that they feel like the information that I've been providing has been useful to them.

50:54I have to ask you, do you have a hack that you can share in terms of how you find a new project? It's mostly just thinking through what I think would be fun to work on. The book was a really big project for quite a long time. But most of the time right now, I haven't been working on this for super long. There's still so many new projects to work on. But there's a TV show that I've been working on for a little bit. I've been working on graphic novel explainer of how to invest in the stock market. So it really is just like borrowing from art and then applying that to economics. That's how I find my new projects.

51:31That's what I got started doing was skits about the economy. And I just tried to continue to borrow from art as a medium and apply it to economics. That's really cool. I saw you tweet about Jet Set where you're speaking to it. What was that about? What were you talking about? Oh, yeah, that was so much fun. My life was changed by my professors at my school. I went to Western Kentucky University. It was just such an honor to be able to talk to econ professors who I think are just doing amazing work. And so I was the keynote speaker there and I opened up their conference. I was talking about this survey that I did with my audience around their economics education background.

52:14Like how do people think about economics education? What can we do to help them understand the economy better? So I was talking about the results of my survey and just got a chance to talk to all the professors after. And it's just so cool. It's just so fun to hear about the different ways that people are teaching economics. Christopher Clark, who teaches at Washington State University, I think, does this lesson where he uses hostess cupcakes to get into redistribution of wealth. He distributes the hostess cupcakes, has everybody distribute them, and then talks about what it feels like to distribute wealth.

52:47I just think it's so neat to think about the different ways to teach economics. You posted some of your slides. I guess this is from your survey, but it showed that 30 % of people are getting their economics information from social media. Is that from your survey? Yeah, that's from my survey. Yeah. My survey is biased because I did post it on social media, but it was backed up by like Gallup and Pew. Okay. Wow. The younger generation especially gets a lot of their news from social media. I was really shocked by the low numbers for traditional media on there. I was really surprised. People listen to podcasts too.

53:25They get their news, which is where you all come in. So there's so many different forms of information. Social media is a popular one. Yeah, super interesting. Cool. That's the end of our questions for you, Kelly. We really appreciate you coming on the podcast. Thanks for having me. Great to meet you. Thanks. Thanks.