Going Bananas over Affordability

Episode Summary

Executive Summary: The episode focuses on the end of the 42-43 day federal shutdown, its limited macroeconomic damage, and the messy restart of delayed economic data releases. The hosts then pivot to President Trump’s affordability agenda—tariff rebates, lower food tariffs, housing proposals, and drug-price negotiations—arguing most are demand-side fixes that won’t solve the underlying supply constraints in housing, labor, or energy.

Main Topics: End of the federal shutdown and macroeconomic impact (Priority: 5/5): The hosts assess the shutdown’s economic damage as real but temporary, with lost output concentrated in Q4 and much of it expected to be recovered once federal workers are paid and activity resumes. Economic data disruptions and release schedule (Priority: 5/5): They outline which labor, inflation, and other indicators were delayed or likely missing due to the shutdown, emphasizing that September jobs data will be released next week while October data may be incomplete or absent. Labor market outlook after the shutdown (Priority: 4/5): Using ADP, Revelio, UI claims, and WARN notices, the group suggests job growth is near zero, with October potentially weaker because of federal deferred resignations, and unemployment likely drifting higher. Trump administration’s affordability pivot (Priority: 5/5): The discussion covers tariff rebates, food tariff reductions, and a public shift toward affordability after election concerns, with skepticism that these measures materially lower prices without broader structural changes. Housing affordability policy options (Priority: 5/5): The hosts critique 50-year mortgages, assumable mortgages, and portable mortgages as mostly demand-side solutions that may raise prices or reduce equity, while supporting supply-side reforms such as zoning and capital-gains changes. Energy, pharmaceuticals, and immigration as supply-side levers (Priority: 4/5): They discuss energy permitting/nuclear power, drug price negotiations, and immigration reform as more effective ways to ease cost pressures over time, though none are quick fixes. Listener question on unemployment insurance and deferred resignations (Priority: 3/5): A listener explains that federal workers who accepted deferred resignation generally cannot claim UI because it is treated as voluntary resignation; downstream private-sector contractors are more likely to show up in claims.

Key Arguments: The shutdown will reduce real GDP in Q4, but most of the lost activity should come back in Q1 as workers receive back pay and postponed spending resumes. Canceled flights, missed vacations, and delayed business trips are permanent losses, but they are judged to be marginal in macro terms. September jobs data should be roughly flat because private payroll indicators (ADP and Revelio) point to near-zero job growth. October labor data may be distorted by federal deferred resignations, producing a weaker payroll print even if underlying hiring was already soft. The unemployment rate is likely to inch higher because job creation is at best flat and labor supply is constrained. CPI/PPI and other October inflation data are likely unavailable because the shutdown prevented in-person survey collection and store price sampling. A $2,000 tariff rebate is politically appealing but economically circular because tariffs raise prices first and then redistribute the revenue. A 50-year mortgage may reduce monthly payments slightly, but it slows equity accumulation, may raise rates, and does not address the housing supply shortage. Assumable and portable mortgages could create market chaos and pricing distortions in mortgage-backed securities while still not solving affordability. The most effective affordability policies are supply-side: easing housing permitting/zoning, reducing import taxes, improving energy supply, negotiating drug prices, indexing capital gains, and rationalizing immigration policy. UI claims did not spike sharply from federal deferred resignations because the exits were voluntary, many workers retired or found new jobs, and many high-income workers are less likely to file due to low replacement rates.

Data Points: Government shutdown length: 42-43 days - Used to describe the longest federal shutdown in history and its economic effects. Real GDP hit from shutdown: Modest decline in Q4, largely recovered by Q1 - Moody’s-style estimate that lost output is temporary and mostly recaptured after reopening. Q4 GDP effect estimate referenced: About 5-7 tenths of a percent off Q4 GDP - Mark’s recollection of Justin Begley’s estimate for the shutdown’s impact. September jobs data release: Next Thursday - BLS announced that the delayed September employment report will be released the following week. October jobs data: Likely missing or incomplete - White House indicated no October data for some series; payroll may be possible, but household/CPI data are unlikely. Federal deferred resignations: About 100,000 people - Listener and hosts reference the scale of the federal workforce exits under DOGE. Revelio government jobs loss in October: About 22,000 - Private labor-market data suggested another month of government job losses similar to September. Revelio government jobs loss in September: About 21,000 - Referenced as comparable to October in private labor-market estimates. Bananas CPI change: +7.8% from February to September - Matt’s stat illustrating food inflation and tariff exposure. Tariff rebate proposal: $2,000 - Trump floated a rebate/check funded by tariff revenue. Italian pasta tariff proposal: 15% tariff plus dumping allegation - A proposed January 1 tariff on imported Italian pasta. Gas prices: $3.08 per gallon - Chris’s stat, noting gasoline has hovered near $3 over the long run. Gas prices a year earlier: $3.03 per gallon - Used to show recent stability in gasoline prices. Peak gas prices after Russia invaded Ukraine: About $5 per gallon - Referenced as a high point during the energy shock. 50-year mortgage: Proposed longer-term mortgage - Discussed as a housing affordability idea that lowers payments but reduces equity building. 40-year mortgages: Used in 2004-2005 - Chris recalled Fannie Mae experimenting with 40-year fixed-rate mortgages. Interest on 50-year mortgage: Could be substantially higher than 30-year - Because the product would be less liquid and less standard. Date of FOMC meeting: December 9-10 - Mentioned as the next key policy meeting that may or may not have November labor data in hand. CPI September release: Published despite shutdown - BLS staff returned to work to support Social Security and other indexed program adjustments.

Pivotal Quotes: "The one thing I came away with that was surprising was how relatively upbeat the Europeans were about the economy." — Mark Sandy: Mark summarizes his Europe trip and contrasts it with his usual more negative impressions. "Our expectation is that we do see some modest declines in real GDP. That's going to be concentrated in this quarter, but...a lot of this stuff comes right back once the government reopens." — Matt: Matt explains the macroeconomic effect of the shutdown. "This is a demand-side solution to a supply-side problem." — Chris: Chris critiques 50-year mortgages and similar housing proposals.

Implications: Listeners should expect delayed and incomplete official data, a soft labor market picture, and policy debate to shift toward affordability. The hosts argue meaningful relief will come mainly from supply-side reforms, not quick rebates or mortgage gimmicks.