Simone Del Rosario: Pop megastar Taylor Swift kicks off the final U.S. leg of her gigantic Eras tour on Friday in Miami. 

Don’t worry Swifties… If you didn’t get the honor of seeing the tour, she’s releasing a 256-page retrospective on the globetrotting event. The Official Taylor Swift Eras Tour Book hits Target shelves at the end of November for 40 bucks. 

It’s just another bullet point in the long list of revenue streams that made Swift the first musician to make the Forbes billionaire ranking predominantly from music and touring. 

She became a billionaire last year on the back of $600 million from touring and royalties. She also has real estate valued at roughly $125 million. 

But it’s the songs that have helped her amass throngs of fans across the globe. 

Forbes values her catalog alone at $600 million. And with two more “Taylor’s version” albums still to be released, that figure will only go up from here.

We know her songs are valuable, but why?  

I want to bring in Annie Zaleski. Annie is a long-time music journalist and author of the newly released Taylor Swift: The Stories Behind the Songs. 

Annie. First off, congrats on the USA Today best selling book list. Thank you so much. You’ve written a number of books like this, digging into iconic artists and their catalogs. How did venturing into the world of Taylor Swift differ?

Annie Zaleski: I mean, I think, first off, just the sheer volume of songs. You know, she released her first album in the mid 2000s and in less than 20 years, she has more than 200 songs, original songs, which is pretty incredible. You know, she’s a very prolific artist, in addition to being a very high quality artist, you know, I think what separates her from a lot of other musicians is that when she puts out an album, the songs, you know, it’s, it’s when she puts out an album, The songs are high quality. You know, she is not putting out songs that are, uh, you know, maybe this is just okay. Every song on an album, you can tell, is very carefully arranged, carefully produced and carefully written to fit in, not just in the narrative of the record, but also just stand on their own as amazing songs. 

Simone Del Rosario: She has been criticized. You know, there are Taylor Swift haters out there saying that she writes too many songs. That is a criticism out there. But you talk about how many songs she has written, but it speaks to how long her career has been. You know, if we look at other musicians, her career would be, at the very least, at the very tail end of it, by now, why is she still resonating decades into this? 

Annie Zaleski: You know, I think what’s interesting and why she’s continuing to resonate is, first and foremost, she’s continuing to evolve. You know, she’s been very savvy about keeping up with pop trends. She’s never wanted to make the same record twice, and she’s never wanted her own music to stay in one place. You know, I think that’s why we saw her evolve from country music to pop music, you know, about a decade ago. But that also just speaks to her always wanting to move her career forward. And what that’s done is it’s brought in younger fans as well. It’s been very interesting to watch in the last couple years about how with her re records, and then also, I think, starting around lover, she’s really brought in a lot of younger, younger generations of fans, like the children of the original Swifties. And so she just has a real knack for writing songs that resonate with multiple, multiple people, and people of all ages. 

Simone Del Rosario: I assume with your book, you’re getting a sense of how vast that fan base is. I assume you’re also a Swiftie, and you know, who are you hearing from that’s really resonating with your book?

Annie Zaleski: It’s interesting because I’m hearing everything from friends who are saying that they’re, you know, tweens are, you know, devouring the book, maybe even like, you know, take it to bed at night because they’re so excited by it. I have friends with elementary school children who are really liking the book and really learning about some of the Taylor songs for the first time. But I’ve also had people reach out to me and say, you know, I brought this for my kids or a younger relative, but I’m enjoying it too. So it is another book that’s just resonating with, you know, Swifties of all ages.

Simone Del Rosario: Yeah, when you were researching for this book, what would you say is, you know, one of the most interesting things that you learned.

Annie Zaleski: You know, I think what really stood out to me in terms of, when you look at her catalog from the start to the present day, she’s really, really, she has a real knack for creating connections between the eras, whether the fact that she uses similar imagery, for example, like an eye color, or references to rain and kind of making, like, it’s almost like little easter eggs between albums, between songs, that fans can really dig into it, you know, like they’re English majors, basically, and do literary analysis of her songs. So on some level, I knew that. But just really, you know, looking at it, looking at her catalog from the beginning to the present, that really, really stood out. And you know, her albums are almost like conversations with each other sometimes. And you know, the different Taylor eras and the different where she was in her life, there’s a lot of continuity there. And so I think that’s also just helps her evolve, and it also kind of helps people grow up with her, because she’s growing up at the same time through her albums, alongside her fans.

Simone Del Rosario: Taylor Swift, from the moment she came on the scene, she’s been a star, right? She’s really stood out, but the Eras tour has made her an incredible superstar. It’s about to wrap up, what’s next?

Annie Zaleski: I mean, I think the big question is, what is she going to going to do next? Because there’s no way she can top the Eras tour. You know, having a show that runs over three hours a night that’s just sort of a celebration of everything she’s put out so far. It does feel like a little bit of a chapter closing, you know, I think she’s talked about wanting to direct, and so I could see her going that route and maybe taking a break from the road for a little bit, and, you know, exploring other creative endeavors. I think she’s going to continue writing songs, you know, I think, personally, I’d love to see her do a rock album. You know, I think she has that element in her that she’s always really like indie rock, especially in recent years, she’s dabbled in that, or even kind of harder rock. And so I think Secretly, I would love to manifest that, because I think that she would really excel at doing that.

Simone Del Rosario: Oh, that’s so interesting. I wonder how much you pick up from the outfit she’s wearing lately, or anything like that that might indicate a different tone in the future. 

Annie Zaleski: It’s a good question. You know, I think she’s been dressing a little bit more sophisticated in recent times. You know, some of the outfits look like they might be hinting at reputation Taylor’s version, which is, I think people are convinced they’ll be coming soon, at some point. You know, there’s all sorts of easter eggs and fans tracking little clues that she’s left to see. You know when this might come out, but I think, you know, I think she’s also really enjoying kind of where she is now too. You see her when she’s not on tour. She’s out with Travis Kelce, she’s out really going out and about and really relaxing and living life. And that’s also really nice to see too, because I think she’s been going for so long in her career. Like, If anyone deserves to take a break, it’s definitely her. 

Simone Del Rosario: It’s weird because Taylor and I are the same age. We were born, I think, almost a week apart, so to be like, she’s, you know, reached this peak in her career. You mentioned not being able to top the Eras toward does that mean that from here on, it is starting the decline. 

Annie Zaleski: I don’t think it’s starting to decline. I feel like she’s going to be kind of using that as the foundation going forward, to kind of see where she’s going to go next, kind of as a foundation. You know, I think it’d be wonderful. She said, Okay, I’m going to strip it back, and maybe I’m going to do some, you know, small like acoustic shows potentially. You know, I think getting a tickets for that would be a nightmare, but I think it’s more that she’s, you know, she she proved to herself she can do this. And now, you know, I think before the pandemic, she was going to do like a festival, like a two day, like a lover festival. And so, you know, maybe that’s her next step. Is saying, all right, I’m gonna have a three day Taylor Swift festival where, you know, I’m going to play a set each night, and maybe I’m going to have openers and curate something like that. I feel like that’s about the only way that she could go next to sort of top the Eras tour, is do something on a really large scale like that.

Simone Del Rosario: It’s hard to even put this into words, because the media and you know, our conversations are so tailor saturated, especially as she’s been on tour for the Eras tour. Do you think that because you are a study of music and history and journalism within this field. Do you think that there’s an appropriate amount of appreciation for what she is doing right now? I mentioned all of the, you know, financial accolades off the top of this, but do you think that in the moment we’re realizing the impact that she’s having?

Annie Zaleski: It’s a really good question, you know. I think fans are absolutely aware of that, because fans are living that on a day to day basis, you know. I think in hindsight, once the Eras tour is done, and we kind of look at, you know, the economic impact, you know, I think as things are, as this tour has been progressing, different cities have mentioned, you know, how much economic impact is, and how many fans is brought in. But I think once all is said and done, and the numbers are actually, you know, the final numbers come in, we’re really going to get a sense of just what a staggering achievement this is, you know. And I do think that she, you know, there is a little bit of a backlash. I think there always is for someone who’s a big success, people are always, you know, people, people get suspicious. And she’s always gotten a lot of backlash as well, in terms of because of her subject matter. And, you know, and I think there’s a natural tendency a lot of people just don’t like to see people succeed, especially young women. And so she’s always kind of had that element. But I mean really the numbers and speak for themselves, you know, they’re really unimpeachable, and you can’t really argue with what just a cultural impact she’s had.

Simone Del Rosario: Yeah. Annie Zaleski, your new book is titled Taylor Swift, the stories behind the songs. Annie, appreciate you coming on and talking with us.

Annie Zaleski: Thanks for having me as always.

Zeke Hernandez:

When you have like you mentioned 11 to 12 million on. Documented immigrants, which is, by the way, about a quarter of all immigrants in this country. It’s not just that you have a few bad apples coming in, it’s that our system for bringing in apples is completely screwed up. Hi, I’m Zeke Hernandez. I’m a professor at the Wharton School of the University of Pennsylvania, and I’m an expert on how immigrants affect the economy.

Simone Del Rosario:

Your book is called, The Truth About Immigration: Why Successful Societies Welcome Newcomers, and Zeke, it’s right there in the title, the truth about immigration. So I wanted to ask you, what do you think is the biggest misconception?

Zeke Hernandez:

The biggest misconception that people have is that immigration is a zero-sum game between us and foreigners, when, in reality, immigration is a net positive for everything that we want, for a prosperous economy and a successful society. And so immigration is good for us, is the main point.

Simone Del Rosario:

What are the markers of that? What are the things that you’re measuring that based off of?

Zeke Hernandez:

Yeah, let me give you perhaps a big-picture overview when it comes to the economic benefits, and then we can talk about other societal issues. I always use the fingers of my hand to make it really clear that what the evidence tells us is that immigrants contribute five big economic benefits to every country and community they arrive to. And those would be one, investment, two, innovation, three, talent, four, consumption and five taxes. And those are the inputs to any prosperous economy. Good jobs and economic growth are going to come from those five inputs and how they combine, and immigrants contribute a lot of those five things, and they also increase the variety of those five things. That is because they’re not the same as you and me. They don’t consume exactly the same things, they don’t have exactly the same ideas. They’re connected to different investment networks. And so they don’t only grow the economic pie. They make our economies more diversified, and economies that are larger and more diversified create more jobs and opportunities for everyone. And that’s an economic Win. Win.

Simone Del Rosario:

The reason I really wanted to talk with you is because when we talk about the economy and we take politics out of it, we keep running into cases for immigration. And so I was wondering if you could explain to me, what are some of the things that are specific to the United States that would benefit from immigration?

Zeke Hernandez:

Oh, boy. Where to start? I mean, we can talk about so much. Let me start perhaps with one that we almost never get to, and that’s the investment benefits of immigration. If it’s appropriate to share a story. This is something that happened in my home state of Pennsylvania, just earlier last year, an article in the local paper caught my attention, and it was about an investment of $300 million being made by a company called EMD Electronics. And what caught my attention is that this investment seemed to be in a place where it didn’t belong. It was in this little town of 3500 people called hometown in central Pennsylvania. And I thought this is weird, that a place that small, so removed from it, you know, any other big city will get that much investment. And by the way, that investment created 200 skilled manufacturing jobs, EMD, electronic makes inputs for computer chips, which is a really important strategic industry, of course. And as I looked a little bit more into what was going on, I discovered something a little quirky, which is that hometown Pennsylvania was founded in the 1800s by German immigrants. It turns out that EMD electronics is owned by a German Corporation, and it’s not a coincidence that a German company is investing in a place that was settled by German immigrants. What we found in the research is that where immigrants settle, they act as magnets of investment from their home countries, and that investment creates jobs, and it doesn’t take 100 years like it did for Germans to settle in hometown, Pennsylvania. A lot of the investment we’re getting in this country from countries like India, China, Mexico, a lot of you know, a lot of the investment we’re getting is in places that have received large communities of immigrants from those locations. And on top of that, immigrants are 80% more likely to start their own businesses. So not only do they serve as magnets of investment from their home countries, but they’re putting their own capital in starting businesses that create jobs. And so that is a story that’s often never told, that immigrants create jobs because of the amount of investment that they bring.

Simone Del Rosario:

And this is the economic case, if we bring in the political landscape of it all, more than half of Americans want to see immigration in the United States go down. It’s actually the highest measure of this long-standing Gallup Poll since the month after the September 11 attacks. What do you make of this shifting attitude?

Zeke Hernandez:

Well, I think it’s an attitude that is understandable when you see all the negative rhetoric that is in the headlines and certainly from many of our political candidates. And this is in some ways true from both sides. One of, I think, one of the big surprises of the last year or so is that both the right and the left have now taken a fairly aggressive message about, you know, the border and about how the influx of immigrants is really doing us damage. You see, you know, say Democratic mayors who used to be pro-immigration now talking about how we need to limit immigration, and that comes a lot from the political rhetoric and from a misunderstanding of all the benefits that we get from newcomers, again, those five economic inputs, but also think of all the ways in which immigrants enrich our culture and make our food and our music and our entertainment much more interesting. But I think it just comes from the short-term stress of not being able to balance the budget right when a big inflow of unexpected immigrants arrive somewhere, you do have short-term costs in terms of housing, perhaps in terms of other kinds of assistance, certainly educating children. Schools get a little more crowded in the short run, and those are strains on local budgets, but spending the money to welcome those immigrants is beneficial in the long run, because it produces those five benefits that I talk about. I think the problem, though, is that there’s so much political stalemate on Capitol Hill that we don’t have smart solutions to deal with those short-term disruptions. But I want to emphasize they’re just short-term disruptions that are very much worth dealing with because of the long-term benefits.

Simone Del Rosario:

But it is certainly more than political rhetoric, especially when you talk about those Democratic mayors, talking about the struggles that they’re facing in their cities, is that, you know, you have a city like New York City, where immigrants have been bused in, and they’re very clear that they can’t make ends meet with their budget when having to deal with this influx of people coming into their city, and it’s happening in cities across the country, those are very real concerns that they’re having to cut services for people who live there in order to pay for those needs.

Zeke Hernandez:

Absolutely, yeah, and I certainly didn’t mean to come across as under, underestimating or ignoring those things absolutely. You know, the city of New York budgeted for a certain amount, a certain amount of services, and now that budget’s been blown up by those unexpected costs. But what I want to emphasize is that when we see those crowding consequences of immigration or the rapid inflow of people, that tends to reflect that we’re just bad at managing population growth, and we’re bad at managing our immigration system, but it’s our fault. It’s about how we administer the system. It doesn’t say anything about what immigrants do for us in our communities. It just tells us that we’re bad at governing those things, right? And those are very two, two very separate things. You have to separate immigration and what immigrants do from the immigration system and the immigration regulations that we have put in place, and that is our fault. And so the chaos at the border, and the chaos that is moving from the border to major cities in the United States is because we are really bad at managing the inflow of people. We’re really bad at budgeting ahead of time, also because it comes from political stunts right where a governor is sending people with no warning, and of course, it’s intended to create chaos, it has created the intended outcome. But again, that says more about our politics and our dysfunctional system than about immigrants and immigration, per se, if that makes sense,

Simone Del Rosario:

yeah, if we’re talking about the economic case for immigrants, is there a difference between legal immigration and unauthorized immigration?

Zeke Hernandez:

Well, there are some differences, but perhaps the headline is, you know, when I mentioned those five things with the fingers in my hand, no, there is no difference in the sense that whether an immigrant arrives legally or not for humanitarian or other reasons, they all bring in those five things, because people bring in those five things, and immigrants are people like anyone else. What happens with unauthorized immigration is that you don’t get all the benefits that you possibly could because of the limits that immigrants have in contributing because they don’t have authorization to do everything that an economic actor could. I’ll give you an example my barber happens to be an unauthorized immigrant. This is something that he shared with me after many years, and after we developed some confidence, and he’s very good. He’s actually the most sought after barber in the area, and he wins a lot of awards. And he once confessed to me that he had $200,000 in. Ash saved to start his own barber shop, and I just about fell off my chair. I was like, what this guy has so much money saved, he’s ready to invest his capital in a business that will create jobs and pay taxes and provide a valuable service. And I said, Well, why don’t you do this? And he said, well, because of my legal status, I can’t, I can’t do that, right? And that just illustrates that Here is someone that is bringing those five things that I mentioned, but there’s a ceiling on how much of those five things he can bring because of his legal status. And you know, one more thing on this is when I say that even undocumented immigrants bring these five things, I’m not saying that we should have a system that allows a ton of undocumented immigration. I’m saying that we need a system that makes channels of immigration more regular so that we can get all the benefits that people bring.

Simone Del Rosario:

It sounds like your barber would fall into this category. Former President Trump has promised mass deportations if reelected. It’s not something he was able to achieve much in his first term. At last count, there are 11 million immigrants who are undocumented here in the United States. That count is dated, I would say, it’s probably much higher today. How would that policy impact the economy and the things that you’re talking about?

Zeke Hernandez:

It would be a disaster. And I’m not just saying that we actually, you know, there are organizations and scholars that have actually tried to estimate the cost of deporting 11 to 13 million people, and just the direct cost right of the operational cost would be massive. It would cost more than essentially giving amnesty to everyone. Right? It would be just very, very expensive, logistically, because you have to identify, round up and send out, you know, that many million people. But actually, the direct costs of implementing the deportation aren’t even the worst. The worst cost would be essentially the reversal of those five things that I mentioned. Think of it this way, all of a sudden, businesses have about 11 to 12 million fewer consumers. Is that what we want businesses have 11 to 12 million fewer workers to fill critical jobs in key areas, and you know? And these are areas that that are essential for our economy, like construction, right? Our housing crisis would get even worse by kicking off immigrants farming right. The price of food would go up. The price of housing would go up. Think of the taxes these people are paying. Think of the new ideas and innovations and products they’re introducing. It really would be an economic disaster. And not only do we have to speculate about that, we actually have many historical precedents where we have done exactly that. For example, during the Great Depression, there was a theory that if we kicked off Mexican workers who were kind of seen as, you know, unskilled workers that were competing with natives, that natives would get more jobs. The mass deportation of nearly 400,000 Mexicans in the 1930s actually resulted in job losses and in worse jobs for native-born people. Right? The mass exclusion of southern and eastern Europeans in the 1920s resulted in native-born US scientists becoming less innovative and patenting less because they were less exposed to the different ideas and talent of foreign-born colleagues. So we know what happens because we’ve seen it before. It would just be really, really bad.

Simone Del Rosario:

Why do locals lose their jobs if you deport immigrants?

Zeke Hernandez:

Well, think about it from the perspective of a business owner, and it doesn’t have to be a big business, even a small business. Okay, so let’s say you have a landscaper that needs a minimum of 10 workers for their business to be viable, okay? And let’s say five are immigrants that are undocumented, and five are, you know, US citizens or permanent residents. Okay? You have a minimum skill without 10 people, you can’t do the job. You simply can’t keep that business open. So what happens when you lose those five that get deported, the entire business has to shut down, so you actually lose the other five jobs. The person has to close the business. Okay, that’s just one simple example of what happens. So it’s not just that immigrants are filling key positions. It’s that by filling those positions, they are preserving key jobs for native-born people, and then, of course, immigrants, because they have a very high rate of entrepreneurship, I mentioned that before, they’re 80% more likely than native-born people to start businesses. You would lose all the businesses that these immigrants own and run that create jobs as well. And on top of that, the jobs that remain would be lower-skilled jobs, because immigrants often fill entry-level work which pushes which pushes natives a little bit up the skills ladder. For example, they might do in a construction site. They might become the foreman because that requires English speaking skills, and so that pays a little bit more for them, but now they have. Go down to do the entry-level work, and their wages go down a little bit because they’re doing more basic work, which is also why we see in the data that it’s not just that jobs are lost, but earnings go down as well when immigrants are deported.

Simone Del Rosario:

But what we hear in the rhetoric is that when immigrants are coming in, they are taking those jobs from people who live here and that they’re replacing them, essentially. So you’re saying that’s from an economic perspective. That’s just simply not the case.

Zeke Hernandez:

It is simply not the case. Now look to be clear. I understand the concern for preserving and creating jobs for native-born people. I think we all agree that an economy that is fair should be doing that, but kicking immigrants out or leaving immigrants out does exactly the opposite, right? In fact, if you want to harm US-born workers, stop our immigration program or deport a lot of immigrants, you’re removing those five things from the economy that I mentioned that hurts the very people you’re trying to protect.

Simone Del Rosario:

Okay, when we talk about legal immigration here in the United States, politicians will typically say that they are in favor of skilled immigration. So kind of hand-picking the best of the best around the world to bring them into the country. Would you like to see an expansion of that? And is that preferable to unskilled immigrants?

Zeke Hernandez:

I would definitely like to see an expansion of that. We don’t admit enough skilled immigrants. For example, we only make 85,000 H1b visas available, only about 140,000 employment-based green cards available, which is only 14% of the green cards we give every year. And we give two-thirds of green cards to people who are related to current immigrants. That is family reunification. So we need a lot more visas for skilled people. We educate millions of people in our best universities here in the US that were born abroad, and we only keep less than a quarter of them. So that is, you know, America’s brain drain is that we don’t keep the millions of people that we educate do. We give them all the skills that we need for our economy, and then we don’t let them stay. And so we need to expand that significantly. Because yes, we know that skilled immigrants, for example, play a disproportionate role in patenting and innovation, in building tech startups and attracting venture capital. So we absolutely need that skilled immigration is very popular, I think, on both sides of the aisle. However, it’s a big misconception that we need less unskilled immigration, okay, for at least three or four reasons, right? Don’t forget that unskilled immigrants are also consumers and taxpayers, etc, right? And so it’s not just that they’re providing their labor. We would, we would lose customers and taxpayers. Also don’t forget that we face severe labor shortages in areas that don’t require a college degree, such as farming, construction, household services, barbers, like the example that I mentioned, who’s going to do those jobs that are essential. Americans don’t do those jobs in part because there aren’t enough of them, but in part because we know that they just prefer not to do those jobs. And so we need those people just as much as we need skilled immigrants. So I’m a fan of a balanced immigration system that is more balanced between family and economic migrants, but also between all kinds of migrants that bring all kinds of skills and talent to our economy, not just one type.

Simone Del Rosario:

And speaking of balance in our immigration situation, from the perception of it, it appears that a lot of our immigrants, both who come here, documented and undocumented, are coming from really one specific area of the world, right? It’s coming through the southern border, coming through, you know, people coming from South America, Central America, Mexico, into the United States. Does that? Is that too concentrated?

Zeke Hernandez:

Well, the perception is partially true. It’s, it’s, it’s correct that the scene of the most chaos is, is the southern border. It’s certainly where, you know, news, news organizations like to go take their cameras, but actually there’s a very large category of undocumented immigrants that don’t come through the southern border. They come, they come to an airport from Asia and other parts of the world with a visa, and then they overstay that visa. Okay? In fact, before the pandemic, the largest category of undocumented immigrants were Asians that fit the category I just described, not Latin Americans. That has changed, of course, since, about since the pandemic ended. We can all agree that we want an immigration system that is more orderly, and nobody wants so much irregular immigration. But when you have like you mentioned 11 to 12 million on. Undocumented immigrants, which is, by the way, about a quarter of all immigrants in this country. It’s not just that you have a few bad apples coming in, it’s that our system for bringing in apples is completely screwed up right here. Here are some examples that I think, tell you why the system doesn’t match reality. I mentioned that we only give 140,000 employment-based green cards per year. Only 5000 of those go to people without a college degree. Okay, so the state where I live, the city where I live, could use all 5000 of those to fill job openings like the ones I mentioned. Another example, there are zero green cards available for year-round farm workers, right? The only way you can get a foreign farm worker is through a temporary visa, just for the harvest. But farms need permanent workers like any other business. If you’re an Indian with a master’s degree waiting for an employment-based visa, you have to wait up to 195 years right now, right? That’s ridiculous. And so what happens is when the system is so divorced from reality, because the system hasn’t been updated since 1990 but our economy is growing by leaps and bounds. Our birth rates are declining. People are retiring. The pressure that the economy feels between the amount of workers it needs and the amount of workers we allow is massive. And to fill that gap between those two things, you’re going to get a sort of a black market, or a market for illegal immigrants that provide essential work and essential services and do all the things that we want people to do, but it’s sort of all under the table because it’s, it’s, it’s a sub-optimal solution to what our economy needs. So the best solution to fix the illegal immigration problem is to make a lot more legal pathways available and bring the system back up to what reality really requires. And there’s good research showing that actually, when you increase legal pathways, illegal entries go down. Those two are substitutes. They’re not compliments.

Simone Del Rosario:

Okay, I wanted to follow up on that because we’ve seen how rhetoric has changed activity at the southern border, especially with illegal actions. When you have a country or an administration that appears to be more friendly to immigrants, more people are coming in seeking asylum. Whereas, you know, when former President Trump was in office, we saw a decrease in that type of immigration. So I guess I would wonder how that balances out. If you pitch the United States of America as something that is way more favorable to immigration that doesn’t lead to more people trying to come in illegally.

Zeke Hernandez:

Look, there’s, there’s a study that just came out a few couple months ago by Danny Bahar at the Center for Global Development, and he did a really interesting study just looking at the time series of, you know, unauthorized entries along the southern border, and then trying to see, well, what, what is the biggest predictor of those pulses, right, that we face every once in a while, and in illegal entries? And you might think, oh, maybe it’s, you know, conflict in foreign countries, right? That is explaining those pulses. It’s not changes in administration. For example, like you said, administrations that are more versus less favorable to immigrants that has no predictive effect. The only thing that predicts illegal entries through the southern border are unfilled job openings in the US labor market. That is the main predictor, okay, and it’s the only significant predictor. And also, Michael Clemens has done a study showing what I just mentioned, that basically, to get what we need. We either let people come in in an orderly way, or we kind of let chaos reign and people kind of, you know, sneak in, as they say. And when you make more legal pathways available, you allow people to come in in an orderly way and have their case adjudicated. The number of southern of entry, illegal entries to the southern border goes down, and it’s almost a one-to-one effect, they are perfect substitutes. So the reality is that these people that are coming through irregular channels are providing things that we want and that we need in the economy. We have a little bit of a hypocritical relationship with illegal immigration, because we need it desperately. We kind of know, but wink wink, we don’t do anything to fix it. But also, why would these people come and stay permanently? If they can’t get jobs and they’re starving, they would go back to their country, right? So it’s a little bit of, you know, it works for both ways, but it would work so much better if we just made legal pathways available, right? And we have good evidence that that’s exactly what happens. Where

Simone Del Rosario:

is that evidence? Are there? Is there a specific country you’re looking at that has seen success doing this? Has seen their economic boom from allowing more immigrants?

Zeke Hernandez:

Oh, well, so many of them, but the United States is exhibit number one. I mean, we have evidence from sort of the beginning of our at least from when we have good. Record starting in the late 1800s showing very clearly those five economic gains that I’d mentioned. I’ll give you some numbers that I think are useful. For example, during the early 1900s when we had our first wave of mass migration from Southern and Eastern Europe and also from Western Europe, there’s a lot of evidence showing that immigrants were significantly contributing to new technological innovations in the form of patents, that they were starting businesses at very high rates, that they did a lot to pay the taxes that we that we needed, that that didn’t come at the expense of jobs by native workers, etc, etc. And we have documented the same things during our period of current mass migration, which started around in the early 1970s so the United States is actually exhibit A for all the economic gains that immigrants bring. The other thing that we’ve seen, like I said, is we’ve seen these effects reverse, right when we have excluded immigration, we have lost those five things. And so, you know, it’s pretty clear that those benefits exist. And you don’t have to be a researcher like me and spend, you know, 20 years studying this, just go talk to small and medium business owners like, you know, it’s very like, go talk to someone who owns a manufacturing business in Wisconsin, as I have done, you know. And these are not, you know, flaming liberals, right, who vote in a particular way. These are very blue-collar, down-to-earth people. And the very first thing they’ll tell you is one, I can’t find enough people to fill the positions I need to keep my manufacturing business open. And so they have come to the conclusion out of sheer practicality that they need to go out and recruit among immigrant communities, and they these workers, keep their businesses open, they allow them to pay taxes, they allow them to create jobs. And so it’s this is a practical conclusion. This is not an ideological thing. I, you know, I all of this that I’m telling you comes from empirical evidence, not not, you know, it’s not a political statement.

Simone Del Rosario:

Yeah, I want to go back to your five for a second. I believe the fifth one was taxes. When we have undocumented immigrants, are they contributing to that fifth category?

Zeke Hernandez:

They are, yeah. So, so another misconception, right, besides, the misconception that they sort of steal jobs from native workers is that they don’t pay taxes, right? They, they sort of because they’re here illegally. They have, you know, they just don’t. They do actually, yeah, they actually do pay taxes. And the way they do it is, you can pay taxes in two ways. In the United States, you can do it through your social security number or through an Individual Taxpayer Identification Number, an ITIN. Undocumented immigrants do it through an ITIN, and they’re not doing it out of charity. They’re doing it out of self-interest, because if you ever have the opportunity to to get in the system and become regular, right? And become a legal immigrant into this country. One of the very first things that the government wants to see is that you have a track record of paying taxes. Also paying taxes is a very good way to establish a record of having employment and residence in establishing a presence in the United States. So out of self-interest, undocumented immigrants do this, and they have a very you know, it’s almost like one of the first things they do when they arrive is they get an ITIN and they start paying taxes, which is why, by the way, when, when there’s mass deportations, often one of the first things that cities and localities complain about is the lost tax revenue from losing those People.

Simone Del Rosario:

You talked about charity, and that brought me to another perspective, not you know, workers not paying taxes at a charity, but the concept that allowing immigrants into our communities is a little bit like a charity. Can you talk to me about the resources of it all. If you think about more people coming into your community, it can feel for those people in the community, like it’s a resource drain, like there’s a finite amount of resources in that area, and maybe that’s where the perception comes in. People are taking away from those resources that would be allocated to you. We talked about what’s going on in New York City that is very real as what’s happening, in communities across the country. But can you talk to me about this concept of finite resources for more people coming into a community?

Zeke Hernandez:

Yeah, look, population growth is always going to create some crowding and strain in the short run. Okay, it’s always going to happen. So it’s true when you say, look, new people come in, and class sizes are a little bigger, right? So maybe, you know, my daughter gets a little bit less attention from the teacher. Or, you know, we have to spend more money on fixing roads. Or, you know, the campsite down the road that I love to go to is a little harder to get because there’s more people demanding a hospital. Sales, you know, have, you know, have more demand on them, etc. We have to, we have to build a new school. And they’re my property taxes are going up. That always accompanies population growth in the short run, at least in places that didn’t have much slack. But I’ll give you an interesting example that I think is quite eye-opening. And this is a story I tell in my book, okay, between 2010 and 2020 the state of Idaho is a state that grew the most and the second most in population. It grew nearly 18% in a decade, okay, which is a lot, especially for a state that’s that’s kind of small. It’s very noticeable, right? Because it means that one out of every five or six people Wasn’t there a decade ago. And so if you follow what happened in terms of the debate in the city of Boise, because of all these new immigrants that arrived, okay, these new immigrants created a lot of concern, and there was a lot of concern about housing prices going up, and property taxes and all the things that we mentioned, okay? And there was a lot of vitriol against these immigrants, okay, all the debate, even worries that they were stealing jobs. Oh, you know, everything that we’re seeing in the headlines Now, where do you think the biggest inflow of immigrants into Idaho came from? Right? And a lot of people think, Oh, it was, you know, probably Mexican immigrants or Indian immigrants. It’s actually people coming from California to Idaho, right? But the influx of Californians into Boise created all the same worries that the influx of Mexicans or Indians or any immigrant from a foreign country is coming in. Why do I share that example? Because it shows, again, something I said earlier, what we’re not good at is managing population growth period, right? What’s the difference between Californians versus Indians or Mexicans or Central Americans? It’s, it’s, it’s the additional layer of xenophobia or fear of the unknown or something like that. Okay, but the issues are exactly the same, and so you can do one of two things. You can keep people out or kick them out, and sure you’re going to lower, you know, the strain on public resources, but you’ve done that because you’ve depressed the economy. You have shrunk the economic pie, like we did during the Great Depression. Or you can increase the supply of the infrastructure that’s necessary to manage people. I guess that’s a public policy choice, I would say that increasing the supply is a better option, right? Because decrease depressing the economy is kind of a silly way to get rid of the problems of population growth. I think those are the two options. You manage growth or you manage decline, right? I would rather manage growth. Yeah,

Simone Del Rosario:

and we’re talking about immigration from an economics perspective, that would always be the camp that people would go into as managing growth, not managing decline. You talked about being bad at managing population growth. I guess the good news is that the United States actually has a population problem, as do a lot of developed countries. Our birth rate is under the replacement level. And I talk a lot about demographics here and abroad. The fact is, is that we’re not replacing our population. There are more people that are going to be outside of the working-age population. If we want an extreme example, we look at what’s happening in China right now. It’s creating a huge burden on the working-age population to replace all of those people that are now out of it, usually on the higher end, aging healthcare systems. All of these issues come from a declining birth rate and the inability to replace our population. The only reason that the United States is set to have a pretty stable population through the rest of this century is net immigration. Talk to me about what happens, why we need immigration in order to do this, this sounds a little I would say it sounds like I’ve made up my mind a little bit. But it’s only because we continue to see these examples. And other than getting people to have 345, kids, and when it costs $300,000 to raise each individual kid through 18 years old, that doesn’t seem very likely. So other than somehow magically boosting the birth rate, which we are seeing, you know, candidates at least pitch. We would need immigration in order to continue turning things out, or we need automation to replace all of these jobs we’re losing.

Zeke Hernandez:

Yeah, that’s exactly right. I mean, you hit it, you hit the nail on the head. Japan is another cautionary tale, right? I think Japan has tried to manage this through automation and increasing productivity through robotics, and they realize that you can’t, you can’t automate your way out of this problem, and So Japan is now desperately trying to implement a migrant worker program. The difference between Japan and the United States is that Japan doesn’t have a history, both politically and culturally, of welcoming immigrants, and so they’re really struggling with this we do as a country. One of the estimates that I saw very recently is that by 2050 if we cut all immigration, the working-age population, by 2050 would be 20 million people smaller. That would be a giant gap of 20 million people to lose. Again, let’s. Go back to those five things, right? That’s 20 million fewer taxpayers, consumers, investors, innovators, you know, and labor providers again. Do we really want that? I don’t think that we really do right now. We either can manage that in an orderly way by fixing the system like I mentioned, or we can sort of let chaos reign. Sometimes I have heard people say, Well, I don’t mind if our population is shrinking or if our economy is a little bit smaller, as long as there’s, you know, as much or more to go around for everyone. But I think that’s that’s a fundamental misunderstanding because it comes actually from a very weird paradigm. And you know, I hope you don’t feel like this conversation is taking a very weird turn, but this is actually really worth knowing. It turns out that most of the anti-immigrant movements, especially in the United States, they have their origins in the environmental movement from the 1960s where the main concern was overpopulation. And there was this idea that, you know, natural ecosystems, like, say, a rainforest or, you know, a river is an ecosystem with limited resources, and if those resources get overtaxed, you know, we overburden carrying capacity, and then, you know, all hell breaks loose. And this, this analogy was sort of imported over to human systems and human economies. But people are not like animals and trees, right? People can innovate. People can, you know, use their ingenuity to work their way out of problems, and so you don’t have zero-sum competition like you do with a natural ecosystem, right? Human ecosystems are just a little bit different. But I say that because a lot of this thinking about, Oh, we have this kind of carrying capacity that is fixed, okay, and we want to keep the population small, history has proven again and again that that doesn’t make any sense. From Malthus to today, you know, we’ve managed population growth just fine because of ingenuity and innovation, and we certainly don’t want to manage decline, as you’ve said,

Simone Del Rosario:

Yeah, I want to go back to something that you said much earlier in our conversation about the two surprises coming out of this year, was seeing that both political parties are taking a more anti-immigration stance. And I think this really comes from the political attitudes of Americans here in this country. I mentioned that Gallup poll that showed that people wanted to see a decrease. And, you know, part of that is coming from rhetoric. Part of that is coming from personal experience that these people are, you know, seeing unfold in their communities. But I wanted to lay this out for you as we look at a situation where you have a vice president, Kamala Harris and a former president, Donald Trump, both pitching cracking down on immigration, and ask you, what is the doomsday scenario if we don’t fix the immigration system here in the United States, what is the economy going to look like if we don’t figure out how to welcome more Immigration, both low skilled and high skilled. You said that things haven’t been done since 1990 so what is your what is your scenario?

Zeke Hernandez:

Doomsday scenario? Yeah, look, I think the pernicious part of it is that I don’t think that we would see an immediate collapse of our economy, right? This would be a gradual decline, to me, actually a doomsday scenario that is realistic for the United States. Is what happened in Argentina between about 1945 and today, right in 1945 the US and Argentina were very comparable economies. They were countries of about the same economic size. They were both very wealthy. Immigrants actually were just as likely to want to go to Buenos Aires than New York in the 1940s 1930s okay? And then what happened to Argentina is that they elected this president, Juan Peron, you know, the husband of Evita, if you watch the musical, you know, and you know, some of the echoes are a little interesting, right? Very populist president, very protectionist. President looked, in a word, very suspicious of the outer world, and so Argentina stopped receiving immigrants. Argentina imposed very high tariffs on foreign goods and services, right? This might start to sound familiar, and at first, things were okay. It even seemed like, hey, you know, it’s working for Argentina. We have more jobs for locals. But then, you know, reality started catching up. Argentina stopped becoming innovative. Argentina stopped getting those five things that immigrants bring, and it just entered into a gradual decline. It’s the only country that was rich and is now not rich anymore. It has never happened to any other country to go in that direction, and it came from closing itself off to the world. So to me, my doomsday scenario is that slow, secular, you know, irreversible decline. That’s really what we can face, right? It’s not going to be a precipitous decline. It’s just going to be that our grandkids are way poorer than we are, and that’ll happen yet, two or 3% decline per year that compound. Is over 80 or 90 years, and it becomes a really large problem. And to me, that’s why this is so pernicious, right? Is because no one can say the sky is falling tomorrow. It’s more that the sky is like slowly falling over. You know, many decades, I really do worry about that significantly. And I think that my worry is that both sides have sort of come around to this mindset and this is why, it’s because we don’t have a good narrative about why immigration is good for us, what it does for us. There are really two narratives about immigration that most people believe, and it’s one of the two. One of them is what I call the villain narrative, the idea that immigrants are here to steal your job and undermine your safety and you know, and destroy your precious culture that you love so much. That’s familiar. That’s the platform right now of one of our major political parties. But the other story, interestingly, is not a good antidote to that. It’s what I call the victim story, and this is what the Emma Lazarus poem by the Statue of Liberty tells us right the Bring me your tired, your poor, your huddled masses. It’s a very compassionate message. It’s a very nostalgic message, because it reminds us of our immigrant ancestors. But with all due respect to Emma Lazarus, the way that we’ve interpreted that poem, I think, has done a lot of damage, because then it comes down to either immigrants or villains that we should fear, or there are these victims that we should have pity upon, and pity and fear don’t really get you to a majority right. In fact, fear will usually beat pity. And which is, which is why you’re seeing that the Democrats have moved toward the fear side, that what the evidence shows, right, what my book is about, based on 20 years of research is that you don’t need to pity or fear immigrants. You should welcome them because they’re good for you. They’re good for your grandchildren, they’re good for your economy, they’re good for your culture. And that’s a message that is about what immigrants do for us. It’s not about them, it’s about us. And that’s a more powerful message, but and it’s a message that focuses on our self interest, on what’s good for us. So I think that if we get there, if we manage to know what’s good for us, immigration will become popular again, if not, fear will win out. For sure. The villain message will beat the victim message every time. If you

Simone Del Rosario:

were advising whatever presidential administration is in office, what would be your triage? What would you recommend that they do immediately?

Zeke Hernandez:

Yeah, I’ve thought about this a lot, so I do have somewhat of a canned answer to that. So I would do four things. My four part plan would be as follows. The first thing is, and this is going to sound a little strange, perhaps, but we need to give responsibility for our immigration system to a different agency. Isn’t it telling that DHS, Department of Homeland Security runs our immigration system? What does that tell you in terms of how we think about immigration, the agency that is here to protect us has to protect us from immigrants, and that’s the agency that’s in charge. And so I would give it to say, either a create its own agency, or maybe Department of Commerce or Department of Labor, Department of Agriculture, because then you have regulators who are trying to build something for us manage immigration, rather than regulators who are just trying to protect us. Right? It’s the fear, right? It’s getting away from the fear message that would be number one. Number two is we have to increase the number of green cards and temporary work visas that we give by a lot. It’s the last time we updated. This was in 1990 the economy was 9 trillion in size back then. It’s 25 trillion in size today. So we’ve more than doubled our economy, right? But we’re giving visas at the level of a 1990s economy. I mean, think about that. We weren’t even sending email in 1990 right? And so we again, we just, we just need to, you know, increase that by a lot, double or triple. Probably, okay,

Simone Del Rosario:

I was going to ask, what’s the percentage here? What’s a lot?

Zeke Hernandez:

Yeah, I, you know, no, I don’t think anybody, honestly, can tell you this is exactly how much we need, but there have been studies showing that if we double and triple the number of visas, we would continue to do just fine. Just look at and this is not so hard to estimate. For example, we know that we give only, say, 85,000 H, 1b visas per year, but companies demand over 500,000 per year. So we already have a good sense of what the demand is, right? We know, for example, the shortages in farm workers. We know, yeah. So anyway, so it’s, it’s, it’s, you can reasonably come up with a good estimate, but it’s at least double what we do right now, right? Because the economy has more than double and so, so it’s number two is just increase the number. Number Number three would be that we need to increase the variety of entry paths, particularly on the economic side. Right now, two thirds of our green cards go to family reunification, and only 15% go for employment base. So we just need a lot more employment base, but we also need a greater variety of employment based entry pathways. Right now, if you know, if 135,000 of the 140,000 go to people with bachelor’s and master’s degrees, it means that we’re not servicing the low skilled sector right, like farms, etc. So we just need a lot more pathways. And then part number four, and I think this one is really critical to prevent a lot of political fighting, is that we need to, we need to have provisions to update the system much more frequently in a in the last 100 years. In fact, in the entire history of the United States, there have been really through only three major reforms that change the number of immigrants we allow in, one in 1924 one in 1965 and one in 1990 and so what happens is, when you set the quotas for the next 40 or 50 years, over time, the divergence between reality and the system becomes so large that you get these political fights that we’re having right now, and they become so insurmountable that we never get to comprehensive reform. So instead, we should be updating every, I don’t know, at a minimum, every five years, probably even more often than that, and so that would prevent us from diverging too far from what our country needs. So anyway, those would be the first four big things I would do. There’s, of course, a lot of detail behind that that one has to flush out.

Simone Del Rosario:

Yeah. Zeke, the conversation about immigration is so political, and my goal, and what I think that we achieved here today, is removing politics from the conversation and really talking about the economic impacts, which is what I cover. And so I was really grateful for you to join us and give us so much of your time. If people have gotten to this point and learned so much about immigration, and are hoping to learn more about your research, they can read your book, The Truth About Immigration. Why successful societies welcome newcomers, but I just want to end it there. Ezekiel Hernandez, thank you so much for your time today.

Zeke Hernandez:

It was a pleasure. Great questions, and thanks a lot for having me on.

Simone Del Rosario: It’s a 1-in-1,000-year rainfall event. Wind gusts around 100 miles per hour near Tampa. The roof blew off the Tampa Bay Rays’ Tropicana Field, which was supposed to house hurricane workers. Hurricane Milton has torn through Florida, and now comes the recovery. 

A Morningstar analysis ahead of the storm estimated Milton’s damage could cause between $60 to $100 billion dollars in insured losses. For reference, Hurricane Katrina’s insured losses totaled $100 billion in today’s dollars. 

I want to bring in Nadja Dreff, Senior Vice President and sector lead for global insurance and pension ratings at Morningstar. And Nadja, I know that you have to update your analysis over there at Morningstar, but so far, with the way that Milton has come through Florida, are you expecting things to be on the higher or lower end of your previous estimates?

Nadja Dreff: So at this point in time, given what we already know about where the landfall happened, luckily, we are expecting the range to be lower than we had previously anticipated. So instead of the hurricane hitting head on to Tampa, we know that it actually hit slightly below which does make a difference to what our insured loss estimates are going to be and does lower them.

Simone Del Rosario: Is it still something that will be in the 10s of billions of dollars, though?

Nadja Dreff: Exactly, unfortunately, the the impact is still devastating on the communities and the insured losses. At this point, we think they may reach even something like $60 billion now, of course, knowing what we know about the type of damage that has happened, given the very forceful winds and a lot of flooding that the hurricane brought through, through water storm surge and various kinds of water damage, we also expect damages from Flooding to be substantial, so probably something in the neighborhood of about 10 billion to be covered by the state back, sorry, the federal program, which is the National Flood Insurance Program.

Simone Del Rosario: and that would be money on top of what you’re calculating, correct. What you calculate, are the insured losses, or does that include federal insurance?

Nadja Dreff: Yeah, at this point, when we talk about insured losses, it does include the federal program for flood insurance. A lot of private insurers will not have extensive flood damage payouts just because they don’t provide flood coverage, but it is like where it’s provided it’s through this federal program. So altogether, we think, unfortunately, it may approach $60 billion

Simone Del Rosario: How do these losses compare to other notable hurricanes?

Nadja Dreff: Well, very good question. That’s something we would look at as we do our analysis, because clearly, we’re not there assessing damage as it happens. But what we do is we look at the various cat modeling scenarios, but we also primarily also focus on the past historical losses based on other similar hurricanes. Unfortunately, we have a number of these hurricanes that have happened. The more most recent one just a couple of weeks ago, Hurricane Helene. Similar path. That one was smaller. We we think it was substantially smaller, probably close to 10 billion, kind of at the higher end of the range. And then we’ve also seen hurricane Ian, which was the second largest catastrophe in the US, and that cost insurers in the neighborhood of $55 billion which is what we think is kind of on par with Hurricane Milton.

Simone Del Rosario: So what makes Milton so much more damaging from an insurance perspective than Helene did when we saw the devastation that Helene brought. I mean, it was so widespread so many states. What was it about this Tampa region that makes Milton more damaging financially?

Nadja Dreff: Very good question. What we look at more closely is the actual path of the hurricane and what is located and how low laying those areas are. And unfortunately, that tends to be the case in the area where it hit that a lot of flood damage is going to be incurred, a lot of storm surge from from the ocean because of the properties that lie close to the coast. And then we look at how built up, what is the population density of the area being affected, and all those things. You know, the closer we approach the Tampa Bay area, which is a major urban center, the more the higher these damages tend to go, unfortunately.

Simone Del Rosario: With these two back to back storms like this, how does the. Insurance industry respond, surely they’re going to have some major underwriting losses on their books.

Nadja Dreff: Well, yes, we do expect these events to affect profitability, affect their earnings, especially given the hurricane season, where we’ve seen at least these two major storms, and that’s something you know, to keep in mind. But at the same time, insurance companies set aside money for exactly these kinds of events. This is why they are there, to protect and to pay out on policies. They also tend to purchase a reinsurance so it’s kind of insurance for insurance companies, and when losses reach a certain dollar value, then reinsurers take on a portion of these losses. And so when it comes to the global reinsurance industry that provides this product, we think they will not see a major impact, but everything has to be kind of kept in the perspective and the accumulation of losses over the year, and especially during this hurricane season, we think, unfortunately, will lead to some reinsurance price increases.

Simone Del Rosario: That’s what I was going to ask you next. Is how this is going to affect homeowners in Florida, they already experienced the highest insurance rates in the country by a long shot. So can they anticipate even higher rates after a hurricane season like this? 

Nadja Dreff: Well, unfortunately, that can’t be ruled out. I mean, the way the industry works based on their underwriting profitability, which again, is based on the prices that they charge and the prices that they pay on reinsurance. Unfortunately, the the events of the of late kind of point to prices being higher, not lower. In the earlier part of the year, we saw reinsurance prices kind of stabilizing, even potentially declining. Unfortunately, experience tells us, following a major hurricane, those prices usually tend to harden or they go up, and so therefore we think the stabilization decrease is going to stop, and instead we’re going to see the reinsurance price going back up, potentially, not a huge spike, because 2023 alone saw a very sharp increase in reinsurance prices, but then to see them go up again, it is a concern when it comes to what it does to insurance prices for households and policyholders.

Simone Del Rosario

We’re hoping for safety for everyone who is there in Florida right now, and of course, for our first responders as well who are helping people in those areas. And we’re going to be talking about how these back-to-back hurricanes that have hit this region might be impacting the economy. Atlanta Fed President Rafael Bostic said that this one two punch, this, you know, back to back, hurricane, could actually affect the economy for at least six months, especially in the supply chain. Factor, what sort of things could be, you know, immediately impacted in the economy as Florida and, you know, especially other states as well. I’m just thinking Florida, because they have the double hurricane right now. So what, how can that be affected, and what is specific about the region there that was impacted, and how that might impact trade?

Chris Konstantinos: Sure, I’ll definitely address that. I just want to take a moment to also recognize a huge human toll. I have a lot of friends in the western part of North Carolina. And I think the situation there is worse than many people in the nation realize, in terms of how much infrastructure has been destroyed. And of course, unfortunately, now the same thing is happening in Florida. So will this? Will this have impacts in the US economy? Undoubtedly, I think Raphael Bostic is right. I think what’s interesting is that there’s a lot of gives and takes. When we think about a huge, you know, horrific natural disaster with a huge human toll, we tend to focus solely on the negative sides of the economic impact. And for obvious reasons. The cold, hard economic facts is that the gives and takes of what happens after a catastrophe like this are often, there’s often two sides of it, because, yes, I think the supply chain, the supply chains already struggling, right? We’ve had the, you know, we had the strike that was recently and probably only temporarily ended. We’ve had, we have increasing geopolitical issues across the world that are certainly going to affect commodity prices. All of those things are going to complicate the supply chain, I believe, and that’s going to have negative economic impacts. The flip side to that, as it relates to recovering from a natural disaster, is there’s going to be a lot of infrastructure spend in those regions, in western North Carolina, obviously, in Florida, we don’t know that, you know, we don’t know the overall toll yet in either of those places, but we know it’s going to be grave. So there’s gonna be a huge amount of infrastructure spend. And so for companies, industry sectors that are construction related, that some of sometimes, these things can actually be a huge stimulus of sorts in those in those areas, and that may, at least regionally, you know, actually increase some of the manufacturing data that we’re seeing. So there’s a lot of like, push and pull, when, when a, you know, a shocking natural disaster happens for insurance companies. I get this question a lot, so I was actually talking to our our portfolio manager yesterday, who’s an expert in the insurance space. She used to work in the insurance space, and she said that what often happens is it actually creates a hardening price cycle for insurers which which, they take a huge hit on their balance sheet and income statement early on, but then, because they’re able to successfully raise prices, it leads to higher cash flows going forward. So understanding the pushes and pulls economically when something like this happens is often more complex than it, than it. You know, seems that just at first blush.

Simone Del Rosario

Policies by former President Donald Trump would add more than twice as much to the national debt as policies by Vice President Kamala Harris. That’s according to a bipartisan analysis by the Committee for a Responsible Federal Budget. 

The middle estimate for Harris’ plans increases the debt by $3.5 trillion through 2035, whereas Trump’s middle estimate adds $7.5 trillion. 

On the low end of the range, Harris adds nothing while Trump adds $1.45 trillion. 

And on the high end, both candidates deliver an enormous hit to the national debt, which is at about $35.7 trillion. Also, it costs more than a trillion dollars in interest payments to maintain the current debt load.

I want to bring in Mark Goldwein, Senior Vice President and senior policy director at the Committee for a Responsible Federal Budget. Mark, I just want to start off, if you could give me the top-line takeaway from this massive analysis.

Marc Goldwein: Sure. Well, the bottom line is that we are already adding tremendously to the national debt under current law, and both candidates would make that even worse, especially President Trump. We find that President Trump would add seven and a half trillion to the debt in our base case analysis, and vice president Harris would add 3.5 trillion to the debt.

Simone Del Rosario: Why should voters care about the debt? 

Marc Goldwein: Look, debt is eating our our income growth. Debt is what causes inflation, what causes high interest rates, and what causes interest payments to now be the second largest government program, larger than defense, larger than Medicare, and leaving less room for us to invest in just about anything else.

Simone Del Rosario: So your your middle estimates for both candidates show that Harris would add about three and a half trillion to the debt over the next decade. Trump would add seven and a half trillion in debt. What are the policies that are specifically adding to the debt for these two different candidates?

Marc Goldwein: Yeah, so for vice president Harris, it it’s extension of some parts of the tax cuts from 2017 it’s a very big child tax credit, and then it’s a bunch of spending on everything from paid leave to childcare to long term care to preschool, partially paid for with taxes on the rich and on corporations. For President Trump. It’s mostly just a lot of tax cuts. We have a full extension of that tax cuts and Jobs Act, getting rid of the cap on the stall deduction, no taxes on tips, no taxes on overtime, no taxes on Social Security benefits. And then on top of that, deportations and higher spending on defense, again, partially offset, mainly with tariffs, but in neither case are those offsets covering the costs. 

Simone Del Rosario: Do your tariff estimates also include that 60% tariff on China?

Marc Goldwein: We do. Our central estimate assumes that there’s a 10% universal tariff. It’s 60% on China, and in addition, there’s some retaliatory tariffs on a one off basis. But the important thing with these tariffs is, if they work as intended, they will reduce trade, and so they don’t raise as much revenue as you might think. You know, just taking 10% of all of our imports, for example, yeah,

Simone Del Rosario: Although Trump on the campaign trail and at the Economic Club in New York, he has said that his tariffs are going to be paying for all of these tax cuts. So your analysis clearly points to something different. 

Marc Goldwein: That’s right, the tariffs could pay for some of the tax cuts, but they’ll barely cut. They’ll barely cover the no taxes on tips and no taxes on overtime. They aren’t going to cover, you know, the 8 trillion plus of tax cuts that President Trump is proposing.

Simone Del Rosario: And then, on the other hand, Marc, there is no guarantee that a potential president Harris would get those tax hikes on the rich that she’s looking for. 

Marc Goldwein: That’s right. Look, in both the cases, these are highly speculative, because we’re analyzing what they’re calling for, not what will actually happen in the real world. These offsets are hard. It’s hard to get taxes on the rich, taxes on corporations, tariffs, lower drug prices. It’s also hard to get some of the spending. So these are not predictions of what will happen. These are estimates of what would happen if the candidate’s plans were enacted in full.

Simone Del Rosario: So what should voters do with this information?

Marc Goldwein: They should demand offsets. Look, a debt is just tax on future generations. It’s a huge burden in terms of slower income growth, higher interest rates, higher inflation. And we need the candidates to be paying for their promises, and if they can’t, we need those promises to be scaled way back.

Simone Del Rosario: What aren’t you hearing from the candidates that you wish you were hearing at this point in the race?

Marc Goldwein: Social Security is nine years from insolvency. I’m not hearing a plan from either candidate to prevent that 21% across the board, cut that’s scheduled to happen under current law. 

Simone Del Rosario: And peel back the curtain for me a little bit and just explain how you guys went about this analysis. I assume it took you a very long time to do so.

Marc Goldwein: Right. So look, we went through painstakingly for both candidates websites, through their platforms, through their speeches, we talked to the campaign staff, we looked at news articles, and we tried to discern what are official campaign policies, how do we interpret them, and how much do they cost? And each step of the way, we need to make a lot of choices, which is why we have a low cost estimate and a high cost estimate reflecting the range of possibilities, along with our central estimate. This was, you know, I have to give credit to I have an amazing staff that put many, many, many hours into this over the last year, estimating every last policy, including policies that didn’t even make it to the finish line because they were rejected or because they were the. Policies from the Biden campaign that didn’t make it over to the Harris campaign, but it’s an incredible amount of work, and I recommend you checking out the report@crfb.org it’s it’s pretty lengthy, but we have a short summary at the front that I think gives all the most important details.

Simone Del Rosario: And here at straight arrow news. We’re about unbiased, straight facts. We like to bring nonpartisan information to people so that they can decide for themselves as they get ready to vote in this upcoming election. Talk to me whether you know. How should people interpret these findings? Are they at all partisan?

Marc Goldwein: Look, we don’t endorse a particular candidate, and we didn’t go in this trying to come up with a particular outcome. This is just the math. We looked at the candidate’s plans, and this is what we think they would add to the debt. You then need to weigh that against the benefits of whatever the tech candidates are offering. So one voter might say, sure they add a trillion dollars to the debt, but it’s for this very important policy, or sure they balance the budget. Neither of them do, but let’s say they did, but they do in this awful way. So fiscal policy, how much they add to the debt should be just one consideration among many. I happen to think it’s a pretty darn important one, because our debt is headed to the largest share of the economy it’s ever bid. We’re head to record levels of debt. And I do fear we have a debt crisis on the on the horizon if we don’t do something. But you need to vote based on on what matters most to you, and this information is just meant to inform your decision, not to dictate it. 

Simone Del Rosario: Well, I want to thank you and your team for your analysis. Mark goldwein, Senior Vice President and senior policy director at the Committee for a Responsible Federal Budget, we rely on you guys often to get the straight facts when it comes to how these policies impact our debt and impact our country. So thank you so much Mark.

Marc Goldwein: Thanks for having me. 

Simone Del Rosario

Boeing and machinists are back at the negotiating table Monday morning after more than a week at a stalemate. The International Association of Machinists said Boeing’s last offer disrespected the entire union after the company released the terms to the public before the union had responded. 

Even then, 80% of machinists rejected the offer that included 30% raises and doubling the ratification bonus to $6,000. 

IAM says Monday’s meeting is another critical opportunity to push for the priorities of their membership, while Boeing’s new CEO told employees getting to a resolution is a priority. 

Non-striking employees are also taking hits. Tens of thousands are facing rolling furloughs as Boeing bleeds cash from the strike and lack of production. 

The 737 MAX is a big revenue driver for the company. Deliveries are already behind schedule and the strike is halting all progress. 

On the fourth week of this strike, I want to bring back top aviation analyst and Managing Director of aerodynamic advisory, Richard Aboulafia. Richard, we spoke when the strike had pretty much just started, and you know, maybe I do want to put you on the spot here, but you thought that it would be pretty quick, obviously, entering our fourth week now, are you surprised at the length of the strike?

Richard Aboulafia: Yeah, I really am, and I feel a little embarrassed because I did indeed say this would be brief. I thought the arrival of new management, new management with a lot of experience and understanding in the industry, would make things different, but that doesn’t appear to be the case at all, I’m afraid.

Simone Del Rosario: Yeah, I guess understanding in the industry doesn’t necessarily equate to being very good at labor relations. I’m curious your opinion on this, based on your comments and other people’s comments about Kelly Ortberg, really thought that this would be someone who would be able to bring these two groups together, but it appears that the company made a huge misstep in the last offer after they, you know, sent it out to the public before hearing back from the negotiating team. Do you think that that was something that was ortberg’s decision, or do you think that he was influenced by the long standing culture that we’ve seen at Boeing.

Richard Aboulafia: You know, I wish I knew for sure the first time around. Of course, it was perfectly understandable, because they did have an agreement with the I am 751, management, and it appeared everybody kind of underestimated the level of grievance and and hostility in in the rank and file, the understandable grievances that have built up over a decade and a half or more of mistreatment. But the second time was a complete Baffler. It really was. It’s possible that, you know, Ortberg just comes from a very different culture, or just doesn’t quite understand what’s going on here? Or it’s possible that he was blindsided by the institutional, confrontational approach that Boeing management has taken, maybe even the board. You know, it’s just impossible to say at this point, I’m afraid.

Simone Del Rosario: But what happened really did feel like Boeing culture of old, when I know that they’re trying to move into a different direction now that both parties are back at the negotiating table after more than a week at a stalemate, and they’ve got federal negotiators there in the middle of it, do you think that the next contract that we see, the next contract offer, will be the winner? 

Richard Aboulafia: I sure hope so. I mean, that’s the thing this. This is absolutely not something that should be stuck. You look at the role of what we call touch labor in the manufacturing process, it’s maybe five 6% of the cost of an aircraft. And not only that, but there are various inflationary pass through provisions in sales contracts. So even if they did boost wages by 40% or so, this wouldn’t really show up in terms of commercial competitiveness. The only possible area of the only possible sticking point is if Boeing absolutely doesn’t want to provide a structured pension program, and the workers insist upon it, that’s about the only thing I could think of that would prevent two sincere parties from reaching a relatively quick agreement.

Simone Del Rosario: But that demand is one on the labor side that they haven’t had success in in other industries. You know, Boeing employees lost their pension a decade ago to be able to get it back when pensions are, you know, largely a thing of the past. Less than 10% of workers have one today. Do you do envision that Boeing would come to the table with some sort of pension agreement?

Richard Aboulafia: No, you know. I think you know. The problem, of course, with a pension is that in the cyclical industry, you have all these big costs you have to keep paying. And as the car companies found out, that can be disastrous. On the other hand, if you really do believe, as I hope Boeing management would, that there is a pretty strong long term future for this industry without maybe some of the crazy cycles we’ve seen in the past. And you also believe that good labor relations and talent retention are a strategic priority. You might even regard a structured pension program as a form of competitive enhancement for the company, but that would require a big leap of faith, if you will.

Simone Del Rosario: How much longer can Boeing withstand this strike?

Richard Aboulafia: You know, they’re burning through a lot of cash, right? Yeah. The talk right now is whether or not they’ll do a ten billion equity raise, as some people have posited they should. It. They probably could do that. It might not be the easiest sell for investors, but Well, Boeing is, Boeing is a blue chip, so they could probably pull it off. Other than that, you know, I can’t imagine any thing that would prevent the company from going the full, I don’t know, two months that you’ve seen for the maximum duration of a strike at this time. But then again, given all the cash that’s not coming in and all the pain they’re causing their suppliers, you have to ask, Why? Why can’t this be settled? 

Simone Del Rosario: And you’re talking about the financial situation you mentioned, the possibility of a stock sale. And, you know, I think the company would want to have a resolution to the strike before raising that type of capital. Um, you know, what about their credit rating? What about what else is going on behind the scenes? I mean, this is there’s a lot at stake here with Boeing as it continues to bleed cash and 10s of 1000s of workers not affiliated with the striker also being furloughed.

Richard Aboulafia: Yes, that’s right, because, of course, when they stop ordering things and halt the production ramp that somebody at their suppliers had been facilitating for and taking out, you know, loans for and hiring people for, it’s extremely damaging to an awful lot of companies and jobs in the industry, you know, it’s, it’s not a it’s, it’s not a happy story, I think, you know, from Boeing’s standpoint, just looking at their own concerns, you know, the cost of any increase in wages and whatever else, nothing like the damage in cash that’s not coming in from from deliveries.

Simone Del Rosario: Yeah, well, we’ll continue to watch this closely. It doesn’t sound like we have enough of a resolution or confidence right now, Richard, that you know an agreement will be reached soon, but certainly hope that there will be one, right? 

Richard Aboulafia: Yeah, we certainly do, you know, and the mistakes made with the last offer were so obvious. Yeah, you know that hopefully, if they do things different this time, that can all be avoided and maybe get to a quicker a quicker resolution.

Simone Del Rosario: Yeah, it is strange, the timeline we’ve gone through right now, from a negotiated offer being put to the workers that the union agreed upon to that turning into a strike, to turning into, you know, a lot of animosity toward the next offer and what happens there. So now they’re back at the table, and we’ll just have to follow it really closely. Managing Director of aerodynamic advisory, Richard Abu Lafia, thank you so much for your expertise. 

Richard Aboulafia: My pleasure. Thank you. 

Simone Del Rosario: California Governor Gavin Newsom made headlines Sunday after he vetoed a sweeping artificial intelligence safety bill. So what comes next for regulating AI in the country and how do America’s efforts match up against other governments? 

The proposed California law would have required safety testing of large AI systems. It would have also given the state’s Attorney General power to sue companies over serious harm caused by their tech. And it would have required some sort of kill switch that would turn off AI models in case of emergency.

Newsom explained his opposition in a statement, saying: 

“I do not believe this is the best approach to protecting the public from real threats posed by the technology. Instead, the bill applies stringent standards to even the most basic functions — so long as a large system deploys it.” 

Newsom’s decision comes just a few months after the European Union implemented its AI Act in August. 

That law implements a tiered system of perceived risk. 

For instance, minimal risk systems like OpenAI’s Chat GPT would just have to adhere to transparency provisions and EU copyright laws. 

But higher risk systems, like AI models that try to predict whether a person might commit a crime, will be fully banned as of February 2025. 

For how to regulate AI across state and nation borders, let’s bring in Patrick Hall, Assistant Professor of Decision Sciences at George Washington University.

Patrick, what was it in this bill that the governor of California vetoed or sent back, and how would it have changed the AI landscape in the state?

Patrick Hall: Well, I think that there are a lot of good things on the table for this California bill, in particular, sort of mandatory testing before systems were released, the ability for the government to take in and take enforcement actions when, when harms do occur related to AI systems, the notion of a kill switch or the ability to turn a system off quickly. Whistleblower protections there. There were good things there. I think that the the issue was that the the focus of the law was on so called frontier models. And these are, you know, sort of the largest AI models developed by the largest AI companies. And so it’s a very narrow scope. And then also it really only focused on a sort of small aspect of the performance of AI systems that has come to be known, sort of confusingly, as AI safety and and AI safety really concentrates on things like preventing systems from being used to make bio weapons, preventing catastrophic risk, and I think that that was where the bill went wrong. AI can be a dangerous technology, but I think that it’s very clear that the harms of AI today are towards consumers and towards our democratic institutions, not sort of pie in the sky sci fi fantasies about, you know, computers making super viruses. So I think that’s where the bill went wrong. Its focus on on catastrophic risk.

Simone Del Rosario: Do you agree with the tech companies that said that this bill would have stifled innovation because of the things that you would have to do before developing or is that just an excuse that they make?

Patrick Hall: Well, my, my opinion, there is that it is an excuse, but it would have, it would certainly have cut into their revenues in terms of these AI systems, which are probably already under a great deal of stress. I try to explain to people that these generative AI systems require, you know, industrial scale investments in computation, 10s, hundreds of millions of dollars or more. So they’ve already spent a lot of money on these systems whenever you have a sort of regulatory burden, that, of course, increases the amount of money that you have to spend. But since we talking about the biggest, richest companies in the world, I do think it’s a little bit of an excuse.

Simone Del Rosario: I am curious, had this bill passed, or if California decides to move forward with different but similar legislation regulating AI, when the rest of the country hasn’t. Could this change how tech companies operate in the state of California? 

Patrick Hall: Certainly you could see tech companies leave the state of California. I’m not sure how realistic that is, though. What tends to. Happen is, is almost a different scenario where most of the larger firms would apply the California regulation, or any large state regulation, you know, California, New York, Illinois, Texas, you know, apply the apply the sort of obligations to meet that regulation across, you know, across the entire United States, I’d say that’s actually a more likely outcome and and perhaps another reason why the some of the tech firms did not like this bill is because they knew it, it it would not only affect their behavior and their revenues in California, but It was likely to affect their behavior and revenues throughout the country. So I would take kind of a different I’d take kind of a different path in describing what might have happened there. Not that the changes in California would have been important, but I think it was more likely that it would have affected their behavior outside of California as well. 

Simone Del Rosario: Okay, let’s extrapolate that out even more, because the EU has passed AI regulation, the AI act over there. These are multinational companies who have to adhere to rules in the A in the EU. So how does that affect business in America, and how is it different from, you know, what was turned down in California. The regulation that we do see in the EU, what’s different there?

Patrick Hall: One thing that I would like to emphasize is that EU citizens and citizens of other countries with with strong data privacy laws or AI regulations, really have a different experience online than Americans and and have many more protections from predatory behaviors by tech companies than we as Americans Do and and what it boils down to is the tech companies make a lot more money in the United States, or able to, maybe a more accurate way to say it is, tech companies are able to extract a lot more data and sort of conduct a lot more experiments on Americans than they are able to on EU citizens and and citizens of other countries in the world that have strong data privacy or AI regulations. So it’s, it, I think it’s a fully different online experience in Europe these days than it is in the US that EU AI Act is a fairly different kind of law. So it’s, it’s a much broader law. For me, it’s a much broader law, and it’s a law that that doesn’t focus only on on so called frontier models or only on large models. It doesn’t focus only on safety, it focuses on all types of uses of AI, and it has several different risk tiers, where models in different risk tiers or systems in different risk tiers have different compliance burdens. So it’s a much more holistic law.

Simone Del Rosario: Do we need to have an AI act of our own for a federal response to this?

Patrick Hall: It’s a very good question. I think the answer is yes. Eventually. AI in 2024 is very data driven, so it’s very hard to have good AI regulation without good data privacy regulation and and so the EU is is quite far ahead of us in that they have a strong overarching data privacy regulation, the GDPR, and you know, after they passed that, they were able to pass an AI Act. Now it doesn’t have to be done in that order. I’m not saying that the Europeans have done everything right. I’m not saying that they won’t stifle innovation. Certainly, they will, to a certain degree, but, but we have a lot of catching up to do as well. We need to start thinking about data privacy and broader regulation of AI certainly, and those two may have to be done together. Or, you know, we it’s just hard to do AI regulation without data privacy regulation because 2024 AI is so data driven. We as voters need to make it clear to our representatives that these types of regulations are important, and we need to make it clear you know, the harms we’re experiencing, anything from privacy violations to inconveniences, to to more serious outcomes, more serious negative outcomes. So these algorithms are becoming a bigger and bigger part of our lives, and I do think it’s time to regulate them. And I’d also make it clear that we have good models for regulating algorithms on the books in consumer finance and employment decision making in medical devices, and any of these would be a better model to start out from then than the sort of quote, unquote AI safety direction.

Simone Del Rosario: Patrick Hall, Assistant Professor of the Department of Decision Sciences George Washington University. Thank you so much. Thank you

Simone Del Rosario: We’re talking about this rate cutting cycle and how much the Fed may cut in the first week of November in two days following the election. And I mentioned that I was tracking CME fed watch, so they look at probabilities of how much the Fed will cut its interest rates by looking at interest rate traders and their activity. And right before these numbers came out, about 68% were saying that they expected the Fed to cut by 25 basis points in November. And I just refreshed my page, and it’s already up to 87% so from 68% to 87% I mean, they’re really locking in a 25 basis point cut right here. There’s no zero, so there’s that, you know, no one’s betting that the Fed. 

Seth Harris: There’s an important input that you didn’t take into account, and that is that you and I just predicted a 25 basis point and said, We’re market we’re moving markets here on straight arrow news with our predictions about what the Fed is going to do. But I just think 25 basis points makes a lot of sense. You know, with this jobs report, which is saying to the Fed, there’s some volatility in the labor market. I mean that that is the big story here, is we thought things weren’t going so well. They were actually going moderately, not great. This is. A, I would say, a very, very good number. So the Fed is going to be cautious. This is a, this is a very cautious group of people by nature. That’s almost who they hire. Is people who are quite cautious, who are data driven, and they’re going to look very closely at their Beige Book. But at the end of the day, they’re also trying to set a tone for the economy, as I was just saying. And 25 basis points is a gentle nudge that we’re moving towards growth. Everybody loosen up a little bit. Start spending, start hiring, start moving a little bit more, not too fast, but a little bit more. 

Get ready for price shocks if dockworkers and the companies they work for can’t come to terms on a contract before Tuesday.

The labor standoff is between 85,000 longshore workers and the United States Maritime Alliance, which negotiates on behalf of the port operators. A strike would shut down 36 ports from Maine to Texas that handle around half the goods shipped to the U.S. It would be the first such strike for maritime workers in nearly 50 years.

The longshore workers are calling for significantly higher wages and a ban on automating cranes, grates and moving containers as part of the loading and unloading process.

Neither side has made proposals public, but a trade publication reports the union is seeking a $5 per hour raise for each year of the contract, while operators offered half that. The union president called the offer insulting.

President Biden has the power to force longshore workers back on the job. But with about a month before Election Day, Biden said he was not planning to do so. The administration is calling on both sides to negotiate a solution.

Congress did stop a rail workers strike in 2022 at the urging of the White House.

The National Retail Federation has called on the administration to keep engaging both sides. NRF Vice President of Supply Chain and Customs Policy Jonathan Gold said in an email to Straight Arrow News:

“Many retailers have already taken steps to mitigate the potential impact of a strike by bringing in products earlier or shifting products to the West Coast. The global supply chain is a complex system and even a minor disruption would have a negative impact and cause delays at a critical time for both retailers and consumers.”

If the two sides fail to reach a deal, a strike will have a huge impact on the economy. JP Morgan transportation analysts say it could cost as much as $5 billion per day. Meanwhile, for each day ports are shuttered, it takes around 5 days to clear those extra containers.

Simone Del Rosario:
Joining us now to discuss is Patrick Penfield, Professor of supply chain practice at Syracuse University. Patrick, thank you for joining us as we’re you know, hours away from a potential strike, and I’m wondering, the holidays aren’t too far around the corner, either, would this strike have an impact on people shopping?

Hey, Simone, great to join you. And no, not right now, it won’t. So a lot of the retailers have brought in all their holiday goods they’re stocked or at the stores. In fact, you know, we’re starting to see more stuff on the stores sooner than later, right? So you’re seeing some of that Christmas and holiday stuff out right now.

Simone Del Rosario:

let’s talk about the impact of this strike, as we’ve talked about, it’s, you know, the East Coast and the Gulf Coast. About half of the products coming into the United States and coming out of the United States, coming from these ports. What sort of impact would this have?

Patrick Penfield
Yeah, so at first it’ll be minimal, but as it progresses, it’ll get worse. So every day there’s a strike that’s about five days of supply chain disruptions. So again, the beginning won’t be felt much, but I’d say after a week, then we’re going to start to feel some issues and problems, you know, for companies, specifically who, you know, get parts. I think the other thing is, just people trying to ship stuff through the East Coast also, and there’s going to be some issues there, obviously.

Simone Del Rosario
What equates that backlog? What? Why does it take multiple days for every one day?

Patrick Penfield
That’s a giant queue, so what happens is once a strike happens then you’ll start to see all these ships that will queue off the port. And then once the strike finishes then you have to process all these, you know, these ships, right? So you’re talking all these ships have been building up. And so that’s the bottleneck, the ports themselves. And then, you know, you’re talking about drayage, you’re trying to get stuff to the warehouses, and then it’s just a complete mess. And then a lot of times, you’ll see bigger customers will kind of demand that their stuff gets pushed, you know, it gets, you know, shipped first. And then, you know, the smaller companies, they don’t have that advantage or that luxury, and then they get impacted adversely. So it’s, it’s just basically, again, just a mess within the supply chain. When, when strikes

Simone Del Rosario
happen? And do you think that this strike will happen?

Patrick Penfield
Absolutely, yeah, it’s going to happen. I think the reason being is that you can see that the Daggett, who is the president of the International longshoremen on the East Coast, again, very focused on and getting what he can for his membership, and he’s also retiring. So I think this is kind of a statement for him. This might be a legacy move where you know he wants to get as much as he possibly can for his union members.

Simone Del Rosario
And the East Coast and the West Coast are different groups negotiating separately. There’s no risk of a strike on the West Coast. They already resolved their labor issues earlier this year. Are they trying to get some, you know, equality in those two agreements? Yeah, I

Patrick Penfield
think. And this is the nice thing, thankfully, that, you know, each of the coasts, they’re usually a year apart, so that way the whole country doesn’t shut down in case there’s a strike. But the West Coast longshoremen seem to have always a better contract than the East Coast longshoremen. And I think from a negotiation standpoint, I think Daggett is trying to to, you know, get some type of, you know, get some to a point where they’re both equal. And I think that is the dilemma is trying to make that happen, you know, with, you know, the maritime Association. And so I think this is, this is the issue. Another issue is automation. And so, you know, the union is against, steadfast, against automating, and that’s just because it takes away from jobs. And so sadly, the United States has some of the, the worst ports in regards to automation. You could even consider some of our ports of Thor, you know, as good as the third world countries ports, just because really not a lot of automation there. Yeah, okay,

Simone Del Rosario
let’s talk a little bit more about that automation, because that was going to be a question of mine. I mean, Wouldn’t this make things better at the ports? Wouldn’t this streamline it? And if so, like, how do you balance those two things between needing to progress from what sounds like not very advanced ports that you’re describing and balancing labor needs?

Patrick Penfield
Yeah, I think that the dilemma that we have is that the Longshoremen, they’ve always been a strong union, and so they realize that if you automate, you’re going to take away their jobs. And so, you know, this is kind of the conundrum that we’re in. You know, ideally we should be automating to streamline operations, to be able to move things in and out. But unfortunately, automation does come at a price from a job standpoint, and there will be less jobs on the ports if you automate. And so this is kind of the sticking point.

Simone Del Rosario
What do you make of the Biden administration staying out of this? I

Patrick Penfield
I think it’s a smart move. I think ideally it’s always good to try to have labor and management kind of work out these issues, if you can. That being said, eventually, if it goes on too long, I think they have to step in, just because this would cause some major issues and problems within the whole country. So I give it at least five days. I think after five days, then I think the government really needs to step in. Well,

Simone Del Rosario
five days, it’s not a very long time.

Patrick Penfield
I think that’s really all we can afford, to be quite honest with you. And I think again, if you’re the Biden administration, this is probably a worry because of the it’s an election year, right? So again, if the constituents see that there’s issues and problems here and you don’t resolve them, then that could be bad for, you know, whoever’s you know, are running for office.

Simone Del Rosario
And how do these effects ripple out to other industries? I’m thinking about trucking. And what are the ripple down effects if they go on strike?

Patrick Penfield
Yeah, so you’re going to see an increase in pricing rates, trucking rates. So you’ll see congestion again. So rates will go up. You’re going to see issues with food, because there’s a lot of food that goes through the East Coast ports, so in order to get that food, you’re going to have to air it in. And so if you air anything these days, it’s going to cost a lot more money. And so that’s kind of what you’ll see, is you’ll see prices go up. At first you’ll start to see stuff. There’ll be some availability issues, where you won’t see as much food as you do, like bananas and seafood. And then eventually, you know, the food retailers will bring that stuff in via air, and then you’ll start to see significant price increases just because you have to pay for you know how you brought that food in? Back

Simone Del Rosario
to the supply chain crunch, we go. Patrick Penfield, Professor of supply chain practice at Syracuse University. Thank you so much for weighing in today. Yeah.

Patrick Penfield
Thank you, Simone,

MERRICK GARLAND:

We allege Visa is a monopolist in the debit transaction markets that is violating federal antitrust law and inflicting often hidden but significant harm on American consumers and businesses.

Simone Del Rosario

The Department of Justice announced a lawsuit against Visa Tuesday, accusing the payments giant of anticompetitive practices in the debit card market.

MERRICK GARLAND:
Visa deploys a web of unlawful anti-competitive agreements to penalize merchants and banks for using competing payment networks. At the same time, it coerces would-be market entrants into unlawful agreements not to compete by threatening high fees if they do not cooperate, and promising big payoffs if they do.

Simone Del Rosario

The crux of the complaint is that Visa makes deals with vendors to prevent them from using other payment processors. This, in turn, hinders other processors from scaling up their business. If a merchant doesn’t adhere to Visa’s “volume commitments” to use it for most of their transactions, they can reportedly rack up big-time fees.

The DOJ pointed to a situation where they claim Visa had a contract with Square, the operator of CashApp, to stop it from competing.

MERRICK GARLAND:
or as a visa executive stated quote, we’ve got square on a short leash

Simone Del Rosario

Meanwhile, the DOJ claims Visa’s anticompetitive practices forced merchants to pass on fees to consumers.

MERRICK GARLAND:
As a result, Visa’s unlawful conduct affects not just the price of one thing, but the price of nearly everything.

Simone Del Rosario

The Justice Department says more than 60% of debit transactions in the U.S. are done on Visa’s network, allowing it to take in more than $7 billion in fees every year.

It’s unclear at this time what the remedies would be if Visa were to come out on the losing side of a ruling.

The probe did not come as a surprise to the company. It disclosed the investigation in a 2021 filing with the SEC. But still, Visa plans to vigorously fight the charge.

“Today’s lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving,” Visa’s General Counsel Julie Rottenberg said in a statement emailed to Straight Arrow News.

For more specifics on what Visa’s being accused of and how it might impact the card in your wallet, we’re tapping antitrust expert and former FTC Chair and Commissioner Bill Kovacic.

Simone Del Rosario
Thanks for joining us and letting us lean on your expertise here. I’m wondering if we can, first off, if you can explain in layman’s terms what visa did wrong in the eyes of the government.

BILL KOVACIC | FORMER FTC COMMISSIONER
The case focuses on the debit card market. And the allegation is that Visa has achieved a position of monopoly power in debit cards in North America. Attaining a monopoly by itself is not illegal under the antitrust laws. It’s not enough to be big. You have to be bad as well. And the bad behavior that’s alleged is that they essentially did two things. One is that they signed contracts that had the tendency to bind users to their network to the exclusion of other networks, a condition often appearing in these contracts was one that skewed users decisively to their own network and imposed penalties on merchants and other networks when users deviated from that. The second is that they forestalled innovation in the debit card market by making substantial payments to enterprises, some of them, such as Apple, PayPal, that might have been entrance into the issuance of debit cards and the development of debit card networks, made payments to them to stay on the sidelines and not engage directly in that market, to convert them from in the ones that one at one words of one executive quoted in the DOJ complaint, from being competitors to being partners, and that had the effect of diminishing entry into the market and competition that would have taken the form of innovation. So those two are the bad acts that are said to have solidified Visa’s position and enabled visa to charge much higher fees than they would have otherwise.

Simone Del Rosario
And it would make sense for merchants to obviously not want to get shut out of Visa’s market share and thereby agreeing to their terms. In your opinion, has the government laid out a strong case?

William Kovacic
If the government can prove the case and if Visa’s justifications are not impressive. This is a formula that the Department of Justice is using effectively to build cases going back a number of decades, but especially over the past decade. The essential argument is that you buy off rivals to stay out of the way, and that you Impose exclusivity arrangements in your own contracts that make it harder for existing rivals to gain broader scale. Those arguments have been arguments that the DOJ has used with considerable success. The real question is, Visa gets a chance, of course, to contest whether or not it is so powerful. But second, to present evidence that saying everything we do is good for our users, we give users a better experience. It’s good for the merchants in our network. It’s good for the end users, the consumers. So to the extent that we’ve succeeded, we have only succeeded by doing things that make our Merchant partners and our consumers better off.

Simone Del Rosario
We’ve been hearing that in antitrust cases, this argument that we’re just better visa is also saying that the market is competitive enough. Do you think that is true?

William Kovacic
That depends a lot on evidence that’s going to be brought into the courtroom. The DOJ story suggests that visa has a market position of unusual significance, and that position is being protected effectively by a variety of practices. It’s visa that will come into the courtroom with its own empirical evidence and with its experts to say that this misapprehends The nature of rivalry in the market, both with respect to the number of participants, but the significance of each of the participants as you mentioned a moment ago, Simone, we have one side of the story here, but It is visa that will come forward and say, as they’re already suggesting, in some ways, this is a somewhat fractured view of the way the market works.

Simone Del Rosario
It’s interesting too the timing of this case, because at the same time we have Discover and Capital One trying to join together to be a better competitor to Visa. How might this case impact the scrutiny the government puts on that merger?

William Kovacic
It’s a really interesting tension here, because a starting position for the government’s analysis, and we don’t know how that will unfold in that case, but a starting position is we don’t want any further consolidation in financial services. We do not want well established players to be able to grow by means of acquisition, we hold out a great deal of confidence that they can grow and expand on their own without the benefit of acquisition. So that’s going to push the government in the direction of opposing that transaction. But at the same time, I suppose they would say in the Visa case, we want to make sure. That if firms are sustained as independent participants, that they will have the ability to grow effectively without artificial restrictions being imposed by other firms. So I suppose that the DOJ might say, we have a two part strategy here. One is not to allow additional consolidation in the marketplace, but second, to preserve a set of market conditions that make markets permeable, make them porous so that firms are able to grow and expand, especially if they have lesser significance right now, yeah, a bit of a tug of war. There is a tug of war. And I can imagine a judge. I can imagine Visa saying, well, which story is right here. That is, if we’re so awful, then we would assume you would encourage the other consolidation event to take place.

Simone Del Rosario
The DOJ didn’t offer any possible remedies. What would be the right course of action if…

William Kovacic
The logical step would be in the direction first to prohibit the specific conduct that they’re complaining about, which would be to dissolve contractual provisions that create exclusivity that tends to dampen the competitive significance of rivals, and the second might be to challenge or forbid the payments that are being made to other potential significant market players, to say the partnerships that you are pointing to are partnerships to suppress rivalry, rather than to increase it. You can’t do that anymore. So those are natural starting points here. Those are injunctive remedies that would flow naturally from the theory of the case.

Simone Del Rosario
Would that have any impact on people who are carrying visa around in their wallet?

William Kovacic
To the extent that it makes access to other debit card providers or other debit networks more readily available, would mean that, in principle, they would have the benefit of greater rivalry, more choice to turn to another debit card network and seek them out because that network is offering better terms and allows that network to grow. So the short answer is, a key theory in the DOJ case is that unmistakably, Visa Card network participants get better deals in the future.

Simone Del Rosario
We always appreciate your thoughts on these antitrust cases and breaking them down so that we can all understand it. Bill Kovacic, former FTC commissioner and the George Washington global competition Professor of Law and Policy. Thank you so much, Bill.

William Kovacic
My pleasure. Thanks for having me on.