Exploring the US Economy with Michael Brown
This week on the podcast Matt sits down with Michael Brown, Principal US Economist for Visa and member of the Walton College’s Dean’s Executive Advisory Board. They begin the conversation with Michael sharing how he got interested in economics during his undergraduate studies at the University of Arkansas, what he does in his role at Visa in the macroeconomic space and how he synthesizes so much data down to communicate it to their clients. They go on to discuss the methods of forecasting the US economy and also the challenges and trade offs associated with short term versus medium term versus long term predictions. They also touch on the most challenging pieces to forecast. They end the discussion with a focus on supply chain and the macro picture of the economy as well as some medium to long run trends on the consumer side of the economy that Michael sees coming up.
Transcript
Whether it is the invasion of Ukraine, whether it
Michael Brown:is COVID restrictions in China, every single one of those policy
Michael Brown:actions, physical actions has global ramifications, not just
Michael Brown:for the global economy, but for on the ground, individual
Michael Brown:business owners who are trying to manage through that lack of
Michael Brown:clarity.
Matt Waller:Excellence, professionalism, innovation, and
Matt Waller:collegiality. These are the values the Sam M. Walton College
Matt Waller:of Business explores in education, business and the
Matt Waller:lives of people we meet every day, I'm Matt Waller, Dean of
Matt Waller:the Walton College, and welcome to the be epic podcast. I have
Matt Waller:with me today, Michael Brown, who's principal US Economist at
Matt Waller:Visa. And Michael received his undergraduate degree from the
Matt Waller:Walton College and his Master's of Arts degree in economics from
Matt Waller:the Walton College. And he is currently on my Executive
Matt Waller:Advisory Board. Michael, thank you so much for joining me
Matt Waller:today.
Michael Brown:Great to be here, Matt.
Matt Waller:So, Michael, you've really been in economics your
Matt Waller:whole career and you studied economics as a student. Would
Matt Waller:you mind just sharing a little bit about how you got interested
Matt Waller:in economics?
Michael Brown:Sure. Yeah, I guess it all started as an
Michael Brown:undergraduate at the Walton College, you know, I was taking,
Michael Brown:I believe the intermediate level courses. And it was really micro
Michael Brown:that was fascinating to me. So the application of mathematics
Michael Brown:to business problems, was intriguing to me. And I kind of
Michael Brown:stayed down that path for a while, partnered with a
Michael Brown:professor at the time by the name of Cary Deck, who was a
Michael Brown:very inspirational person in my career track. And Cary was
Michael Brown:adamant that the research really helped us understand business
Michael Brown:problems in an applied sense. And Cary was an experimental and
Michael Brown:behavioral economist. And that was also quite fascinating. I
Michael Brown:have a minor in Psychology also, from the University of Arkansas
Michael Brown:there and blending those two passions, I thought was a
Michael Brown:natural intersection to do micro.
Matt Waller:Michael, of course, I've heard your presentations,
Matt Waller:and I followed, I followed your career. And it's really
Matt Waller:impressive, the knowledge you've gained, of course, you've been
Matt Waller:with Visa for almost five years. And prior to that you were vice
Matt Waller:president and economist at Wells Fargo for over eight years, and
Matt Waller:you've had other experiences as well. But would you mind telling
Matt Waller:us a little bit about what you do as principal US economist for
Matt Waller:Visa?
Michael Brown:Sure. Well, it's a far cry from that micro
Michael Brown:undergrad student that I described to you just a moment
Michael Brown:ago. You know, the reality is I spend a lot of my time focused
Michael Brown:on developments in the macro economy, there is some
Michael Brown:behavioral aspects of what we do in terms of understanding shifts
Michael Brown:in consumer confidence and psychology, and how that may
Michael Brown:impact consumption patterns. But more broadly, if I had to divide
Michael Brown:up kind of my time into a pie chart, if you will, I'm an
Michael Brown:economist, I love charts, right? So, you know, you divide the
Michael Brown:time up, I'd say about 70% of my time, is focused on interfacing
Michael Brown:with our clients and communicating the work that's
Michael Brown:done here in the office by our incredibly talented team of
Michael Brown:analysts, economists and data scientists distilling that down
Michael Brown:into an easily digestible format for CEOs CFOs, and senior
Michael Brown:leaders across our clients, which include banks, large
Michael Brown:merchants, you know, there's fintechs are kind of in the
Michael Brown:fold, and big tech companies today, as they're starting to
Michael Brown:wade into the payments ecosystem. So a lot of what I do
Michael Brown:is information, distilling, and presentation. Still have the
Michael Brown:hard skills, though, you know, just this morning, we were
Michael Brown:designing a new round of forecast models. So still
Michael Brown:heavily involved in econometric design as well, as you know, we
Michael Brown:do some academic work here as well to keep us fresh on some of
Michael Brown:the new and innovative techniques out there in both
Michael Brown:economic forecasting, but also sort of pushing the envelope
Michael Brown:with broader economic research topics.
Matt Waller:Well, I could imagine that it's probably hard
Matt Waller:to find people that fit into your profile, because a lot of
Matt Waller:times people that are real strong in econometrics tend to
Matt Waller:be you know, focused on math and maybe more introverted. Clearly
Matt Waller:one of yours strengths is communication, but also that
Matt Waller:synthesis skill. Anytime you've got a lot of different analyses,
Matt Waller:especially when they may be pointing in different
Matt Waller:directions, trying to synthesize it in a way that people can
Matt Waller:understand and relate to and then make decisions upon isn't
Matt Waller:easy. How did you learn to do the synthesis and communication
Matt Waller:pieces?
Michael Brown:That just came with, with experience, you know,
Michael Brown:my first job out of graduate school, is actually at the
Michael Brown:Arkansas Federal Assembly. And I served as kind of a policy
Michael Brown:analyst and, you know, very research focused from the
Michael Brown:beginning. But then, you know, you complete a research project,
Michael Brown:and then you're often called upon to testify in a committee,
Michael Brown:or, you know, in front of, you know, other members of the
Michael Brown:legislature. And that was when I learned fairly quickly that, you
Michael Brown:know, distilling things down to their constituent components,
Michael Brown:and then trying to communicate, just the essentials, was sort of
Michael Brown:core to it. So that was really an enlightening experience,
Michael Brown:having to take a often 40, 50 page research document, distill
Michael Brown:it down into 10, 15 minutes of testimony, just going through
Michael Brown:that process was very challenging at first, I'll
Michael Brown:admit. When I moved to Wells Fargo, the story changed, right,
Michael Brown:it was all about, we have a literally like telling a story
Michael Brown:of the economy, and its facets and its developments and its
Michael Brown:nuances and turning points, and then trying to convey that in
Michael Brown:not just an informative way. But frankly, in a way that's going
Michael Brown:to connect with the audience that you're in front of. So for
Michael Brown:example, you know, if you're talking to a hedge fund, you can
Michael Brown:be a little more technical and a little more rigorous. If you're
Michael Brown:talking to CFOs of middle market clients or midsize companies,
Michael Brown:that takes a different approach. So that's when the skill set of
Michael Brown:adapting communication styles came into it. And now it's more
Michael Brown:a function of okay, now we're speaking mostly to CEOs and
Michael Brown:CFOs, you kind of have a boilerplate that you can
Michael Brown:navigate.
Matt Waller:Well, I know you've done a lot of forecasting of the
Matt Waller:US economy. And that's so hard to do. Would you talk a little
Matt Waller:bit about methods of forecasting the US economy and also the
Matt Waller:challenges and trade offs associated with short term
Matt Waller:versus medium term versus long term?
Michael Brown:All phenomenal questions. So the first comment
Michael Brown:I would say is you need to be as humble as you possibly can be to
Michael Brown:be an economic forecast, a particularly in today's
Michael Brown:environment of if you think you're going to be right, the
Michael Brown:majority of the time you are you were mistaken yourself. And I
Michael Brown:learned this long ago, right. I mean, when I first started
Michael Brown:forecasting, at my time, at Wells Fargo, the most important
Michael Brown:aspect of doing it is coming up with a consistent storyline
Michael Brown:around what the data supports. And you know, the numbers that
Michael Brown:we come out of our models were often kind of ad factoring to
Michael Brown:make sure that that consistency is there in the message. And in
Michael Brown:the storyline, a macro forecast ranges anywhere between five to
Michael Brown:32 line items, we're forecasting about 32, here at Visa
Michael Brown:acurately. And those line items should all move consistent with
Michael Brown:that fabric of the story that you're telling. And sometimes
Michael Brown:the models aren't great at doing that as hard as you try as a as
Michael Brown:an a good econometrician. They're not always consistent,
Michael Brown:and particularly in a post COVID environment as we're in and
Michael Brown:trying to navigate now. So one be humble, two grounded in the
Michael Brown:macro theory, if you're not driven by the known principles
Michael Brown:and relationships, that, frankly, are our guiding
Michael Brown:principles. It's the reason we're economists and not data
Michael Brown:scientist, is we're using that framework of macro theory to
Michael Brown:guide our thinking around that storyline development. And then
Michael Brown:finally communicating it in a clear and concise manner that,
Michael Brown:you know, has its footnotes attached, as I like to say, but
Michael Brown:you're still, you know, accentuating it with with just
Michael Brown:the,
Matt Waller:Well, you know, when you talk about all these
Matt Waller:different items you're forecasting, what are what are
Matt Waller:some of them, you're you're forecasting and which ones are
Matt Waller:the most challenging?
Michael Brown:Well, so the top line, I mean, the biggest thing
Michael Brown:everyone looks at is US GDP growth, right? So we, we don't
Michael Brown:even refer to it as GDP when we're talking to clients. We
Michael Brown:just say economic growth, you know, again, we're trying to get
Michael Brown:out of the realm of, you know, teaching undergrad econ as part
Michael Brown:of our updates to our executives, certainly inflation.
Michael Brown:Here at Visa a big part of our business is obviously consumer
Michael Brown:spending. So for example, we look at both real spending,
Michael Brown:which tells us how much foot traffic, they go through our
Michael Brown:merchants. But we also look at nominal spending, which is going
Michael Brown:to correspond with revenues. So again, taking, you know, the the
Michael Brown:inflation piece, adding it to the real or inflation adjusted
Michael Brown:variables. All of these are kind of key inputs into not just our
Michael Brown:business, but our clients business as well. The great
Michael Brown:thing about our business model here at Visa is when our clients
Michael Brown:do well, we do well, it's also so you know, it's it's kind of
Michael Brown:interesting to come in and provide these additional
Michael Brown:perspectives. Now, the hard part, I would say, you know,
Michael Brown:interest rates are up there with some of the more difficult line
Michael Brown:items to kind of forecast oil prices. Oftentimes, I will
Michael Brown:consult a ouija board rather than a forecast model. I mean,
Michael Brown:it is really difficult to kind of forecast it. And in the third
Michael Brown:bucket, I would say is anything that would involve political
Michael Brown:calculations versus economic fundamentals. So for example,
Michael Brown:you know, the the hot topic these days is the federal budget
Michael Brown:and of course, debt ceiling debates, that is inherently a
Michael Brown:political decision. And I learned a long time ago, let's
Michael Brown:stick to the economics, we'll let the political forecasting to
Michael Brown:the political scientists because it gets really tricky, very
Michael Brown:quickly to try to figure out the direction of those kinds of
Michael Brown:variables.
Matt Waller:Your point about, you know, trying to come up with
Matt Waller:the story that weaves everything together, where the forecasts of
Matt Waller:each of the lines makes sense together. Because you would
Matt Waller:expect certain things to react in certain ways, under certain
Matt Waller:circumstances, based on theory, but that gets into something
Matt Waller:really interesting, which is the short run versus the long run.
Matt Waller:Because even if your story's right, because of the stochastic
Matt Waller:nature of the variables, the short term forecasts could just
Matt Waller:have some noise in them that make the make it inconsistent
Matt Waller:with the story.
Michael Brown:You're absolutely right, I mean, you know, we
Michael Brown:actually divide our time up. Usually, the mornings of our
Michael Brown:day, are really focused on the short term, macro fluctuations.
Michael Brown:And for better or worse, the bulk of our client base is
Michael Brown:really keyed in and dialed in to that short run view. That said,
Michael Brown:your eye isn't on the long run ball, some, you're gonna miss a
Michael Brown:lot. And so the afternoons here, are really us jumping into our
Michael Brown:huddle rooms, or our little side chat rooms. And kicking around
Michael Brown:these longer run themes. We spend a lot of time talking
Michael Brown:about the implications of Gen Z, on productivity, growth, and
Michael Brown:technological adoption, you know, the trends that are going
Michael Brown:to shift across demographic groups, but also what a large
Michael Brown:and growing retirement base means for the potential GDP
Michael Brown:growth of the US. And all of these things, if you're doing
Michael Brown:any kind of medium to long run planning are essential to kind
Michael Brown:of inform clients of as well. So it's not just demographics. I
Michael Brown:mean, we go back again, to macro principles, right? We're talking
Michael Brown:about productivity growth technology, or, you know, labor
Michael Brown:augmenting technology in that production function. And then
Michael Brown:capital flows globally. And all of that feeds into kind of our
Michael Brown:medium to long run perspective. But it's all grounded in those
Michael Brown:simple production functions that we all learned, you know, as
Michael Brown:undergrad and grad students.
Matt Waller:Michael, there's economists in a lot of different
Matt Waller:industries, I would think you have a little bit of an
Matt Waller:advantage, because any economist has access to archival data, you
Matt Waller:also have access to payment, and data.
Michael Brown:We do I mean, you know, in terms of our payment
Michael Brown:volumes, we roughly see close to 25 cents of every dollar spent
Michael Brown:here in the United States. And that's about, you know,
Michael Brown:somewhere around 21 to 22 cents globally. So it's, it's a fairly
Michael Brown:large penetration rate. And it does allow us to get a pretty
Michael Brown:high degree of visibility into the consumer side. But you know,
Michael Brown:we also have small business cards and commercial cards as
Michael Brown:well. So we are able to gather intelligence on multiple facets
Michael Brown:of the US economy through the lens of of our card payment
Michael Brown:data. But I would say that there's also challenges with
Michael Brown:that, you know, I mean, I'm sure your students are learning about
Michael Brown:big data there at the Walton College in excruciating detail.
Michael Brown:It has a tremendous amount of noise associated with it. And as
Michael Brown:an economist, you know, it's a little funny to say working for
Michael Brown:a business. But there's a lot of what I call business noise in
Michael Brown:our big data. So I'll give you an example. Let's say we have a
Michael Brown:bank that was issuing a competitor's product and they
Michael Brown:convert to issuing Visa. Well, that was economic activity that
Michael Brown:was going on before we could see that in our big data set. And
Michael Brown:we've got to figure out ways, creative ways, that control for
Michael Brown:that. And we've got folks migrating in and out of our
Michael Brown:ecosystem daily, right. So it would be impossible to trace
Michael Brown:down every single, inbound and outbound kind of transaction,
Michael Brown:when we're talking, you know, millions and millions a day. So
Michael Brown:we've come up with clever ways, thanks to our talented data
Michael Brown:scientists to kind of scrub the big data and extract what I call
Michael Brown:the economic signal from from the big data and make it a
Michael Brown:useful economic measure. So yes, there are a lot of advantages,
Michael Brown:but there's also a tremendous amount of sort of data cleaning,
Michael Brown:and then it, then there's, then there's the sort of balance
Michael Brown:issue that we're always struggling with as particularly
Michael Brown:in our profession, as Applied Business economists, because
Michael Brown:you're right, we have a lot of insider information. And as a
Michael Brown:publicly traded company, we have to protect a lot of that
Michael Brown:information. I would love nothing more than to start
Michael Brown:publishing forecasts based off of what I saw two days ago in
Michael Brown:our transactions data. But that would end up front running our
Michael Brown:forward guidance, our executive team, our financials. So there's
Michael Brown:a business ethics angle to this as well, that we have to be
Michael Brown:very, very cognizant of. With that big data, we also have a
Michael Brown:big level of responsibility to protect the confidentiality of
Michael Brown:some of that data as well.
Matt Waller:I know that, under your leadership, Bloomberg News
Matt Waller:ranked Visa's US economics team as among the top forecasters of
Matt Waller:the US economy. How how did you lead your team to that
Matt Waller:achievement? What what did you have to do?
Michael Brown:First, you know, I'll just kind of walk you
Michael Brown:through how we onboard our our economist here. And phase one is
Michael Brown:really the indoctrination of our approach to econometrics. And
Michael Brown:basically, systems thinking, for me to think about the economy as
Michael Brown:a system? And what are what are the things that could break the
Michael Brown:system? What are the things that can make the system run faster?
Michael Brown:What are the levers we could pull to, to perhaps make the
Michael Brown:system run more efficiently, so you start thinking of it as a
Michael Brown:system. And we basically, to divert it a little bit, as I
Michael Brown:like to say, we basically apply that thought process to our
Michael Brown:econometric structures and models. So we have, we use
Michael Brown:machine learning techniques, such as Bayesian vector auto
Michael Brown:regressions, and other types of applied techniques as well, that
Michael Brown:will take both public and proprietary economic data that
Michael Brown:we subscribe to feed that through our systems of
Michael Brown:equations. And that helps us understand the co-movements
Michael Brown:between things. But again, we also have a lot of experience
Michael Brown:here. I mean, get off get to a team with close to 90 years of
Michael Brown:combined experience, you know, forecasting and understanding
Michael Brown:the economy. And that's invaluable, having folks that
Michael Brown:have lived through different types of recessions have seen
Michael Brown:data develop in different ways. And probably the death kill of
Michael Brown:an economist is have seen the magnitudes of the revisions that
Michael Brown:can come with some of the data that we rely on heavily to find
Michael Brown:turning points in the economy. And all of that just kind of
Michael Brown:gels. I think probably the most rewarding moment of my months,
Michael Brown:is sitting in a forecast, which we have the first Friday of
Michael Brown:every month after the Non Farm Payroll report comes out. And we
Michael Brown:sit there and everybody goes around the room. And they they
Michael Brown:talk about what what they think is right what they think is
Michael Brown:wrong, and there is no hierarchy in that room. Everyone's idea
Michael Brown:matters. Everyone's thought matters. Everyone's research
Michael Brown:matters when it comes to that. And creating that flat
Michael Brown:structure. In that one meeting that sets the tone for what
Michael Brown:we're going to say, for the next 30 to 60 days is is incredibly
Michael Brown:important as a leader to make sure that you're creating that
Michael Brown:inclusive environment, a free flow of ideas, particularly in a
Michael Brown:research function like we serve. So just setting up the
Michael Brown:environment and setting the team up for success in their
Michael Brown:endeavors as an applied econometrician as well.
Matt Waller:So you must have had to build a lot of trust to
Matt Waller:get that to happen. Because it's easy to say. But when you get
Matt Waller:that many people into a room, it's there's a lot of
Matt Waller:complicated sociological and political issues that go into
Matt Waller:it. So how did you build the trust?
Michael Brown:Well, so one of the sort of foundations of my
Michael Brown:management style is I really am important, I really place a lot
Michael Brown:of emphasis on one on one conversations. So every single
Michael Brown:week, whether I'm traveling or not, it may be 15 minutes that
Michael Brown:week, or sometimes it's an hour, and I'm sitting down with each
Michael Brown:member of the team, and understanding what's working,
Michael Brown:what's not working, helping them set priorities, and knowing that
Michael Brown:I have their back when they can't get to priority number
Michael Brown:five on that list, is also an important aspect of kind of
Michael Brown:managing workflow. And I think probably another dimension to it
Michael Brown:is really listening more than you're talking, you know, those
Michael Brown:one on one conversations, if I leave the room, feeling like I
Michael Brown:spoke more than 30% of the time, I think I walk away saying I
Michael Brown:probably did something wrong. And I need to kind of reassess
Michael Brown:and reevaluate my approach the next time.
Matt Waller:Well, congratulations on your terrific
Matt Waller:achievement there. One shifting gears just a little bit. You
Matt Waller:know, throughout history, there are these shocks that occur to
Matt Waller:economies I, the biggest one, of course, COVID, that's the most
Matt Waller:memorable, had an incredible impact in so many different
Matt Waller:ways. It's hard to even conceive of all these changes. And you
Matt Waller:know, you could think and we would be, we have to bring up
Matt Waller:generative AI. But I wonder, is generative AI, a shock? That, I
Matt Waller:mean, maybe we're not seeing it yet, but I know, I know, so many
Matt Waller:alumni in various industries that are telling me really
Matt Waller:innovative ways that they're using it. But even in the
Matt Waller:university, we're finding ways of using it that are quite
Matt Waller:remarkable, that truly make us more efficient. But what are
Matt Waller:your thoughts? Do you think? Do you think this is going to be a
Matt Waller:shock?
Michael Brown:Shock might be a little strong of a word. I, as
Michael Brown:an economist, I go back to first principles. And I think the
Michael Brown:power of what you described is really the augmentation of
Michael Brown:labor. And if you think about the long run trends here in the
Michael Brown:US, we're in a country with an aging population, slow net in
Michael Brown:migration, slow year on year population growth. The key story
Michael Brown:in macro economics today is the high rates of inflation. So how
Michael Brown:do you bring that down? Well, in light of not being able to grow
Michael Brown:your labor force, you bring that down through enhancing your
Michael Brown:existing labor force. And so I'm kind of a glass half full kind
Michael Brown:of guy on this, because I think the power to enhance the
Michael Brown:abilities of the human capital that we have in this country and
Michael Brown:others around the world, I think it's going to be an unlock of
Michael Brown:potentially higher GDP growth than we otherwise would have had
Michael Brown:in the absence of this kind of innovation and technology. Now,
Michael Brown:that said, I don't think we're ready to just run full steam
Michael Brown:ahead. I'll just give you the example here at Visa, it is
Michael Brown:prohibited on our systems to use chat GPT or other generative AI
Michael Brown:tools. And the reason is that the fear of putting in something
Michael Brown:that is company proprietary into that ecosystem and having it
Michael Brown:uploaded into a public database for other future consumption,
Michael Brown:maybe to answer other questions out there. That risk of
Michael Brown:intellectual property CPG or loss is really high.
Matt Waller:Yeah, that's a really good point. The World
Matt Waller:Wide Web was similar. When it was created, many companies
Matt Waller:banned it because it was so easy for information to flow outside
Matt Waller:through the World Wide Web. So Michael, it's funny prior to the
Matt Waller:pandemic, no one very few people knew what Supply Chain
Matt Waller:Management was and Logistics was a term they didn't really use
Matt Waller:much. And during the pandemic, it was on the front page every
Matt Waller:day and now people know about it. It's amazing. And of course,
Matt Waller:as you know, our undergraduate program in supply chain is now
Matt Waller:ranked number one in North America by Gartner. And the
Matt Waller:Masters program is ranked number two in North America by Gartner
Matt Waller:which we're very grateful for. But would you mind speaking
Matt Waller:little bit to supply chain the macro picture of the economy?
Michael Brown:Well, it's interesting, I'll take you back
Michael Brown:to one of my trips to Southern California, I was flying from
Michael Brown:San Diego back here to the San Francisco Bay Area. And this was
Michael Brown:early in 2021. So February, March kind of timeframe. And I
Michael Brown:remember flying over the Port of Long Beach, looking at all the
Michael Brown:vessels lined up. And that was the clearest visual
Michael Brown:representation of the public economic data. And what I would
Michael Brown:say is, it was incredible the amount of tug and pull on US GDP
Michael Brown:growth that we saw from the collapse of inventory, the
Michael Brown:rebuilding of inventory. You know, I rarely talk about an
Michael Brown:esoteric concept we call real final sales to private domestic
Michael Brown:purchasers, essentially, its core GDP growth, right? How are
Michael Brown:consumers, businesses and government spending and
Michael Brown:investing? But I had to talk about that measure, because the
Michael Brown:inventory cycle was so inconsistent with core demand in
Michael Brown:the economy, they were so out of sync for so long, that you, it
Michael Brown:was sending false signals about the strength or weakness of the
Michael Brown:economy, depending on the quarter. So that was an
Michael Brown:incredible time, where one we learned just how globally
Michael Brown:interconnected the world is, and how, when we're doing better,
Michael Brown:and everybody else is doing better, it uplifts us all.
Michael Brown:Because, whether it is the invasion of Ukraine, whether it
Michael Brown:is COVID restrictions in China, every single one of those policy
Michael Brown:actions, physical actions has global ramifications, not just
Michael Brown:for the global economy, but for on the ground individual
Michael Brown:business owners who are trying to manage through that lack of
Michael Brown:clarity. So I think the scarring of what we went through with
Michael Brown:supply chain is going to be with us for a while, and it's gonna
Michael Brown:have some very important implications for business
Michael Brown:management going forward.
Matt Waller:Michael, I know you've done extensive research
Matt Waller:on the consumer side of the economy. Would you mind talking
Matt Waller:a little bit about some of the medium to long run trends that
Matt Waller:you're seeing on the consumer side?
Michael Brown:Well, I think there's probably two broad
Michael Brown:buckets. One is kind of the demographic shifts. And right
Michael Brown:now we're in this phase where a boomers are kind of moving into
Michael Brown:their retirement years, they're leaving the labor force,
Michael Brown:frankly, post pandemic a little bit earlier than we had
Michael Brown:anticipated. And that starts having some profound impacts on
Michael Brown:aggregate consumption. And I'll give you one example. In
Michael Brown:economics and macro, we talked a little bit about this concept of
Michael Brown:the wealth effect. So as one's value of its of their home, or
Michael Brown:their stock portfolio rises, there is some knock on effect on
Michael Brown:aggregate consumption. And historically, you know, if you
Michael Brown:look at the economic literature, it's been range bound. I mean,
Michael Brown:depending on the studies you look at, it's between five cents
Michael Brown:and 10 cents, meaning that for every dollar of wealth, that
Michael Brown:increases, you tend to spend about five cents or 10 cents.
Michael Brown:Now some of this is psychological, right, I feel
Michael Brown:better about my financial situation. And therefore, I can
Michael Brown:go out and spend a little bit more. But what we're seeing is
Michael Brown:this wealth effect, as we measure it, has now grown to
Michael Brown:roughly around 34 cents. So it's a profound shift in the
Michael Brown:deviation from what we've seen over the last decade and a half.
Michael Brown:And the reason that's so important is because you start
Michael Brown:putting the pieces together, we accumulated a tremendous amount
Michael Brown:of housing and financial wealth over the last five years as an
Michael Brown:economy. The second key aspect is we are much more sensitive to
Michael Brown:changes in stock markets today than we were, say, 20 years ago.
Michael Brown:The third piece, as I mentioned, is you look at the share of the
Michael Brown:population over the age of 55, who has retired early, it's
Michael Brown:incredible post pandemic. And so it makes some sense that this
Michael Brown:wealth effect and wealth accumulation is having some
Michael Brown:impact as well. So that's a big trend that we're looking at for
Michael Brown:the next five years as the retirements continue to
Michael Brown:accelerate in the coming years. And so I think what we're about
Michael Brown:to see over the next 10 years is the evolution of working at just
Michael Brown:a tech company to that permeating multiple other
Michael Brown:sectors of the economy. And you're already seeing this in
Michael Brown:financial services with automated trading and trying to
Michael Brown:enhance productivity, and that's that sector. And I think, you
Michael Brown:know, we're just now seeing the tip of the iceberg as this tech
Michael Brown:stack moves from Silicon Valley, as I like to say out to the rest
Michael Brown:of the country, to kind of permeate some of these
Michael Brown:industries and that enables purchasing power of consumers in
Michael Brown:a whole new way. Any new markets that I think we're just now
Michael Brown:starting to get a handle?
Matt Waller:Well, Michael, this has been really interesting.
Matt Waller:Congratulations on your tremendous success in your
Matt Waller:career and for taking time to visit with me about this. I
Matt Waller:really appreciate it.
Michael Brown:It's been fun Matt, always great chatting with
Michael Brown:you and very, very pleased to always support the Walton
Michael Brown:College here as well.
Matt Waller:On behalf of the Sam M Walton College of
Matt Waller:Business, I want to thank everyone for spending time with
Matt Waller:us for another engaging conversation. You can subscribe
Matt Waller:by going to your favorite podcast service and searching.
