Richard Helppie's Common Bridge
The problems we have in the country are solvable, but not solvable the way we’re approaching them today, because of partisan politics. Richard Helppie, a successful entrepreneur and philanthropist seeks to find a place in the middle where common sense discussions can bridge the current great divide.
Richard Helppie's Common Bridge
Episode 264- Policy, Economy, and the Tech Transformation: A Deep Dive with Kerry Killinger
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Ready to challenge your perspectives on government efficiency and economic resilience? Join us for a compelling conversation with Kerry Killinger, co-author of "Nothing is Too Big to Fail," as we question the true impact of federal workforce reductions on national unemployment and explore the potential fallout from dismantling entire departments like the Department of Education. With Washington, D.C. possibly facing significant consequences, we navigate the complex dynamics of federal employment and the conceivable shift of educational functions to state and local jurisdictions.
Our discussion doesn't stop there. We tackle the bureaucratic inertia plaguing the United States Postal Service and ponder how public sector delivery could learn from the private sector's efficiency models. As we explore the potential of remote work and its implications on federal agency performance, we draw intriguing parallels with industry leaders like SpaceX and Amazon. The conversation delves into the military's use of technology, reimagining education with vouchers and charter schools, and the importance of measurable outcomes in government spending.
In a broader economic context, we offer insightful analysis of current GDP growth, inflation, and the looming threat of economic bubbles. Examine the ripple effects of COVID-era federal spending, low savings rates, and rising credit card debt while considering the consequences of wealth transfer from baby boomers. We also highlight the transformative power of AI and quantum computing in driving productivity, advocating for policy decisions that foster innovation and economic growth. With a focus on staying competitive in a rapidly evolving landscape, we underscore the timeless value of marketable skills and financial prudence.
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Welcome to this episode of Season 6 of the Common Bridge, where policy and current events are discussed in a fiercely nonpartisan manner. The host, richard Helpe, is a philanthropist, entrepreneur and political analyst who has reached over 5 million listeners, viewers and readers around the world. With our surging growth in audience and subscriptions, the Common Bridge continues to expand its reach. The show is available on the Substack website and the Substack app Simply search for the Common Bridge continues to expand its reach. The show is available on the Substack website and the Substack app Simply search for the Common Bridge. You can also find us on YouTube and wherever you get your podcasts. The Common Bridge draws guests and audiences from around the political spectrum and we invite you to become a free or paid subscriber on your favorite medium.
Speaker 2Hello, welcome to the Common Bridge. I'm your host, Rich Helpe, here on our favorite medium. Hello, welcome to the Common Bridge. I'm your host, Rich Helpe, here in our sixth season and, of course, we'd like to talk about policy, and one of the biggest policies that we're talking about every day because we're involved with it every day is the economy. And, as a return guest to the Common Bridge, Kerry Killinger Mr Killinger you can look up his bio has an extensive background in business and in finance and is the co-author, along with his wife, Linda, in the book Nothing is Too Big to Fail. Kerry, it's great to see you.
Speaker 3Hi, rich, great to see you and look forward to having a fun discussion with you.
Speaker 2Well, there's a lot to be discussed and we'll try to hold it to a reasonable point. So our listeners, readers and viewers have time for the rest of their lives Not that they're not enthusiastic about the Common Bridge. You're my favorite podcast by the way.
Speaker 3Well, I appreciate that Every episode. I think you do a great job of hitting so many great topics. A great job of hitting so many great topics, and we're all seeking one of these days we're going to find a lot of better policy decisions to come to.
Speaker 2Yeah, it's weird, there's a lane for people just to talk policy and facts and alike. But here we are. So, kerry, look, the new administration has talked about really going after the federal bureaucracies, and when I think about that I'm saying all right, let's say that the new administration comes in and they're going to do what Elon Musk thinks we should do we're going to take out thousands of people from the federal workforce. I mean, wouldn't that have a negative impact on unemployment?
Speaker 3Well, in the short run. Of course, anytime you go through a major change in employment it can have a negative short-term impact. But you have to kind of keep it in perspective. The total federal government employment is kind of in that 4 million kind of range out of a total for the whole country of over 160 million. So you've got to keep it in perspective a little bit that even if we get through that efficiency within the federal government, the impact it's going to have on the overall unemployment rate is not going to be all that great. Now it might be a lot more of a deal to those in the Washington DC area and a lot of dislocations and businesses and others that help support all that that. If there really is a substantial program to reduce and change that, yes it would increase the unemployment rate, but I don't think it's something that's going to be a real driving force of the economy. It's just one of the things that will happen in the short run.
Speaker 2I'm encouraged by that and I always like to cite the statistic that in 1900, 50 percent of the things that'll happen in the short run I'm encouraged by that and I always like to cite the statistic that in 1900, 50% of the United States workforce was involved in agriculture and today it's 2% are involved in agriculture. So theoretically we should have 48% unemployment right and if that kind of change can be made, if I don't know, a million people come out of that four million person workforce. You know, through retirement, attrition and the like, you know they'll be gainfully employed doing something else. But take it a step further. What if, like an entire department, like the Department of Education, whatever they do is eliminated, whatever they do is eliminated, what impact will that have on the economy? Because someone's waste is someone else's revenue and all that waste, all that payroll which we talked about, the offices, the transportation, et cetera, that's spend coming out of the economy.
Speaker 3Well, you're absolutely right. I think one thing to keep in perspective, though take the Department of Education, and that one's getting a little bit of press right now because it's been mentioned by President Trump there's only about 4,000 people there, and again, out of 4 million, it's not a big deal If they make meaningful impacts on the major employers. The largest is actually the Postal Service, and the second would be the overall military complex, the Army, Navy, and on into Homeland Security, and like. Those are the really big ticket ones.
Speaker 3Smaller departments like the Department of Education is not going to have an impact on the big overall economy. Particularly and particularly in that case, though, I suspect, if you focus on Department of Education and that's an area I know something about because I came from a family of educators at one point, and I chaired a group called Achieve, which sat on the national education summits and worked with the presidents and everything else, trying to see if we could have an impact on improving but if you're not going to do those things out of Washington DC, a lot of that activity will just get pushed back to the local and state education providers, and that's where most of it's done anyway. I think in Washington DC, the Department of Education was predominantly set up just to take care of some of the federal programs, which isn't the heart of education. It's just kind of a small part of what they're doing. So again, I think we'll find a way to land on our feet, but it could have some impact on the Washington DC area.
Speaker 2As you know, I work charitably inside school systems and there's never a mention about the Federal Department of Education, unless it's a new mandate that has to come down and the things like the individual education plans, ieps for special needs students. You know health and human services could administer that. And of course, we're still stuck with this crazy student loan program, which you know. You've heard my answer on that is the people that got the money are the colleges and universities and the lenders hit them with an excise tax and clear that debt and maybe refund money to people that paid for their own education. But when I think about the hue and cry around cutting our spending back, at the same time people are alarmed by the federal deficit and the national debt. Well, are we addicted to deficit spending and is there any sign that Americans are ready to pay the price to end or reduce this deficit spending?
Speaker 3Well, that's a great question, and the reality is that we have been hooked on deficit spending since the Clinton administration. I think Clinton was the last one to get a balanced budget and since then we've been in these huge deficits and growing. It's just been cascading each year, got accelerated with COVID and all the spending we did there, and we're still stuck up about $1.7 trillion a year of budget deficits, and it's an equal contributor from the left and the right. The left is pushing for a lot of social, for a lot of social programs, transfer payments from their agenda, and on the right side, there are tax cuts and trying to maintain be it military or other kind of spending priorities, and Congress and the executive branch have basically, you know, have just decided we're not going to attend to budget discipline, and so there's been no adult supervision in the room. As a result, when you go to those kinds of budget deficits, then you start to create these enormous ongoing federal budget, federal debt that we have to finance, of federal debt that we have to finance, and so we have gone from relatively little federal debt in this country to about $36 trillion. The interest expense on that debt now is $1.2 trillion a year. It is becoming the largest budget item in the federal budget now. So we're going to have to count on over a trillion dollars a year just to pay for the interest cost on the debt that we've already built. And if we don't start to rein that in moving forward, we're going to be in a real world of hurt.
Speaker 3Now what's interesting is, again, congress and the executive branch, in my opinion, have failed miserably and are letting that thing run up. The only discipliner in the room are now the capital markets themselves. So interest rates about three or four years ago, that 30-year treasury bond had a 1% return on it and that was relatively inexpensive debt for the country to borrow. But now that we've built it up, investors have come back and said no, you guys are getting riskier, you're undisciplined. We're going to increase the interest rate to about 5% where it is today. And, as a funny little anecdote, if that 1% interest rate bond that you had from about three or four years ago, do you know that it is now selling about 45 cents on the dollar?
Speaker 2Oh, no kidding.
Speaker 3So instead of par value on that, you can buy it for about 45 cents. And said another way investors who invested in our treasury and were on the other side of that transaction three or four years ago have lost more than half their money. So I'm telling you, the capital markets are now disciplining us and I think they're probably the only ones who can do it, because I'm not seeing it out of Congress, I'm not seeing it out of the executive branch, and it's hard to imagine that the new administration is going to hit the ground running by raising taxes to close that gap. If anything, the Trump agenda will focus, I would think, on maintaining or maybe even increasing tax cuts, and then it all comes down to the burden on the other side.
Speaker 3Can we really get some cost saves out of the government? Are we really going to get serious on that front? And you know we started this conversation talking a bit about the Department of Education. You know, in reality it's kind of a rounding error. The really big ones are going to be how do we get productivity and improvements and enhancement and efficiency out of the real big ticket items? So you have a big background in health care. So is is one of the largest federal expenses is on the VA for health care, and is that the most efficient way, or what are they going to do? How are they going to going to handle that? Then we have, of course, social Security and Medicare, and the military and everything else, and will we be able to step up and find ways to get huge improvements in productivity there? And if not, again we're going to be burdened with some real challenges on the federal deficits.
Speaker 2Indeed, and all of this is solvable if we went at the restructuring the way a you know I'm loathe to make this comparison, but to what a private enterprise might do. So we've talked about two things fairly big healthcare and the United States Postal Service. I've had, as you know, many people on the show here talking about healthcare. They come from all points on the political spectrum, all points within the healthcare delivery and financing system. Everybody concludes to a person that we are doing it in the worst way possible from a financial point of view. Now we have purchased a lot of great capacity and we do some amazing things in the system of care delivery itself, but our payment system isn't even a system. It's a mess. A hundred percent, a hundred percent agree. What we need to do is move toward a universal foundational level of health insurance and then allow a free market to go above and beyond that. It's the only way we can become efficient. You mentioned the VA. We do need to take care of all of our veterans for life. That is part of the covenant we made with them, and there are changes that have been made of allowing those veterans to go to a private health provider instead of a VA facility and we could do that across the system. We really don't need the VA hospitals per se, but we could issue lifetime insurance.
Speaker 2The United States Post Office we've actually had Professor Rick Geddes on the show several times and he is an expert on the Postal Service. He's written a book about it. When I look at the United States Postal Service, there's so much now that goes through other means Federal Express, ups, letters, docusign, all those type of technologies. What would make a lot more sense would be to look at postal services like garbage pickup. Your garbage pickup days are Tuesdays and Fridays, all right. Your mail delivery days are Mondays and Thursdays. Mine are Tuesdays and Saturdays. You could get the same delivery for a lot less money. But we have a lot of barriers to that kind of reform and a political system that only puts a president in there for four years, and we've seen already that there are bureaucrats determined to mess up the works for the incoming administration. I don't know how we get out of this until people actually revolt about it.
Speaker 3Well, you're making some really good points and I think something interesting I often think about the I'll call it the executive bureaucracy from all the agencies and everything, that is really the fourth branch of government now and maybe the most powerful. The average employee has three times the longevity as private industry, and so they've been in there for a long, long time and they've learned that all they have to do is kind of wait out the current executive branch, because they're going to be gone in four years or eight years, whatever it might be, and they've been in for decades and so they have a natural tendency to keep wanting to do business in the same way. And if we really want to break through it and again laud the president's or incoming president's desire to at least take it on, the history has been that making significant progress has been limited. But maybe they'll, with Elon Musk and whatever they do this time, they'll have a shot to really really make a go. But a couple of points on that is you'd think of a lot of the key services that are done both in the private sector and the public sector. You know, we all know, that you've got to figure out how do you get the maximum return on the dollars you put into it for really good things. And, for example, in the space area, do you want to bet on SpaceX or the combination of Boeing and NASA the way we did before? I mean, they've revolutionized it and are really probably going to knock it out. Would you want to invest? Do you think you get a better return on UPS or FedEx or Amazon and what they're delivering and the effectiveness, or the US Postal Service? Okay, I think it's going to be interesting.
Speaker 3In the military, we have the greatest military in the world by far, but a lot of it is based on how do we have the best technology for the most expensive systems in the world? So our ships, our planes, our missiles, our anti-ballistic systems are just fabulous, but how's that productivity really going to be long run if the future is around very low cost drones? And what happens if we start replacing people with unmanned things in an increasing deal? You know how do we put that into our equation and I hope these. I hope you know somebody's kind of thinking and working through that. Or we talked about education. We have a way that we have educated, but isn't our goal to put certain dollars in and to get the best educated population we possibly can to the greatest number of people and the like, and I think it's hard pressed to say that we are educating more people better at a lower cost today than we did 20, 30 years ago, 20, 30 years ago. So that has to raise the issue around. Do you want to consider vouchers on homeschooling and charter schools and everything in addition to the approach that we've done in the past? So there's a lot of exciting things that we potentially could do.
Speaker 3One other point I'd like to make on this kind of I think, important is in all industry we know that you cannot manage what you don't measure and if you don't have key performance indicators and you're not on top of saying what are the dollars I'm putting in and what is the outcome I really want to have for everything you're doing, if you don't stay on top of that, you're going to be in trouble. And one of the issues around federal employees is that we do not have effective measures of knowing where are the employees. Are they coming into the office, are they staying at home? Are we there?
Speaker 3What's the not only the productivity, but are those dollars being, you know, delivering the output that we really want and one of the companies I happen to be very close to their name happened to be Sapiens Analytics and they kind of help large corporations manage all these remote workforces and able to manage what's going on with all of their outsourcing and technology and everything else.
Speaker 3You know where people are doing that and what's been interesting on that is now that we've gone to these remote work things. When COVID first hit, the data is showing clearly that productivity improved slightly when we allowed working from home and remote things, but the last three years that productivity has been plummeting because in most cases we don't know how to measure. Are people really working, where are they working, how are they working and all the kind of things that all the large corporations now are figuring out they have to have and I just wonder why in the world wouldn't the federal government have something similar to that to allow them to really have the numbers in front of them? What is my effectiveness on all the employees and do we really want to be in offices or do we want to be working from home? But that lack of measurement, I think, is putting us out in limbo where we can't say definitively we're getting a reasonable return on our investments.
Speaker 2Indeed, it's difficult to measure output of government, and I think there's two big things that I wanted to maybe comment on. First of all is like cutting large workforces. I've been in the economy a long time. I'm distrustful of bureaucracies, public and private. By way of example, turn the postal service over to Amazon. It's just going to be another bureaucracy. It might be privately owned, but it's going to end up in the same place, because all bureaucracies eventually turn in and start serving the bureaucracy versus serving the customer. To your point about are we getting value for money and there isn't a way to measure are we serving the people we're supposed to serve? In the private enterprises, you've got a customer and if your customer doesn't like what they're getting, they quit buying your stuff and then you have to make adjustments. We don't get that through the public sector because they have, in effect, monopolies and they need to be guided as such. But my sense is that you can go make just big cuts and I've seen it happen in the automotive companies, in banking, and the workforce leaks back in over time. You can cut back. Elon Musk went through Twitter, now X, and made huge cuts and everything still seems to be running and running well.
Speaker 2And when we get to remote workforces and remember I'm a person that built what I think might have been one of the first remote companies, I know it was one of the first companies to have a distributed workforce like that. I don't know anybody that was doing it beforehand. But one of the things that I know from that is that there is a limitation on what can be learned remote. So, by way of example, when people of our age think back about their early careers, it wasn't that we were in a specific meeting and there weren't screens necessarily that we were looking at. It was informal conversations in hallways at lunches hey go get this document for me et cetera, that people learn their jobs. So the decrease in productivity doesn't surprise me, because the people entering the workforce aren't getting that informal mentoring. And you can't set an appointment to make me smart, you just kind of have to be there. And I think that reality is leaking in right now.
Speaker 3I think you're right on that, rich and the.
Speaker 3You know the other thing you've got to have certain amount of in-person meetings and things like that to to share the culture, the values, the mentoring, all those kind of softer things that are so important to the success of any organization. So 100% remote, without ever having to come in close physical contact with fellow workers, I think is probably a model that doesn't work for most, but there's probably we're all going to end up with some kind of a hybrid or somewhere in between, because there's advantages on remote, there's advantages on being central and the like. The point I was kind of making before I would not want to be running an organization without the tools and measurements in front of me to know what I'm really dealing with in the government and, to some, also still in some businesses, where they don't have good visibility into what's really going on in this new model. And that's why I think we're seeing such a growth in these kind of systems that allow people to know really well where everybody is, what they're doing and how effective things are.
Speaker 2And again begging the question are we measuring the right thing? How does that extend into the economy? And, of course, look, when people aren't commuting into work, they're not utilizing roadways or public transit, they don't need to park their car, they're not going to a restaurant or take out for lunch and those types of things, and look, most people will put in an honest day's work. And then there's really creative people that have an at-home job and they have a side business that they're doing at the same time. So it is difficult to manage. And of course you know we found people that over time that would be on two payrolls at a time, working for two different companies.
Speaker 3Rich on that note. One of the funny little anecdotes on this company I was mentioning that can help with the measurement is this is going into sophisticated companies who should be on top of this stuff. But what they found in many cases is that a lot of large companies will outsource to call centers or outsource IT work to India or wherever it might be, to India or wherever it might be. But they found in many, many cases that they were getting double and triple billed and that the people they had hired to do these things were working on three things at the same time and billing all three of them. So when they figured this out, the savings and the productivity enhancements to these large companies was in the hundreds of millions of dollars. So you can imagine if you were somebody running one of these companies and you figured out that's available. You can see why the demand is growing pretty quickly for that kind of a service.
Speaker 2A variation on that is there's somebody working at home from a call center hires three of their friends to also take calls. If they're getting paid at a, you know, a per piece basis, they can well, you worked 18 hours yesterday. Yes, I did. It's Tom Sawyer all over again, right, and we don't read the classics. So now we're back to education.
Speaker 2But look, with education, I'd love to see some kind of measurement. I'd like to see the president of the United States say we're going to have basics physics education for every high school grad in the country. Some people will be better at it and go deeper, but everybody should understand something about physics, that they need to understand fundamental math and that's how we get things to work. And when I see some of the things, like the devastation in California, it's pretty much these folks never managed anything, didn't know how to construct anything, but they got really good at talking, but they couldn't actually do anything.
Speaker 2Kerry, as we talk about the economy and for most people when they think about the economy, it's pretty basic Am I going to have a job that I can do? Is that job going to consume a reasonable amount of my time? Am I going to have the spending power for a reasonable standard of living. And there's been a lot written lately that, hey, our economy has never been in better shape. And you've got a counterargument that says, yeah, wages are up, but the price of living has gone up From your chair today. How does our economy look Well.
Economic Outlook and Risk Assessment
Speaker 3Those are great questions and, first of all, I think the economy is in reasonable shape today. We're projecting to have about 2% GDP growth in 2025. Unemployment rate is only 4.1%, so that's pretty good. Inflation has come down. It'll be about 2.5% plus or minus run rate right now. That's better than 7% to 8% of two or three years ago, and so at one level it looks reasonably good.
Speaker 3But to have the full perspective, the reason it has held up as well as it has is that the federal government pumps so much money into the COVID and other relief for those budget deficits. The stimulative impacts of that loaded people up with a lot of excess money, and so the savings rate in the country went to an all-time record following COVID. But now we've spent it all, we're back down to extraordinarily low savings rate. Credit card debt is now at a record level and delinquencies are rising very rapidly, so you can come to a conclusion that the consumer is basically tapped out now and that's what drives our economy for the most part. So it's going to be hard getting, I think, a lot of growth out of here. I think employment is still going to remain in pretty good shape. I do think that it looks right now that wages are going to continue to grow at about three and a half percent and if inflation can stay at around two and a half percent, that'll be okay. I mean, it's not going to be great, but at least people are not going to have to suffer from the hyperinflation that the government policies produced coming out of COVID.
Speaker 3The things I worry more about for the consumer is not the underlying economy, it's that so much of the consumer's well-being is tied up into the price of their homes and into their 401ks and retirement plans, and those have all been inflated 401ks and retirement plans and those have all been inflated with the rise in the stock market and the hyperinflation that went on in housing for a few years.
Speaker 3And now some of those assets, and particularly stocks and the stock market and housing, are at valuation levels we've never seen before. And that doesn't mean it's going to fall overnight, but it does set you up for the biggest risk I've seen in maybe decades in terms of what the valuation levels are and if something kind of pierces that bubble or really deflates it in some way in an uncontrolled way. It's reminiscent of what we all had to go through in the financial crisis back in 2007, 2008. And that's the last thing we want to have happen, because that is so devastating on an economy. So I don't think it's a high chance, but if the policyholders don't get it right, they could easily put us into that kind of a downturn.
Speaker 2Well, I can see that and as I look around, just an observation that credit card delinquencies are on the rise. Yet I go to the airport and the lines are long and it's just packed. We go out to restaurants. You look around, the lines are long, everything is packed. Went to HomeGoods over the weekend. You couldn't get through the aisles because there's so many people. And then I looked around and I said well, who's doing the shopping? Well, they look like mostly baby boomers and I'm wondering if anyone's done any kind of analysis on what happens with that wealth transfer when us baby boomers die off. That's going to go into both tax receipts and into the economy, correct?
Speaker 3It's yeah, it will, and that that is going to be a real positive for the positive for the next. I mean, there's such a large wealth transfer, particularly if the taxes remain such that it's not heavily taxed on death, then there will be a big wealth transfer to the next generation or two and that will help sustain some things going forward there. But that is a major migration that's going to go on. The worry I have is if, for any reason, the bubbles get broken in the stock market and the housing market, then that enormous wealth that the baby boomers think they have could get compressed somewhat. And that's why I want to be sure the policy makers are on top of things and don't allow us to ever repeat the mistakes they made in the last financial crisis.
Speaker 2Well, for every dollar that's in that stock market valuation, at the end of it there's a consumer and if the consumer can't buy the good or service, it's going to depress earnings for every one of those companies. You depress earnings. You're going to bring down the price of the stock. You bring down the price of the stock, you're going to bring down people's paper wealth, and when you bring down the paper wealth, people tend to conserve and not spend as much. When you don't spend as much, then it doesn't show up as someone's revenue and you start getting into this downward spiral.
Assessing Economic Bubbles and Deficit Addiction
Speaker 2And again we used to call that the business cycle. And then people got tired of let's not have a recession anymore, let's spend money again. And they did and we pulled out. But you wrote a lot in your book Nothing Too Big to Fail about six bubbles. We updated it when we talked several months ago about whistling past the economic graveyard. As you revisit that well-researched book, is there anything that struck you that you maybe said, oh, I'm glad that didn't happen, or uh-oh, we're on the course? When you contemplate that, what kind of things do you think about?
Speaker 3Yeah, well, let me talk for just a minute about a couple of those bubbles that had us worried and where they are now, the bubbles that have kind of broken. Let me talk for just a minute about a couple of those bubbles that had us worried and where they are now the one, the bubbles that have kind of broken. Let me talk on those. First, we were concerned about commercial real estate because, because with super low interest rates and and real estate, commercial real estate had increased so much in value, looked overvalued and, sure enough, that bubble burst a couple of years ago and is down about 18% on average across all commercial real estate.
Speaker 3Now, granted, the biggest part are going to be in office buildings and communities that were impacted negatively by COVID and now by crime or whatever it might be the BNC office buildings, some retail malls, lots of things have been through a real difficult period and that was bailed out for a while with industrial warehouse because Amazon was building up a storm. But even industrial warehouse space now is getting overbuilt. So commercial real estate is going through a correction. It's not a disaster, but that bubble has clearly come down. The other bubbles of remember there were things like NFTs, non fungible tokens yes that was a hot thing.
Speaker 3Those blew apart SPACs Remember, we're doing a special purpose acquisition things those blew apart. The one that didn't blow apart is is Bitcoin is Bitcoin, and we'll just have to see how that plays out, but certainly a lot of people feel that it's really difficult to get your arms around what is Bitcoin?
Speaker 2really worth? Absolutely yes, it's been in the bubble.
Speaker 3The other one's, art. Art's gone through a major downturn now the last two years. The art markets have softened considerably. I think auction values were down 48% over the past two years or something. So art is kind of off that pedestal a little bit.
Speaker 3The other ones, the two big ones that have been in bubble status in my opinion and haven't corrected yet, are stocks and housing. And those are the ones and the last thing I want to do is hope that happens. I really hope we can manage ourselves through. But again, stock prices, the earnings are doing fine, but today, with the valuations, we're paying more than twice for each dollar of earnings than we have historically. So the price to adjusted earnings for that cyclically adjust earnings is like twice it averages 17 times, today it's 37.
Speaker 3If you look at stock prices overall to the gross domestic product of the country, it's averaged about 100%. Today it's over 200%. Century it's averaged about 100%, today it's over 200%. So the companies are doing fine, but the valuations have gotten extraordinarily high by any historic standard and that just means it'd be very easy to have a significant price correction. And what I worry about those two the most, because those impact everyday people and impact how people decide to purchase or not purchase into the future, and that could easily lead us into a major correction of some type if, for whatever reason, those bubbles get burst.
Speaker 2And with the stock market and the housing market, all of that deficit spending that came out through the various spending programs had to go someplace. And to your earlier point, you put it into a debt instrument. You'd be 55% behind at this point or you'd get 1% to the upside. Not a great investment and so I think that's some of the inflation tailwinds right now is all that massive money supply. It's got to go someplace, so it goes into stocks and into housing, bitcoin and art. I mean, those are people, I think, desperately looking for stores of value. It'd be difficult to say a dollar is a good store of value, given the deficits also defeat the value of that. So I guess we might kind of come back to where we started. Was the deficit spending? Are we addicted? And what happens if we cut the supply? We just don't spend as much money as the United States federal government.
Speaker 3So again, no doubt that we are addicted to debt as a country as deficits as a country, and unwinding that addiction could be very difficult and in the short run it has to be negative on short-term economic growth and things like that. But if we don't get our arms around that long run, I think we're getting to our limits. And a lot of people are starting to use and you know the word tipping points and we might be at a tipping point, not only politically and socially and how this country wants to operate, but just saying the directions we've gone the last 20 or 30 years need to be reined in somehow. That maybe as a country politically went pretty far to the left on some things, maybe we went pretty heavy on the side of deficits and spending all of our kids' money into the future kind of things and the like, and maybe we need to have some semblance of bringing that pendulum back to the middle and I think if that can be done in a very smart way, I think it'd be wonderful for the country.
Speaker 2I think that's well articulated. And then the definition of where's the middle. So by way of example, owning a car. When I look at the prices of a car and I looked at more and more payments now are over a thousand,000. And I contrast that with where wages are. It's like if a young person trying to go buy a new car today that's quite a hurdle and that was always kind of a mark on your road to older adulthood when you could afford that first new car.
Future of Productivity and Technology
Speaker 2I read an interesting article the other day that said hey, slow down. We had this idealized version of the United States many decades ago single wage earner, middle class standard of living. But they pointed out a family might have one or no cars, that you might have one bathroom in the house for the entire family and that you had a set of school clothes, a Sunday's clothes, and then you had your play clothes and that was it. And the middle now is completely different. The ratio of people to bathroom facilities, for example, in your home. Square footage in your home is different. The number of vehicles that are owned by a household is considerably higher. One telephone in the house with basic service for a few dollars a month versus everybody's running around a phone in their pocket with a data plan Locating that middle of what constitutes a middle-class standard of living these days in the United States, because it's different around the world. That, to me, is a thing for politicians and our policymakers to decide. What is a reasonable expectation these days?
Speaker 3Now, you know, rich, and I think one of the silver linings in all this is going to be the impact that productivity and technology can have for us. The United States is a leader in the world of being able to come up with new technology to make things better and allow us to be more productive, and I think we're just hitting the start of it, and I think when we fully implement all the what AI can do over the long run, we put that with quantum computers in the long run and we just kind of let that marketplace play out. You mentioned like cars. I'm not sure 20 years from now the model will be anywhere near the same it is here. I'm assuming for a minute that self-driving cars will be the standard and safe and safest way to transport and all that. Do we really all want to have a bunch of unused cars in our garages and then pay for them to be parked downtown or the office building to be vacant all day and whatever? Or is that going to be some kind of a you know whatever the next iteration of an Uber kind of thing? Or is that car going to be used by somebody else when I'm not using it and maybe even I own it or whatever the model is. But I think technology is going to give us a tool we hadn't even dreamt of 10 years ago. And if we take that all the way through, with what it could do, into the sciences, into our health care, into government bureaucracies, you know I don't know about you, but if I want to prepare for something now, what I can do with a chat GPT and coming up with extraordinary writing or extraordinary research or whatever else in half the time of what it was even a year ago, it's just a different experience.
Speaker 3If you're in the middle of a business right now, you know I wouldn't be concerned about losing my job to artificial intelligence. I'd be worried about losing my job to an employee that knows how to do AI and I don't. And I just think you've got to embrace all these new tools that are coming up Now. Some will pan out, some will not, but you talk about the cell phone. I could not have imagined 30 years ago what I can do with this thing Now watching your Detroit game when the lions are playing, or whatever it might be, all the way from from, from that to the communication, to the computer, to the internet, blah, blah, blah, blah. Anyway, it has made me a entirely different productive person than what I might've been a few decades ago. And now, integrating that with artificial intelligence and just the growth in that, I think that could be a really optimistic outcome of where we are 10, 20 years from now.
Speaker 3And the only other thing I'd remind, just from an economic standpoint, the only way an economy can grow is a combination of population growth and productivity. And in this country we have zero population growth, naturally because we're not making any babies and we won't for the foreseeable future. For net growth It'll be negative, in fact, as the baby boomers come through. And then you have to augment that with immigration and hopefully we choose the policies we want to have and who we let in and do that. But that population growth at most will be 1% a year. Then the only way to grow above that is going to have to be from productivity, and that's all technology related. So if you want any economic growth, it all has to come through productivity. And I think in the next 10 years productivity is going to grow very nicely if we can find the right way to use all the tools that are being presented now.
Speaker 2Well, look, I think you're making a compelling case for that and my concern I used the chat GPT. When it first came out. I wasn't that impressed that I haven't gone back there and you know part of it. I thought that's kind of on my turf because you know I can come up with a clever turn of phrase and such and I can't go as fast as they can go. But you can also see, with the aging population and the need for more support, sure, I'd like to have a humanoid robot to clean my house and a self-driving car. That would be really great at this point in life and I'm confident that my kids or my grandkids will get there someday. This has been a great conversation. Is there anything that we didn't talk about, that we should, and perhaps any closing comments, if you have them?
Speaker 3No, rich, I think. No, I think we've covered most the. You know this is an exciting time Again. We have a new administration coming in, a lot of optimism that maybe things can get shaken up a little bit, and I think there's a better chance than I've seen in the last 20 years of significant changes. It's hard to tell, I mean I, uh, I think there's a better chance than I've seen in the last 20 years, uh, of significant changes. It's hard to tell, I mean I'd still you have to.
Speaker 3If you're a betting person, you always bet on the bureaucracy, I guess, in government, and so they may thwart most of the major improvements that they're going to try to do, but at least they're going to take on a number of a number of things. And I and I do think we're starting with an economy that's in decent shape, with the caveat that we're just worried about the valuation on the stock and the housing markets and that could get in the way of other things. But I think it's going to be a really fun time and we just got to stay on top of it and enjoy it, and I just encourage everybody to keep embracing technology in the best way they can.
Speaker 2Kerry, is there any change to the things that we've always said to people? Get marketable skills so that you can contribute and get paid for it and live on less than you make. Is there any change to that, given the economy and all the changes in the world?
Speaker 3Well, I think it's always good to live on what you make and don't overdo it. And I think we got sloppy as a society following COVID because we gave everybody extra money and again savings rates went to a record level and people were flushed with so much money they just went out and spent it up. That's gone. Now the savings rate is gone, credit cards are tapped. Everyone has to live back within their means. So I think we're going to get back to basic blocking and tackling and saying, okay, limit the amount of debt you get into, stay there.
Speaker 3Then it's going to be about what skill sets will get me to the jobs that I really want, and I think people are getting educated that it's not a very smart decision to go out and get a college degree in something that's not a highly sought after skill and go heavily in debt.
Speaker 3You know that's the that we got way too out on that spectrum. So you got to critically assess if you're going to take a student debt out, be sure it's going into a degree that makes reasonable economic returns to whatever. Whatever you need. And increasingly people are saying a college degree historically guaranteed 50% higher earnings over your lifetime than a non-college degree and that differential is starting to compress because, number one, some of the college degrees didn't provide the kind of economic upside that people would kind of hope for and they were starting to spend way too much on college to do it because the universities got very expensive and kept raising their thing to take care of their bureaucracies and student debt filled the gap and I think it's going to be harder on student debt. I think they're going to be a little more limiting as to how and what you do and maybe even have to pay them back sometimes and all those kind of things. So there's a lot of shaking out that's going to go on now.
Speaker 2There's only two places you can borrow money from and owe more than you borrowed at the beginning, and that is from a loan shark, from your local mafia, or getting a student loan. That's a topic for another day, but it's an outrage. We've been talking today with Kerry Killinger about the economy, about the social impacts, about where the world, about the social impacts about where the world's going, technology, productivity. Thank you all for subscribing to and or dialing in to the Common Bridge and, with our guest, kerry Killinger, this is your host, rich Helpe signing off on the Common Bridge.
Speaker 1Thanks for joining us on the Common Bridge. Subscribe to the Common Bridge on substackcom or use their Substack app, where you can find more interviews, columns, videos and nonpartisan discussions of the day. Just search for the Common Bridge. You can also find the Common Bridge on Mission Control Radio on your RadioGarden app.