Crecimiento económico y políticas públicas: los datos, no la deuda, son la solución

Kent Smetters [00:00:00 - 00:00:46]

But then there are big issues like Social Security, Medicare, all those facing large funding issues. And then there's even some of the big think stuff. So much of what we do in the United States is redistribution through the tax code or this relationship with employers that is often coming through as a result of World War II, of why we have 401(k) and healthcare plans based on employers. And so, there's a lot of thinking going on right now of how to even rethink all of that in order to make things more portable, more streamlined, and more kind of pro-growth, while also trying to be distributionally fair.

Announcer [00:00:48 - 00:01:00]

Welcome to Paychex THRIVE, a business podcast where you'll hear timely insights to help you navigate marketplace dynamics and propel your business forward. Here's your host, Gene Marks.

Gene Marks [00:01:04 - 00:01:41]

Hey everybody, it's Gene Marks. Welcome back to another episode of the Paychecks THRIVE podcast. Happy to have you join us. And we are speaking with yet another great economist. We've been speaking with a few, and Kent Smetters is somebody that I think will be able to shed some light for us on what's going on in the federal government, public policy, budgeting process, fiscal crisis, all the stuff that we read and hear about a lot. Kent is the professor of business economics and public policy at the Wharton Business School, the University of Pennsylvania in my hometown of Philadelphia. So, first of all, Kent, thank you very much for joining.

Kent Smetters [00:01:41 - 00:01:43]

Thanks for having me.

Gene Marks [00:01:43 - 00:01:50]

So, first of all, let me just, before we even get into like what you're doing now, give me a little bit of your background. How'd you come to be professor at Wharton?

Kent Smetters [00:01:50 - 00:02:39]

Yeah, so I've been here over 20 years. My undergraduate training is computer science in math and some economics. I went on for my PhD, then, in economics and went to work for government for a few years. Knew I was always going to come back to academics, and Wharton was my first and only role stop in academics. I went to Stanford for a little while, but decided to come back and I worked for the Bush administration as Deputy Assistant Secretary for economic policy, just really for trying to help with some of the economic policy. Then came back to the Wharton school and once again and have been here ever since.

Gene Marks [00:02:41 - 00:02:45]

That is really, really interesting. Are you a Philly native or are you from somewhere else in the country?

Kent Smetters [00:02:45 - 00:03:03]

Oh, no, I'm definitely from rural Ohio. So very. I used to brag that my little hometown has under under 500 people. Turns out I was not bragging enough. It only had about 240 people, so definitely outnumbered by cows.

Gene Marks [00:03:03 - 00:03:16]

Yes, I can imagine so it definitely a big cultural shift living in Philly, but you've been there for 20 years, so I'm sure you’ve grown quite used to it. Well, I'm glad to have you on. So, do you mainly teach to undergrads or grads?

Kent Smetters [00:03:16 - 00:03:46]

So, initially it was only PhD students and then undergraduates, and in the last decade, it's been just MBA students. . And I have a secondary appointment in the math department. So, most of my PhD students now actually come from mathematics rather than economics. So, it is still a mixture of PhD students, but in terms of actual class time, I teach in the core of the MBA program.

Gene Marks [00:03:47 - 00:03:54]

All right, that's great. And is the MBA program. Are these younger people, or are these people that are like the executive MBA people that are already in the workforce?

Kent Smetters [00:03:54 - 00:04:54]

It's a mix, but I have been doing a lot more recently, the past several years on the executive MBA side, and it is really terrific to have them because they essentially are far enough in their career where they know what they don't know; very mature, very eager for understanding new things, and often come for a really diverse background. About 40% of them will have PhDs or masters (degrees). Ten to 15% will have medical degrees, and they really have risen in their businesses and their corporations, but hit a kind of a ceiling in terms of knowledge. And so they want the MBA in order to sometimes pivot a little bit from technology to the business side, but in many cases, just to really understand the concepts.

Gene Marks [00:04:54 - 00:05:18]

 I can get, like, if you're running a business or you're C-suite level or executive level at another business, and you want to take your executive MBA, you want to delve deeper into taxation, into investments, into cash flow and analysis, into macroeconomics or microeconomics, you pretty much teach public policy, right? Do you tell me, like, why? What's in it for them to learn that?

Kent Smetters [00:05:18 - 00:07:02]

Right? So, a couple different hats I wear. One is in that my actual teaching, I teach a course called managerial economics. And so that is pretty low on public policy content. Just a little hints here and there. It's much higher in terms of how do we make decisions from management perspective, thinking through economic models, what's our competitive framework, you know, if there's first mover advantage, how to think about externalities in terms of building networks, things like that.

In terms of other hat I wear in that is, as faculty director of the Penn Wharton budget model, we definitely focus a lot in public policy, really providing policymakers, members of Congress in particular, with a lot of analysis. The big pain point that they faced before we existed about seven, eight years ago, is that they write legislation pretty blind, and if they're lucky, they'll maybe get a CBO or JCT joint committee and taxation score on the back end. But usually they don't have much understanding in terms of when they're actually writing the legislation, what the economic impact will be. That often is not even provided in the final score, what the distributional impact will be, what's the impact that be on the long-term budget, things like that.

So, we typically work with policymakers on the front end and really bring up a lot of technology in terms of model building, model simulation, and really the U.S. economy and of course, the international capital flows.

Gene Marks [00:07:02 - 00:07:41]

Yeah, I've always wondered about that. How?  I mean, obviously, as we head into 2025, regardless of how the election goes in November, there's going to be big debates over taxes. There's a lot of provisions from the 2017 tax act that are expiring after 2025. So, you're going to have a lot of policymakers saying, no, we should extend this, we should make this permanent, or we should get rid of it altogether. It's kind of a glib thing to say unless you've got data behind you so that you understand what the impact it is of not extending the bonus depreciation deduction or something like that. And are you telling me that's the kind of stuff that you do to provide that support?

Kent Smetters [00:07:41 - 00:08:21]

It is. So, there's always these trade offs in particular. Extending things like bonus depreciation definitely reduces the cost of capital. That tends to be pro-growth. On the other hand, if you figure out how to pay for it, you fail to figure out how to pay for it. They add to the national debt, and that has a drag on growth. And so you're always trying to figure out these balances. And in essence, what's the wisest way to spend a dollar? And so at the end of the day, we don't advocate for policy, but we certainly will help policymakers understand those trade-offs.

Gene Marks [00:08:21 - 00:08:28]

And you must compete against other academic institutions that are doing the same thing. First of all, is that true?

Kent Smetters [00:08:29 - 00:09:46]

There's nobody else in academics is really putting together our type of framework. We start with hundreds of thousands of households that run through this, what's called micro-simulation. They grow up, they get married, they have kids, all these different attributes, and it feeds into this dynamic framework and tremendous amount of calculations. Even the government scoring agencies, whether it be CBO, JCT, OMB, OTA, Treasury, and so forth, they don't use these types of levels of models, typically, for doing the analysis so in particular, they tend to focus more on static outcomes. That's, you know, occasionally they'll do these side reports and things like that, but they will typically provide much more focus on the budget, where we typically, and they're also constrained to different rules are given to them.

We will look at economic impact as well as the budget distributional impact and also see which they typically scoring agencies typically cannot do is actually see what's the longer-term impact as well as we go on beyond 10 years. And the long-term impact right now of current policy is very, let's say, very scary at the current moment.

Gene Marks [00:09:46 - 00:10:35]

Do you feel that the science of economics has, over the years, evolved quite a bit? And I was an economics major at Lehigh, and I studied mostly macroeconomics, but I have found that a lot of it has become more and more politicized, and I know that's a very sensitive topic. I just, if you're getting, like a request from a Republican senator or Democratic senator, and they're saying we need analysis, we're going to propose this pullback in some tax rate or this type of funding, and we want to know how that impacts. How do you keep your bias out of that? You're human. You know what I mean? How do you do that?

Kent Smetters [00:10:35 - 00:11:27]

It's a couple ways. One is we're not just nonpartisan. A lot of groups call themselves nonpartisan for tax deduction purposes and charitable contributions to those groups, we don't advocate. We go one step further. We're not normative, in particular. We will never say you should do this policy. In particular, we'll show tradeoffs and let policymakers ultimately make those decisions. On the other hand, let the chips fall where they may. Our joke here is we try to tick off everybody equally, but even then, that's not even always true, because whoever's in the White House, you tend to tick off them a bit more because they're proposing more things. And that often is, you know, let's face it, most proposals really are not well-constructed and so forth.

Gene Marks [00:11:27]

Sí.

Kent Smetters [00:11:27 - 00:13:17]

And so, it is one of those things that, you know, our goal is not to be liked. Our goal is not to be disliked. Our goal is really just to say, you know, what is the best analysis? So, if you looked at our list topics, I mean, some of the things you say, oh, that's very Democrat-leaning.

For example, we've done a lot of stuff on immigration. In fact, not terribly surprising. Immigration typically is good for the U.S. economy, not negative for the U.S. economy. Things on carbon taxes and so forth, often there could be positives instead of negatives.

On the other hand, things like wealth taxes and donut hole taxes on Social Security, things that look very progressive, often they're very, don't achieve nearly as much revenue as people think, or often it can be a big drag in the economy and often don't achieve the distributional effects that people are hoping for. And so, we just let the chips fall where they may.

So, you mentioned the tax act of 2017, the Tax Cuts and Jobs Act. At that time, we said this was going to cost $2 trillion and official estimates was $1.5 trillion over 10 years. Now, the official estimates got revised upward after the act was passed to about $2 trillion, our number. But nonetheless, at the time, you know, the White House was upset where they're with our estimate going, going to town with it. At the same time, we showed there's pros and cons, there are tradeoffs and so forth.

So, the extensions of these things, the Tax Cuts and Jobs Act, would certainly be very costly. If you figure out how to pay for it, they could be pro-growth. If you don't figure out how to pay for that, that is to replace the lost revenue, it can work just the opposite way. So, the details really matter a lot. The specific design policy matters a lot.

Gene Marks [00:13:18 - 00:14:10]

It really does. I'm going to get into some of these specific issues in just a minute. But I do think it's important, and I think it's fascinating to learn how this process works because so many of us are affected by these policy decisions, and the policy decisions are affected by the very numbers that you guys, you know, that you guys provide.

What happens when you ... first of all, do you publicly publish your numbers? Because, and the reason why I asked that is that can you, can you do an analysis? And if the, like you said, if it is where it is, if the numbers don't come out to where a legislator wants to see the numbers and the legislator either ignores them or, you know, misinforms the public, you know, you know, it doesn't use the numbers that you provided, do you have recourse on that? Like, can you go back to, like, well, we published this report two weeks ago, and, you know, this legislator was saying this, but this is the number that we published. You know what I mean?

Kent Smetters [00:14:11 - 00:15:50]

So, there's kind of two modes on this. One, if the policymaker has already gone public with their proposal, then it's fair game. We will publish on our website if we think it's, you know, germane enough, that is material enough for us to do it. I mean, smaller proposals, we just don't have the bandwidth. We only have 30 some people. The scoring agencies are much, much bigger.

On the other hand, for major legislation or proposals are in the public, those are fair game. We'll often post right on our website. And yep, policymakers often don't like it. In some cases, they love it, you know, not terribly surprising. But when it comes, many cases they come to us on the front end before they put pen to paper. And there the rule is simply, we're going to do the analysis. We're not going to tell you what you want to hear. We're just going to do the analysis and show you the trade-offs and so forth. And we're happy to do a private delivery of that analysis. And it's up to them if they want to release it all, they can do that, but they can't release just parts of it. So, it's either all or nothing.

And often they use that to say, okay, that's interesting, let's iterate a bit to try to figure out how can I avoid this problem or get more revenue or less in the storage in some other way. And so that's completely legitimate part of the process. That's the whole point of showing people options. But we really work hard to avoid cherry picking.

Gene Marks [00:15:51 - 00:16:10]

Good. Again, we're going to get to some of the policies in just a second. But just two more questions. Just the process itself. I know your answer to this is going to be, "It depends", but I'm kind of hoping it's just to give us a range. How long does it take to turn around a request? I know it depends, but just what can a legislature usually expect? Months?

Kent Smetters [00:16:10 - 00:18:23]

We've done it. Yeah, you're right. You anticipate the answer of it. It depends. In some cases, we're asked things that you would say that should just be a couple days of work. In effect, sometimes that is a couple of weeks of work. I mean, we're constantly refactoring our entire software platform to accommodate more broader requests and just much more flow through requests. But it's impossible to anticipate everything. So, some things that could seem pretty small often will take several weeks and we'll say, you know what, that may be important to you. It's not national importance. We just don't have time, uh, to invest in that.

In other cases, though, we've already turned around estimates in a matter of hours. Uh, especially this happened in all the major legislation the last couple of years, Inflation Reduction Act to, uh, the CHIPS Act and things like that, often policymakers are coming out, you know, on that, on the weekend and saying, do you have an estimate of this? Suppose we add this, or suppose we take this out, and in many cases, they were able to do it, uh, quite fast, like in the case of Inflation Reduction Act. Uh, the official estimate, actually, the, uh, from, uh, the government, the scoring agencies actually did not come out until a couple of weeks after the act was actually passed. And so, we try to get this, uh, you know, these estimates out ahead of time and look at the impact ahead of time. Uh, and so it is, you know, um, sometimes we can do it quickly, sometimes it's just a yes, you know, based on a previous analysis we've done.

But, you know, it's a very tight fuse. But in our cases, you know, we have to be very methodical. So, things like Social Security, we've really done a whole refactor of our framework because we're just getting so many different variations on how to try to fix Social Security. We realized we had to generalize and generalize a bit more. And so, it, it, that's just one of the things that we do, but we want to do it in much more depth than what the government agencies are able to do.

Gene Marks [00:18:24 - 00:18:45]

Sure. Final question on this, and we can move on to some policies, is just how you guys get funded. And I know that, I don't know how involved in that process you are, as well. But just so that we all take a step back and say, here are people that are doing these things, we want to make sure they're as independent as possible. How does Wharton get funded for this?

Kent Smetters [00:18:45 – 00:20:14]

Yeah. Yeah. So, I'm very involved in that. And it is sometimes it's just alumni who gave us funding that's been probably easily half of it so far. And they understand the rules that they don't get anything in return for it. So, the question is, some of these alumni are more on the left, some on the right, and the question is, what would be their motivation for doing it? And usually the thing that comes back is that, listen, it doesn't almost matter what your politics are, left or right. With the path that we're on right now in terms of policy, it's kind of so off the rails.

We should at least have honest, good broker, honest broker analysis in terms of the tradeoffs. And so that's what's missing right now, is that ahead of time preemptive, here's where you, where we are, here's the ramifications of doing nothing, and it is in that sense, there's not terribly surprising.

A lot of alumni come from businesses, even though they have their own different leanings. And it's just not great for the American businesses and the economy if things are just completely off the rails, which it is right now.

Gene Marks [00:20:14 - 00:20:23]

You know, Kent, I gotta tell you, I mean, your job's, it's fascinating. And, you know, everybody in this world, all humans contribute to the world in their own way.

Kent Smetters [00:20:23]

Sure.

Gene Marks [00:20:23 - 00:20:40]

But I don't know, man, when you take a step back and you think about what you're doing and the analysis and, you know, what you're providing to help people make decisions that impact millions of people. I don't know. I'm just saying you can drive home after work some days and be like, you know, I'm doing some pretty cool stuff.

Kent Smetters [00:20:40 - 00:20:46]

Sometimes I bike home a bit too tired. But yes, it is.

Gene Marks [00:20:46 - 00:21:21]

Don't think too hard about it because that's dangerous. All right, let's talk about policy. So obviously, heading into an election year, it's pretty much guaranteed that Congress is going to be very evenly divided, and whoever wins the election, it's going to be a very, very tight race. So, we know that the country's kind of split. What do you think you'll be busy doing the next two years? What policies do you think you will be providing data for? We talked about taxes. That's certainly going to be a big part of it.

Kent Smetters [00:21:21 - 00:23:29]

Sure. Because of the Tax Cuts and Jobs Act. You mentioned some of the provisions that are expiring next year, in the following year. And certainly the cost of, as they're called, is going to be part of part of that, the tradeoffs of those extenders, things like that. But a lot of it also will be topics that will come up after the election.

So, things like immigration. Immigration is, one would think, obviously, that you have the crisis that happens at the border right now, that everybody agrees that's just kind of a chaotic situation. But at the same time, legal immigration and the numbers that we're at right now are just simply, they're capped in absolute values, and so they're not going to allow us to really grow under the current cap. So, in particular, how do we potentially, one area would be how to get more STEM, that is science, technology, engineering, mathematics, trained engineers, and other people like that, into our economy. Immigration has proven to be quite valuable, and even increasing wages of domestically born workers. So, that will certainly be a topic.

But then there are big issues like Social Security, Medicare, all those facing large funding issues. And then there's even some of the big think stuff. So much of what we do in the United States is redistribution through the tax code or this relationship with employers that is often coming through as a result of World War II, of why we have 401(k) and healthcare plans based on employers. And so there's a lot of thinking going on right now of how to even rethink all of that in order to make things more portable, more streamlined and more kind of pro-growth while also trying to be distributionally fair.

Gene Marks [00:23:29 - 00:23:51]

Okay, you had mentioned the very beginning of this conversation about our fiscal situation and our debts and deficits. And you literally use the word "terrifying" and you're the guy that's generating the numbers behind this. So, tell us what I mean. Like I said before we start a recording, I mean, our audience are business owners and managers, mostly employer-owned businesses. Why should we care about this?

Kent Smetters [00:23:51 - 00:25:58]

Yeah. So, just to give a few high-level facts and then we'll kind of dive in why people should care. Certainly right now our federal debt is growing and we're basically at World War II levels of federal debt relative to the size of the economy. And the difference between now and World War II is after World War II, the war was won, the economy grows substantially, federal expenditures, the military goes way down. And so, as a result, the federal debt to GDP ratio falls quite dramatically.

And so, what we've had happen over the last 20 or so years is that we've had the 2008 financial crisis, then we had COVID. But even those don't explain where we're at today, in particular. We're just spending a lot more than we've taken in tax revenue. And that is going to persist as far as the eye can see under current policy.

So, within 20 to 30 years, we're going to have a level of debt that's simply not sustainable. In fact, we project it could even be easily within 20 years, you're going to have a level federal debt which we simply, you're not going to be able just to raise interest rates because that will raise interest costs. We're not going to be able to do anything other than some implicit or explicit way of defaulting on that debt, which would have serious ramification for the economy. Now, countries that control their own currency, like the United States, they typically implicitly default. And how they do it is they monetize that debt. They create more inflation to pay down that debt. And that's about the only path that we are on.

Suppose that we're trying to avoid all this. We're trying to avoid an inflation spike in the future. How could we avoid it if Congress took action today? Well, here, give you some numbers on how unbalanced we are.

Gene Marks [00:25:59]

Sure.

Kent Smetters [00:25:59 - 00:26:46]

Suppose that we said, you know what, we're going to just try to tax our way out of this problem. So, we're going to raise taxes. How much would we have to raise all federal taxes, including corporate business taxes, Social Security taxes - remember, that's split between both sides, employer and employee – as well as all federal income taxes, excise taxes, all of that. Well, if we raise that, if we were just trying to come up with just enough money so we could just make interest payments on the debt and all other promises of spending obligations, we would have to raise taxes across the entire, all sources of tax revenue by 40% immediately and forever. That is not a one-time grab.

Gene Marks [00:26:46 - 00:26:51]

Immediately on top of what we're paying already, obviously. So, when you think about your Social Security tax …

Kent Smetters [00:26:52 - 00:28:53]

Remember that half of that's paid by your employer, which then gets passed generally, we kind of think in the form of lower wage growth over time to employees. And so, or we could cut spending by about 30% immediately, forever. And by the way, that means even Social Security, your grandma, 80, 90 years old, getting a Social Security check, we slash that by 30% immediately. And so, across the board, or some combination of the two. And so that's how far imbalance we are.

So, if we don't take action, then yes, there's going to be serious pressures on borrowing rates, the hurdle rate that you're going to need for investor. They even give you just to cover your initial investment, not even a positive real return on top of inflation. That's going to go way up. You're going to really require potential wages could stagnate or maybe even fall. And so, this is going to have a big impact on even small-business owners, access to credit, wages of employees, projecting how the labor force participation rate will rise with some groups and fall for other groups. And that is going to be hard to motivate and so forth.

Here's the role, the problem that we're currently faced, and that is we've adopted this attitude in the United States that we can deal with crises. After all, we just went through 2008, we just went through COVID, we were fine. I mean, risk spreads in 2008 were actually for a few months or a month were actually higher than during the Great Depression. But we knew what we're doing in 2008. We had Bernanke at the helm and we dealt with it. Well, here's the problem. We've gotten so used to being able to deal with crises. And how did we deal with those crises? We generated a lot more debt. We used debt to get out of them.

Gene Marks [00:28:53 - 00:28:54]

That's right.

Kent Smetters [00:28:54 - 00:29:46]

That crisis is actually created by debt itself. You don't have that option anymore. And so, this is going to be an incredible, rude and great awakening, and everybody's going to be pointing fingers. Why don't we do something? Why are we facing this significant inflation that could become the norm and really erode wealth over time? The purchasing power, just additional 2%. Sorry, one last point. This additional 2% inflation over 25 years, if it's not matched with a higher real return, is going to erode your wealth by about 40%. I call inflation the death by 1,000 cuts. It really has this deteriorating effect. If we felt pain the last couple of years, just wait when it persists for several decades.

Gene Marks [00:29:46 - 00:30:47]

And yet, I mean, there are people that, there are economists that say, hey, listen, as long as our government can, can support the debt and maintain the debt, we can continue to spend as much as we want to spend. And there are other people, the modern monetary theorists, who are like, listen, like you said earlier, this is all in U.S. dollars. We're generating U.S. dollars. We're paying for services and production products in U.S. dollars. So, it's all a wash and we can keep printing more money and it's not going to make that much of a difference.

What do you say to those? I mean, there are significant amount of people that feel that way. And I do want to say also, Kent, I'm with you on all of this, but sometimes I doubt myself only because I look at the federal government's balance sheet and P&L like a business does, you know, and I've had economists say, well, the government's not a business. You shouldn't be looking at it in that way, you know? What do you say to people that are just like, well, just, you know, as long as we can maintain it, it's all in dollars and just spending it on ourselves. What do you say to those people?

Kent Smetters [00:30:47 - 00:32:02]

Yeah, sure. So, there's a couple points there. One is that it's true the government is not like a business. Like, if you think about your pension obligations as a business, you have to look at what's called a shutdown liability, whereas the government can assume that it will continue to exist and have that taxation authority, engagement, pay as you go, taxation, things like that. So, there are fundamental differences that we are already accounting for.

The problem is, is that what does debt mean ultimately? It means that we get to consume more today and pass that bill on to future generations who are going to now owe that money in the form of higher interest payments. If all they try to do is make those interest payments, more of their taxes are going to have to go to interest payments or spending cuts for those interest payments. So, there's no free lunch here. And so yes, one way of trying to get out of it. Let's put the monetary theory aside just because no one knows what it actually means.

It reminds me of that expression in physics that's called not even wrong, where you have a hypothesis that is so ill conceived that it can't be proven even wrong.

Gene Marks [00:32:02 - 00:32:07]

Because out of this we can't even argue with it.

Kent Smetters [00:32:07 - 00:32:29]

Yeah, it's just incoherent because they always try to revert and so forth. But let's just say, could we literally just print money and get our way out of this? Well, yes, absolutely. In fact, that's exactly what will happen in our current path. That's what's happened in other economies that have seen hyperinflation in the past.

Kent Smetters:

[00:32:29 - 00:33:55]

If you look at hyperinflation throughout world history, even the last hundred years, it's not been because the Federal Reserve or the equivalent of the Central Bank, it's just like they started printing money too fast and therefore you have more money chasing to some same number of bananas. And so therefore the price of bananas goes up. They are printing more money because of an underlying fiscal policy problem, and that is they're trying to pay off that older debt with, by printing more money. And so now you get to the problem of, yes, you can try to play that game once by causing inflation, but as Milton Friedman taught the world, if people are smart and they know you're going to play that game, they're going to start demanding higher rates of return on Treasury bonds even sooner than that.

And that's why, if anything, are 20-some-year projection right now, we calculate the U.S. economy could potentially, I mean, we're talking about really with the best expectations possible, the most favorable conditions, could handle a debt to GDP ratio of about 180% to 190%. So, we still have about 20 some years to get there. On the other hand, and by the way, that's one of the most favorable market conditions where the market is assumed that, yes, eventually, when the government hits that point, we will eventually be ...

Gene Marks [00:33:55 - 00:34:01]

By the way, no catastrophic events or anything, wars, famines and other pandemics, things like that, they get in the way.

Kent Smetters [00:34:01 - 00:35:03]

That's right. And that Congress will finally get its act together and do something about it. So, it's the best-case scenario. Even up financial markets. Now, sometimes people say, but wait a minute, look at Japan. I mean, they have a much higher, they have a 200% debt GDP ratio. Part of it is how they measure debt is different, but also the more important part is Japan household saving rate is way higher than the United States. Almost all their debt is just kind of technically debt, but it's almost all financed by Japanese households. At one point, they had a saving rate almost 20% to 30%, whereas the U.S. household saving rate is about 3, 3.5%. Differences about house price growth and so forth.

But, nonetheless, it really is, they don't, they have way more fiscal capacity than we have the United States. So, ultimately, this is what that is. It's just like a credit card; allows me to consume more today, but someone's gonna have to pay for it. With a credit card, it's me. With debt, I get to figure out how to get my kids to pay for it through the taxes.

Gene Marks [00:35:03 - 00:35:13]

So, love it. Kent, we're out of time. This has been a great conversation, and I hope we can continue this in the future. I enjoyed it very much and thanks for the great work that you do.

Kent Smetters [00:35:13 - 00:35:15]

Thanks for having me.

Gene Marks [00:35:15 - 00:35:44]

Kent Smetters, everyone, is the professor of business, economics and public policy at the Wharton Business School at the University of Pennsylvania here in my hometown of Philadelphia. My name is Gene Marks. You're watching the Paychex THRIVE podcast.

Forgot to remind you at the beginning, if you're looking for interest or interested in some advice and help and tips and running your business would like some links to some of our past podcasts? Please sign up for our THRIVE newsletter at paychex.com/thrive. Again, thanks for watching or listening. We will see you again next week. Take care.

Gene Marks [00:35:45 - 00:36:20]

Do you have a topic or a guest that you would like to hear on THRIVE? Please let us know. Visit payx.me/thrivetopics and send us your ideas or matters of interest. Also, if you're busy, if your business is looking to simplify your HR, payroll, benefits, or insurance services, see how Paychex can help. Visit the resource hub at paychex.com/worx. That's W-O-R-X.

Paychex can help manage those complexities while you focus on all the ways you want your business to thrive. I'm your host, Gene Marks, and thanks for joining us. Till next time, take care.

Announcer [00:36:23 - 00:36:27]

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