Trump Economic Advisor, Stephen Miran, on Tariffs and Tax Cuts

SPEAKER_2 (0:02)

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Joe Weisenthal (0:18)

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

Tracy Alloway (0:22)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Such a cliche to say that there is a lot going on right now, but there's a lot going on. It was CPI Day today.

Tracy Alloway (0:30)

Yes, it was, and it came in softer than expected. Actually, it was a really unexpected figure. I think all the economists surveyed by Bloomberg had the number higher than what it came in as, and so kind of a surprise.

Joe Weisenthal (0:44)

Kind of a surprise, of course, when the tariffs were announced in early April, some people, a lot of people reasonably thought they were going to go up. So far, four straight months, according to the downside. Well, obviously, that means we have A, a lot of just sort of straight up macro uncertainty, and B, a lot of policy uncertainty still between both the ongoing trade discussions, and of course, the one big beautiful bill and what's going to happen on taxes and spending.

Tracy Alloway (1:08)

In short, there is a lot to talk about.

Joe Weisenthal (1:10)

We really do have the perfect guest, I think, to talk about all of this. We're going to be speaking with Stephen Miran. He is the Chair of the Council of Economic Advisers at the White House. So we can ask him all these questions about the state of the economy and policy. Stephen, thank you so much for coming on Odd Lots.

Stephen Miran (1:26)

Look, thanks for having me. I've been a big fan for a long time, and it's a real honor and a privilege to be here.

Joe Weisenthal (1:30)

Amazing. We're going to clip that and send that around. All right. If CPI had come in hot today, I would have started with a question on that, but I'm not going to start by giving you a softball on CPI. I'm curious about the other side. Right now, how do you perceive the momentum on labor in this economy or just the growth momentum on this economy? How robust is it?

Stephen Miran (1:52)

Look, I think that the economic data have been coming in pretty good. And you mentioned CPI, you mentioned inflation. I do think it's worth noting that in all four months since the president was inaugurated, inflation, CPI is surprised to the downside. And I think that was very much in contrast to lots of people's expectations. And we also experienced the same on the upside, right? We had three beats in a row on jobs day, for jobs numbers. I think that the underlying economy has been pretty healthy. There has been whipping around of the sentiment data. But I think that the correlation between the sentiment data and the real economic activity has really declined in recent years. The sentiment data are driven by stocks, right? In volatility and financial markets, they're driven by political sentiment and people's reactions to policy if they like it or if they don't like it. But there's been minimal connection between the two of them. If you look at the real economic data, it's been pretty good. Yeah, okay, so the first quarter GDP print was a hair negative, but if you looked at underlying private final domestic demand, which strips out the really volatile components like inventories and imports, that was high twos, almost 3%, right? So underlying growth in the first quarter was pretty good. The GDP trackers for the second quarter seem like they're 3% plus, almost 4%.

You know, I think it's really hard, I think you really got to squint to find sort of bad news in the economic data.

Joe Weisenthal (3:17)

Okay, Tracy, so the Fed doesn't need to cut, is what I'm hearing. No, just kidding. Anyway, Tracy, go on.

Tracy Alloway (3:22)

Just on the labor market, how are you thinking about the interaction between the administration's immigration policies and overall employment? Because on the one hand, it seems like deportations might be helping to keep the unemployment rate kind of low right now. But on the other hand, if you deport enough people, you start to get worker shortages, maybe you get higher wages, maybe you get business disruption and things like that.

Stephen Miran (3:48)

Let me make a couple of observations. One, there were lots of predictions, again, from the typical doomsayers and chicken littles out there, that when the president shut down the border to protect Americans, that job creation would fall out of bed. And again, that has not been the case. There's no evidence of that in the data. Two, if you do look for slack in the labor market, if you do look for pockets of weakness, you are going to find it in exactly the cohorts of labor market that are in direct competition with illegal immigrants who come invading over the border, right? You will find the unemployment rate for people in the 20 to 24-year-old age cohort is about twice the national average, it's like 8.2 or something. You will find the unemployment rate for people in the 16- to 19-year-old cohort is about three times or more than the national average, it's like 13.5 or something like that. These are the folks who are in direct competition with illegal migrants. These are folks who are high school students, college students, just finished one or the other, got their GED, dropped out, whatever it is. These are people who are at the start of their careers, who are the most in competition with illegal migrants, and that's exactly where the slack is in the labor market. And these are the people that we have to protect because there is so much evidence in the labor economics literature that the initial conditions when you graduate, the conditions of the labor market when you get your first job, affect your career for decades to come. And if you graduate school into a bad labor market, you can have worse wage profile decades into the future relative to someone who graduated into a stronger labor market. And there are reasons why, because skill accumulation matters. What your last job was matters for what your next one is. And it's so important that we get these young people on the job ladder, on the skills ladder to start, even if it's something like a summer job in high school at a construction site, where you're learning something important, like when the boss says you show up to work at 830, you show up to work at 830, like that's the rule and you do it, as opposed to starting your first job four, five, six years later, and you show up at 10 or 11 because that's when you feel like showing up. And so it's so important that we get people on the jobs ladder to start their career, to start learning skills of all sorts, they can climb that career ladder and make good lives for themselves. And I really do believe that if you get this process started, not only does it help them now, but it also helps them throughout their careers, and we'll start to address problems like declined labor force participation among prime-age males, for example. A lot of those people had gotten on the jobs ladder right out of school, I think that you'd have higher participation rates there. So this is all super important, but you also brought up another issue, which is prices, which is inflation. And I think, if you remember a year ago, there was a lot of conversation about how immigration had helped to, so, you know, quote, rebalance the labor market, and folks of all sorts were praising it for helping to calm inflation. I think that's really wrong because, well, A, I just discussed the slack in labor market being exactly where the competition with the migrants is. But two, if you take a large number of people, right, a large number of new entrants into the country, and you throw them into what is a only sluggishly adjusting capital stock, things like housing, things like hospital and medical care, things like infrastructure and schools, the price or the quality, the price of those things will go up or the quality will go down, which means the quality adjusted price goes up. Put another way, if you throw 10 million new residents into a fixed supply of housing or only sluggishly adjusting supply of housing, that's going to put upward pressure on rents. The connection, the empirical relationship between rents and measured inflation is much, much, much, much stronger than the empirical relationship between wages and measured inflation. The inflationary effect of throwing millions of new residents into a relatively fixed supply of housing dramatically outweighs any disinflationary effects to the labor market, which again have come at the expense of these young Americans who are trying to start their careers. I think that the overall interpretation of these policies in the economic commentariat has been really backwards and really wrong. I think that large scale immigration was pretty inflationary. If you throw a positive population shock into an economy, traditionally it will be inflationary. There are studies of this in German reunification. There's been a number of studies about what happened when East Germany and West Germany reunified, and then you had tons of immigrants going from East Germany to West Germany, and that was very inflationary for West Germany.