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What Is The GDP And What Does Its 4.1 Percent Growth Mean? | Velshi & Ruhle | MSNBC - YouTube
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the second quarter GDP growth is
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impressive 4.1 percent now there are
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several one-time factors that are
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contributing to this but I want to take
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a look at what GDP is and why quarterly
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figures alone have to be looked at in
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context GDP look it's much more
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complicated than this I know some of you
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are gonna get angry that I put such a
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short description gross domestic product
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is basically the total value of
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everything produced by everybody in
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every company in the country it's a big
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scorecard of the country's economy now
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we have seen high rates like this before
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in fact we've seen higher quarterly
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growth rates during the Obama
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administration quarterly growth reached
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four percent or higher four times during
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the Obama administration it actually got
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above five percent at one point in 2014
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but this is the highest since 2014 the
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annual GDP growth rate never broke three
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percent under President Obama and I tend
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to like to look at this one a little
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more the last time we saw that kind of
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growth was during the Bush
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administration three point three percent
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back in 2005 right now Federal Reserve
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officials forecast GDP to be up by 2.8
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percent compared to last year for all of
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2018 then to tail off to two point four
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percent in 2019 and two percent in 2020
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now I have seen numbers that are higher
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estimates for this year than 2.8 percent
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I'm gonna call it 3 for argument's sake
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but that's probably a number that you
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should be thinking about now the boost
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in recent months the one that we just
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got today was fed in part by spending
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from consumers and businesses and a rush
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from farmers getting their soybean
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exports for instance into the global
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market ahead of new tariffs so for those
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of you out there asking if the four
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point one percent rate can sustain
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itself through the rest of the year that
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is an open question joining me now from
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the White House is Kevin Hassett he is
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the chairman of the President's Council
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of Economic Advisers and he is a good
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friend of mine and they couldn't serve
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enough but I also know liberal
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economists and Jared Bernstein who is I
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know a friend of yours as well liberal
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economist is standing by I'm gonna talk
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to him afterwards but the danger for you
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Kevin is that you have somebody smarter
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than me listening into this conversation
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you could normally walk around Jared
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there let me ask you this back the
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reason Jared's significant in this
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conversation is back during the Obama
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administration they would trumpet
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reports on job creation or the effect of
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the stimulus and I would do to them
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exactly what I'm doing to you I would
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question them I would say that perhaps
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they are rosier than they think and
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Jared like you has invited me to the
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White House to examine the books and to
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and to make your case now in this
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particular case four point one percent
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is solid growth but as I noted some of
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it was fueled by farmers getting rid of
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soybeans there isn't some crazy
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increased demand for soybeans around the
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world
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so do you look at four point one percent
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and think that is sustainable or should
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we talk about two point eight three
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percent well I think you're right to get
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a little bit anxious about focusing not
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only one number and and I got to also
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add that jared has over the years taken
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a lot of guff from conservatives about
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the first forecast that he and Christy
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Romer did about what the economy would
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be if we passed the stimulus and you
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know I think that a lot of that
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criticism was really unfair because they
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had to close as I did with the economic
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report of the president closed the
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forecast before they got a whole bunch
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of really bad data and so that there you
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know for sure would they would have
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changed their numbers that they had the
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data available when their forecasts came
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out and since they didn't they looked a
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lot worse than really they were it I
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think that's unfair and so so for me
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though thinking about just what I'm
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doing right now here at the White House
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that when I took the job the president
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basically said Kevin you know don't
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spend the American people pick the
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models that you think are best for
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modeling things and then go out there
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and believe that what you're saying is
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true about what it's gonna do to the
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economy and you know that that's what
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I've been doing all the way back to the
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fall and last fall you know I said on
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the show that if we pass the tax cut
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that our forecasts would be come true
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which is that we'd have growth this year
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of 3.1 percent not ridiculous growth not
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above four like we saw today but three
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point one if he averages the two numbers
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like the first half of the year it's
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three point one so I think totally field
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is still a good it's a good guess you
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know per forecast which is 2.8 because
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these numbers are stronger so maybe
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it'll be 3 maybe it'll be 3.1 but I
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guess the concern I have is how to make
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this make sense for the American people
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because when the president ran for
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office you weren't involved at the time
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when the president ran for office here's
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what he said we're bringing it from one
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percent up to four percent and I
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actually think we can go higher than
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four percent I think you can go to five
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or six percent right that's my problem
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cuz we're not actually talking about
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annual GDP growth of four five or six
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percent at all that's that you and I
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have had this conversation I think I
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once promised to wear a dress for a week
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if certain predictions came true and
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I've said that I will grow an afro if we
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get to four or five and six percent that
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would be fun it would be but it would be
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fun to have four or five or six percent
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right that's not really a reasonable
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expectation well no I think that you
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could have a quarter like that and and
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let's go back to today's numbers that
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there are a lot of signs of serious
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momentum in the data first
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the capital spending boom is continuing
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but second a reduction in inventories
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took about a percent off of the GDP
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number and so if we had normal
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inventories than it would have actually
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been a five percent number like the
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president said and as you know if you
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like have firms running down their
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inventories in one quarter then that's
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pretty optimistic for the second half of
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the year and so I think that you know
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having 38.1 over the first half of the
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year and having the second quarter be
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above four with sort of minus one
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percent from inventories means that the
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CEA is still really really comfortable
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that three point one is a very
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conservative estimate for the year as a
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whole CEA is your group that the Council
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of Economic Advisers the president
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interestingly has chimed in in the last
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couple of weeks about interest rates
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apparently warning the Fed to to be
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careful about the increase in interest
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regret and interest rates you
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comfortable with the president chiming
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in on that sort of thing you know
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absolutely a hundred percent respect the
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independence of the Fed and I have all
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the regard in the world for Jay Powell
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and our other nominees to the Fed and
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the President does too you know I think
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that the independence absolutely a
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hundred percent has to be respected
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religiously but it doesn't mean that you
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can't provide your own analysis of the
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public sphere you know a few months ago
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I got criticized because I was on stage
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and I said something which I believe my
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whole life which is I'm not really sure
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there is a Nehru a natural rate of
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unemployment if you have a natural rate
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of something and it changes all the time
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and how natural is that right but after
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I said that on stage then then Blum
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I think it was ran a story that I'm
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attacking the fed and I think that that
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kind of conversation of course should be
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permitted so that we could you know say
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hey here here's how I'm seeing it but in
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the end they have to make the call they
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have to vote on interest rates than they
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need to do it without political
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influence I have often said I've said it
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to you I've said it to Jared Bernstein
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that the president gets too much credit
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and too much blame in some case any
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president for for jobs and some times
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for economic growth but the president
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and he gets he deserves credit where
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credit is due but if this slowdown gets
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triggered by a trade war does the
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president have to take responsibility
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for that
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the president has said forever and you
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and I have talked about it that he wants
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better trade deals and if you look at
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all the positive movement with the EU
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this week then you can see that his
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strategy of being tough and having
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credible threats and then collegially
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inviting people to the table is
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definitely working and I think that as
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you mentioned the trade deficit dropped
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sharply in the second quarter and some
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of that was anticipate Ori as you
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mentioned soybeans of the light but it's
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also I think partly that either we were
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open again for business we've become a
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really attractive tax climate and maybe
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people are a little worried about you
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know what's going to happen to trade
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policy in the future and so they're
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moving their production home in advance
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of something that they might be anxious
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about can't argue with the results
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though dropped a lot the one result
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that's problematic is that wage earners
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are not earning more money hourly wages
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are not improving and we do have a
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little bit of you know we got interest
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rates going up we've had all the prices
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going up where how do we fix that that's
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something that CEA we're working really
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hard on and I'm gonna pretty soon I'm
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about to go off to Tokyo for a week but
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would I come back Ali I'll come on your
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show and present some new analysis that
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we've been doing to look at how the
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stampede of workers back into the labor
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force has increased the pool of
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low-skilled workers and that has lowered
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the average wage even while there's wage
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growth that's starting to really pick up
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for people who are like we're in before
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and are in now and one of the ways you
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can see income go look at the GDP
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released today and you do all these
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really awesome explainers and look at
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what happened to gross domestic income
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because income was really really revised
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up over the last few years so much so
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that the savings rate just about doubled
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that's how much income they found and so
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a lot of the disappointing income
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statistics and the GDP releases Atlee
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are starting to be fixed because they're
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finding income that they had mismeasured
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before and i think that if you account
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for compositional changes and then also
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account for the these new data that
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we're finding that shows skyrocketing
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incomes that the story is gonna be a lot
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better but final final thought in the
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end the wage growth from capital
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spending is something that's a
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medium-term phenomena something you
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should see over three to five years as
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I've reiterated all the way back to the
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fall ok optimistic but thank you for all
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your stuff good to see you Eminem Dylan
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all right joining me now has promised
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Jared Bernstein senior fellow at the
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Center on Budget and Policy Priorities
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and former chief economist to Vice
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President Joe Biden and I should say
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that I first got to know Jared because
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we had an argument about my
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characterization of things that you and
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the Obama administration were saying and
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you invited me to sit and discuss that
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with you at the White House so just so
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viewers understand I'm an
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equal-opportunity critic of
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administration's providing rosy
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narratives about the economy help us
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understand what we're looking at when we
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get this 4.1% vigor the president argues
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that as did Kevin that tax cutting and
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regulation cutting is delivering results
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do you agree I don't agree with that
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last part
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if you actually look into the guts of
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the report you don't see much from the
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tax cuts in the sense that I think Kevin
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was trying to stress this idea that it's
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really increasing the investment or the
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economy's capital that it will use to
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generate more growth there's a little
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bit of that but that's not the big story
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I think where the tax cut and some of
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the other deficit spending is helping is
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more in a Keynesian stimulus sense it's
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juicing GDP growth this quarter probably
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this year and next year as well and then
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unless Congress puts more fiscal
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stimulus on the credit card it will
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probably fade and I think you showed
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some of those numbers the idea that GDP
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is going to sustain a four or even a
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three percent growth rate is probably a
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much too optimistic I think the
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underlying trend right now and that's
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really important to try to pull out the
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trend is about two-and-a-half percent
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and that's a good steady GDP growth rate
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I also don't think there's anything in
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this report that would lead you to get
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worried about overheating that the Fed
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would have to react to
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I do think the one problem and you and
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Kevin talked about and I again I
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disagreed with this part of Kevin's rap
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what was the wage part I don't think
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you're going to make that the real wage
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stagnation go away by kind of you know
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looking at the workers who are entering
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the workforce and their different
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qualities yeah this is this is
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fundamentally all of this economic
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mumbo-jumbo that you and I enjoy and
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Kevin enjoys what it comes down to and
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what I'm gonna get tweets about is I
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haven't had the raise I'm working two
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jobs it's a weird situation to be in
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where we have 4% unemployment we have a
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four in front of GDP growth quarterly
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GDP growth and yet we've got this
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intractable problem of workers who are
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not seeing what they look at in the
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stock market what they look at in GDP
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growth what they like how do we fix that
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well there's a word for that and it's
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called economic inequality and it
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certainly predated in Kevin Hassett and
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and the Donald Trump administration this
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has been a structural problem in our
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economy and you ask how we fix it that's
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exactly the right question it has to do
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with the bargaining power of middle and
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low wage workers that's a long term
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erosion it has to do with with
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diminishing union power it has to do
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more recently with court decisions that
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really tilt against workers and their
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ability to claim their fair share of the
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growth it has to do with the increased
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power of Finance I think it does have to
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do with the fact that we've run large
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trade deficits for many many years and
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that's hurt our manufacturers so there's
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a lot of economic policy architecture
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that's eroded the the the connection
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between GDP growth and middle-class
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paychecks which is also what you can say
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about the stock market right people used
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to think of the stock market's up the
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way it's been just a quick comment here
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and I think that what's so key about
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this is to understand GDP growth in
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context we like that four percent number
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even if it's just a blip and not that
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sustainable we even like the 2.5 percent
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trend growth rate but let's not over
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interpret GDP to be more than it is it
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leaves out a lot including who's getting
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the benefits like that growth hey MSNBC
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