In this episode of The Jenny Beth Show, Jenny Beth Martin is joined by Michael Faulkender, Chief Economist at the America First Policy Institute and former Assistant Secretary for Economic Policy at the U.S. Treasury. They dive deep into the ongoing economic challenges facing America, including rising inflation, government spending, and the regulatory burdens hurting American families. Faulkender explains the impact of Biden administration policies on the economy and discusses practical solutions to restore energy independence, reduce inflation, and revive manufacturing. Tune in to learn how sound economic policies can bring prosperity back to America.
In this episode of The Jenny Beth Show, Jenny Beth Martin is joined by The Honorable Michael Faulkender, Chief Economist at the America First Policy Institute and former Assistant Secretary for Economic Policy at the U.S. Treasury. They dive deep into the ongoing economic challenges facing America, including rising inflation, government spending, and the regulatory burdens hurting American families. Faulkender explains the impact of Biden administration policies on the economy and discusses practical solutions to restore energy independence, reduce inflation, and revive manufacturing. Tune in to learn how sound economic policies can bring prosperity back to America.
Twitter/X: @A1Policy | @jennybethm
Website: https://americafirstpolicy.com/team/michaelfaulkender
Michael Faulkender (00:00:00):
So President Trump has demonstrated when you're willing to use tariffs as a bargaining tool, you can get these countries to come to the table and actually start living up to their commitments. So yes, wouldn't it be nice if everybody abided by them? But given as you said that many countries don't abide by the terms of the trade agreements that they have entered into, then it's absolutely appropriate for the administration to use tariffs as a mechanism to either generate compliance or to impose a cost on those producers for the non-compliance coming out of those countries.
Narrator (00:00:34):
Keeping our Republic is on the line and it requires Patriots with great passion, dedication, and eternal vigilance to preserve our freedoms. Jenny Beth Martin is the co-founder of Tea Party Patriots. She's an author, a filmmaker, and one of time magazine's most influential people in the world. But the title she's most proud of is Mom To Her Boy, girl Twins. She has been at the forefront fighting to protect America's core principles for more than a decade. Welcome to the Jenny Beth Show.
Jenny Beth Martin (00:01:06):
In today's episode, I'm joined by the Honorable Michael Falconer, former assistant Secretary for economic policy at the US Treasury and current Chief Economist at the America First Policy Institute. We discuss inflation, government spending, and the policies that are hurting American families. Don't miss this important conversation on what it will take to restore our economy. Michael, it's so great to have you with me today. Thanks for joining us. Could you please tell our audience a little bit about your background, just so they know more about you and how you are an expert on the economy?
Michael Faulkender (00:01:41):
Sure. Happy to. So thanks for having me on. Jenny Beth. I have been a finance professor since 2002. I have a PhD in finance from Northwestern University. And then in 2017 I was asked by Secretary Mnuchin to join the Department of Treasury. So President Trump nominated me to be the Assistant Secretary for Economic Policy at the US Treasury Department in 2018. I was confirmed by the United States Senate in 2019 and served until the end of the administration in January of 2021. And then in 2022, I became Chief Economist here at the America First Policy Institute.
Jenny Beth Martin (00:02:20):
That is a very impressive background. Considering this expertise, how do you assess the current situation with the economy as we're headed into the fall of 2024 and what are the biggest challenges?
Michael Faulkender (00:02:34):
Yeah, the American people have been struggling with the inflation that they have endured over these last couple of years. During the entirety of the Trump administration, prices rose on average less than 8%, and we've had nearly 20% increase in prices during the Biden administration. And the bigger problem is that their income hasn't kept up. So if you look at earnings, if you look at wages, they have not been growing at the same pace that we have seen inflation. And so while under the Trump administration, the median household saw about a $6,000 increase in purchasing power, their earnings on an inflation adjusted basis went up about $6,000. During the Biden administration, it's fallen by about $2,000. And so affordability of things like energy, food, the American people are really struggling with those things. And mind you, that that 20% inflation number does not include the increase in interest rates and the increase in therefore the monthly payment on a house.
Michael Faulkender (00:03:36):
And so if you look at it during the last four years, the cost on a monthly basis of the median priced house in the United States has doubled because of the increase in housing prices coupled with the massive increase in interest rates. And so whether it's being able to afford to put food on the table, gas in the tank, or kind of one of the singular most important things people look to as an achievement in their lifetime, that really demonstrates success and prosperity, home ownership has suffered enormously. And so if you look at Americans under 35, they are facing some of the worst affordability problems in the last 40 years. And so that's really the struggles that they're having and the policies that we see coming out of the Biden Harris administration have really caused a lot of that.
Jenny Beth Martin (00:04:27):
Michael, we feel, and the average person who is not an economist, we feel the effects of inflation because we see it when we're going to buy groceries or buy gas or as you just said, the cost of housing has doubled. What causes this kind of inflation,
Michael Faulkender (00:04:49):
Right? So if you look at the approach that the Biden administration has followed, they have thrown a massive amount of money into the economy. When Joe Biden came into office within two months, they passed what's called the American Rescue Plan, which was $2 trillion in additional spending. But at the same time, they continue to make it more and more difficult to actually make things here in the United States. So we are no longer energy independent here in the United States. Manufacturing has largely been in a recession. There is an enormous increase in the cost of doing business because of the regulatory requirements that the Biden administration has imposed. And so again, not to get too econ professory, but when you make it more expensive to operate, we would consider that a reduction in supply, a reduction in available output. But if you at the same time have massive increases in the amount of money in the economy from government spending, that's going to be a surge in demand. And so if demand increases while supply, the natural new outcome is going to be a significant amount of inflation. And that's why people like Larry Summers, who you may recall was the treasury secretary to Bill Clinton was the director of the National Economic Council to Barack Obama, former president of Harvard University Economist at Harvard University, deemed the Biden administration's economic policies, the worst macroeconomic policy in 40 years.
Jenny Beth Martin (00:06:27):
When you mentioned a minute ago that wages have not gone up, isn't there even a danger if wages had kept up with inflation, then wouldn't inflation wind up going even more? Because to be able to pay your employees to keep up with inflation, you're going to have to charge more. So it's kind of this double-edged sword it seems like.
Michael Faulkender (00:06:52):
Right. So the concern that you have is what we call a wage price spiral. And so once inflation gets out of control the way that it did in late 2021 and into 2022, as you just said, as prices increase, then workers are going to need more money in order to afford things. And so wages are going to have to go up. But if wages go up, then the business has to find some way to pay those higher wages. And so then they raise prices. And so you get this spiral where one begets the next and it can spiral out of control. And that's why we need to have been a lot more careful back in 2021 about the amount of money government threw into the economy and how much excessive regulation that constricts the ability of the economy to adjust to all of that increased government spending. And that can potentially create that kind of wage price spiral. And that's why the Fed has struggled to get inflation tamped down. Inflation has come down from about 9% to now less than 3%. Their target is two, but it's going to take them a while just to get from three down to two because of that spiral effect we just discussed.
Jenny Beth Martin (00:08:03):
So how would you solve the problems that we face right now and how do we get these problems solved? Obviously, whatever you say isn't going to happen if Kamala Harris continues running the country, but if we had a new administration, what would you think are the best things to do to solve the problems?
Michael Faulkender (00:08:25):
Yeah, so fortunately there are some economic policies that we can put in place that would really help the American people with this affordability crisis. And so our focus has really been on increasing abundance and it's a seven pillar plan and it has the following components. So number one, unleash American energy abundance. If we would drill more, if we would refine more, if we would go with an all of the above energy strategy, because energy permeates costs permeate every sector of our economy. So it's not just the amount of energy we individually consume, but if you think about the products that we use, the services that we use in order to create many of those products, you need energy, you need fossil fuels in order to transport those products from their manufacturing facility to the store and then home. You need energy to do that. So getting back to energy independence is the first pillar.
Michael Faulkender (00:09:21):
Second, we need to slash all of the inflationary government spending. During the 50 years prior to the pandemic, the federal government was spending about 20% of national output. It's averaged more like 23 to 24% during the Biden administration and is expected to continue. We need to get government spending back down. Third, we need to slash a lot of that regulation. The Biden administration is estimated to have imposed $1.6 trillion worth of additional compliance costs on the American economy. And so if we can take away a lot of that unnecessary regulation, we can bring down the cost of producing and providing services to the American people. Fourth, we need to extend pro-growth tax reform. We do not have a revenue problem in this country. We have a spending problem. Revenues have been coming in just fine, just like their historical averages. It's the government spending that's the problem.
Michael Faulkender (00:10:13):
It's not a revenue. And so if you raise taxes during this time, you even further reduce incentives for individuals and businesses to fulfill the needs of our economy. Fifth, we need reciprocal trade agreements. It should not be the case that other countries are taking advantage of our trade laws. We need to make sure that if other countries are imposing tariffs on the products and services that we export, that we're applying that same kind of approach to products that are coming into the United States. Six, we need to make sure that we have sound money and sound financial institutions. We can't have the Federal Reserve printing a bunch of money and causing inflation, nor can we have them engaging in things like ESG and Central Bank digital currencies that really undermine the freedom and privacy of the American people. Seventh healthy America, we need to make sure that healthcare dollars are going towards the American people, not towards insurance bureaucracies in government.
Jenny Beth Martin (00:11:08):
Okay. I have a couple of questions or a few questions about the things that you just went over. I want to start with the tax policy first because I have a couple of questions. First, could you compare and contrast what each of the two candidates have said Harris and Trump, about what they plan to do regarding taxes? And then when you finish with that, I want to ask you something that I'm seeing from local governments around the country, but first, let's address a federal level.
Michael Faulkender (00:11:42):
Absolutely. So President Trump has said that extending the tax cuts and jobs act is an important piece. So many of its provisions expire in 2025. If they are not extended, then every American who pays federal income taxes would see their taxes go up because we reduced the rates, we doubled the standard deduction. Those things go away in 2025. In addition, president Trump has talked about not taxing tips and also not taxing social security benefits. So in 1983, Congress decided that it would implement a tax on social security benefits above for those making more than $25,000. That $25,000 was never adjusted for inflation. And as we just talked about, there has been quite a lot of inflation in the last 40 years, particularly in the last four years. And so that $25,000 threshold is hitting a lot more seniors. And so we can do something about easing the burden, particularly on seniors on a fixed income by taking a look at social security taxes as opposed to what Kamala Harris has said.
Michael Faulkender (00:12:47):
I don't know what she's looking to do on taxes because her website still contains no information. Her campaign has apparently leaked information to the press, but we have not seen Kamala Harris walk back. Many of the things that she has said over time, she and President Biden have talked about having the tax cuts and Jobs Act expire raising the corporate income tax rate. Well, the corporate income tax rate is how we make sure that businesses choose to locate their operations here in the United States rather than abroad. We're right in the middle of the pack in terms of where the corporate income tax rate is relative to the rest of the developed world. Kamala Harris wants to take it above China and above most of the rest of the developed countries in this world. So that would make us less competitive. And the thing is, there are a lot of academic studies that show corporations pass on corporate income taxes. So if you raise corporate income tax rates, that gets passed on in the form of lower wages and higher prices. And so if you go back to the fact that the American people have seen their purchasing power from their earnings go $2,000 less under Joe Biden, that would get even worse under a Kamala Harris administration worry she to carry forward on raising taxes on both corporations and individuals.
Jenny Beth Martin (00:14:06):
Okay. Thank you for answering and explaining that. One of the things that I have noticed with local governments around the country right now, I think they're hurting from inflation just like everyone else is hurting and they are. I'm noticing even in Republican areas where maybe the county commission is all Republicans, they're looking at increasing property taxes or increasing sales taxes. Do those same issues that you're mentioning when you raise taxes affect a local government and what would you advise a local government when it comes to taxing?
Michael Faulkender (00:14:45):
Yeah, they do because local areas also compete for businesses and for people to live. And so if you look at Chevron, who is moving from California to Texas, you look at that, Elon Musk is moving Tesla from California to Texas. California has an exceptionally onerous tax environment, whereas Texas does not. And so local governments also have issues that if they raise taxes too much, you'll see people who are being taxed decide to go to lower tax rate states and localities, and that just exacerbates the budget situation they've got. Instead, they need to look at why is there so much spending going on? And this is where I have a lot of sympathy for state and local governments because what are some of the big things that are causing their costs to go up? You mentioned part of it is inflation, but the other part of it is that the Biden Harris administration has turned every state into a border state.
Michael Faulkender (00:15:40):
Look at the amount of money that state and local governments are having to come up with to address the education, healthcare and housing issues of all of these illegal immigrants who are coming across our border. And that the Biden Harris administration, Biden's borders are herself, Kamala Harris is providing work permits and parole into our country that's creating enormous burdens for red states, for blue states, for red municipalities, for blue state municipalities, and they're having to find money to cover the costs on those things. So I understand that those problems, but what we need to do is make sure that we have an administration that is going to, it's going to once again enforce the border and make sure that we're not having millions of illegal immigrants come into our country and utilize all of these local services that they cannot afford.
Jenny Beth Martin (00:16:34):
That's a really good point. I'm glad that you pointed that out. Michael. And I need to make sure that in areas that are having these kind of problems locally, that I tell people to listen to what you just said because you're offering very good advice and important things that these local governments really need to pay attention to when it comes to regulation and slashing regulation. Why do you think that that is so important? And how do things like the Green New Deal or mandates on what kind of car you need to drive or whatever it might be, just more and more mandates, why is that such a problem? And also I want to talk about those compliance costs, but first, why are the mandates such a problem?
Michael Faulkender (00:17:23):
Right? So when you come in and have government tell companies how to operate, then you're somewhat presuming that the bureaucracies understand those businesses better than they themselves. And I remind people all the time, we are the most diverse nation in the world. No matter how you measure diversity, we are the most diverse. And the benefit of a private economic system, of a private enterprise system is that the profit motive incentivizes businesses to meet those diverse needs as opposed to a central government who is going to provide one size fits all solutions. So if you leave it to the private marketplace for those who want to buy electric vehicles, the private market will serve those needs. For those who want internal combustion engine vehicles, they will serve those needs. For those who want hybrids, great. But when government comes in and says, whether you like it or not, you have to have an EV because we know better than you.
Michael Faulkender (00:18:21):
We know better than you the consumer. We know better than you the business, what kind of car you need or what kind of stove you can have, or where you can set your electric, where you can set the thermostat that determines your electricity or what kind of fuel mix that a power company can generate. All of those things presume that the federal government in its one size fits all approach is going to know better, but you can't serve the diversity of the American people by having this government top down approach that puts the bureaucrats in charge rather than main street small businesses. So that's why it's so costly to the American people, but when they do so, it's expensive as well. So when government comes out with a regulation, you've got to have lawyers, you've got to have management consultants, you've got to have accountants, you've got to have people who come in who just worry about compliance.
Michael Faulkender (00:19:16):
Well, the company's got to pay for that and they're going to pass on that cost. So if now you've got to put in place a bunch of rules and you've got to demonstrate to the government that you are doing everything necessary to comply with those rules, that cost gets passed on. And the thing most people don't understand is that those compliance costs, they're largely the same whether you're serving a thousand customers or a million customers. And so it hits small businesses particularly hard because they got to spread that over a thousand customers rather than spreading it out over a million customers. And what does that do? It creates incentives for consolidation. It generates market power because you've got fewer and fewer businesses. It takes away choice because small businesses are in a better position to address individual market needs than big conglomerates. And so you on the one hand have the Biden Harris administration complaining about concentration, complaining about the lack of competition, and then they put in place onerous regulations that just incentivizes the very consolidation that they don't like.
Jenny Beth Martin (00:20:20):
Yeah, it's absolutely crazy. And maybe if you're just a very small mom and pop shop, you don't have as much to deal with some of the compliance, but once you start growing and creating jobs and expanding beyond just a one or two person shop, those compliance costs can prevent you from even growing can wind up. You mentioned consolidation, but I think lot of times it also leads to business failure because it's such a massive percentage of what you said about it being a flat cost no matter the size of the business. That's true. You're paying attorneys, you're paying accountants, you're paying other people to keep up with all of the government red tape. It's a fixed cost. And if you're not a very big business, it winds up eating so much of your costs that you may not even be able to have that business at all. It's craziness. And did you see it's $1.6 trillion total or a new additional compliance cost
Michael Faulkender (00:21:24):
That is new additional compliance costs since Joe Biden came into office? So our friends at the American Action Forum keep their website, I believe it's called Regulation Rodeo, and you can go to their website and you can find by year the new regulations that have been implemented by the federal government. And so if you go 2021 through 2024, my recollection is you come out to a number of in excess of $1.6 trillion. And mind you, this is the government's estimate of the regulatory burden. That's not to say that it's the actual amount because do you think that the government has an incentive to underestimate or to overestimate the amount of regulatory burden they're imposing? So to the extent that you agree with me that it's probably an underestimation, you should think about that 1.6 trillion in incremental regulatory burden as being a lower bound
Jenny Beth Martin (00:22:16):
And the United States gross domestic product, the whole economy. How large is it and what kind of percentage is that of the whole economy?
Michael Faulkender (00:22:28):
Yeah, so in round numbers, you should think about the economy being about $30 trillion. So one and a half trillion dollars burden on a $30 trillion economy is a 5%. That's just in new regulations. That doesn't even include, of course, all of the regulations that were already there. And you contrast that with what we were able to accomplish during the Trump administration. President Trump prior to the pandemic was repealing about eight regulations for every new one that was being put in place, the regulatory burden actually went down under the Trump administration. And that's a big part of why we saw the growth and the improvement in household income. And the other piece that a lot of people don't understand is we at the same time have becoming better environment. The air is cleaner, the water is cleaner. What many want to try to suggest to the American people is, well, in order to have clean air and clean water, we have to impose all this regulation.
Michael Faulkender (00:23:25):
No, we don't. If you look at it, we have the cleanest air, the cleanest water, and that's because things like shifting to natural gas have done enormous benefits in order to bring some of the pollutants out of the air. And so we were able to achieve energy independence for the first time in 70 years under Trump while improving the environment. It is completely false to say that we have to choose between them. We can both increase energy independence and still have a clean environment. And the reason for that is because that energy is going to be created no matter what. And so if you put too much regulation on things here in the United States, what's going to happen? You're going to move energy production, you're going to move manufacturing to China. Does anybody believe that that energy production and that manufacturing in China is going to be done in a more environmentally friendly way or a less environmentally friendly way that stuff's going to be produced anyways. So there's this paradox that when you actually implement more regulation, you actually get a worse environment because you in the process shift a lot of that activity to less regulated locations.
Jenny Beth Martin (00:24:37):
And those less regulated locations mean that Americans aren't working because they move the manufacturing out of America altogether and move it to a different country. So you get worse regulation. You hurt American workers and American families. And you mentioned that one of the things that we need are reciprocal trade agreements. And I always get in these debates, and I have studied economics, but nothing at all. I have worked in manufacturing. So my first job out of college was working, doing the computer systems at a paper mill, and I have watched manufacturing firsthand, and I have a lot of respect for the people who manufacture and create products in our country. One of the things that always, I think it's a very strange situation that we find ourself in. When I listen to the things that Milton Friedman said about how you want to have open economies with other country and you don't want to have a lot of barriers to trade, I think that makes, it does make logical sense.
Jenny Beth Martin (00:25:56):
But I think that sometimes as I watch what was happening where I worked in the paper mill that I worked in, I noticed I saw the compliance people, I saw their offices, I supported computer systems in their offices, and I could tell the kind of costs that it had on the entire company and the corporation. And it always seems like such a strange thing to me that America and economists will say, well, we want open trade. We want open trade with other countries. And I think, yeah, but we're playing in an uneven field because of the way that the regulations have such a burden on our manufacturers in America makes it much more expensive to produce here in America and then in other countries they don't have those kind of burdens, and it doesn't, even before you get to the fact that you want to have reciprocal trade agreements, I think that we wind up tying our hands behind our back and then trying to fight this battle because of all those regulations. Do you have any thoughts about that?
Michael Faulkender (00:27:06):
Yeah, you touched on what the really important issues are here, which is that when we enter into a lot of our trade agreements, and if you think about conceptually the notion of free trade, you have to have parties on both sides abiding by similar rules in order for free trade to be a fair situation. And so let's take China in particular. China steals our intellectual property. And so what you end up having happen is that whether it's in pharmaceuticals, whether it's in technology, whether it's in manufacturing, a lot of the innovation happens here in the United States, but then they steal that technology either through corporate espionage or they take that product and they reverse engineer it, and they therefore don't incur all of those costs, which gives them an unfair advantage. Now, intellectual property theft was a major issue when during the Trump administration, we were negotiating the phase one China trade arrange agreement because that gives them an unfair advantage.
Michael Faulkender (00:28:11):
And if they are going to continue engaging in things like intellectual property theft, forced technology transfers, employment of slave labor, environmental laws that pollute our entire world, currency manipulation, all of these things that many of which are precluded under the agreement that they gained entry to the World Trade Organization, if the WTO is not going to enforce those things, then we need to revisit the type of terms by which those products come into the United States. And President Trump said, look, if these multilateral organizations are not going to fulfill their compliance obligations, then we are going to address this bilaterally and we will use tariffs as a means to get them to the bargaining table and get them to abide by these agreements. And so President Trump has demonstrated that if are unwilling, when you're willing to use tariffs as a bargaining tool, you can get these countries to come to the table and actually start living up to their commitments. So yes, wouldn't it be nice if everybody abided by them? But given as you said that many countries don't abide by the terms of the trade agreements that they have entered into, then it's absolutely appropriate for the administration to use tariffs as a mechanism to either generate compliance or to impose a cost on those producers for the non-compliance coming out of those countries.
Jenny Beth Martin (00:29:34):
And I think that it makes sense. I know that it can wind up that it has the potential to cost more when they're purchasing a product. So I understand and I acknowledge that, and I don't want that to happen. I also think that there's just something that is unjust about making it impossible for Americans to manufacture in America and then expect that part of the deal when they lost all those jobs is that you're going to have trade agreements that are going to be at least somewhat equitable, and then they don't even live up to their end of the bargain. We're suffering. We wind up suffering every way you turn. And I just don't think that that is the right thing. I don't think that's the right thing to do. And so I found I really struggle with some of the free market. I mean, I am a free market economist. I mean, I'm for free markets, but I just wind up struggling with that, and I think you explained it very well. Thank you.
Michael Faulkender (00:30:35):
Right. So yeah, there's a couple other things, if you don't mind my adding on to it, because generating a robust manufacturing superpower here in the United States, again, is not just about tariffs to enforce international agreements. It's also about having a tax environment that encourages manufacturing take place here rather than abroad. Again, that's why we can't have the highest corporate income tax rate in the world. It means having a regulatory environment that doesn't cause the manufacturing facility to be micromanaged by the federal government. Again, according to the National Association of Manufacturers, the manufacturing sector alone has $3 trillion worth of regulatory compliance associated with it. Right? So that one and a half trillion I mentioned before, that's just what the Biden administration has done there. Of course, were already a bunch of regulations in place and our friends over at NAM have estimated that that's about $3 trillion in total just for the manufacturing sector.
Michael Faulkender (00:31:32):
Then you have the energy costs on top of it. So if we make energy unreliable and expensive here in the United States, whereas it's cheap and reliable over in China, again, that increases the cost. We have to have an environment here, a cost environment, a regulatory environment, a tax environment, a trade environment such that multinationals want to innovate here, want to build a manufacturing base here because it's incredibly important that countries make things. Countries who don't make things are going to find themselves taken advantage of by countries that do. We saw that during the pandemic. We have critical supply chains where we are exceptionally vulnerable if a country like China decided to take advantage of it. That's the other piece that a lot of free market people don't take into account. It's something that we in economics call an externality. An individual company is not going to take into account the fact that the economy, that the nation may be vulnerable if we are reliant on something that's critical for human needs that comes solely from a single location, right?
Michael Faulkender (00:32:39):
No individual company is going to internalize that, but the government needs to, and we therefore need to make sure that we don't create a vulnerability that a potential foe like China might exploit in order to extract some kind of geopolitical concession look no farther than the Russians in the Germans. For an example of that, the Germans allowed themselves to become wholly entirely too dependent on Russia for natural gas. And what happened when Russia invaded Ukraine, the international community had to soft walk some of the sanctions because Germany still needed to get energy from Russia because of that vulnerability. Do we want to create vulnerabilities like that that can be exploited by potential adversaries? And so that's why we need to make sure that we have resilient supply chains and a robust industrial base here in the United States, and tariffs appropriately are a tool to realize that national security objective.
Jenny Beth Martin (00:33:39):
Thank you so much for explaining that. And I think it makes a lot of sense because you're not just looking at it the way that you just described it. You're looking at it from an economic standpoint, which is extremely important. And we also, and the government does have a role and a responsibility to look at national security and to make sure that we are a secure nation that isn't creating those vulnerabilities that you mentioned.
Narrator (00:34:05):
Right.
Jenny Beth Martin (00:34:07):
Okay. Moving on to another part. You were talking about the sound financial institutions and the sound money policy. What are the things that are necessary to have a sound money policy?
Michael Faulkender (00:34:22):
So if you look at a lot of the spending that took place during Covid, and then once Covid was largely over, the government spending still continued the Federal Reserve engaged in an extraordinarily accommodative monetary policy. The Federal Reserve's balance sheet ballooned, and you couple a lot of federal spending, then that gets monetized by the Federal Reserve. That's your recipe for inflation. And that's what we mean by sound money is that we should not be having massive increases in the money supply. We should not have the Federal Reserve accommodating really negative fiscal policy because that's just going to create inflation. And at the same time, what you have is the Federal Reserve. While they're doing that, they're also looking at bank supervision, not through the lens of the safety and soundness of our financial system, but they're instead focused on things like climate inequity. So you had SVB fail for very simple reasons.
Michael Faulkender (00:35:23):
They bought long-term securities funded by short-term deposits, and when interest rates went up, the value of those long-term securities went down. They couldn't afford all of the increased interest costs associated with having really low returns on long-term assets. That's basic bank supervision, that's basic safety and soundness supervision. Were they doing that? No. They were focused on climate risk. They were focused on whether or not we were putting enough capital charges for oil and gas assets as if we can move away from oil and gas. So tip their eye off the ball because they're focused on the wrong things. And then the other thing they're doing is they're looking to potentially generate a central bank digital currency, so have depositors put their money straight on deposit with the Federal Reserve so that the federal government can monitor every transaction in which somebody is engaged rather than it going through a private sector bank. So why is the Federal Reserve taking its eye off the basic responsibilities of price stability and bank supervision in order to involve itself in things like central bank digital currencies and climate and inequity through this ESG agenda? And so it's no wonder that under their watch, we've had 40 year high inflation. We've had three of the four largest bank failures in the history of our country, and so we need to get back to Federal Reserve governors and a Federal Reserve board who is focused on the basic safety and soundness of our financial system.
Jenny Beth Martin (00:36:54):
Three of the four bank failures have been under this administration, is that what you just said?
Michael Faulkender (00:37:00):
Yeah. So if you look at the dollar amount of the banks that failed, the largest was during the financial crisis, but number two, three and four were during the last three years.
Jenny Beth Martin (00:37:14):
It's unbelievable, and I hope that people, as they sit there going, gosh, it costs so much more. This is why everything costs so much more. These failures on the part of this administration is why we are suffering so much personally in our own homes. You talked about needing to make sure that we have healthy Americans, and one of the things that Kamala Harris did when she was senator was co-sponsor the Medicaid for all bill, which would've eliminated private health insurance for 200 million Americans. I don't think that is the solution to making sure that we have healthy Americans. How would you accomplish ensuring that we have healthy Americans who can afford their healthcare?
Michael Faulkender (00:38:05):
That's right. So Vice President Harris, as you said, co-sponsored what you, I think accurately deemed Medicaid for all and said, if you like your health insurance, you cannot keep it. Unlike the promise that was made at the time of the Obamacare, which we knew was false at the time. And so what we think about healthy America, we think about what can we do to bring down the price of prescription drugs? What can we do to empower patients and their families rather than healthcare bureaucracies and insurance companies? One of the things that happens is depending upon whether you have a procedure done at a doctor's office or at a hospital, it's a different payment amount. And so there are these crazy incentives in healthcare regulation that drive up the costs all by deciding, for instance, where do you get treated? Right? So we have proposed something called site neutrality that says no matter whether it's at a doctor's office or a hospital, it ought to be reimbursed by the government by the same amount.
Michael Faulkender (00:39:04):
We ought to expand health savings accounts. We ought to make it easier for people to buy catastrophic policies. People in their seventies or their sixties, they should not be forced to buy health insurance products that cover birth control pills or procedures that they are never going to use through these minimum coverage requirements. And so there are a lot of failures in Obamacare that under the leadership of Governor Jindle who is the chair of our Center for Healthy America here at America First Policy Institute, they're doing a lot of strong work thinking about how can we drive down the price of things like hospital care, prescription drug prices, and really re-empower patients because if the American people are not healthy, then they're not happy and we can't generate economic growth and affordability that make prosperity possible.
Jenny Beth Martin (00:39:58):
You mentioned getting prescription costs under control, and how do you think that you go about doing that? And one of the things that when Kamala Harris did talk about some of what she would do about the economy, she has talked about price gouging and about setting price controls. Do those work and what is a better alternative?
Michael Faulkender (00:40:25):
Yeah, so price controls do not work, and many times people will point at the Soviet Union or at Venezuela. I point to the 1970s here in the United States, that was the last time we had massive out of control inflation, and the federal government tried to come in and set price caps on gas and energy prices, and what happened? You had gas lines because when you don't allow prices to move, when you don't allow supply and demand to come to a new equilibrium, the alternative is you get shortages. And so you get lines, you get rationing, and that's why you generally want to allow adjustments to take place to prices so that you can bring the market back into equilibrium. What higher prices do is they encourage more supply to come online, whereas if you cap prices, then you discourage additional production in order to meet those shortages.
Michael Faulkender (00:41:21):
And what's particularly disconcerting about what the vice president has said is that the costs that supermarkets are passing along, again, have come from their regulations. What is one of the biggest contributors to the cost of food? It's energy. It's not just the gasoline that powers the tractor, but your viewers may not know. One of the biggest inputs into fertilizer is natural gas. That's where we make it from. Then you've got the cost of transporting that produce from the farm to the supermarket, and of course from your supermarket home. All of that shows up in the costs. And so when you look at the extent to which prices, the input prices for farmers and for grocery stores have gone up, the prices increases for the consumer have been commensurate with the price increases of all of the inputs. There's no evidence that all of a sudden your local grocery store is profiteering off of you.
Michael Faulkender (00:42:22):
We are not seeing major margin increases. These are very lean businesses. They operate on 2% margins, and your local grocer is not all of a sudden rolling in the money. And the other question that I have asked, and I testified to the Senate budget Committee about this about two years ago when they started saying, oh, it's all greed, deflation. Senator Sanders himself was the chair of the committee. Well, I pointed out to him the inflation started in March of 2021. There is a literal doubling in monthly inflation that began in March of 2021. Now, in order for that to have been caused by corporate profiteering or agreed ifl, the question I have is why did it happen under the Biden Harris administration? Did Biden and Harris all of a sudden allow corporations to generate profits in a way that the Trump administration didn't? I have been a finance professor since 2002.
Michael Faulkender (00:43:22):
I have been studying corporate financial decision making for decades. I am not aware of all of a sudden something that the Biden administration did in 2021 that said, oh, now it's time for corporations to make profits in ways that they didn't under the Trump administration, under the Obama administration, under the Bush administration, under the Clinton administration. Instead, you have to look at what changed was the massive spending that they engaged in at the beginning of this administration. That's what changed, and it perfectly coincided with the inflation. So they don't want to take responsibility for their cause of inflation. The thing that's hurting the American people the most, they don't want to take responsibility for it, and so they need a scapegoat. And so the scapegoat is your local grocer. It's your local farmer who are getting crushed under the same inflation that they have caused, and yet they're being demonized
Jenny Beth Martin (00:44:15):
The like to go back and see that it was all Trump's fault and it was C'S fault. How is it different what Trump did while he was still president during Covid versus what happened in the first few months of the Biden and Harris administration?
Michael Faulkender (00:44:31):
Yeah, so one of my roles as Assistant Secretary of the Treasury was to lead the treasury implementation of the paycheck protection program. So we worked hand in glove with the small business administration on every aspect of PPP to help get money out to America's small businesses in order to maintain payroll for literally tens of millions of Americans. So did we spend money? Yes, we sent a couple trillion dollars of spending out into the economy in the second quarter of 2020. Now, what else happened in the second quarter of 2020? We had about a 30% annualized decline in national output because of the shutdowns having $2 trillion offset a 30% annualized decline in output. That's completely different than throwing $2 trillion into an economy that had more than 90% recovered. If you look at the economic output that was lost from the pandemic, more than 90% of it had come back by the time Joe Biden entered office, and yet they threw an additional $2 trillion into an economy.
Michael Faulkender (00:45:32):
Right? So again, when you have a massive gap in the economy from things like nationwide shutdowns, the need for that 2 trillion, the economic impact of that 2 trillion is fundamentally different than when you got an economy that not only was largely recovered, but also had three new vaccines coming into place. So you had all of this pent up demand, you had all of this savings that had been accumulated during the pandemic, you had the reopening that was going on because of vaccines, and so at a time that there was already going to be this surge of economic activity due to those reopenings and due to the discovery of those vaccines, the idea that you need to add 2 trillion more of gasoline onto that fire in the form of inflationary government spending gave you exactly the 9% inflation that we got. I am exceptionally proud of the work that we did during the depths of the pandemic to save this country from a depression. And that is fundamentally different than throwing gasoline on a fire when the economy has largely recovered.
Jenny Beth Martin (00:46:36):
Okay, thank you for answering that. Speaking of covid, and maybe this is a question that isn't fair game, I don't know, but if you were looking back on what happened in 2020, what are things that you would do differently? What lessons did you learn that you think either worked well or that future generations should consider differently if they have to deal with a similar pandemic?
Michael Faulkender (00:47:06):
Right. I think one of the biggest problems that we had is it was the dearth of information about who was going to be significantly impacted by covid. I'm not a health expert. I don't know how much of it was that China was not sharing accurate information about who was particularly afflicted. I don't know how much of it was coming out of the NIH and some of the activities of Dr. Fauci, so I want to be careful there. But had we knew then what we know now, there was no reason to shut down the economy the way that it was because what instead needed to have been done is to safeguard the vulnerable, our generation, our kids' generation. If you look at the learning loss that our kids have suffered because schools were shut down for up to a year and a half, they're not going to recover that we have a permanent learning loss that our economy is going to struggle with for decades, all caused by government shutting down schools to a population that was not at all vulnerable, why we shut down the schools instead of isolating those with comorbidities, those who already had preexisting health conditions and were therefore most vulnerable, that would've been a much less expensive and much more healthy way to have addressed it.
Michael Faulkender (00:48:36):
But what we were told was that we were told on the econ side that these public health activities were necessary. The statements coming out of Dr. Burkes and Dr. Fauci at the time were that we needed social distancing and we needed to give the healthcare professionals enough time to learn more about how to treat the virus and to scale up their ability to address those that were infected and give some time for maybe some therapeutics to be identified. And they therefore needed to slow the spread. And the way to slow the spread was massive shutdowns. Once you tell us that we're going to have massive shutdowns then that are caused by the government, then of course the econ people are going to come in and say, well, we need to provide substitute sources of income because in the depths of a pandemic that's spread by airborne contact, you can't have red lines.
Michael Faulkender (00:49:35):
And so you're going to need to have those paychecks continuing to flow. And so we put together very, very quickly, we work with Congress enormously quickly under Secretary Mnuchin's extraordinary leadership. We got a $2 trillion package through the Congress in weeks, and then the secretary came to us to his senior leadership team at Treasury and said, you guys have, in the case of the paycheck protection program a week to get it up and running because the American people can't wait a month. We have got to make sure that people can, if states and localities are shutting down, we can't have paychecks cease. We can't have bank accounts run out of money. We can't be creating desperation that then is going to exacerbate what we were being told was the public health situation.
Jenny Beth Martin (00:50:21):
I think that what you said is extremely important. The information that we had about the virus was wrong, and the media had a perverse incentive in continuing to scare people rather than factually conveying information that was known pretty early into the situation, maybe not in the first week or two, but it was known fairly quickly in the situation. These are the most vulnerable, these are the least vulnerable. But the media had this very perverse incentive to keep those numbers of potential deaths and the spread of covid and the tests that tested positive going up up to get more people watching their programming rather than actually conveying factual information. And I think that you're right, that spread of misinformation on behalf of whoever it was, Fauci, Burkes and others, tied with the media, tied with social media companies preventing accurate information or contrary information from being out in the public for even for consideration and discussion, I think that those are some of the worst problems because of that, it led to so many other terrible problems.
Michael Faulkender (00:51:47):
That's absolutely correct. If you look at the censorship that took place in collusion between some of our public, so-called public health experts with the media companies in order to silence those who had different perspectives, it ended up being enormously costly from a public policy decision-making standpoint, and generated an enormous amount of misinformation out there. And what's shocking is that rather than learning those lessons and perhaps recognizing that it's during those events that we need dialogue and differing perspectives the most, you have a Biden Harris administration that wants to double down in continuing to engage in censorship, right? I mean, you look at, and it's not just here in the United States, right? You look at the threats to these social media companies coming from governments everywhere, this kind of censorship is extraordinarily problematic. And I don't know about you, but I remember reading the book 1984, back when I was in school, and you talk about having the government be the moderator of information content.
Michael Faulkender (00:52:55):
We thought it was fantastical at the time, and yet that's what we have coming out of the Biden Harris administration and the collusion that goes on in order to keep extraordinarily relevant information away from the American people and slanted in favor of one government philosophy over another, that's extraordinarily problematic. And our founders recognized that that was one of the biggest threats to democracy. The First Amendment is the first Amendment for a reason, and yet we have the government colluding with major tech companies and media companies to try to keep relevant information and differing points of view away from the American people. And that's why a lot of the work that my colleagues here at A FPI are doing on government weaponization and censorship is so critical because it's important that the American people have the full breadth of information as they make exceptionally critical decisions. This November, this election could not be more stark when it comes to the economic visions for our country coming out of the America first candidate versus the America last candidate.
Jenny Beth Martin (00:54:03):
You are exactly right about that. I want to ask you a couple more very, they're not super long questions, but I think that they're relevant. Just this past week, we're seeing news, and we may not air this for a few weeks, so it may be a little bit old by the time we air it, but California is talking about providing $150,000 to people to non-citizens who are here illegally to be able to buy houses. And Kamala Harris has said she wants to be able to give $25,000 to people for their down payment on their first home. I know the answer to it, but I just want to hear you explain why is this such a bad idea?
Michael Faulkender (00:54:48):
Right. So remember, what caused the inflation in the first place was that we didn't do anything about output. We didn't do anything about the supply of goods and services, but we threw money at it. And so again, if you've got the same amount of goods and services, but more money chasing that same goods and services, the only way that you're going to then be able to allocate all of those goods and services that are produced is to raise the price of everything. And so the same type of inflation that we got under Biden Harris, vice President Harris is now saying, we need more of it. Because when you don't do anything about why is housing so expensive in the first place, and instead what you do is you say, Hey, everybody, here's $25,000. Okay, again, last time I looked, if I have 25,000 more, but so does everybody else, then isn't the price going to just go up by $25,000 and everybody's going to get the same thing that they were previously going to get?
Michael Faulkender (00:55:43):
So we massively increase the debt, we borrow more money from abroad. We just raise prices in the process. What instead we need to do is take the burdens off of home builders, take the burdens off of manufacturers, let's get the cost of building houses down. But she doesn't want to do that, right? They want to put in place green zoning requirements and green energy requirements and take away the less expensive gas, the less expensive natural gas stove, and require that it be an electric stove. And they very much believe that every problem in society just merely requires an elite government bureaucrat, make that decision uniformly for the entire country. And they don't seem to care that it just runs up the cost of everything because they'll just borrow more money and throw more government subsidies at it.
Jenny Beth Martin (00:56:34):
That's right. And if it worked, if the government could decide every single decision that a business would make and make it work and make those businesses work well, then when everything shut down during Covid, we wouldn't have had any problems at all because the government would've been able to just decide everything, how it all was supposed to work. But the fact is, when the government shut down and businesses and bureaucrats and people who've never had to make payroll, never had to pay taxes for payroll taxes, never had to worry about have I brought in enough money so I can pay all the employees much less all the other expenses. They're making decisions. So they don't even understand the ripple effect that their decisions have saying we have to have the electric vehicles. Well, if you mandate and you say that every single American has to have an electric vehicle that weighs more, that puts more strain on our roads and on our bridges, and those local municipalities we were just talking about a little while ago are going to have even more costs because they're going to have to go back in and repave their roads and rebuild their bridges.
Jenny Beth Martin (00:57:50):
There are consequences to all of it that sitting in some office building and Washington DC or your state capital, wherever it may be, making these kind of decisions, it doesn't work. The economy works best when the government takes its hands off, and businesses can come up with the best solutions and the most competitive solutions thrive.
Michael Faulkender (00:58:14):
That's right. If that system worked, the Soviet Union would today be the dominant economic and military power of this globe. Instead, it went bankrupt because that's the inevitable outcome. When you undermine innovation, when you discourage growth, when you instead empower elite bureaucrats who think they know how to make decisions better than individual Americans who are running their own lives and those individual entrepreneurs from whom we get the innovation.
Jenny Beth Martin (00:58:46):
Alright, last question. I want to follow up on one thing about what you just said. I hope that the American people are smart enough not just in this election, but we're going to be dealing with government control and Marxist policies versus free market policies and liberty and capitalism for many more elections to come. I think, and I hope that we're smart enough to learn from the mistakes that other countries like the Soviet Union made so we don't have to go and relive those painfully in our own time. Alright, the very last question I have for you, the Biden administration seems to put out glowing numbers about the economy or even sometimes they're not good numbers about the economy. And then a few weeks later or a few months later, we find out that those numbers were completely wrong. We have seen that the number of jobs created has been drastically reduced by over three quarters of a million jobs. Have you ever seen anything like this before from government reporting? And how can we even have, I think that those, it's my, just looking at it all from kind of a high level perspective. One of the things I keep hearing pollsters and the news say is, well, the economy is great, but the American people just don't seem to believe it. Well, maybe they don't believe it because what the reporting about the economy, it's actually wrong. And the sentiment that Americans have is actually what's truly going on with the economy right now.
Michael Faulkender (01:00:25):
That's right. I mean, this notion coming out of the Biden Harris administration, don't believe your eyes, believe our government statistics is really undermining any confidence that people previously had. Now, I don't want to suggest that there's been political malfeasance associated with the numbers at all. I have enormous faith in the people who work at the Bureau of Labor Statistics. They are consummate professionals that are going out and doing their best to estimate it. My belief on what happened with the jobs numbers is that, okay, so what they do every month is they call up a bunch of businesses and say how many people work for you? But of course, they don't call every business. And so they have to project it from the sample that they get ahold of people on the phone to the entire country. And to the extent that they thought there were more businesses than there actually are, than their projection is going to be too big.
Michael Faulkender (01:01:23):
Now, why might their projection of the number of actual businesses be too big? Well, I have two theories for you, and I don't yet know. We're still trying to figure this out, but I will just hypothesize, one hypothesis is that on the front end of a recession, businesses are going to be shutting down. And the Bureau of Labor Statistics doesn't know that those businesses have closed. And so they think there are more businesses than there actually are because the data hadn't come in yet. And so by the way, why is there then a downward revision? Well, because on the front end you use the survey approach, but on the back end you can then compare it to how many people actually had payroll taxes, social security taxes withheld from Paychex. So we eventually get better data, but the initial data has got noise in it because again, you're going from a sample and you're projecting onto a population.
Michael Faulkender (01:02:12):
So one theory is that businesses are shutting down and they just don't know that we're on the front end of a bunch of business closures. Okay, that's one explanation. Second one, I think that there are more businesses out there on paper than actually exist. Okay. So one of the unfortunate things that happened during the pandemic is that Congress created something called an employee retention tax credit. And you may have seen even advertisements on TV for servicers who are helping people get their ERTC, how many fictitious businesses were created to claim bogus ERTC credits. And so does the Bureau of Labor statistic take as fact that those are actually businesses when they aren't. And so then when they have too many businesses and they project the survey onto the population, they get too many jobs. And so then lo and behold, when you then later compare it to Social security data, it doesn't match. I actually think that the combination of those two things are what's going on. And again, I don't blame the Bureau of Labor Statistics for it. They are just doing their best to forecast off of these surveys what's going on in the broader population. And there's errors that have explanations to it.
Jenny Beth Martin (01:03:27):
Okay. And that makes sense. And perhaps when I said, when I implied that I haven't seen these kind of adjustments, really, really haven't, I don't recall seeing it. But that would be in my own, in my own adult maybe. And I don't know this for a fact, but maybe if we went back and looked at the 1970s or if the 1970s were trying to project and predict and have the statistics we're trying to get today, they may have run into the same kind of problems for the reason you just said like the recession businesses closed, but you don't know that they've closed yet. So it gives me a little bit more confidence in the people who work for the government. I still think that the public sentiment about the economy is probably a very good indicator of whether things really are better or not.
Michael Faulkender (01:04:19):
Yeah, I agree with you entirely. The public knows what's going on on their streets and among their friends and their family members, and you can have any government statistic you want, but that's not going to change the reality that people have. They see their paychecks, they see shortages on the grocery store shelves, they see how much higher gas prices are and going to them and saying, oh, inflation's not 9%, it's 3% now. So see, things are getting better. No, because the 9% inflation didn't go away. Remember the 3% inflation is on top of the 9%. So they're trying to gaslight the American people into saying, oh, we've solved everything. Give us another four years when no, those same problems still exist. And telling them that the reality that they're living is not the truth is not going to work.
Jenny Beth Martin (01:05:09):
That is exactly right. And it hasn't worked, and we've seen that, Michael, this discussion has been really, I've enjoyed it a lot. I love talking about the economy, I love asking questions about it, and I appreciate your time today. Are there any closing comments that you want to give? And then of course, how can people follow you and get more information about the work you're doing?
Michael Faulkender (01:05:33):
Sure. So as I mentioned at the outset, I think that there are starkly different visions for economic policy going forward and that we have a critical, we're at a critical juncture that these two different directions lead to two very different outcomes. And so I think it's critically important that the American people give enormous consideration to what type of future they want to have and who is going to implement the types of economic policies that are going to realize the type of prosperity that they deserve. In terms of following us, you can follow us at a one policy, and you can also find us@americafirstpolicy.com, and we've got 20 different research centers doing an enormous amount of work to identify how to put the American people first and once again realize the type of success that we had the last time we had an America First administration in the White House.
Jenny Beth Martin (01:06:25):
Thank you so much for joining me today, Michael.
Michael Faulkender (01:06:28):
Great to be with you.
Narrator (01:06:29):
The Jenny Beth Show is hosted by Jenny Beth Martin, produced by Kevin Han, and directed by Luke Livingston. The Jenny Beth Show is a production of Tea Party Patriots action. For more information, visit tea party patriots.org.
Jenny Beth Martin (01:06:49):
If you like this episode, let me know by hitting the light button or leaving a comment or a five star review. And if you want to be the first to know every time we drop a new episode, be sure to subscribe and turn on notifications for whichever platform you're listening on. If you do these simple things, it will help the podcast grow and I'd really appreciate it. Thank you so much.