 Hello everyone. Okay, let me introduce our speaker today. We're really excited about this. This is what we, the program committee wanted this topic and we found Christina, which is amazing. We're so excited. Okay, Christina Sargent joined the Middlebury College Department of Economics in the fall of 2017 after completing her PhD in Economics at the University of Colorado Boulder. She holds a BA in International Affairs and Political Science, also from the University of Colorado Boulder. Her primary fields are microeconomic labor and search and matching theory. Her research has focused on using theoretical models to better understand the impacts of complex interactions of individual behavior on the broader macroeconomy. I did read this last night. Applications of her models have included the relationship between migration and labor markets in the European Union, the labor market impacts of Brexit, the role of the growing gig economy in conventional sector labor markets, colonial era explanations for modern day migration patterns, the role of women in labor markets and the dual impact of trade and automation on high and low wage labor in the US. She teaches courses in macroeconomics, the economics of the European Union and economic history. Please welcome Christina Sargent. Thank you so much for having me. Is the volume okay on this? Perfect. Louder? Okay, excellent. Thank you so much for having me, Linda, for inviting me and everyone for being so welcoming. This is all stuff I think a lot about, and so it's really fun for me to get to talk to other people that are excited about it and interested. And so I'm just gonna get started because I think we're probably... But I am very used to better. I'm very used to being interrupted, so please feel free to interrupt me. I will not be offended or anything. Can you hear me okay? I'm sorry. Is it that I'm too far? I'm too close. But then you can't hear me at all, can you? Yeah. Yeah. Farther away. Is that... And talk louder. I could just yell, is that better? Okay, I'll just do that and then hopefully the mic'll do zoom. Okay, so with Brexit, I think it's interesting we need to start with exactly what's going on now because this is not something that happened just overnight and really quickly, actually. So the UK left the EU in January, 2021 after five years of negotiations. They didn't actually fully sever all ties until February of this year when they finalized the Irish border issue. I say this is finally somewhat resolved because they are still arguing about it. Technically the laws are in place but the way they're actually enforced and what will happen in practice has not actually been finished and resolved. The other thing is President Biden has made a really big deal about the 20th anniversary or the 25th anniversary of the Good Friday Agreement which is really important. But we think of this as being something a quarter of a century ago that was resolved. It is not resolved. This is still very much a big part of people's lives and it still matters a lot in all of the international negotiations that are happening with the UK and the EU. The other thing that's really important here is that historically, France and Germany really drove the ship of the EU. Sometimes this was conciliatory and sometimes it was pretty adversarial. Recently, Angela Merkel really ran things in basically in the early 2000s until she retired last year. Olaf Scholz replaced her as Prime Minister and he has really taken a much more resigned and backseat role in EU and international affairs than she did and that has really paved the way for Emmanuel Macron of France to step in and play a much larger role in terms of being the face of the EU in the world and driving the direction of where that institution is going. This is a little bit now complicated because the UK used to serve at least from 1973 when they joined until they left as sort of this third tripod of negotiations that they would balance each other out in terms of priorities. When the UK left, that tripod left and we're back to this bilateral sort of fighting between France and Germany. In the last 10 years, however, the EU has really made a lot of adjustments to the way the institutions of the EU themselves work and the president of the commission who is currently Ursula von der Leyen has started to take a much more prominent role. So for example, she and Macron jointly visited China a couple of weeks ago. China didn't want to give her any kind of role whatsoever because China doesn't want to negotiate with the EU as a whole because that's the biggest economy in the world. China wants to negotiate with France because they can bully them and they're smaller, right? And so Ursula has been doing, I think, a pretty good job of trying to enforce this bigger role for the institutions, but this is all new territory, especially with the UK having left. This last point here is actually something that in the US gets really overlooked. I haven't seen this in the news in quite some time, but it's actually very important. So France had an agreement to provide Australia with nuclear submarines and quite abruptly, the US and the UK kind of swooped in and Australia canceled the order with France, made a new agreement with the US and the UK and to be honest, France was pretty miffed and I kind of understand it, right? It's a big contract for a long project that the US and the UK kind of took over. That has not been great for US and French relations and with France driving the EU ship these days, that's not great news for our relationship with the EU. If we have time at the end, I might go over some of these timelines, but the gist of it is the UK was always a bit of a reluctant partner for the EU. They were invited to join at the beginning, turned it down, decided they wanted to join Charles de Gaulle, said no way, you turned us down already, had to apply several times before they were finally allowed to join and then they went and left. So that's this button and then the Brexit timeline, again, it was quite drawn out, right? The vote was in 2016, it basically just now is even somewhat finalized. So this is not something that was this massive shock that happened once and is done, this is an ongoing amount of uncertainty in the way that European relations are run internally and externally. So I think it's really important to couch this and what does it mean for the UK, right? This was really precipitated by their choices. So voters in the UK, they did vote to leave, right? It was a 52% to 48% margin, so not overwhelming. The referendum itself was also not binding, so David Cameron didn't have to actually leave the EU because that vote was for leaving, but he chose to interpret it as binding and so that's the direction they moved. There were a lot of reasons given for why people decided to leave. Many of them were economic, a lot of them centered around sovereignty, a talking with Ray earlier, it's this idea of the British Empire and this greatness that used to be that definitely played a role. Unfortunately, in all of the research I've done, all the research of anybody else I've ever seen, any of the economic reasons for the UK to have left the EU did not pan out. There's nothing about the economics of the way Brexit is working that's good for the UK. What this means in practice is that the UK's no longer able to be represented in international bodies by the EU, so they are now a little fish in the big pond of the UN and NATO and the WTO, all of the trade agreements, they've lost a huge amount of heft, right? They also don't get any funding anymore from the EU, they used to get a huge amount for their farmers to support small local farmers, that all went away. Now they don't have to pay into the EU budget anymore, which sounds great, but it turns out they were never actually paying that much into the budget in the first place. And they lost their privileged visa-free travel within the EU, so this is a really big one. And this is what most of my research is focused on, which is if you make it easier for people to move to another place and work, those job worker matches that can happen are far more beneficial and good ones are not deterred because you have to go through a huge amount of paperwork and visa fees and things like that. All of those benefits are gone now. The UK is treated as a regular third country in negotiations with the EU, they get no more privileges. And in fact, because those negotiations did not go so smoothly, they probably are treated worse. There's a little bit of a bone to pick there for the EU. The thing that matters a lot right to the UK as being a small country that produces very specific items is that their trade barriers increase because when they left the EU, they had no existing trade agreements to rely on. So they fell back on WTO, most favored nation status trading rules, which is low-ish tariffs, but much higher than what they had when they were as part of the EU. The other problem with this that I think is often overlooked is the UK for 45 years relied on the institutions and the infrastructure of the EU to negotiate their trade agreements and every other agreement they had with the rest of the world. They stopped employing people in civil service for these jobs. They stopped training people for these jobs because it was jointly supplied by all of the EU countries. They lost that entire workforce and that specialized knowledge. Those people are gone. They have to train up a whole new generation. And so any existing trade, any trade agreement is being run now by completely new people. This one gets a lot of news, right? When the vote happened actually, the pound fell by 10% against the dollar. It was the biggest devaluation of the pound since I wanna say World War II. It was big. It has since recovered quite a bit but not fully. So the pound is not worth as much as it was before they voted to leave. What this means actually helps their trade balance in some sense because their imports are expensive from the rest of the world so they buy less from other places. But that makes the things that they do export cheaper for everyone else like us. And so their trade balance improves. This is sort of a net neutral in economic terms because if you really wanna buy stuff that's from somewhere else and now it's more expensive, that's not great for you, right? But it sounds nice that the trade balance improved. So what I think really matters, right, is what does it mean actually for everybody else? What does it matter for us, right? And so what's true for us and the rest of the world is that we have this new partner in negotiations that historically has actually had a philosophy that's much more similar to ours than what the EU institutions as a whole tended to be, right? We have this special relationship that really flourished under Thatcher and Reagan and there's some kind of sort of bonomi between us that seems to work pretty well actually in practice. There are some changes in the prices as these trade agreements get decided so those tariffs will fall over time but this is gonna be a slow process. It takes years to negotiate trade agreements. One big problem is that travel to Europe could get a lot more complicated because now you can't just fly anywhere, right? Flying into Heathrow, you're flying into the UK and so if you fly on from the UK you still have to go through customs again if you wanna go to Paris. And so you've got more trade or more travel barriers for you and I than a European trip might have entailed in the past. The other thing that was talked a lot about is that the UK wanted to open up to the world and create this new active foreign policy. That really hasn't taken shape much under Rishi Sunak. It depends a little bit how long he lasts. The Conservatives aren't polling all that well but then neither is Sir Keir Starmer who is the leader of the Labour Party so British politics right now are a little weird. This may come to pass but has not come to happen in a way that the Leave Party really tried to sell as this big upside for Brexit for the UK to a quick time check. So then for us here in Vermont, like actually what matters, right? To be totally honest, not a whole lot, right? We don't buy that much from the UK in Vermont. At some point I looked up the US trade stats for how many UK products we actually import into the state of Vermont and it's teeny. It's like a few hundred thousand dollars a year maybe, right? So some things will get a little bit more less expensive as those trade agreements come through unless you're someone with close ties perhaps that you gotta get that cheese from your childhood, you will probably experience a bigger disruption but for the vast majority of us in this room, I bet we didn't even notice, right? And then here we actually did see some business suppliers for very specialized items. Like I said, the UK exports very particular things and so if you are someone that was reliant on a particular car part perhaps or a piece of machinery like they do have very high quality specialized farm equipment oftentimes being produced in the UK, there were some farmers in Vermont that actually did face some complications from these new barriers but those have been resolved so now it's effectively were not impacted. So I'm gonna switch topics here because we've got a lot to cover. Like Cindy said, she wanted all these things and we have 45 minutes. So I'm gonna go straight into Russia. This is extremely complicated and it's extremely fraught, right? To put a human lens on this because economists are always accused of being people that are obsessed with money and GDP which we are because that's easy to count but we care about other things, right? The reason we care about GDP and money is because it's a good representation for how you and I experience life. And so I like to bring this back though to the actual people who are impacted by this. So separating out from the active combatants on both sides because that's a whole other thing that you need a poli sci person to come in and talk about. There are about eight million Ukrainian refugees because of the invasion now. About a third of the population is displaced according to the latest UN figures. This is probably an undercount, probably by a lot. According to some recent CNN figures, a quarter of that population that used to live in a Ukrainian province has now relocated to somewhere else in Europe. So Russia has the highest number of Ukrainian refugees. A lot of people fled east because that was close. That was the closest non-bombing, non-combat area they could get to. A lot of Ukrainians have close family ties to Russia and so it makes sense for them to go there. Poland has taken in the vast majority of the refugees on the EU side. A lot of this has to do with sort of post-Soviet fear, I think, and some kind of brotherhood feeling like we need to take care of our own. And Poland, both in terms of individual people taking refugees into their homes and in terms of the government funding these relocation efforts, Poland has done a huge amount. Germany is next with another million and then Czechia has another half million. So that's six of those eight million people are in four different countries right now. The other two million are mostly in other European countries like Latvia, Lithuania, Estonia, Finland and Sweden have a lot, a few in Western Europe and then the US has taken in some, not many. But that's a lot of people's lives who have just completely been disrupted and obliterated into nothingness. And so I think that to me is really, that sticks out a lot, right? That matters. We should care about that. But this is a lot of Europe, right? This is not just a European problem and it's not just a European problem in a very economic way. So briefly I'm gonna talk about energy here. Europe has been able to replace entirely their Russian oil flows with sources from other places. A lot has come from the United States which is sort of good for us, right? They're buying more things from us. We've massively increased our export capacity, whoops, for LNG in the last two years, which is expensive and costly infrastructure that we have to put into place in our ports on the Eastern coast to get them across the Atlantic. Spain is mostly handling all of those imports right now. The Spanish LNG terminals are packed. The EU does have some LNG terminal capacity planned but this is gonna be a decade before this actually comes into place. And so in the short run, a lot of these alternative sources are very pieced together and there's been some really big problems like we got lucky that the winter was mild in Europe this year. But places are literally burning like tires for heat to end things like that. And so actually there's a huge air pollution problem now in a lot of European cities because of trying to replace heat sources. OPEC initially was very cooperative by upping production. The Saudis really ramped up to keep oil prices low. That cooperation has faltered recently, partially because Russia is not literally part of OPEC but they are a trusted partner and has quite a bit of sway in the capacity decisions made by OPEC. And so that has become more influential in the last three to six months. In terms of food, this is not such a huge deal for the United States. We produce domestically pretty much everything that we need to eat except for some specialized like fun items. But the rest of the world faces massive complications from the loss of exports not just from Ukraine of grain mostly but also from Russia. I'm gonna show you a slide in a second that shows that really about a quarter of world trade in grains is coming out of Russia and Ukraine. The other thing is there are several Eastern European countries, Hungary, Poland, Slovakia in particular are getting flooded with Ukrainian grain that's not being able to be exported through the Baltic like it usually is. And so their domestic farmers are in a real bad place right now in terms of they can't get the prices they need to sustain their own farms. And this is causing some concerns about the unity of Europe and supporting the fight in Ukraine. And then the last thing I wanna talk about is international organizations. This is something that historically has been really important to the United States in the last 20 or 30 years. I think we lost sight of it a bit but this is really bringing back to the fore why we have these institutions in the first place. I'll just close by saying on this part briefly looking forward, this summer is gonna matter a lot in terms of what happens, right? And the leaked documents from the last few weeks really show some major flaws and struggles that both Ukraine and Russia are going to face in terms of funding and supplying their militaries. And I think the big lesson there is that the US is critical in supporting Ukraine. And if the US and the EU abandon them, Russia is gonna take over. That's just what's gonna happen. And then I have to put the plug in for the propaganda because Russia is so good at this, right? So what my colleague Will and I found in our paper about a big campaign that Russia ran in the former Soviet states in 2013 and 2012 is that the Russian propaganda playing just on the news, on Russian channels in former Soviet states influences very strongly how people feel about in this case it was a propaganda campaign against migrants and migrant workers. And people that watched more Russian propaganda had far more negative views about migrants coming into those countries and about whether those countries should let migrants from other places in in the first place. So they're very good at this. I was reading an article on Monday actually that in the eastern part of Ukraine, there are a lot of people who actually believe that all of the shelling is coming from the Ukrainian army. When in fact, everyone else's news is correctly saying that it's the Russians. And but people on the ground are getting bombarded with this very effective propaganda that is not being counterbalanced at all. So about the food, right? I know this is small, but it doesn't matter what these say. So what this says is on the left hand side, the blue is Russian and the red is Ukrainian grain. These two countries alone count for a quarter of the world wheat exports that happened in 2019. The vast majority of this grain is going out through the Baltic Sea to global markets. Egypt, Turkey and Indonesia are far and away the biggest recipients of Russian and Ukrainian grain. Turkey gets grain from all over the place and has domestic production. Indonesia gets grain from all over as well. So this is not that big of a deal. Russia is highly concentrated in their exports between Egypt and Turkey. The rest of these amounts are much smaller compared to those two recipient countries. Ties between Russia and Egypt and Russia and Turkey are critically important for Russian exports of grains. Ukraine has a far more diverse set of export destinations. And so they don't rely on any one country buying their grain for their income, but they do rely on the Baltic. And so when the Baltic gets shut down, that's a major problem for Ukraine. I think it's both, but sorry. The agreement that is in place now expires on May 18th. Those negotiations are supposedly ongoing, but not looking good. So if that gets shut down, all of these people will lose a huge amount of grain. Now, if you're a country like Azerbaijan and you buy grain from a lot of different places and you produce some yourself, that's not a big deal. But if you look at these, so these are the 18 countries that import at least 50% of their grain from a combination of Russia and Ukraine. So the orange and the blue is the fraction of imports of wheat in total coming from Russia and Ukraine. Just because you import a lot, though, may not be a big deal. Because if you rely on domestic production for most of your consumption, but you also just import a lot, it's okay if you lose some imports. The real concern is these places with the black dots way up here at the top because that's the share of consumption that's imported. So if you have to import everything that you consume and you lose 60% of your imports, that's a lot of food. So over here, they're only importing about half of their imports from Russia and Ukraine. They have another half from other places, not super concerning. But Sudan and Lebanon and Georgia rely more than 90% of their imports come from Russia and Ukraine. And more than 90% of their consumption is from imports, which means that if you lose that as a source of food for your country, you've lost a huge amount of food. And so these food repercussions are extremely precise and they're acute. And we can see that this is actually majorly problematic in places like Somalia, Benin and Laos. So Somalia's in the middle of a three year drought that is more severe than I think any they may be seen in a very long time. We're facing a major famine in large swaths of these countries because they import 100% of their grain from Russia and Ukraine and their domestic production is gone. And so the US is not on any of these axes. So you and I aren't experiencing this in real time in our lives, but there are entire countries who cannot eat because of what's happening in Russia and Ukraine right now. Four international organizations, I have 13 minutes left. Four international organizations, I'm gonna really focus on NATO because that's the easiest one to bring our minds together. So in the last 10 years or so, the point of NATO has really been called into question. Funding has been sort of spotty. Even cooperation amongst members hasn't been fantastic. And so there was this loss of mission and purpose because it was really founded as a counter to Russia. After the Cold War, we don't need NATO anymore, right? Things are fine. Well, maybe not, right? So lately there's this big sense of revitalization. Three years ago, Macron said that NATO was suffering from brain death. Now he's all for it. The US has stepped up our sort of positive discussion. And there's a big motivation for not just deeper cooperation amongst existing members, but also widening cooperation to new members, right? And in particular, Finland and Sweden sort of come to mind here. So Finland and Sweden were previously extremely and publicly committed to non-alignment with NATO. They felt like they needed to be this buffer and that it would be really destabilizing to the international system for them to join either Russia or the West and NATO broadly because of their proximity to the border and because of the extensive border they share with Russia. That's not so much the case anymore. So earlier this month, Finland was able to join after applying and very quickly being accepted unanimously, which is the conditions. Sweden has been trying to join and in fact they were very carefully trying to join together so to not be separated in this. But Turkey and Hungary are boycotting the Swedish application. Hungary because Viktor Orban likes to be a pain in the butt and likes to stick a finger in the eye of the EU every chance he can get. He's also quite close to Putin. Turkey's president Erdogan is facing an election in May that's not expected to go so well for him and he's using this as a political opportunity to claim that Sweden is holding political terrorists. They're allowing them to be there and they're demanding extradition for some Kurds. And so the hope is that after the election in May, Erdogan might kind of soften this and let Sweden in because he won't be so pressured by elections. I hope that's true. When the Brexit referendum passed in 2016, I stopped making predictions. But the overall sense of what the invasion has done to NATO is really just a massive backfiring for Putin. A lot of his rationale for this invasion was that NATO was trying to expand. NATO was not trying to expand, right? Now they are, right? Finland and Sweden, they were like, let us in. And the Central and Eastern European countries who are mostly part of the EU, who have been quite loudly yelling in EU institutions for years now about the threat of Russia and the growing threat of Russia, feel really validated, right? Latvia, Lithuania, and Estonia they're basically saying I told you so right now. And they're very excited about this general increase in the prominence and importance of NATO in other countries' minds because for them, it's survival. And so this has actually done wonders for NATO. Not so great for Putin in that sense. Okay, inflation, because it's all connected, right? We don't get to live in a siloed world anymore, unfortunately for some things. Inflation in the United States has really been first and foremost, a series of shocks. So we have the Brexit shock which for most of the US is quite small, but still there. We have close ties with them. We don't do that much trade as a proportion of our overall trade. The Russian invasion has really affected global food prices. So the food that we do import has gotten more expensive. We're just fortunate enough that we don't import all that much as a proportion of our consumption. And we produce a lot domestically. So the imports that we do have become much more expensive, right? We saw this with flour and palm oil predominantly, right, vegetable oil got really expensive a couple summers ago. And so these two things are relatively small for us in terms of the inflationary shocks, but they are there. The thing that really sort of skyrocketed inflation in the United States is COVID-19, the policy response by the United States and also by China. And so we have an entire shutdown of global supply chains. Everything everywhere got more expensive. That was shock number one. Right by the time that was sort of fizzling out, you had Chinese shutdown start to come back into production and then shut down again, secondary shock. China reopens, but there's this massive backlog. And not only is China now just ramping production back up to its pre COVID-19 levels, but also the demand that they had before, that went away when they shut down, is back again. And so a huge amount of the increase in oil prices recently has actually been the recovery in Chinese demand for oil and global markets that had gone away because of their COVID-19 shutdown. So we get accused of being the dismal science all the time. And most of this talk has stayed sort of true to that, I'm sorry, but the good news for us in the US on inflation is actually that I think the current situation is quite good. The outlook to me seems very positive. So our latest numbers from March is that overall inflation is around 5% in the last year. When the policy goal is 2%, that's pretty close in the scheme of things. We're trending in the right direction. We did see a spike in core inflation, which takes out volatile things. So the core inflation is the regular headline inflation, but then we take out food and energy prices because those move around a lot for lots of reasons that we can't do anything about with policy. The bad news is the core did go up a little bit from last, from February in March. And that's concerning if it continues. If it's a single month flip, it's a single month flip this can happen for lots of reasons, right? We had a really warm spring. If people traveled a lot and bought more stuff, that would make core inflation go up for a completely benign reason, right? So what we're really thinking and looking a lot in macroeconomics about with inflation is trends. Any one month's observation is not that helpful because in any month, we can have some crazy thing happen, right? And so you don't wanna rely on just a one-time observation to drive a lot of your policy decision. Now, that's the good news. The bad news is that we are currently being faced by a lot of things that could really mess this trend up. So the first thing is the banking instability. The headline is SVB and a lot of these smaller regional banks were facing lending runs because it turns out they were lending with super liquid assets and trying to hedge with really illiquid insurance policies on them, which is generally fine so long as you meet the requirements. But the problem is when those requirements are either not enforced or don't apply to you because you're small. And so a lot of regional banks are not held to the too big to fail structural reliability requirements because they've been viewed as not systematically important enough to move the market if any one of them fails. We really should have learned our lesson from the financial crisis on this one. These things are less isolated than they used to be. Some of this is because we've repealed a lot of the Glass-Steagall Act and the infrastructure and requirements that we put in place after the savings and loan crisis in the 80s. And so banks were not required to keep these things as safe as maybe you and I would think they should be. That's on the regulators. The other thing is that we have, and I put strong and scare quotes here because in a lot of ways the labor market looks great. There are very few people who are unemployed who would like a job who cannot find one at this point. I think we've all driven around I just drove by the Burlington Bagel. They're offering $25 an hour at the Bagel Shop. When I was in high school working at a Bagel Shop, the pay was like $6. So there are signs that that's a good thing for workers. That's a great thing for you and I and our families. If you get paid a fair wage for your labor that lets you live, that's a good thing. The problem is if firms are not as excited about the near future and they stop posting those jobs because if firms start to worry about this banking and stability and future shocks due to the Fed increasing interest rates again, then we have a problem because all of a sudden those workers are not gonna be offered those jobs anymore. And so the strong labor market, yes, is really good right now, but it is in a delicate situation that could easily turn the other direction. And then the last thing here that I think is gonna be potentially quite challenging is that food and energy price volatility with the ongoing Russian invasion in Ukraine could be extremely problematic, especially if we have a really hot summer and a really cold winter, which could happen. If the agreement on May 18th for the grain exports from Russia and Ukraine to hit markets doesn't happen, that's also going to be a huge problem for Africa, for food over the summer months. And then I do wanna say here, right, the US is not in any way alone in this challenge with inflation. So the whole world got hit with all these shocks, right? Many countries had far more expansionary and generous COVID response policies than the US did and their inflation situations are very similar to ours. Grain prices in the UK right now are up 20%. And even Japan, which has had basically negative inflation for the last 50, 40 years, they're seeing rises in their inflation rates now for the very first time. So this is not a unique problem for the US by any means. So I think my time is right about up. So I'm just gonna leave you with a few sort of thoughts that frame the way I think about things. The world is extremely complicated and we're just trying to understand this little piece that we have, right? And that can be hard. Economics gives us one way of thinking about these problems and it's a lens for how to approach questions, right? No economist who actually believes what they're saying is gonna tell you it's the only way. But it is a way that two economists makes a lot of sense. And so that's why we use the tools that we do. And then I always tell my students this because they ask me these questions that have these giant answers and really like the short answer is it depends, right? Like if the answer is simple, you're asking the wrong question. And I think that's true whether you're thinking about economics or world events or really anything. And so this is sort of my worldview. So thank you so much for listening. I'm happy to answer questions. Oh, I think we got a microphone coming. Is the light green? Test, test, test, test, okay, there we go. So I had a question about the interrelationship between inflation, interest rates and job growth. It seems like that's kind of an insoluble equation and that fixing the inflation curve and by raising interest rates is gonna affect employment and the availability of housing and stuff like that. So is there really an answer to this or is somebody gonna get screwed no matter what? Yes. So the question is the relationship between inflation and interest rates and the job market. And yes, these things are very interconnected. And so the idea is typically high inflation doesn't usually go along with a super strong job market. So increasing interest rates is often the same thing you need in a job market or I said that backwards. Usually we don't get faced with these crises all at once, right? And there was this period of time called secular stagnation where economists thought they had policy totally figured out and it was great, right? And that led to basically these low interest rates that we were experiencing in the mid 2010s and we figured the economy out. And then normal changed. And so it's true that if we continue to raise interest rates, the job market is going to be very severely affected and it could be very quick. I think part of the problem is that there's this urgency on the part of a lot of policy makers to curb inflation faster than we maybe actually need to because a lot of these inflationary pressures are temporary. The problem is we just keep getting hit by temporary shock after temporary shock after temporary shock. We don't have time to recover the way that we used to. And so policy makers basically leaning on the Volcker experience coming out of the high inflation in the late 70s and then curbing that in the 80s, that's sort of the textbook way you deal with high inflation is you force a recession that, yep, hurts workers but that's the price we have to pay. I don't think that's necessarily the case but there is an issue of patience and there is an issue of at what cost. So if we're all willing to pay a little bit more for our groceries and wait the inflation out a bit more, we can have a smaller hit to the job market if we can just be a little patient. Big if and I know a lot of people are having a hard time with the inflation at where it is right now. So I say that as an if that's not a given and so there aren't easy policy decisions here. There does seem to be a growing number of economists. So I'm not an expert in this but I do follow a lot of the research here. There seems to be a growing sense that the Fed is raising rates too fast and raising during the banking crisis last session was maybe a mistake. Only the future will tell us if that's true or not but it depends. When you add in to Brexit, the Russian invasion and the inflation in Britain which makes ours look minimal, what do you see as the minor little question here, what do you see as the prognosis for the UK long-term? There's no press here, right? Well there's CCTV. There is CCTV, okay. So the question is the prognosis for the UK adding in the shocks from Brexit and the Russian invasion and then inflation. So the headlight inflation in the UK right now is 10%. It's literally twice what we have. Most of the predictions for what's gonna happen in the UK in the next 10 to 15 years are bad. So some of the research that I rely on to think about my labor market impacts is work done by a lot of the central banks in Europe and the Bank of England which shows that all the delayed investment from the uncertainty of Brexit all by itself was gonna be enough to drop UK productivity by about 10% compared to what it would have been otherwise. And it wasn't great anyway. And so when you add the Russian invasion and the inflation from food prices and energy prices in particular, it's gonna be tough in the UK unless they get really lucky. I'm not incredibly optimistic that the growth policies are going to be enough. In theory, they're good ideas that should happen but I don't think they're sufficient. I have a question about rents. Rents, renting, rents, yes. And it seems as though rents went up across the country, there may have been pockets of exception, between 25 and 35%. I have a sister who lives in Phoenix and her rent went up 37%. Have you done any studies or read any studies about what caused that? I realize there might be adjustable rate mortgages and they're trying to recover the payments on that but it's hard to justify that kind of an increase. Yeah, so again, I'm not an expert but my read of the experts is that a lot of the rent increase happened because of COVID demand. So it happened at every level. So you had people living in cities or bigger apartments that were working remotely that wanted more space. So they wanted houses. So the housing stock which was already tightened a lot of places like in Burlington, it's crazy, right? Housing stock that was already tight went way up in demand so prices go up for rentals and sales. But this is happening at every level of the market. So the midsize apartments, people want an office instead of having to work out of their living room or their dining room or they need two offices because it's two people working from home. And you go all the way down to like the studio shared by like 16 college students in Manhattan and they wanted to live by themselves and not be surrounded by 16 other people when we have a global pandemic going on. And so that was a huge shock to the housing economy. It was worse in places like Vermont, like Phoenix that had more space because those places became more attractive when tight cities were scary. The problem with prices is they don't like to go back down, right? Once a landlord gets that higher rent, it really is tough to convince them to charge less for that same space than they were before. So you have this big level up the demand now I think is not actually going away but it's not so severe. But I think what we're going to see is just flat rental rates and prices for everything else will eventually catch up so that the real rental rate is comparable to what it was pre COVID, but that's gonna take some time. Although the inflation piece will help us out on that because if rentals stay about the same, everything else gets more expensive than the relative price of housing falls. One person asked, is the retirement of the baby boomer generation a major factor in the low unemployment rate? Yeah, it's definitely. So I would say retirements generally for the baby boomer generation are definitely gonna be part of that. There were also a large number of early retirements that happened because of COVID in the last few years. People who didn't wanna work in public facing or really just didn't wanna be around too many people at all anymore who would have retired in the next five years anyway, just retired early. So that's certainly a big part of it. And you see some discussion of that, I think it's becoming more recognized. The other thing too in the unemployment is that a lot of people went back to school during COVID for the same reason, right? Schooling remotely became much more attractive to people. And then I think the really sad thing that we forget about is that like over 2 million people died. A lot of those people were in the labor force or would have been. And even still today, it's like 1300 people a week are dying still from COVID. That's a huge hit to the population. So I think retirements are a big part of the story, but they're definitely not the only big part of the story. The other question is, how does the leadership of each country influence these complicated issues? That's an hour and a half lecture. That is, you know, I offer a semester long class about the EU. I'm assuming this is about the EU, probably. Doesn't say. So if it's about the EU, it depends on whether it's the commission or the parliament. So the commission is made up of the heads of government of all of the individual member states. In theory, they have an equal vote, but France and Germany run the show. They always have. All the way back to the founding with the original six members. This was really fundamentally about keeping countries from warring with one another. And so France and Germany were a big part of that. Belgium, slightly less. Then over time from the 50s into now, Germany and France are now the bigger economies. So for better or worse, their voices carry a bit more weight. Which is why having a big-ish economy like the UK was a nice balance in the EU. And so now you've lost that third rail. A lot of decisions actually have to be unanimous in EU institutions. And so there's an immense amount of horse trading and backroom negotiations. And France and Germany will drive the main policy and then they make concessions to get other people to fall in line. If we're thinking about NATO, admittance also has to be unanimous, which is why Turkey alone can be causing problems for Sweden right now. The way that a lot of super-national institutions, so institutions that work above or between governments, they are often have to be more than majority vote because of the sensitive nature of this sovereignty question. When you have multiple countries involved, you really have to have everybody on board to make a meaningful decision. I hope that answered the question. Hold on. Oh, I figured this out. Wait. There seems to be a shift occurring in the Middle East with Saudi Arabia and Iran getting together. You've got the failed state of Lebanon and Syria and the our relations with the oil producers which are rushers of output. Going to some of those Middle East producers themselves. Yeah, the oil situation has changed actually quite dramatically in the last 10 years. So the first part of this was the massive rise in US production with shale and fracking and now our increased capacity in LNG which is the liquefied natural gas. In terms of actually like rebalancing happening in the Middle East, Saudi Arabia does really seem to be trying to play a much more major role in international affairs than they had before which hard to say how big of a difference that will make. I honestly don't know. I did see that the UAE is importing a lot of Russian gas and then re-exporting it. So basically there's suspicions and like this is fourth hand information, right? I read that they're effectively laundering Russian oil because it's cheaper to buy the Russian oil on the international markets right now because there's the cap on the Russian prices and then that is actually cheaper than they can resell it from their ports for more money. So the UAE is supposedly doing this. I honestly, I don't know what's gonna happen with that. I mean, I think the idea of the IRA really and like a lot of the climate and renewable energy impetus right now is we've realized how dangerous it can be to rely on one or two different countries so intensely for something that's so massively important for our economy, right? In my macro theory class, the second year macro course we measure supply shocks basically with the price of energy because the price of energy is in everything, right? It's in the production of primary goods, in the production and transport of those primary goods into intermediate goods, into final goods, to consumers from consumers to their homes to heat our homes, right? Energy is critical and so I think that's a big part of why there's been such a push for different energy infrastructures lately is this realization that it's dangerous to rely on somebody for something so important and fundamental for your economy. I have no idea what the Middle East is gonna do. I was very struck with the powerful slide when you compared the dependence of a few countries on Russia for grain and in contrast to Ukraine and it struck me as a recipe for disaster that all those countries might be cut off from grains and then the sort of cascade of human suffering and famine and migration and political unrest and add more gloom and doom here but it's trouble and so I wonder about, it's sort of a macro question here but in ways that some of these alliances could anticipate this, I mean that opening for China and for Russia influence but China in particular in Africa is already moving in various parts of the world so I'm wondering about anticipating if you're aware of using some of those alliances which have been pretty effective for defense but in terms of foreign affairs kind of thing. Yeah, I think the EU is actually the perfect example of this. They started out pretty much with the sole intention of keeping countries from fighting each other by using these economic ties to keep that from happening and then over the last 75 years it has morphed into like a full blown political economic union with a massive force in international affairs. Africa has a few different organizations that are trying to sort of replicate this EU infrastructure within Africa. ASEAN operates through most of Asia this way. I think in terms of China exploiting these economic shocks they're certainly trying to become a much more active player in the international system. And in some ways they've been incredibly effective and influential in doing this but in other ways they've been less successful so I actually last week or the week before Middlebury does a student symposium every year where we spend the entire day on student research presentations. It's like my favorite thing because I go to a session and they're completely different from what I talk about in my class and there was actually a student who spent her last year in Amman, Jordan and she did a research project asking college age Jordanians what they felt about the Belt and Road Initiative and all of the investment that China was pouring into their country and none of them knew what the Belt and Road Initiative was. But they knew that that factory and that factory and that factory and that factory and the dam up the road, those were all funded by China and they were all employing their families. And so in some ways, I say this is why I say in some ways China has been incredibly effective is because they know that China is putting this money into their country but the whole like founding principle or the whole surrounding principle and the narrative that China puts around these investments is completely lost on the ground. And so I think it's this dangerous combination of yes, they're putting all this money in but if anything goes wrong, it will very quickly also be blamed on China. If it goes wrong is a big if but it very well could. China is also experiencing something that the United States learned in the recovery from World War II which is when you give other countries a lot of money and you maybe lend it to them at somewhat high interest rates when you demand it back and they're in the middle of crisis they often don't pay you. And those negotiations are a two way street and China is only now kind of learning that maybe some debt forgiveness is going to be necessary but until this point they've been very hard line in any of their international lending and enforcing repayment which has not been good for their relations with these countries. And so I think it depends a lot what Xi Jinping and then the rising leadership in China what lessons they take from these events and how they choose to either work with the rest of the international system or try and forge their own path. I am not a China expert. I have colleagues that I can recommend come give a talk that would know a lot more about that in particular but I think especially with the U.S. being this sort of reluctant leader in the global system lately I think it's a great opportunity for other countries to participate and to like build something together. It's also risky because then we don't get to dictate the rules if we're not gonna take charge but that can also be good too. One quick question. I kept thinking when you were talking about the Ukraine and Russia what if this was China and Taiwan and we are trying to sell electric cars ferociously when the rare earth minerals for those batteries come from China. So if we see that are we gonna see cars stopped everywhere in the United States? Well the good news is that you don't need new rare earth minerals for the existing cars. So the cars that are here already will still get to keep in the work. Yeah so a lot of the rare earth minerals are coming from China or they're coming from China owned mines elsewhere. So China does play a huge role not only in those primary inputs to things but also in things like the semiconductors which is why we have that whole situation right now. If China, I think China one is watching very carefully what we're doing in Ukraine. I think that's obvious that should not be like a revelation. This is not some genius idea I had. And I think this though does matter for right when I talk about what's going looking forward the U.S. matters a lot for the Ukrainian war effort. And if we abandon Ukraine after some time because it's just too hard China is gonna see that and they're gonna take a lesson from that. And the lesson that they're gonna take is we just have to wait the U.S. out. And the way China's political and government and economic system works they can wait us out a lot longer than we're willing to wait. And so I think a lot of what the U.S. is doing right now with messaging with Ukraine is explicitly with that in mind. I think that's vastly important for the way that relationship plays out. Thank you so much. This has been awesome.