First Trust ROI Podcast
On the ROI podcast, we discuss some of the most important questions facing investment professionals today, ranging from macroeconomic views, to perspectives on the equity and fixed income markets, to insights on practice management. We aim to cut through the noise, examine the data, and provide fresh insights to investment professionals as they help their clients find better ways to invest…seeking to generate attractive returns on their investments.
First Trust ROI Podcast
Ep 4 - Bob Stein - Will an economic recession decide the next US president? - ROI Podcast
Bob Stein, Deputy Chief Economist at First Trust, spent several years working in Washington D.C. before coming to First Trust in 2006, including as chief economist for the Senate Budget Committee and as Assistant Secretary of Economic Policy at the US Treasury Department. In this episode of the First Trust ROI Podcast, Ryan and Bob discuss:
- Why many are underestimating the likelihood of a US recession
- How the Federal government will “eventually” address irresponsible budget deficits (just not yet)
- Why the economy may play an outsized role in determining the next US president
📚 Bob Stein's Recommend Reading: Optimally Irrational by Lionel Page
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00:00:00:00 - 00:00:35:02
Ryan
Welcome to the First Trust ROI podcast. I am Ryan Issakainen, an ETF strategist here at First Trust. Well, here we are in September, and there is a lot that is uncertain about the economy and about what's going on in Washington that many investors are worried about. This question is about whether the budget deficit is going to just continue to grow for years and years or if that will get resolved at some point.
00:00:35:07-00:00:54:17
Ryan
There's questions about whether or not the U.S. government will shut down or if they'll come to some sort of agreement, maybe kick things down the road. Obvious questions about the economy. Is the economy going to slip into recession, or are we going to somehow avoid that and have this soft landing that has become more and more the consensus view, as we talked to many investors around the country?
00:00:54:18-00:01:18:00
Ryan
So I am very fortunate to have Bob Stein, deputy chief economist here at First Trust, join us on the first Trust Arrow podcast today. Bob has been with First Trust since 2006. He's had a number of roles in government. He was actually the chief economist for the Senate Budget Committee as well as the assistant secretary for economic policy at the U.S. Treasury.
00:01:18:01-00:01:36:11
Ryan
So he's got that deep insider's knowledge of what happens in Washington. I am very much looking forward to this conversation. I hope you enjoy it as well. Welcome to The First Trust, our podcast. Today, I'm joined by Bob Stein, deputy chief economist at First Trust. Bob, thanks for joining us on the podcast.
00:01:36:11-00:01:37:22
Bob
It's a pleasure, Ryan.
00:01:38:00–00:01:57:00
Ryan
It's always a pleasure to sit down and chat with you. You are running around the country talking, giving speeches, and doing a lot of economic analysis as you talk to financial professionals, investors, you know, people you run into on the street. What do you think the main question is from an economic standpoint that people are wondering about?
00:01:57:05-00:02:08:09
Bob
All right, now I get it. I get a few. One is whether or not we're going to hit a recession. Another is whether equities are a good buy or not right now. And number three, what's going to happen in the election next year?
00:02:08:10-00:02:33:02
Ryan
Okay. We'll go ahead and check those off the list. But I think the natural starting point is the economy. Are we heading into a recession? You know, it's been the forecast of your team that probably sometime later this year or early next year, is what I've heard, that we're likely to head into a recession. It seems like, you know, the sentiment for a lot of investors has shifted towards whether we are going to have a recession at all.
00:02:33:06-00:02:33:15
Ryan
What's your.
00:02:33:15-00:02:59:07
Bob
Take? I still think investors are underestimating the odds of a recession or are likely to hit one, probably in the early part of next year, possibly very late this year, or possibly late next year as well. But I do think we're going to hit one by the end of 2024. When I look at the inversion of the yield curve that we've experienced over the past year and the yield curve that is likely to remain inverted for the foreseeable future,
00:02:59:09-00:03:09:05
Bob
When I look at what I call the Death Valley Federal Reserve money creation we've had over the past 12 months after that mountain of money creation in 2020,
00:03:09:07-00:03:14:02
Ryan
So in the Death Valley of money creation, is that M2 we're talking about, or is that something else?
00:03:14:02-00:03:33:01
Bob
I like to focus on the M2 measure of the money supply. Now, I have to tell you, people at the Fed really don't follow the money supply measures closely anymore. But what we still do, if you look at those two in combination—the yield curve and the reduction of the money supply over the past year, the M2 measure of money—to me spells a recession.
00:03:33:02-00:03:55:02
Bob
Now, that kind of begs the question, well, why haven't we hit that recession yet? And to me, it's because of fiscal policy. We are running what really stands to be an astoundingly bad and overly generous fiscal policy right now, given where the unemployment rate is. Last year, the budget deficit was five and a half percent of GDP.
00:03:55:04-00:04:14:14
Bob
This year, it looks like it's going to come in at roughly six and a half percent of GDP. Now, just to put that in historical perspective, Reagan's worst deficit throughout the entire 1980s after massive tax cuts in 1981 was 5.9% of GDP. But he kind of had an excuse. I mean, we had an unemployment rate of 10% that year.
00:04:14:16-00:04:42:11
Bob
This year, the unemployment rate is 3.6%. You should not be running a deficit bigger than Reagan's in 1982; I believe it was when the unemployment rate was almost as low as a third of what Reagan's was. But it's even worse than that because, frankly, the headline deficit figures aren't offsetting for the fact that you had this student loan forgiveness plan announced last year and then overturned by the courts this year.
00:04:42:11-00:04:48:12
Bob
If it weren't for that, we would have had a 4% deficit last year. The deficit this year would be 7.8%.
00:04:48:13-00:04:57:19
Ryan
So why is that? Can you explain that a little bit? How does that relate to what the deficit is? Is that just because we didn't end up spending and we had planned on spending that on the government budget?
00:04:57:20-00:05:24:09
Bob
Yeah, I hate to get into the arcane nature of government accounting, but apparently you're going to leave me there, Ryan. So let's talk about it. The headline deficit last year, the official deficit, if you were last year, fiscal 2022 was five and a half percent of GDP. But included in that five and a half percent deficit was the fact that Joe Biden, as president, had announced a student loan forgiveness plan.
00:05:24:11-00:05:49:08
Bob
That loan forgiveness plan was going to reduce future payments on loans or future repayments on loans by former students. The way to account for those lower future payments is to take the present value of all those lower future payments and pack it into the year when the policy has changed. That amount amounted, according to the Congressional Budget Office, to about one and a half percent of GDP.
00:05:49:10-00:06:05:18
Bob
So even though the cash flow deficit, if you will, was more like 4% of GDP, it's not truly a cash flow deficit, but let's just use that phrase. So I think it helps to understand that when you added in the cost of the Biden student loan forgiveness plan, the deficit for that year was five and a half percent.
00:06:05:22-00:06:28:14
Bob
That's where they got that number, 4%. Without that plan, Five and a half percent worth. Okay. So what happens this year? The Supreme Court strikes down those plans or that student loan forgiveness plan because, because of that, borrowers in the future are going to have to repay more than they previously thought. Well, one way to handle that would be to just count the extra payments when they're made.
00:06:28:14-00:06:52:03
Bob
But the government doesn't do it that way. Government accounting is to take lending programs by the federal government and account for the spending in those based on changes in the expected payments in the future. So your payments went up because the Supreme Court struck down loan forgiveness. All of that extra revenue was actually counted as a negative outlay.
00:06:52:03-00:07:11:21
Bob
But I don't want to get too complicated. Let's look at it. Think of it as revenue being counted for this fiscal year. And so the deficit, when they say it's going to be six and a half percent for this year and this fiscal year doesn't end until the very end of September, September 30th this year, they're including all these extra payments that haven't been made yet.
00:07:11:22 - 00:07:17:15
Bob
So on a cash flow basis, if you will, we went from a 4% deficit last year to 7.8%.
00:07:17:15 - 00:07:23:02
Ryan
So it's even worse on a cash flow basis than it looks.
00:07:23:03 - 00:07:34:09
Bob
Correct. And that 7.8% is more indicative of what's going to happen next year when you're not going to have the erasure of one of these programs.
00:07:34:11-00:07:48:03
Ryan
So why are they running such big deficits? What's the structural issue? Just more people, do you know that the government is making entitlement payments to? Are some of the programs that were introduced during COVID still around? What's really driving? Well, that's.
00:07:48:03-00:08:16:20
Bob
A great question. And there are so many ways to dissect and splice the data. So one reason is that the federal budget is really designed to be an age distribution scheme. To a large extent. We have Social Security and Medicare, which are massive programs, and we're distributing a lot of money to people who are retired. A larger share of our population is now retired, and so outlays related to those programs are way up.
00:08:16:22-00:08:43:05
Bob
But there are a couple of other reasons. Revenue is down a lot this year because non-withheld income tax payments are down. Capital gains were high in 2021 but lower in 2022 because the market was down. And so when people went to pay their taxes this year based on their liability for last year, they didn't have to pay as many taxes.
00:08:43:05-00:09:07:19
Bob
In many cases, especially upscale, high-income taxpayers who pay at a higher rate, So when their income is down, well, that hurts the federal government in terms of the amount of revenue they're collecting. But there are a few other reasons. There's their interest cost, which has really skyrocketed this year. Two years ago, the interest part of the budget was about one and a half percent of GDP.
00:09:07:21-00:09:35:09
Bob
The last year was 1.9%. This year, it's going to be, in my estimation, two and a half percent when all is said and done. We're going to be at 3% of GDP very soon. So it's a combination of higher interest rates, changing demographics, and a little bit lower revenue. One more factor, and this is complicated, but the Federal Reserve normally generates a profit in the hand that profits weekly profit over to the Fed and over to the Treasury Department each and every Wednesday.
00:09:35:11-00:09:47:04
Bob
Well, they're not generating profits anymore. They're generating losses. And so because of that, the government is counting those losses as part of the budget, and that's a switch as well.
00:09:47:04-00:09:58:23
Ryan
And that's something else that I'd love to go into the weeds. I'm not sure if it makes sense, but I'm going to ask anyway. So why is the Federal Reserve generating a loss?
00:09:59:00-00:10:38:23
Bob
Great question. So the Federal Reserve, during COVID, did multiple rounds of quantitative easing. They purchased tons of Treasury securities. They purchased tons of mortgage-backed securities. They then, starting last year, from 2020 to March 2022, started raising interest rates. Interest rates have gone up significantly. Now that interest rates are higher, the value of their portfolio is lower because they're holding a piece of paper that says the Treasury Department will pay the Fed 2%, or two and a half percent, while market prices remain the same.
00:10:38:23-00:10:39:19
Bob
That's not worth it.
00:10:39:19-00:10:41:20
Ryan
Isn't that kind of what happened to Silicon Valley Bank?
00:10:42:01-00:11:10:02
Bob
Pretty much. Pretty much. And so if the Federal Reserve were a mark-to-market institution like Silicon Valley Bank, First Republic, or any of these other institutions, it would be a bust. However, the Federal Reserve is not a mark-to-market institution, and it has access to the American taxpayer through the Treasury Department. So the Treasury Department is basically giving it a way to think about it as a negative liability.
00:11:10:02-00:11:19:18
Bob
It's really technically a negative liability. It's really kind of an asset, too, so that the Fed can weather this storm in a way a normal bank could not.
00:11:19:23-00:11:41:19
Ryan
You know, something else that I've heard you talk about before that I thought was really interesting is tax revenue coming from some of the payments that were made to businesses and consumers during the pandemic and tax revenue actually coming down because you're not paying tax and those assets anymore are those income payments. Sure. Is that a part of it, too?
00:11:41:20-00:12:02:08
Bob
Well, that's a part of it as well. But that was actually beneficial to the federal government to some extent. There was a little bit of an offset for all that extra spending we had in 2020 and 2021, which is that so many payments were made and transfer payments were made that a lot of companies that did well were paying higher taxes because they were doing well.
00:12:02:08-00:12:17:20
Bob
So Amazon did extremely well during COVID, of course. And so other companies that were in a similarly situated position had to generate more revenue for the federal government.
00:12:17:22-00:12:48:17
Ryan
So I want to talk about the budget situation. The U.S. budget deficits that have just been, as we've been talking about, really high, and some would say irresponsible, are that, you know, Fitch just downgraded the debt of the US government. I guess my question is, first off, are we likely to have a government shutdown? And secondly, what's the way out of having these deficits that just go on as far as the eye can see?
00:12:48:18-00:13:11:03
Bob
Well, that's a great question, Brian. I'm going to speak for the next 20 minutes. Okay. So here's the deal. About ten years or so ago, I think S&P downgraded U.S. debt. That was kind of a joke. That was really a big mistake. I mean, if anything, interest rates went down after that, not higher. It was really a big mistake by S&P.
00:13:11:05-00:13:37:05
Bob
Fitch is not mistaken. We have fiscal issues right now that we have not confronted in the past. When you're running a deficit this large, unemployment is low. Imagine what would happen when unemployment went up. Imagine what would happen if we needed to drastically ramp up national defense or military spending if there was some sort of crisis in Asia or Europe that got us directly involved.
00:13:37:07-00:14:04:15
Bob
We're not prepared for that in the current environment. So I think the deficit is going to remain big for at least another year or so. But eventually, I'm also confident that policymakers will start to react the way policymakers did in the 1980s and 1990s. So Reagan comes in in 1981 with a big tax cut. What a lot of people don't remember is that the ensuing 15 years were all about shrinking the deficit.
00:14:04:17-00:14:28:10
Bob
So taxes went up in 1982 with the payroll tax increase, supposedly to save Social Security. We had Gramm, Rudman, and Hollings, which were designed to reduce discretionary spending. In the mid-1980s, we had the Bush budget deal in 1990, where he got rid of his no-new taxes pledge. He slightly raised taxes but also imposed some budget caps on discretionary spending.
00:14:28:12-00:14:51:05
Bob
And then Bill Clinton comes in in 1993 and raises taxes and decides to keep the budget caps that George Herbert Walker Bush had imposed. So we had a 15-year period where people from both parties were focused on deficit reduction. I expect us to enter that again, but not just yet; probably after the next election, hopefully sooner rather than later.
00:14:51:07-00:15:24:13
Bob
And the reason is that the longer we postpone addressing this, the more likely we are to risk a sudden spike in interest rates that could put us in a position where it is troublesome to pay the national debt. Now, I don't expect a default by any stretch of the imagination. What I mean by troublesome on the national debt is not defaulting but having to suddenly jack up taxes or cut spending in an unexpected way, including for entitlement beneficiaries.
00:15:24:15-00:15:33:13
Ryan
So the interest cost on the U.S. and the U.S. Treasury on average, as you said, I think is 2.1 or something like that.
00:15:33:16-00:15:39:22
Bob
2.5% would be the interest payments. Net interest payments this fiscal year relative to GDP
00:15:40:03-00:15:58:04
Ryan
Relative to GDP So what are the implications of some of the Treasury debt coming due and having to refinance that debt at higher rates? Is that something that's sustainable? I know you compare it to GDP, and what's the sustainable level for that?
00:15:58:06-00:16:21:12
Bob
Great question. So the average short maturity of the marketable Treasury debt that the Treasury Department issues is something in the vicinity. I think it's five or six years—probably six years. I haven't looked at it closely. So now shoot me if I'm wrong here. And so what that means is that if interest rates suddenly go up, it doesn't mean the entire complex of debt payments goes up immediately.
00:16:21:12-00:16:44:14
Bob
It takes time to roll over that debt. And so it gives the Treasury Department time to absorb those higher costs. I personally believe this, and I've been arguing about it since I was at the Treasury Department as an official under George W. Bush. And by the way, his presidency was awful on this issue. Okay? They got rid of the 30 years that we need to extend the typical majority of the maturity of the debt.
00:16:44:20-00:17:06:12
Bob
We need to issue a much higher distribution of long-term debt. I'd like to see us introduce those hundreds, even considering perpetual debt or interest-only debt that the government could buy back at market price. It wouldn't be callable, but they could buy it back at market price at some point in the future, which is what the British Empire did with something called consoles.
00:17:06:14-00:17:29:17
Bob
A century or so ago, or at this point, two centuries or so ago, the Treasury Department decided never to do it. President Trump gave it lip service and never did it. And so that's a problem because it means a higher share of our debt has to be rolled over at current interest rates, which hopefully are abnormally high.
00:17:29:18-00:18:03:07
Bob
Now, if we had issued a large tranche of, say, 100-year debt ten years ago, only a very small portion of our debt would have to be rolled over at higher rates. Right. So that would save us money over time. And I have to say, if you issue higher, longer-term debt over time, on average, debt payments are going to be higher, but it avoids a crisis period where, you know, it avoids the potential of having to roll over the debt at an inopportune moment.
00:18:03:07-00:18:22:07
Bob
It's kind of like having life insurance; you have to pay a premium every year for life insurance. And for most people, you never cash in if it's term life, but you still get it right because it's better for you in terms of reducing risk. And so extending the typical maturity of the national debt would substantially reduce risk.
00:18:22:07-00:18:32:11
Bob
In my view, it is ultimately worth making a small extra premium payment each year, just like a householder.
00:18:32:13-00:18:51:21
Ryan
So I want to go back to talking about the likelihood of a recession, especially in the context of some of the economic numbers that have come in, maybe better than we would have forecast. Earlier this year, you know, the GDP now numbers from the Atlanta Fed were 6% or something like that. I'm not sure where it is today.
00:18:51:22-00:18:54:15
Ryan
Yeah. How do you explain that difference?
00:18:54:17-00:19:31:07
Bob
So I think the Atlanta Fed model puts too much weight on indirect measures of economic production at this point in the quarter, like the ISM indexes and things like that. But I think they're likely overestimating. That said, the Steinhauer model, which is a combination of looking at a variety of data in a systematic data-centric way and then using some common sense as well, suggests that this quarter, the third quarter, should come in at more like 4%, not five and a half to 6%.
00:19:31:07-00:19:53:06
Bob
The Atlanta Fed is saying, but it is still going to be very strong by historical standards, or at least by standards of the past 20 odd years, but not quite as strong as the Atlanta Fed voiced. However, I think there's a confluence of factors going on that will not occur again in the fourth quarter and beyond. And I think we're going to have much slower growth in the year ahead, very likely a recession.
00:19:53:06-00:20:09:13
Ryan
Okay. So let's say we do go into a recession. And I know forecasting the future is a difficult thing to do for anyone. But what is the nature of that expected recession? Is this like a deep cut to the bone recession, like we had No. 809, or is it something that's more mild?
00:20:09:14-00:20:35:22
Bob
Yeah. So I think recessions are ultimately about mistakes that economic participants make, often because of government policy, sometimes not, but often because of government policy. And we don't have the massive imbalances that we've had prior to some of these other recessions. So we don't have, you know, we don't, and we're not likely to have COVID. I'm not forecasting another round of COVID taking us into recession, hopefully.
00:20:36:00-00:20:57:20
Bob
ROCKWOOD And, you know, before the recession in 2008 and 2009, we had a massive imbalance in the housing industry where the government had basically really set things up in a way that encouraged overbuilding, that encouraged overlending, and that led to a kind of minsky moment when people realized they should not have done what they did.
00:20:57:22-00:21:20:14
Bob
I don't think that's going to happen. I actually think consumer spending can remain generally positive, even on a real basis, over inflation over the next couple of years, even through a recession. We had that in 2001, the unemployment rate went up from 2001 to 2002. But consumer spending remained positive—not strong, but positive. I think we're going to have something like that.
00:21:20:19-00:21:37:08
Bob
I think the recession will be centered on the business side of the ledger, not the consumer side. Consumers are not going to be strong. It's really going to be business more than anything else that bears the brunt of the next recession. And I expect the next recession to be mild, kind of in line with 1990, 91, or 2001, 2002.
00:21:37:08-00:22:01:04
Bob
If you throw in the jobless recession, our jobless recovery And so I think the unemployment rate rises in the vicinity of two and a half points. If we've recently bottomed around three and a half, that means we go to maybe five and a half, or 6%, or so on. The unemployment rate still stinks if you lose your job, obviously, but not as earth-shattering as the previous two recessions, which are really on people's minds.
00:22:01:04-00:22:13:21
Bob
Like the result of the previous two recessions, we had more horrible unemployment at a 10% unemployment rate of 15%. So you can have a mild recession again. It still stinks. But it's not the end of the world.
00:22:13:23-00:22:30:00
Ryan
So does that have any implications for your expected returns for the stocks you mentioned? You know what? That's one of the questions people have for you. You're a macroeconomist, so I'm not going to pin you down on any individual names or anything. But what does that imply for equity returns going forward?
00:22:30:00-00:22:54:05
Bob
Yeah, to me, equity returns are going to be about going forward with nominal equity returns given the current level of the stock market. And as we speak, it's somewhere in the vicinity of 44, 50, or 4500 on the S&P 500 or so. I haven't checked the market this morning from this level. I see forward equity returns in the vicinity of six and three quarters to 7%, which is not where they should be.
00:22:54:05-00:23:13:08
Bob
In a world where the ten-year treasury is four and a quarter, So that extra two and a half to two and three quarters percent—that's a little bit of a premium, but it really doesn't compensate you as much as the equity market should compensate you in a normal market equilibrium. So I expect the market to go down from here.
00:23:13:08-00:23:30:11
Bob
I expect the market to finish the year lower than it is today. I wouldn't be surprised if a year from today, which is September 14th, the market is at or slightly below where it is. You know, I wouldn't be shocked. Also, if it was slightly above, I don't think it's going to be a lot above. Yeah.
00:23:30:13-00:23:42:04
Bob
So I think we have some more headwinds ahead for equity investors, and I think fixed income is more attractive at the current level in the stock market.
00:23:42:06-00:24:05:02
Ryan
So I'm thinking back to the recessionary periods you mentioned before, especially following the dot-com bubble bursting in the early 2000s. And, you know, the S&P 500 was not that good for a three-year stretch. But underneath, there were some areas where you actually did quite well. Is that sort of what the message might be from here?
00:24:05:02-00:24:06:08
Ryan
Be more selective.
00:24:06:10-00:24:32:15
Bob
I would be more selective. But again, I'm a macroeconomist, so I'm not going to be touting the sector. That's right. Generally speaking, I would be very selective in the equity market. And, for example, when I say I'm bearish on stocks, that doesn't mean I own zero equities, right? I mean, if I look at my portfolio from a holistic standpoint, including college savings, retirement savings for myself, and whatever, I'm about 30% equities right now.
00:24:32:17-00:24:40:12
Bob
I'm very satisfied with that level. I get to participate if there's any upside—not as much as I'd like, okay?—but I'm really protected against the downside as well.
00:24:40:14-00:24:51:06
Ryan
And there's no doubt that having some exposure to fixed income today is much more attractive when, you know, bond yields are 5% than they were when bond yields were 25 basis points.
00:24:51:06-00:25:25:18
Bob
So certainly, as you know, for some investors, I think it's not a bad idea, and they should all speak to their financial advisors about this. Right. But they should really take a look depending on their state municipal securities that are highly rated; they're also the very top rating but are generally highly rated. GIO bonds are great too, but if they could lock in a newly issued municipal security and escape the federal taxes on that, it could, you know, especially for high-income investors, potentially lock in a seven and a half to 8% tax-equivalent yield.
00:25:25:20-00:25:33:15
Bob
But yeah, it's terrific in this current environment, and make sure it's not callable, at least not right away, like 20, 30, or 2032 would.
00:25:33:15-00:26:00:15
Ryan
The reinvestment risk is something that people need to pay attention to as well. Correct. So the other area that I wanted to talk about with you, especially, is the election. There's an election coming up, and, you know, you provide all sorts of commentary on what's likely to occur. So my first question with respect to the U.S. presidential election is: right now, the oddsmakers and the polls are saying it's going to be a rematch between Biden and Trump.
00:26:00:15-00:26:01:22
Ryan
Is that likely to be the case?
00:26:01:22-00:26:25:09
Bob
I think that's the most likely matchup, and I think that probably has a slightly higher than 50% chance of happening. But I don't think that's baked in the cake. I don't think it's automatic. And here's why: You know, I don't think anybody's going to come out of the woodwork and beat Joe Biden in the Democratic primary. RFK Jr. Marianne Williamson, whomever, is not going to happen.
00:26:25:11-00:26:44:01
Bob
But when you look at the actual actuarial tables and factor in the potential of a Mitch McConnell moment or something similar to a Mitch McConnell moment, I think there's about a 20% chance that Joe Biden's name is not at the top of the ticket for the Democrats next November, and 80% that it will be. That's my base case.
00:26:44:06-00:27:12:11
Bob
But it's not 100% locked down that it will be. Now, if he doesn't make it to November, for whatever reason, I think the odds are roughly either those 20 percentage points non-Biden should be roughly at this point evenly split between Vice President Harris ten and everybody else ten. And the prospects for Vice President Harris highly depend on the timing of a potential Biden withdrawal, whether he withdraws tomorrow or this weekend.
00:27:12:13-00:27:36:19
Bob
Well, I think there would be multiple people who would join in the Democratic primary, and it would be very difficult for the vice president to get the nomination. If I were over Biden more to a draw for whatever reason, like April 18th, next year, to pick a random day, Sure. Well, then it's going to be very tough for the Democrats to not give the nomination and not orchestrate the nomination on behalf of the sitting vice president.
00:27:36:19-00:27:46:07
Bob
That would be very embarrassing. And I think, in the end, she would get it in that circumstance. So the faster he withdraws, the more likely it would be somebody else.
00:27:46:07-00:27:54:16
Ryan
By the way, if he actually withdraws on April 18th, we're going to have all sorts of conspiracy theories that have spun out from the Roy podcast. He's going to be part of it.
00:27:54:16-00:27:59:06
Bob
The deep state Right. And so, you know, every once in a while, they send me a signal.
00:27:59:08-00:28:01:04
Ryan
Okay, what about the Republican side?
00:28:01:07-00:28:24:21
Bob
Or the Republican side? You must keep this in mind. Right. Republicans love frontrunners. Okay. Reagan in 1980, and George W. Bush in 1988. How does a man like Bob Dole become the nominee of a major party? Well, before 1996, he had been nominated for vice president. In 1976, he ran for president. He had run for president in 1988; he had been Senate majority leader.
00:28:24:23-00:28:44:03
Bob
It was his turn, darn it. That's why he got that nomination. Republicans picked the frontrunner. They look at the first name on the ballot or in the polls. Is this person acceptable? If they think that person is acceptable, that's the person who gets the nomination. Right now, Trump is ahead. He's been ahead and is likely to remain ahead for at least the next couple of months.
00:28:44:04-00:29:01:21
Bob
I think he has about a 60% chance of being the Republican nominee. I think the second most likely nominee would be Ron DeSantis, the governor of Florida. I think he has about a 25% chance; elsewhere, you'll see a much lower chance. But I believe he's putting all his chips in Iowa. And if he wins Iowa, this is the Santos Ron DeSantis.
00:29:01:21-00:29:30:11
Bob
If DeSantis wins Iowa or he comes in a surprisingly close second and he's back in the ballgame, he doesn't automatically get the nomination from there, but it'll be a dogfight from there on in. I give everybody else combined Vivek, Nikki Haley, Tim Scott, Chris Christie, and Mike Pence 15%, very likely Trump, if not Trump, and probably DeSantis. In terms of the outcome of Biden,
00:29:30:11-00:30:00:20
Bob
Trump, it really depends on whether I'm right about the economy. If there is a recession that starts next year, I think Trump wins not by a narrow landslide, because so many people hate his having someone vote for him regardless of what happens. But he wins. If there is no recession, If I'm wrong about the economy, if we're still sitting there with a 3.7% unemployment rate or so, if inflation has come back down more, then I think Biden will have a slight edge even at advanced age in terms of the House and Senate; it's simple for the House.
00:30:00:22-00:30:08:05
Bob
I think whichever party controls the controls, the White House will control the House of Representatives as well. With the Senate.
00:30:08:05-00:30:13:04
Ryan
Tails. Is that basically what's going to happen there? But that is just because of coattails.
00:30:13:06-00:30:43:08
Bob
It's a composition of coattails in an environment where there's a very narrow Republican majority that lost Supreme Court cases this year, which will make it tougher for the Republicans to retain that majority in terms of gerrymandering and districting in general. So the Republicans are set to probably lose a few seats just in the state of New York. So it's going to be tough for the Republicans to keep the House unless they can get enough support nationwide to win the presidency as well.
00:30:43:10-00:31:11:05
Bob
In terms of the US Senate, if you just look at the fundamentals, this is a once-in-a generation opportunity for the Republicans to wipe the floor with the Democrats. Can you look at the races and see that there is no Republican incumbent who has to run in a blue state? None. None. It's going to be very difficult to see any Republican incumbent losing a race, or even a race where the Republicans occupy the seat, just in case a Republican retires.
00:31:11:05-00:31:30:17
Bob
They're not going to lose those races. However, there are three Democrats who have to run in red states to keep those seats. Joe Manchin of West Virginia, Tester of Montana, and Sherrod Brown of Ohio It is very, very difficult for the Republicans and the Democrats to keep all three of those. It might be difficult to keep any of those. Right. In which case the Republicans have opportunities.
00:31:30:17-00:31:54:12
Bob
Then, if you look at the purple states, there are about ten states I would describe as purple-ish states. The Democrats have to defend nine of those ten states. The one exception is Florida. I still say Florida. The purple state is leaning red, but it's still purpleish. And Rick Scott's not going to lose in Florida. So I don't see any Republican incumbent losing or them losing any seats.
00:31:54:14-00:32:13:15
Bob
There are multiple seats available for the Republicans to pick from. The Democrats are there for fundamental reasons. I think the Republicans should win the Senate. However, if they nominate what I call the parcel of chuckleheads they nominated last year, they're going to happen like the candidate in the state of New Hampshire who would have been perfect for Oklahoma, but not a purple state like New Hampshire.
00:32:13:17-00:32:29:18
Bob
I'm talking about the candidate in Pennsylvania who lived in New Jersey for the previous 20 years and the candidate in Georgia who sounded like he played about seven too many years in the NFL. They nominate novice candidates who are not necessarily appealing to or trying to appeal more to Donald Trump than the moderate voters in their own state.
00:32:29:20-00:32:31:01
Bob
They're going to squander those races.
00:32:31:01-00:32:32:20
Ryan
So candidate quality matters, candidate.
00:32:32:20-00:33:00:00
Bob
Quality definitely matters. And it's not just who's running for the Senate. It's who's running. For example, if they have a gubernatorial election that, for instance, you know, I just denigrated the candidates the Republicans had in the state of Pennsylvania for the Senate, Dr. Oz, he could have won that race if the candidate for the governorship in Pennsylvania on the Republican side had been somebody who appealed to more people and he did not.
00:33:00:02-00:33:08:05
Bob
So I think that dragged down the rest of the Republican ticket in the state of Pennsylvania last time around. Who knows? And in some states, that might happen again.
00:33:08:07-00:33:23:05
Ryan
One of the things that you didn't mention with respect to the US presidential contest is some of the legal issues that both of the frontrunners have. I'm not sure if you have any comments, but I'm curious if you do; is that going to play a role in their election?
00:33:23:07-00:33:33:19
Bob
It will play a role, but I don't think it's going to stop that. Those issues by themselves are clusters of issues, and each candidate is not going to stop either from potentially getting out.
00:33:33:19-00:33:35:18
Ryan
Do they offset each other to some degree?
00:33:35:20-00:34:00:19
Bob
To some extent, I do. I don't think former President Trump's going to be in jail or convicted of anything by the time the election rolls around. And at that point, you know, he potentially gets a four-year get-out-of jail card if he wins. And I think in the end, if he's convicted of something, some of these charges might be overturned at the federal appeals level.
00:34:00:21-00:34:23:21
Bob
And we can get into the nitty-gritty of the nature of the legal cases. I think the strongest case against the president is the document case. I mean, that's open and shut in terms of whether he committed the offense. But there are so many other people who committed other document-related offenses, including Hillary Clinton. Right. That was never charged to it.
00:34:23:21-00:34:56:07
Bob
To me, it's clearly a case of, you know, the Justice Department going after a political enemy. I'm not saying he's innocent of that particular charge, but why is he charged when all these other people haven't been charged? And I know that you can make a case that Hillary Clinton's was different, but you could also make a case that hers was worse because it was while she was sitting secretary of state and she had malice aforethought in setting up a server at her home that was potentially penetrated by foreign operatives.
00:34:56:09-00:35:22:00
Bob
In terms of Biden's case, I think in the end he's probably not going to be impeached by the House. If he is, he will never, ever be convicted by the Senate. And here's the deal with Joe Biden. The more I think about this, the more I think the bribery case against him is weak. And here's why: My understanding is that for bribery, you actually have to ensure that the person who's bribed actually needs to provide something of value.
00:35:22:02-00:35:41:05
Bob
But Joe Biden never provided the Chinese with anything, or really the Ukrainians, until the war. But that was different because that wasn't a quid pro quo. So basically, he and his family ran a grift on the Chinese while he was sitting vice president and convinced them that Hunter was some sort of important player when he wasn't.
00:35:41:07-00:36:08:11
Bob
In one way, it makes sense for the Chinese to play along, which is that they really didn't care whether Joe Biden was offering him something of value. Joe Biden had always been a vote for freer trade in the Senate, even though he's a liberal Democrat, so he voted for China's WTO ascension back in the day. So to some extent, they weren't really going after anything that Joe Biden was going to provide to the Communist Party of China or the Chinese government in general.
00:36:08:12-00:36:34:03
Bob
What they're trying to do, the Chinese, is signal to other future policymakers that if you're with us, right, we will reward you, too. Okay. It's kind of like Netflix and the Obamas. There was no quid pro quo upfront that when the Obamas left office they were going to get this huge contract with Netflix for many, many tens of millions of dollars for content, I've never seen.
00:36:34:04-00:36:51:21
Bob
I don't know whether it's good or not. Maybe it's worth it, but there doesn't have to be a quid pro quo. Netflix doesn't care at all. They're trying to show that there was a president of the United States in the past. He delivered us net neutrality, which was our top lobbying goal. And after he left office, we gave him this.
00:36:51:23-00:37:02:16
Bob
So you, future policymakers or current policymakers who we have the opportunity to influence, look closely at that deal because you might get a deal like that in the future.
00:37:02:20-00:37:19:14
Ryan
It sounds very similar in that maybe I'm cynical about some of the very large paychecks that politicians have when they give speeches at certain universities. It's not a quid pro quo, but it is signaling to other policymakers that maybe you'll get to give this speech for a few hundred grand.
00:37:19:14-00:37:41:13
Bob
Yeah, if you behave, if you advance our priorities as an institution or an entity, then you have the potential to graduate to the dollar role. Okay. So there's no direct quid pro quo. Maybe it should be illegal for all these politicians to take outside income. Maybe it should be illegal for their family members to take it outside.
00:37:41:13-00:37:59:02
Bob
I don't know. Okay. That's for other people to consider at a different time. But I don't. I don't necessarily think Joe Biden was bribed because, no, it was a grift. He ran; he was like the better-call Saul of vice presidents to some extent, maybe without the drug dealing. Okay. But he really didn't provide it.
00:37:59:03-00:38:06:23
Bob
It was just a grift. It was a trick. He was a con artist more than anything else. He actually didn't provide anything of value.
00:38:07:01-00:38:25:17
Ryan
Okay. So I want to end on an optimistic note, which is, you know, after talking about what's going onwhatWashington, it's important to focus back on what your optimist sticks to as you kind of think about, you know, maybe not necessarily the potential for a recession in the next year or so, but the next five or ten years.
00:38:25:17-00:38:26:21
Ryan
What are you optimistic about?
00:38:26:21-00:39:00:20
Bob
Well, I'm still very optimistic about the future of the United States relative to other countries. Okay. The United States has the third-largest internal market in terms of population in the world. And there are only two countries that are bigger than us in terms of population. Eventually, Nigeria might be bigger. Okay, but it's India and China in third place. So a lot of people don't realize that we're third in terms of population, we have a huge internal market, and we're better set up to survive some sort of tariff or protectionist war.
00:39:00:20-00:39:23:18
Bob
I'm not advocating for that at all. I think that'd be very bad for our economy. But because of the massive internal market in the United States, we're set up to handle it in a way that other countries are not as well. We still have a large flow of striving immigrants into the United States. And I'm not saying all immigrants are striving; some are coming because we provide very generous handouts to people.
00:39:23:19-00:39:49:03
Bob
Okay. And I don't know what the proportions are, but we still like that if you're a go-getter, if you're a potential entrepreneur, and if you're born in a different country, there are very few places in the world you'd rather get to than the United States of America. So I do think we attract a lot of go-getters, and we attract people who want to pull themselves up by their own bootstraps, and that makes me relatively optimistic for the future.
00:39:49:03-00:39:59:09
Bob
Now, is the next 100 years going to look as bright in terms of improvement in living standards as the last 100? I'm a little bit skeptical, to be honest.
00:39:59:11-00:40:02:11
Ryan
But I'm not asking for a 100-year forecast, fortunately.
00:40:02:16-00:40:09:09
Bob
But I do think the US still has a relatively bright future relative to other countries around the world.
00:40:09:12-00:40:17:19
Ryan
Okay. Final question for you. Recommended reading list What is Bob Stein? What have you read recently, or what's on your to-read list?
00:40:17:21-00:40:53:11
Bob
That's a great question. And I try to read at least one book a month. It's it's all; it's almost always nonfiction and sometimes fiction. And I can talk about that if you want me to, but it's usually nonfiction. Right now, I'm reading a great book. It's optimally irrational by a professor from either New Zealand or Australia. It's basically taking a look at a lot of these quirks in human behavior that have been discovered in the field called behavioral economics about how we don't act rationally.
00:40:53:13-00:41:21:07
Bob
And he makes the case that even when we're not acting rationally or behaving optimally, there are certain types of behavior that are encoded based on genes and based on human evolution that have made us have these quirks. But these quirks don't necessarily have any role, either today or in the past. They do have a role; otherwise, we would have bred them out.
00:41:21:09-00:41:45:10
Bob
And so, it's an interesting take. I'm only about half the way through. And another recent book I read, which I found very interesting—I disagreed with a lot of it, but I agreed with some of it too—was End Times by Peter Turchin, and he talks about the overproduction of elites in the United States, especially through the college education system, and also resource extraction by the wealthy.
00:41:45:10-00:42:12:16
Bob
And when you put these two together in combination in the past, that has sometimes led to dangerous and volatile social situations around the world, whether in ancient history, medieval history, or even modern history. So that's a potential issue. But when I try to read it, it's a very bipartisan list. I read on both the left and the right. And if there's any one common theme among all the books I've read, it's how the world got to be the way it is today.
00:42:12:16-00:42:18:13
Bob
Where is it going, and how do we comprehend or really truly understand the world we're currently living in?
00:42:18:16-00:42:34:16
Ryan
And that sounds like it's from both angles, both right and left, and maybe in the center as well. So it's good to get different perspectives. Bob, this has been fun. Thank you for joining the Arrow podcast. Thanks to all of you who have joined us as well. And maybe we can do it again sometime down the road.
00:42:34:17-00:42:35:21
Bob
It's been a pleasure. Hopefully so.
00:42:35:23-00:42:52:15
Ryan
All right. Thanks, Bob. Thanks, everyone.
