The Die Is Cast For A 2025 Recession | Neil Dutta

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Good. Thanks for having me, Felix. Good to see you.

Yeah. Yeah. Likewise. This has been an overdue appearance, so I'm super excited to get you on the show. You are one of my favorite economists, and I think one of the big reasons why as I've as I've been reflecting on it is you yourself call yourself a a business economist, which I think is an important nuance in that you you you bring the the complexities of the economics world, but you always make sure to ground it in markets. And I think that's a a super important way to look at things. So, yeah, cross for that. I'm sure we'll get into a lot of different things here on the show. Looking

forward to it.

I wanted to start the conversation off by looking at how you were looking at the economy over the last couple years. Because if we rewind back to 2022, we're sort of in what feels like a similar situation where back then we had two quarters of of negative GDP GDP prints. One of them got revised higher later on. But overall, a lot of that was actually just due to huge whipsaws in net exports and specific huge imports, which dragged down GDP. And during that time, felt like almost every economist was all in on recession is imminent except for yourself. You've faded that. And now here we are toda

sure. I mean, well, the framework hasn't really changed. If you go back to that period, right, we had, essentially a big, tax I mean, shock to disposable income, right, because of the Russian Ukraine situation. So that kind of sent food and energy prices through the roof. But because labor markets were still okay and people were sitting on a large pool of excess savings, they were still able to go out and spend. By the by the end of the year. You had seen things like, okay, so by the end of the year, real incomes are starting to turn around. I mean, that was really the the main focal point of

Something I've been trying to figure out is specifically looking at the government expenditure side of things is on on one side, you have what is correct, which is that that that state and and and, local municipal level spending has has dried up from the from the COVID era of stimulus. But on the same vein, the one thing that has remained constant is that we're still at a 7% of GDP fiscal deficit. And, you know, the the detract detractors of the idea of going into recession would say, how do we go into a recession when we're still running basically like a recessionary fiscal deficit during wha

Well, I think you can because that's not necessarily how GDP accounting works. Remember, it's the change in the deficit that drives contributions to GDP growth. So if the deficit is the same one year to the next, that means that the cyclical impulse from government to GDP is basically zero. So it's just that that to me is a a misunderstanding of how the accounting behind GDP works. Now that being said, I would tend to agree with the idea that the, you know, that it shouldn't be particularly deep. I mean, there aren't many imbalances i