The White House’s Brian Deese on Supply Chains and Biden’s Economic Agenda

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

Tracy, obviously, as we talked about all the time, one of the most extraordinary moments in the economy that I think we've ever seen, so many different debates. Obviously, inflation is elevated, the labor market is booming, growth is booming, the dispersion of views about how good things are, how bad things are, what to be done policy-wise. I don't think I've ever seen it as wide as it is right now.

Tracy Alloway (0:45)

No, it's funny. We talk about how you should never call a turning point in the broader economy, or at least we used to, but it does actually feel like we entered a new environment over the past year or so.

And of course, the big questions here are, to what degree are supply chain constraints coinciding with booming demand and creating the inflationary pressures that we've seen recently?

Joe Weisenthal (1:10)

Well, we have a great guest to talk about what's going on, and of course, the policy response, and I want to jump right into it. We are going to be speaking with Brian Deese. He is the Director of the National Economic Council, serving President Joe Biden as a top advisor on policy, on getting things done. So, Brian Deese, thank you so much for coming on Odd Lots.

Brian Deese (1:30)

Thank you for having me.

Joe Weisenthal (1:32)

So let me just start with the simple first question, which is, do you and or in the White House have a view on what's driving this elevated inflation?

Brian Deese (1:44)

Well, I think in order to answer that question, we have to step back and look at the trajectory of the economic recovery to date. And as you noted, we are seeing a lot of historical firsts.

First in many years or decades. Start of the macro side, we're seeing strongest growth in 40 years. On the labor market side, we're seeing, we saw in 2021 labor market outcomes that are the strongest on record. And in that context, we're seeing, it's in that context that I think we have to understand the elevated pressures that we have seen. So to get to your question, I think that if you look at where we are in the economy, by most measures, the US economy is not running beyond its potential or capacity.

If you look at sort of the projection from pre-pandemic levels, we're getting close to potential in a number of places and we have moved back to that trajectory faster than most folks participated. What you have seen that particularly, I think breaking down the price story is a historic compositional impact on the demand side. So, the shift, the compositional impact of significantly elevated demand for goods, a lot of that shifted from services and then a supply shock on the supply side, both to labor supply and also to broader supply chain as well. And so, when we think about the drivers and the inputs into where elevated prices are, those are the two places we principally focus on, which is the compositional side on demand. And so, that leads us to spend a lot of time thinking about and looking at, as everybody is these days, the questions of how that normalizes across time and whether it's normalizing and trying to assess that. And then on the supply side, what we can be doing sector by sector and also in the aggregate to try to address those supply side issues, some of which operate very immediate, short-term, near-term, and you guys spent a lot of time focused on issues like that, some of which are more medium and long-term, but the sooner we start to address them, like building semiconductor capacity in the US, the better positioned we will be. So that's how we understand the dynamic, but in a more capstone way, we find ourselves in a place where what's unique about the United States right now is unlike almost any other G7 country, any other industrialized country.

We are facing the challenges of elevated prices from a position of historic economic strength. So whether it's in GDP or it's in labor market outcomes, or it's in real income outcomes for the economy, we are stronger, we're in a stronger position than almost ever any industrialized country to address elevated price issues that every country is addressing.

Tracy Alloway (4:46)

So you mentioned going sector by sector there, and of course, one of the biggest components of inflation has to be higher energy costs, and we've seen oil prices shoot up recently. At the same time, despite those price increases, we haven't really seen much of a reaction from US shale in terms of boosting capacity.