 This is a view from the north, a view from Canada and to Canada. We talked to Ken Rogers in Kelowna, Canada. And the last time we talked about the relationship of inflation and the economy and the health of the country in general, and the health of the relationship with Canada, how Canada would do in various circumstances and how Europe and Asia would do. But when I finished with that, as we left it, we were going to address some of the wrinkles that come out of the climate change factor. Yeah, so we still have the issue of the default, Ken. That's still possible. It's in the paper every day, but it's not clear that they will ever agree or that McCarthy will ever come around and just lift the debt ceiling, which is what the government has been doing for decades. So here's the question to follow is we don't know exactly what's going to happen on that or when it's going to happen or how long it's going to stick in place. We don't know about a lot of the factors that you and I talked about last time, especially including what could happen on a climate change, extreme weather, floods, drought, forest fires in Western Canada, what have you. We do not know what's going to happen on that. We don't have a sense, I know that AI could help us. We don't have a sense of the priorities, which one has greater weight. We don't have a sense of all the factors we talked about. We don't have a sense of the duration element. Some people say that the longer these factors stay in place, it's better than some people say the longer they stay in place, it's worse. It needs an algorithm, thinking of which I went and I put in the questions that we raised last time and looked at those questions and the answers in chat GBT and guess what? You were right on everything. I'm impressed. Your education speaks for you, Ken. At least you agree with chat GBT anyway. My former wife would have never agreed with that. It was always wrong. Since we spoke about this subject, the Fed has what raised the read discount rate just a little bit and a question, why is that a good move because if you lined up 15 economists and 15 journalists, you'd get 37 answers on whether it was a good move or not. Not clear. What do you think? If you're trying to curb inflation, that's the right thing to do. It's just that simple. Yeah, but you know, the other factors that are hand in glove, for example, the jobs report came out since we spoke and the jobs report was good. We have less unemployment, but if you have less unemployment, you have more money, this is your analysis last time, feeding into the economy. And if you have that, then you have a great prospect of inflation. So these things don't work necessarily in tandem. They sometimes they work against each other. So how do you feel about that? Some people say that we are not going to get out of the risk of recession. We're not going to get out of inflation until we have a bad jobs report. That's usually a logical answer. That's because inflation usually causes problems with employment. You know, but your employment factor, like if you have wage or wage push kind of thing, if wages go up, you're going to have more inflation. Like if wages get where the expectations of the unions and the employees are such that they believe there will be more inflation, they will keep pushing for higher wages. You know, so importantly, the Federal Reserve and government agencies, if they're responsible, will try to job on that expectation down. Say, you know, we're going to raise interest rates until the economy loses a bit of steam and, you know, wage demands, you don't need them because we're going to curb the inflation. However, you know, you can have, you know, some inflation and, you know, your labor market is really strong. Well, that correlates in the direction that the labor market may be one of the causes of the inflation, you know, and so you need to cool those expectations or you need to encourage people, companies to hire less people. You know, you just cannot have inflation at a high number for very long. Otherwise, you're going to have the expectations that inflation will keep going and all of the factors will start to keep causing it to go higher and higher. And in, you know, not too long, you'll have a mess like you have in Argentina. You know, I've been thinking about expectations since we spoke last and you mentioned that was one of the three pillars, if you will, of inflation. But I've been thinking about, you know, it's kind of subjective. We all know that economics is an art, not a science. And, you know, talking about expectations, talking about talking about psychology, social psychology on a grand scale affecting three hundred and thirty million people. And I've been thinking that the media gives mixed messages and the combined, you know, message from the media and social media and from the pundits, you know, the economists who appear on the media and for that matter, from the opinion writers in the newspapers, I get a really mixed message. Some say this is good, some say it's bad. And people in general are probably, see if you agree with me, they're probably uncertain which way is good, which way is bad, whether we like what's happening or don't like what's happening. And that leads to what we call uncertainty and therefore expectations that are mixed. So if you look around the country for expectations in a given moment now in our world today of divisiveness and political trouble, it's hard to find a single strain, a single sensibility in which you find is that people are on both sides of the issue. And so if you're looking at that third category, that third factor you spoke of expectations, you know, it's it's hard to get a clear read on that. Some people think they're staying cash, other people not because cash depreciates with inflation. So I mean, how do you handle that? What's the priority among the three factors you discussed of expectations now? Well, I don't agree with one of your premises. You know, the premise that, you know, the public can't make up their mind, you know, about certain economic factors. I think there's zero question whatsoever that the public believes that inflation is a bad thing. You know, too much inflation in particular is a bad thing. You know, the only time that the public thinks otherwise is in the value of their house. The public doesn't even connect inflation in the stock market. You know, the very wealthy people will, you know, count that to a degree, but not Joe public. Now, similarly, Joe public believes that a really strong jobs market is good. Any weakness in the job market sucks. It's really bad. You know, last time we hit the points of where expectations was really the third factor. But but the dominant one that gets really scary, you know, when it causes it to get out of hand. So you have cost push inflation, you know, and so you have, you know, in the in the current market, you know, countries are fighting over each other for, you know, the people to build a a battery plant, lithium battery plant, you know, so that they're, you know, fighting over each other, like Canada and the U.S. right now is who can pay the most to some company to have put the plant in their location. That push, you know, ups the cost of that. And that would cause inflation if that cost is higher than otherwise, if you picked an ordinary item, you know, that, you know, if you had to run on toilet paper, you know, you'd have, if everybody thinks it's going to run out, you'd have a demand demand pull would cause the price of toilet paper to go up if everybody's trying to rush and fill up their banter with it. You've got, you know, other factors that that when you're managing the economy or trying to, you know, if you're the Federal Reserve Bank or you're, you know, the U.S. federal government, the various agencies that have got like Treasury and such that are trying to manage the economy, you know, they're looking at all the factors and and recognize that if you have, if you start to get too much inflation, you know, you need to stomp on it. You know, if you have unemployment, you need to do something like during COVID, you know, the response was you're going to have unemployment people are staying at home. Let's let's print a bunch of bunch of checks and send them out to people so they can stay alive and until they can get back to work. We've had a couple of things here in the past few days, actually. One is the Fed's increase in the rate by a modest amount, but nevertheless an increase. I find that interesting. At the same time, there have been a number of commentators and reporters who have said that, hey, inflation is down and down for the month of April and it looks good for the year 2023 and 2024. So there is there are signs that we are out of danger as far as inflation is concerned, particularly on 2024. I can't for the life of me understand how they can project that with so many variables in the world today. But that's that's what a lot of them have said. Do you accept that? Sort of. I mean, when you say there are so many variables, well, the econometric models, which people like the Federal Reserve and major banks and major corporations have involving artificial intelligence can handle, you know, a ridiculous number of factors. And and it's really the human judgment on how to weigh them. Yeah, I agree. Whether they're going to be successful or whether they're going to fail in their attempt to steer or tweak the economy to in the direction they want. I mean, you know, I tend to think, for example, the current Republican push to cause a crisis to do with the debt ceiling really is and a political ploy believing that if they can make a big enough mess, you know, Biden and the will be to blame. You know, the public basically thinks whoever's the president, that that's who's running the government. And therefore, if it's good, we like him. If the if something happens, you know, if the if the Republicans can create this mess, Biden will be blamed for it. Period. Aside from the blame issues, suppose they can't cut a deal and we don't have a lifting and an increase in the debt ceiling. That's a disaster because it would affect only this country, but, you know, the world. And and here's the other point is that how fixable is it? In other words, those negative implications of not raising a debt ceiling. It's not like you can fix it overnight because they have a long shadow. They have a momentum, if you will, here and there and everywhere. All all the economies that are affected by the US, the strongest economy in the world will suffer. And if you turn around, say, we were only kidding. We're perfectly willing to increase the debt ceiling. That doesn't necessarily solve it. So, you know, you have damage that is profound on day one, or at least in the middle of June anyway. Well, you have to get back to sort of the the cause or the underlying factors. You know, like to say so what if they, you know, if I didn't let's say I impose on you a debt ceiling and on you personally. Well, that wouldn't affect you at all. You know, your your employment income would continue. You could still pay your rent and you could still, you know, keep your wife happy and you could chug along. Other factors that would that would apply to me, for example, if the Republicans got into office and undermined social security and Medicare and then you added that to my whatever my debt structure is. Then you have a multiplier effect and I really do care. Let me come back to the causes for the US economy and the debt situation. Essentially, the United States only spends more money than the rest of the wealthy countries in the world. On two things, military and prisons. They don't spend anywhere as much as everybody else on everything else. The US pays so so much less for social security and the social safety net than everybody else. I put the numbers in perspective first. You'd have Western Europe has 40 percent of their gross domestic product that is government spending in the United States and in Europe. You know, they have tax rate roughly the same, you know, that each country may run a modest deficit. But the United States, they spend so little on social programs that that really their total government expenditure as a percentage of GDP is around 26 percent in part due to the Trump tax cuts. You know, they're the deficit of the US is 6 percent. Six billion dollars, rather, which is really about 20 percent of what the government spends. So that if you think of, you know, the debt ceiling, what what happens, you know, nobody really knows for sure. So you've got to say, well, the the United States starts with a position that that and if you just thought of an on an annualized basis, if you're going to spend six trillion, rather, got to get the right. Yeah, thank you. Yeah, the trillion, the number you were thinking of was six billion. Yeah, OK, trillion. OK, if you've got to have going to spend six trillion more then you've got an income in taxes, then you've got to borrow that. Hence, we're getting close to the idea of the debt ceiling. Or if you say, well, gee, the Republicans say, we're not going to let you borrow. So but you're underneath you've got the cause is the United States spends less money on everything except military and and prisons than all other wealthy countries. They do spend so much less on the social safety net that you really have poverty and inequality in the United States. They're really they're far more widespread and they're far more stubborn than there are in any of the other wealthy countries. And a great example of the result of that is the average life expectancy in the United States is six years less than than the other members of the G7 or wealthy countries. How about less than Canada? Yeah, oh, yeah. And in Canada, our life expectancy is a couple years less than than Western Europe, but about four years better than in the US. But Canada is kind of in between. In some regards, for example, our income or government tax take is about 33 percent, the US about 26 and Europe about 40. Europe has a ton of social programs now. That's correct now. But is that good, bad or indifferent? I mean, if you're the guy on the street and in the United States or you're in Mississippi and you're just an ordinary person getting starved into death or, you know, having a lot of trouble making ends meet. You know, you'd say Europe's far better than what you have there. But, you know, if you're the multimillionaire American, you say, that's terrific. We don't want to have any taxes at all. You know, just everybody can fend for themselves. You know, 20 years ago can maybe more when we started noticing people on the street homeless. And OK, we had that in Hawaii and there was some education that was happening elsewhere, but now it's kind of knitting together and that every city has homeless and very few jurisdictions do much about it, some more, some less. But the fact is that we have homeless who are off the grid, don't have a home, don't have any money, don't have anything. Medical care. And I say to myself, this is more than just a bunch of people who couldn't pay their bills or wouldn't pay their bills, who were not disciplined in their lives, who didn't, you know, take enough education. It didn't try hard enough, all that, you know, kind of Republican view of it. But it signifies that the system is broken. The system is broken, not only here in Hawaii in terms of that, but all across the mainland and you have it in Canada, too, maybe to a lesser degree. And, you know, for that matter, you know, it's not a lesser degree. If you recall, we had a program one month back over in a thing called Hastings Street. Well, they're still trying to clean up Hastings Street. But, you know, it's a great cause and effect result. It's a metric, isn't it? I mean, not that you would count the people on the street, but just on a gestalt level, you see, every city has all these people that are homeless and have no options and no prospects. Well, you say this is not a working economy. Well, if you take a social safety net, you know, and if you take your most extreme liberal approach and say, oh, all these poor people, we all we have to do something. Well, if you really look at the people, we really have alcohol addiction, drug addiction and mental illness. Now, those three items, you know, are the root cause of about 90 percent of the homelessness. Yeah, well, you got to do something about it. And, you know, we got to resuscitate those people, rehabilitate them and we don't do that. And in the modern world, there's plenty of drugs, there's plenty of alcohol, there's plenty of places to fall down. And if you want to maintain a stable society and a stable economy and a stable rate of inflation, I suppose, you really have to address that. And the problem is, and this is I always wanted to put this question to the problem is that Joe Biden can spend a ton of money on social safety and on social programs. He can outdo, you know, Europe, I mean, assuming no debt ceiling. He can spend, you know, trillions and trillions. And he can probably, you know, make some inroads on these social problems in the country. But somewhere, Milton Friedman should be here with us today. Somewhere, there's got to be a red line. Somewhere, the money runs out. Somewhere, the country as an entity, as a polity, cannot continue to exist if you keep on digging in your pocket and printing more money or finding more money or taking more money. I wonder where the red line is and how close we are to it and how that, you know, affects our inflation. And for that matter, our relations with other countries and the world in terms of what do you want to call it, economic policy? I tend to think, you know, in Canada, our biggest problem with the dealing with the homeless people you know, comes back to those three factors of drug addiction, alcohol addiction and mental illnesses is our legal system really has a pretty simple catch and release policy, you know, so that all of these homeless people continue to create a stream of small crimes. Most of them are small, you know, but you do have large crimes arising from them. But on these small crime, they'll go by and they'll break the window of a storefront, you know, on purpose. Well, you know, they just get to spend one night in jail and they're back out. You know, well, you know, really, if your government expenditure doesn't have to be billions and billions of dollars, but if it brought the US a little closer to what, you know, Western Europe is or even where Canada is, you know, you could have those if you're picked up on one of these petty crimes, you know, you must go through an alcohol addiction test, a drug test and a mental illness test. And if you, you know, hit any of those buttons, you know, you you fail those tests, then you immediately got to go somewhere. You know, for example, in in Canada, in the United States, you know, 25 or well, I guess it might be 50 years ago, we used to have mental institutions, you know, well, they got closed down. You know, gee, that's an inhumane thing. Well, you know, if you have all those people walking around the street or sleeping on the street, it's nobody wonder to say nothing about the people walking around with guns. Well, including those with alcohol, drug or mental illness, you know, in the United States, they can all qualify for AR-15. I think we must be approaching a red line somewhere. I mean, I just don't think that today's modern Western society, societies in general everywhere, you know, have the possibility of spending what it takes, you know, to to preserve their society, their democracy, their their social experience. And then, OK, and here's the question, my last question to you today, but it was also my first question is then on top of that, you have something that's less predictable. You have the floods and the forest fires. You have the droughts that affect agriculture. You have all of these things that flood down on us from climate change, for which we have not spent any money in deferring and deterring and which we're going to have to, you know, deal with on an emergency basis, which is going to cost a lot of money. So so you start with an unworkable proposition and subject to the surprise of surprises that climate change is expensive. So when you add it all together, there isn't enough there isn't enough money to handle this. And my question to you is let's assume that's the case sooner, not later. You don't talk about duration of climate change can do real damage and you and you have to put money in to fix it. You know, it's just sort of like Ukraine has been completely demolished. Got to put money in to fix it. Where's the money coming from? And how do we handle that as a as a fiscal policy matter? How do we handle that as a banking matter and investment matter? Do we have the institutional structures and the money to do that? Or does something really awful happen when we run out of money as a country, as a society? I don't agree with you that there's not enough money. You know, there's just not enough will, you know, particularly political will. You know, if you think of JFK following when the Russians put Sputnik up in the air and zoomed around, you know, and he immediately gave his sparkling speech or series of them. But I particularly remember one about, you know, we will get to the moon and we can do it and blah, blah, blah. Well, that was a very expensive effort to create NASA and the U.S. program, you know, but really in terms of the total scale of the U.S. financial capability, it was deadly squad. Well, that was a different time. And if you look at the national debt then and now, it's way different. It's not in the one with 20, 20 trillion dollars or something along those lines. Well, when you went went through World War Two, there were humongous deficits. We're really active economy for following World War Two. And it was you never saw growth like that ever. And that that helped, didn't it? How did that arise compared to today? You see, and if you start in 1946 or 1950, you know, where the wealthy in Canada, and I'm not sure of the numbers in the U.S., the marginal tax rate was like 90 percent. You know, and the very wealthy were not willing to pay that. You know, Canada even created a program of buck a year men where they had the most talented wealthy people in the country work for the government for a dollar a year to achieve all kinds of things for the war effort. So you come out of the war with though with a mindset of those very, very wealthy people, you know, that they could do anything. But they, you know, didn't need to have zero taxes. You know, they were very acceptance that that, you know, the country, everybody was pretty equal. You know, the poor guy at the bottom of the room, you know, his brother got killed in the war. And this, you know, sister was a nurse in the war. And, you know, and he's got a broke, you know, a bullet in the leg or something, you know, and the rich guy treats him better than the rich guy does today. Yeah, true. And the question is, how do we get back to that? That is the question because we have left that behind in history. All of that. It's a beautiful picture is the greatest generation on both sides of the border all over the all over the place and the Marshall plan and all the all the things that the U.S. did or tried to do in those years. Any event can thank you again for a great show and a great discussion. We'll talk some more about comparative what voting rights next time and we'll see what we can do back to Ken Rogers in finance and fiscal policy in in in global history and wisdom. Thank you so much, Ken. Bye for now. Aloha. You can also follow us on Facebook, Instagram and LinkedIn and donate to us at think.kawaii.com. Mahalo.