Economic Briefing with Glenn Hubbard and Abby Joseph Cohen: A Special Season Finale

Summary of Discussion on Real Estate, the Economy, and Fiscal Policy

Key Concepts:

• Supply & Demand in Housing: The critical importance of increasing housing supply in New York City to address affordability issues, avoiding policies that stifle construction.
• Zombie Apartments: A significant number of nominally affordable apartments in New York City that are poorly maintained due to rent control policies. (Estimated 30-70,000 units)
• Economic Attractiveness: The need to foster a business-friendly environment in New York City to attract investment and talent, focusing on both high-skill and low-skill job creation.
• AI & Productivity: The potential for Artificial Intelligence to drive productivity growth, but also the need to address its impact on the labor market.
• Fiscal Sustainability: Concerns about the growing US national debt and the potential for a fiscal crisis if a political solution isn't found.
• Data Quality: The increasing challenges in accurately measuring economic activity due to structural shifts in the economy and under-resourcing of data collection efforts.
• Federal Reserve Policy: Debate over the Fed’s conduct of monetary policy, the appropriate level of interest rates, and the risks of political interference.
• Government Intervention: Skepticism regarding direct government investment in private businesses, citing concerns about crony capitalism.
• Repurposing & Reinvention: The importance of cities, particularly New York, adapting and reinventing themselves to remain economically vibrant.
• Fannie & Freddie: Discussion of the future of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and the risks associated with their potential privatization.

I. Introduction & Local Focus (New York City Real Estate)

The discussion began with welcoming remarks and a focus on the New York City real estate market, specifically regarding the proposed policies of Mr. Mamdani. The core argument presented was that focusing on increasing housing supply is paramount to improving affordability, rather than subsidizing demand. Subsidizing demand while restricting supply is identified as a detrimental economic practice, referencing principles from introductory economics courses. The speakers emphasized the need to boost the overall business attractiveness of New York City to support economic growth.

II. Housing Supply & Affordability in NYC

Abby highlighted the issue of “zombie apartments” – affordable units that are deteriorating due to insufficient funds for maintenance, stemming from rent control policies that don’t adequately account for building costs. She expressed concern that new policies might exacerbate this problem, potentially driving out small landlords (often family-owned businesses managing 6-20 units) who provide a significant portion of moderate-income housing. The importance of a balanced approach that encourages both affordable housing development and responsible property management was stressed.

III. Economic Growth & Job Creation in NYC

The discussion shifted to broader economic strategies for New York City, drawing on lessons from the Bloomberg administration. The focus was on attracting industries with high-income, high-education jobs (e.g., high-end medical research, technology) while simultaneously creating opportunities for lower-skilled workers through initiatives like tourism, policing, and street maintenance. The pre-pandemic figure of 60 million annual visitors and the jobs they supported was cited as an example of successful economic diversification.

IV. National Economic Outlook & AI

The conversation broadened to the national economic outlook, characterized as a mix of crosscurrents. GDP growth, inflation, and unemployment presented conflicting signals. A slightly above-potential growth rate was predicted for the next year, with inflation remaining stubbornly high in the high 2s. The speakers acknowledged an “AI boom” in investment related to data centers and infrastructure, but also highlighted the negative impact of tariffs on manufacturing activity (nine consecutive months of subpar performance).

V. Data Quality & Economic Measurement

A significant point raised was the declining quality of economic data. The speakers emphasized the need to incorporate private data sources to supplement government data, which is often lagging and incomplete. They noted that major economic transformations (like the shift to a service-based economy in the 1990s) necessitate revisions to data collection methodologies to ensure accuracy. The reliance on sampling techniques in data collection was highlighted as a source of potential error.

VI. Fiscal Policy & National Debt

The discussion turned to the US national debt, expressing serious concerns about its sustainability. The speakers warned that the US is entering a period of fiscal instability, citing the increasing budget deficit, demographic shifts (aging population and declining immigration), and the strain on social insurance programs like Social Security. The three levers for addressing the debt – cutting spending, raising taxes, or inflating the currency – were identified. The potential for a fiscal crisis if markets lose confidence in the US government’s ability to manage its debt was emphasized.

VII. Federal Reserve & Monetary Policy

The speakers debated the Federal Reserve’s conduct of monetary policy, with Abby expressing confidence in the current FOMC’s commitment to data-driven decision-making. However, concerns were raised about the Fed’s communication strategy (specifically the “dot plots”) and the potential for political interference. The importance of maintaining central bank independence was underscored. The speakers also discussed the Fed’s role in supervising and regulating the banking system, expressing concern about the risks associated with new financial products like cryptocurrency and the growth of private credit.

VIII. Government Intervention & Crony Capitalism

The speakers expressed skepticism about the recent trend of direct government investment in private businesses (e.g., the investment in Intel). This was characterized as potentially leading to “crony capitalism” and distorting market forces. The need for transparency and accountability in such interventions was stressed.

IX. Repurposing & Reinvention of Cities

The discussion highlighted the importance of cities adapting to changing economic conditions. New York City was cited as a prime example of a city that has repeatedly reinvented itself. The example of Pittsburgh’s successful repurposing after the decline of the steel industry was contrasted with Youngstown, Ohio’s struggles to revive its economy.

X. Fannie & Freddie & Housing Finance

The future of Fannie Mae and Freddie Mac was discussed, with concerns raised about the potential risks associated with their privatization and the use of cryptocurrency as collateral for mortgages. The need for a carefully structured approach to reforming the GSEs was emphasized.

XI. Conclusion & Future Outlook

The discussion concluded with a look ahead, predicting that AI will have a larger and faster impact than currently anticipated. The speakers also expressed concern about a potential reordering of the international economic landscape and the need for the US to invest in science, education, and immigration to maintain its competitive edge. The importance of addressing the political economy challenges to foster a pro-growth agenda was also highlighted.

Notable Quotes:

• “Don’t subsidize demand and kill supply.” – Abby (regarding housing affordability)
• “We have seen a deterioration in national data for many years…we care a lot.” – Abby (emphasizing the importance of data quality)
• “If you thought you understood me, you’re mistaken.” – Alan Greenspan (quoted by Glenn, advocating for a degree of opacity in Fed communication)
• “Crony capitalism…smacks of crony capitalism.” – Abby (regarding government investment in private businesses)

This summary aims to provide a detailed and specific account of the discussion, preserving the original language and technical precision of the transcript.