August 29, 2024

Episode 320 - Kyla Scanlon: In This Economy?!

August 29, 2024

She is the founder of a financial education company called Bread and a creator - She wrote a newsletter, makes YouTube videos, and daily short form videos. Her main goal is to conduct human-centric economic analysis to help connect the dots between what is happening and why it is happening.

Have you ever wondered how vibes can shape the economy? Or how the economy differs from financial markets? Or even how meme stocks operate? In this episode, we dive into the intersection of economic theory, social media, and public sentiment with Kyla Scanlon, an insightful economic commentator known for her relatable approach to explaining complex economic concepts. Kyla is a prolific content creator and founder of the financial education company, Bread. She produces a weekly newsletter, informative YouTube videos, the Let’s Appreciate Podcast, and (almost) daily short-form videos that break down complex economic concepts into engaging, bite-sized content. She’s also the author of In This Economy?: How Money & Markets Really Work, an indispensable guide to the “mad math and terrible terminology” of economics. Join us as we explore her unique vibecession concept, discuss the impact of social media-driven market movements, examine the housing crisis through the lens of generational wealth transfer and zoning laws, and much more. As Kyla explains it, economics isn't just about numbers. It’s about the stories we tell and how they influence the world around us. For a fun, fascinating, and highly accessible look at the state of the economy today, don’t miss this conversation with one of the internet’s favorite financial educators!

Key Points From This Episode:

(00:03:22) Introduction to Kyla Scanlon and her journey into financial education.

(00:07:12) The importance of making complex topics accessible to a broad audience.

(00:10:45) Discussion on how Kyla’s content creation career took off with GameStop.

(00:14:32) The role of vibes and sentiment in the economy and how it influences market behavior.

(00:17:55) Kyla’s perspective on the housing market and why it’s crucial for the economy.

(00:22:06) The distinction between investing, speculating, and gambling.

(00:26:43) Kyla’s thoughts on the impact of social media on financial markets.

(00:31:19) The importance of understanding economic indicators like GDP and inflation.

(00:36:02) Why the Federal Reserve exists and its impact on the economy.

(00:37:56) Fed's toolkit: rates, balance, guidance, market support.

(00:42:03) Understanding economics can be difficult for many.

(00:45:17) Social media: Tool with impact on economy.

(00:46:47) Media's business model based on clicks, negativity.

(00:49:53) Constantly seeking new projects, connecting people to economics.

(00:53:10) Younger generation relies on social media for news.

Read The Transcript:

Ben Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from three Canadians. We're hosted by me, Benjamin Felix, and Cameron Passmore, Portfolio Managers at PWL Capital, and Mark McGrath, Associate Portfolio Manager at PWL Capital.

Cameron Passmore: Welcome to episode 320. And this week, we have a pretty interesting, I would say, fun. And, boy, we fired a lot of questions at our guest today, who is Kyla Scanlon. Might be the second or third most questions we've ever got into a podcast, I think, guys.

Ben Felix: You think so?

Cameron Passmore: There's a lot of questions. And she just kept knocking them down. I thought it was fun. And she's really interesting. A different generation’s look at economics, which is such an important topic. And this is super fun, I thought.

Ben Felix: Yep. Definitely. Kyla, she founded a financial education company and started creating content then. And then she told us during the interview that she started making videos about GameStop when that was a thing. And then her content creation thing, career, I guess, kind of took off. And that became her main focus. She makes Twitter content, YouTube, TikTok, Instagram, Reels. Making a ton of content on economics, and the economy, and markets.

Really interesting stuff. She's got pretty significant followings on all the platforms. Host a podcast. Co-hosts Wealthsimple's TLDR podcast. Her main thing, I think it would be safe to say, is creating digestible content about economics for regular people, which is something that we could be better at.

Mark McGrath: She's got a knack for creating analogies and breaking down what is really complex topics. And to your point, feeding them to you in bite-size clips but with very well-thought-out, simple explanations that most folks like me, who are not Ben Felix, can understand.

Ben Felix: And a certain amount of levity, too. Right? She shouldn't take herself too seriously.

Mark McGrath: Yeah. And she's funny. Some of the skits she's done on TikTok are hilarious.

Ben Felix: Yeah. We tried to focus the discussion on roughly the topic similar to what she's written about in a book that she's published called In this Economy?, which is really an overview in plain language of economics and how the economy works to help, again, regular people think about what's happening in the world. We tried to follow a similar framework. Hopefully, people find it useful. I think that they will.

Kyla graduated from Western Kentucky University's Gordon Ford College of Business in 2019. As you mentioned, Cameron, generationally different perspective. That makes me feel old to say. I don't know how it makes you feel, Cameron.

Cameron Passmore: I appreciate that. Thanks for that shout-out.

Ben Felix: Yeah, that's good. She triple majored in financial management, economics, and business data analytics. And then she worked as an associate at Capital Group. And then launched this content creation career that she's doing now, which is pretty cool.

Cameron Passmore: Anything else to add, guys? You good?

Mark McGrath: No. This a fun conversation.

Cameron Passmore: All right. Let's go to our conversation with Kyla Scanlon.

***

Mark McGrath: Kyla Scanlon, welcome to the Rational Reminder podcast.

Kyla Scanlon: Oh, thanks for having me.

Mark McGrath: Great to have you on. To kick things off, what is economics?

Kyla Scanlon: Economics has a lot of different definitions. The one that I like to use is the philosophy of money; the study of money, how it moves throughout society, how people make decisions with money. It's a balance of tradeoffs, scarcity, incentives, things like that. I don't think you can necessarily have one tight definition for economics. But it really is kind of human decision-making with regards to money.

Ben Felix: I like that definition.

Kyla Scanlon: Thanks.

Ben Felix: Who are the main players in the economy?

Mark McGrath: There are a lot of different main players in the economy. You have businesses. You have consumers. You have the government. And all of those different actors make different decisions that ultimately end up influencing GDP, which is the main way that we measure the economy.

Cameron Passmore: How well do you think people generally understand economics?

Kyla Scanlon: How well do I think they understand it?

Cameron Passmore: Yeah.

Kyla Scanlon: I don't know. I mean, I think the problem with economics – and I know you have a lot of academics that listen to the podcast or have had a lot of academics on here. But I think the problem with economics is that it can be very personal. And, oftentimes, we talk about it in pretty quantitative terms.

And so, every time that I post these videos on social media, everybody does have their own interaction with the economy that influences how they understand the economy. And pure definitions sometimes don't work for that because everybody has a subjective experience. I think people kind of understand the basics of supply and demand. They understand how money moves. They understand tradeoffs. They understand opportunity cost. But I think everyone does have their own definition of maybe an inflation rate or their own experience with an inflation rate. Their own experience with the labour market. And that ultimately influences how people understand it.

Mark McGrath: You talk a lot about vibes with respect to the economy. And I know you talk about this a lot in your book. Can you explain how vibes affect the economy?

Kyla Scanlon: Yeah. The vibes conversation is not anything new. John Maynard Keynes came out with animal spirits to talk about the markets. George Soros is very well known for reflexivity, which is basically human behaviour driving action. And so, the vibes conversation is really about consumer sentiment and how people feel ultimately really does matter and influences their decision-making process. We assume consumer spending is 70% of the economy. And so, if people are feeling bad, they don't want to spend. That is ultimately going to impact the economy. It's really just kind of like how do we talk about people's feelings a little bit more with something as big and seemingly impersonal as the economy? And that's what I've tried to focus the vibes discussion on.

Ben Felix: What happens when vibes, and economic theory, and reality diverge?

Kyla Scanlon: I think that it can be difficult. That's sort of what we're in right now. And we've kind of been in this spot for the past few years. I coin this term called the vibecession back in July 2022 to talk about when theory doesn't necessarily translate to application. I think it can just be confusing. We've seen the Philips curve not respond how we would expect it to. There's even questions about, do great heights actually fight inflation or is that just a normalization of supply and demand? And so, there, you're already seeing a disconnect between theory and reality.

And then I also think vibes are influencing things more than ever. Media headlines are a good example of vibes. Memes are a good example of vibes. Even in the political realm, you see memes becoming reality. I do think you see it in economics, too. Just maybe there's a disconnect between, yeah, reality and action. And vibes can drive that. But then there's also a disconnect between theory and application.

Cameron Passmore: Wow. That's really interesting to think about. Here's an easy question for you, Kyla. What is money?

Kyla Scanlon: It's a couple of different things. It's a medium of exchange, a unit of account, and a store of value. That's the more technical three components of it. And so, yeah, money is basically something that you can go to the grocery store and you'll be like, "Okay, I know that this $1 can buy a banana. And I have a bunch of dollars. And I can buy a truck." It should carry its value over from day to day. And then it should just be a store of value over time as well.

Mark McGrath: And how does money affect the economy?

Kyla Scanlon: I'm sure the academics probably have a better answer for that. But the way that I see money impacting the economy is that it influences how people feel about the economy and influences what they're able to do. If people don't feel like they have enough money or if they feel like wages haven't kept up with the inflation rate, that's going to impact their spending decisions, which ultimately impacts economic growth.

There's all sorts of issues around the distribution of money, like economic inequality. And that can exacerbate issues. Money is sort of the facilitator of the economy. In the book, I talk about the economic kingdom and how money is sort of the undercurrent between all the different castles. And so, I think money is definitely extremely important. It's distributed in a way that is interesting.

There's all these studies talking about how happiness stops once you reach like $75,000 a year in income. And there was a study that came out that rebutted that and was like, "Well, no. People making $500,000 a year are happier than those making 75. And those who are billionaires are probably happier than those making 500,000." Money is all of these different things to the economy. But then it also – it is an indicator of happiness, too, at the end of the day, I think.

Ben Felix: Do you think GDP is a good measure of the health of an economy?

Kyla Scanlon: A lot of people would push back on that and say no. I think GDP is kind of a tough metric because it does measure consumer spending. It does measure business investment, government spending, exports and imports, which are all very important components of the economy. But I think a lot of people would say that GDP doesn't capture the happiness.

I think Beirut maybe has global domestic happiness. One nation somewhere has a measure of global domestic happiness. But I think that's really subjective and difficult to capture. But I would say GDP doesn't do a good job of capturing any economic inequality. It doesn't do a good job of capturing a housing crisis. It doesn't do a good job of talking about student loan debt. I think there's sort of these policy issues that are missed in GDP. I think it's a good indicator. But with all indicators, you have to look at a tapestry versus just one number.

Cameron Passmore: With so much talk about inflation these days, how do you think inflation expectations affect vibes in the economy?

Kyla Scanlon: There's a lot of different ideas around that, too. Jeremy Rudd published this paper I think a few years ago. He was a member of the Fed. A member of one of the banks of the Fed. It was basically inflation expectations don't really matter in terms of economic direction. They’re something we should pay attention to. But we shouldn't be like, "Oh, my gosh. Everybody thinks inflation is going to go up. And we should base monetary policy off that." He was like, "It's just something that happens."

I think for the Federal Reserve right now, they're looking at inflation expectations and getting a pretty good sense of where people expect the economy to move in the future. Because expectations do ultimately matter. I think, now, because news moves so quickly, because actions can move so quickly, because information moves so fast, I think inflation expectations are pretty important. Because that does end up dictating how people might spend. What they choose to save? There's literature saying maybe it doesn't matter. But I think anecdotally, it probably does. But that's just an anecdote.

Mark McGrath: And what about housing? What role does housing play in the economy?

Kyla Scanlon: Housing is extremely important to the economy, in my opinion. I think that we have a bifurcated economy right now, which is pretty difficult to navigate. Mortgage rates are extremely high. The Federal Reserve is raising rates in order to battle inflation. They stopped doing that about a year ago. But when they raise rates, that means that mortgage rates go up as well. And that makes it very difficult to finance a home. And, also, homes are extremely expensive and have run up tremendously since the pandemic.

And so, you have these people that were able to get in at a 2% rate. And then you have people now who are like fighting against 7, 8% rate. I think that makes it very difficult. You have an element of bifurcation there. And then we also have the greatest generational wealth transfer starting to happen where some people are going to inherit homes from their boomer parents and some aren't. And so, you have an element of bifurcation there as well.

And I think housing is just sort of the common denominator to the American dream. It's the main way that people know how to build wealth in the United States. If you look at the distribution of financial assets from the Federal Reserve, the bottom 50% of Americans, all their wealth is tied into their house. It's not in equities. It's not in business ownership. It's in their house.

And so, I think that's the two issues, is you have increasing economic inequality happening in the housing market. And then you also have people who are reliant on their homes in order to make a lot of money. And that's questionable because that does require the housing market to continue to ramp upwards forever and ever. And is that sustainable? Probably not. the housing market has a variety of problems. But I would say those are the two biggest ones.

Ben Felix: I want to keep going what you're saying there. What do you think people tend to get wrong about housing?

Kyla Scanlon: I think that they think it should be a wealth generation tool. I think that it makes sense that we expect homes to be this place to make a lot of money. But I think it's very difficult to square a house being both a speculative asset and then also a place that you live. And I think that's what a lot of people might struggle with housing. It's like, "Well, which one is it?" And so, I think that's a big one.

And then I also think, going back to the chart that I was talking about from the Fed, the distribution of financial assets, I think a lot of people, as I said, think that homes should be a wealth generation tool. But, really, they should probably be more invested in stocks and have opportunities for business ownership. And so, I'd say those are the two things that people get wrong. Or maybe the one thing that they just think it should make them a lot of money. And I just don't think that's feasible moving forward.

Ben Felix: What are your thoughts on renting versus owning a home?

Kyla Scanlon: I'm a renter. But I think that both make sense. It makes a lot of sense why people would want to own a home. It's a way to build equity. It is a way to build wealth. If the housing market keeps on doing what it's doing, it makes a lot of sense. It makes sense to me that people like would want to own a home.

I think there's a lot of celebration around renting right now because it is more flexible. You're able to move. You're also not building equity in anything. You're just paying a landlord however much money a month. And both things have gone up tremendously in price. And like it might make more sense to pay a mortgage and pay that off versus just paying to a landlord. But who knows?

I mean, I also think that the concern with housing is insurance. Property insurance is extremely high. I think it's increased like 20% since 2023 in pretty much all states. And some states have been harder hit than others. Insurers are entirely pulling out of California. They're entirely pulling out of Louisiana and Florida. And so, if you can't ensure your home, you can't live there. You could if you pay all cash. But if you have a mortgage, no way.

And so, I think the trade-off with renting and owning there is like it's a little bit easier to rent in maybe one of these high-disaster areas versus owning a home, investing so much money in it and then not even being able to get it covered with insurance.

Ben Felix: Yeah. That's pretty scary. We talk a lot about why renting can be a sensible housing option. But like you were saying, there's lots of reasons people would want to own and maybe should own. But I don't think renting is a bad decision.

Kyla Scanlon: I don't think so either. I think the flexibility is nice. But I get it why people would want to own a home. It is the American dream.

Cameron Passmore: Why do you think so many countries have housing crises?

Kyla Scanlon: They haven't built enough.

Cameron Passmore: It's as simple as that?

Kyla Scanlon: I think so, in most cases. I've talked to the Deputy Secretary of the Treasury, Wally Adeyemo, about this quite a bit. What is the government doing to address these issues that we're facing? Because I don't know if the market can fix it all by itself. The thing everybody sort of says is that like, "Yeah, we just haven't built enough homes." And that's specifically in the United States. But I do think that's the issue in the UK, in other countries as well.

And here in the United States, you just look at the places that are most struck by the housing crisis. And there's elements of NIMBYism there where people – not in my backyard. I want to preserve the value of my home. Therefore, you can't build around me. And that sort of exacerbates the housing crisis as well. Also, zoning laws have become increasingly stringent. And it's become difficult to build in a lot of places. I think Los Angeles is zoned 95% single-family. You can't build multifamily homes.

Cameron Passmore: That's amazing.

Mark McGrath: In LA?

Kyla Scanlon: Yeah. Los Angeles. Yeah. Yeah. And a lot of cities are like that where they're zoned single-family. And so, if you want to build multifamily, which is important for solving the housing crisis, you can't. If you want to build the missing middle of housing, which is like duplexes, triplexes, townhomes, you can't. There's all sorts of wild zoning things, too. There has to be a certain space between the sidewalk. And everything has to be perfect. There's also a lot of pushback against mixed-use zoning. There's a lot of places that are zoned commercial. But if you want to build residential, you just can't. Mixed-use would allow you to have both residential and commercial.

And then with this, given everything is zoned single-family, you get sprawl. Cities aren't walkable. People are increasingly reliant on their cars. You just get totally separated from one another community-wise when you just don't see each other. I think that's kind of the biggest issue that we're facing right now is that our cities really aren't designed for people. And that is kind of a byproduct of the housing crisis.

Mark McGrath: It's interesting because I live in Vancouver on West Coast of Canada and we seem to be going the other direction where they're starting to disallow zoning for single-family homes. Where I live is Squamish, which is about an hour north of Vancouver. And we have a community of 23,000 people. And even here, they're not allowing zoning for single-family homes anymore because of the housing prices and the crisis. It's interesting.

Cameron Passmore: Interesting.

Kyla Scanlon: Yeah.

Mark McGrath: I want to talk a bit about financial markets. Can you talk about how financial markets affect the economy?

Kyla Scanlon: Yeah. We're recording this on Tuesday, August 6th. And yesterday was the weirdest day in markets that we've had in a while.

Ben Felix: Weird? We'll go with that.

Kyla Scanlon: Yeah. I don't even know what word to describe it. But, yeah. I mean, everything is sort of intertwined. The stock market is not the economy. But they definitely influence each other. The way that I like to talk about it is like they're two friends sitting side-by-side at the bar and like they're definitely chatting. They're not the same person.

I think that financial markets ultimately influence the economy because central banks do look at them as an indicator for what's happening. The Federal Reserve was definitely paying attention to what was happening yesterday. And part of the meltdown that happened yesterday, the speculation, is the yen carry trade fell apart because the Bank of Japan raised rates for the second time this year causing this massive unwind. Causing the yen to go up. All these people were trying to figure out what to do.

Monetary policy influences markets, and then markets kind of bark back at monetary policy as well. Of course, corporate earnings ultimately influence how companies hire, fire, whatever. And it's just something that central banks pay attention to. Like I said, financial conditions are extremely important.

We got the SLOOS report. So, bank lending. That's a good indicator of the health of the economy, credit lending. How banks are feeling about things? Manufacturing numbers are sort of tied into the financial system. But all the indicators of the economy I think tie in pretty well to the financial system. They kind of read the same newspapers so to say. But they're not the same thing at the end of the day.

Ben Felix: Can you talk more about the distinction between the stock market and the economy?

Kyla Scanlon: The stock market is a representation of companies, their earnings, and how they're doing. The economy itself I think is much broader. And this is like a very reductive summary. I'm sure somewhere else has a better summary. But, yeah, the stock market is a representation of companies and how they're responding to the macro-environment. Versus the economy at large is a representation of people, businesses, governments, international trade, etc.

Cameron Passmore: And how do vibes affect the stock market?

Kyla Scanlon: Some people would argue that stock market is solely vibes right now. I think that it's been really interesting since the GameStop debacle to watch how vibes have impacted the economy. GameStop was entirely driven by memes, memetics. People were sort of responding to the idea of a stock going up versus the idea of a company doing well. And I think that's kind of carried into to now.

It's a little bit different with companies like Nvidia where there's GPUs and you can sort of calculate what's happening and you can look at that and be like, "Wait. This makes sense. This is a company that's actually doing something." But I think other companies are more bubbly. And so, the vibes matter a lot there because it's entirely based on sentiment, and hope, and expectations versus reality.

Mark McGrath: Can you tell us the difference between investing, speculating, and gambling?

Kyla Scanlon: I talk about this in the book. And Michael Mauboussin – is that how you say his last name?

Cameron Passmore: Mauboussin. Yeah.

Kyla Scanlon: Okay. Michael Mauboussin has a great definition on this. And I'm probably going to butcher it a little bit because I can't quite remember. But investing is when you invest in something, there's an idea that there's going to be a return over time that's sort of a smart decision. It's not a 50-50 chance, which is what gambling is. Gambling, there's really no way to make an informed decision. You're just kind of making a guess. And I think speculating definitely sits in the middle of those two when maybe it's not as an informed decision as investing. But it's definitely not a 50-50 chance like gambling. Michael Mauboussin has a much better explanation.

Ben Felix: I think in your book, if I remember what you said, it was like investing has a positive expected return. Speculating still has a positive expected return but like a much wider range of outcomes. And gambling has a negative expected return. I think that was in there. Something like that.

Kyla Scanlon: I'm glad I wrote that and that I can't remember it now.

Mark McGrath: That's a really good explanation actually.

Ben Felix: It's not bad. When I read it, I was like, "Yes, I agree with this definition."

Kyla Scanlon: Yeah. I agree with that. Kyla, too. Good for her.

Mark McGrath: I'm glad you wrote that as well.

Ben Felix: You mentioned GameStop a couple of times and just the meme driver of the stock market. Can you talk about why or how markets became a meme?

Kyla Scanlon: I mean, I think a lot of it has to do with social media. I started making videos around GameStop. That's when I started doing what I do now was during the rise of GameStop. And I made TikTok videos talking about what was going on with GameStop. And so, I think what happened with GameStop was it was fuelled by this memetic rise. It was fuelled by Reddit. It was fuelled by TikTok. And so, people were just paying attention on social media in a really big way.

Also, everybody was in lockdown. Everyone had a lot of time on their hands presumably or at least more than they used to. And so, I think that was really just like people were paying attention. And there was so much access to information. Also, you had Robinhood, who made it probably a little too easy to trade. And so, it ended up being this perfect storm where you had a captive audience, you had more than enough information for that audience, and you had a very easy platform for them to execute based on the information that they were receiving.

And so, I think that's been a big driver. And you've seen – I think retail investing was 30% of flows at one point. They've really become quite a big part of the market. And it is driven by memes. I think, too, we had this big meltdown on Monday, August 5th. And nobody really knows why it happened. The yen carry trade, US macroeconomics, geopolitics worries, other reasons as well.

And so, everybody's always trying to pin the tail on the donkey and be right. And I think that can ultimately be meme-driven, too. Because everything has a bunch of different informants. And people like to have just one. But it is oftentimes just memes.

Ben Felix: You started making videos on GameStop and then that became like a full-time thing eventually?

Kyla Scanlon: Yeah. Yeah. Believe it or not. I used to work at Capital Group out in Los Angeles. I graduated into the pandemic. In 2019. And then when I moved out to LA, the pandemic happened right away. I was working for Capital Group. Ended up leaving Capital Group a year after that and built out an investment education program at a startup. And then when GameStop started happening, I was like, "Okay, I'll talk about this,” because I had a background in finance and econ. Yeah. It's been a really fun ride since then. Still learning all the time about how to talk about this stuff better. But it's been really good.

Cameron Passmore: That is really cool. Why is “new era,” or “this time is different,” that kind of thinking. Why is that dangerous?

Kyla Scanlon: Oh. I get into fights with people about this. Not fights. I get into arguments about this sometimes because I think everybody does want things to be different all the time. But there's this really good quote from James Baldwin. And I'm going to paraphrase it. But, essentially, it's like, everything that's happened to you ever has happened in literature. You'll read a Russian lit novel and be like, "Oh, my gosh. This character had the exact same feelings that I had."

And so, I think that's kind of the thing, is the world is cyclical at the end of the day. We kind of keep on making the same mistakes. We sort of trend towards the same successes. And everything is an element of progress. But I think thinking that this time is different can lead into complacency where people are like, "Oh, it won't matter this time. Things will be different. Elements have changed." But at the end of the day, we do trend towards an average. Well, large numbers, right?

Mark McGrath: Interesting. You talk a bit in your book about cryptocurrency. Where do you think crypto went wrong?

Kyla Scanlon: Crypto went wrong when it tried to ask the US government to backstop it. Yeah. I used to think crypto was very cool. And I worked with some crypto companies very early on because I think the technology is really interesting. Like blockchain, the idea of peer-to-peer payments is very interesting. But crypto lost the plot and it lost the ethos of what it was meant to be.

You can't really call yourself a decentralized currency – it's going to make people mad. But like you can't call yourself a decentralized currency and then be like, "Oh, the US government should store Bitcoin in its reserves." Those two things probably don't square very well. That's one element of what happened to crypto. And then with everything new, there's always the opportunity for bad actors to rise and take over. And that's what you saw with Sam Bankman-Fried with CZ over at finance is just like these people who were making terrible decisions were the face of the industry.

And so, when you have really bad actors making really bad decisions, it's going to make your industry look really bad. I still think there's really exciting parts of crypto. There's a lot of really fun people who are building in the space and there's people who still believe in the ethos. But I think crypto has forgotten what it it's meant to be. And, also, bad actors take over. And that's really tough to navigate as an industry.

Ben Felix: I'll make people madder. I don't think crypto was ever decentralized. It started out as decentralized. But I don't think it ever had a hope of maintaining decentralization. There were lots of points of centrality that develop naturally. And then, of course, asking for the government's help doesn't help.

Kyla Scanlon: It just doesn't know what it is either. Bitcoin was meant to be developed as a currency. And is it a currency or is it a store of value? Is it gold? And I just don't think anybody knows. Because you wouldn't be celebrating the rise of Bitcoin if you wanted it to be a way to transact with people. I think that's kind of the bummer, is that it became, as with anything, get-rich-quick schemes. And there was so much noise around it in 2021.

It just got so silly with Doge and the NFTs. I don't know. I wrote quite a bit about it in my newsletter because I was trying to justify it to myself, "Oh, there is still hope." But I totally agree with you. There have been so many points of centrality. And something that could have been really interesting just isn't.

Ben Felix: That's an interesting perspective. You said you used to think crypto was cool. Have you changed your mind on it?

Kyla Scanlon: Yeah. I still buy it. I used to think it was a diversification. But not anymore after what happened on Monday. Bitcoin went down with the rest of the market. Basically trades relative to the cues. And so, I think that I had big hopes for it. Just because I think new technology is always interesting, I thought that it could be something that could be applied towards some of the payment issues that we do have.

The Fed has been working on FedNow forever. And when you look at the way that we have like Venmo, and Zelle, and cash app here in the US and other countries, their banks do that for them versus having these outside vendors. That would make crypto not decentralized if the government implemented it like that. I just think thinking about ways to transfer money is quite interesting. Thinking about different stores of value. Thinking about how do you build relative to the blockchain? How do you build with transparency? But it just ended up being none of that.

Ben Felix: Totally agree. I've been a skeptic for a long time. We did a whole podcast series on crypto.

Cameron Passmore: Worst kept secret.

Ben Felix: But the price keeps going up. I mean, I don't know. Dropped, like you said, recently.

Kyla Scanlon: The ETFs helped a lot. It's like BlackRock. Once those ETFs were approved, it got institutional adoption. And at that point, I was like, "Oh, my gosh. I'm putting all my cards on the table, I guess." But you can't call yourself decentralized anymore. Larry Fink is buying you up. And that's just not the ethos. But that's a value judgment. Not fact.

Ben Felix: Yeah. Okay. Changing the topic from crypto. Although, I could keep talking about that for a while. But we'll change the topic. How do we know whether we're in a recession?

Kyla Scanlon: The National Bureau of Economic Research is the group of people that decide if we're in a recession. They have a variety of numbers that they look at that they have listed on their website. It is not two-quarters of negative GDP growth as some people might think. I don't know where that misconception came around. But that's what a lot of people think a recession is. And it's not. It is determined by the National Bureau of Economic Research, at least in the United States. And so, yeah, they look at like personal spending. They look at a bunch of different numbers.

Justin Wolfers tweets out a chart of their metrics every once in a while. And you can see that it's basically trended upwards. That we're not in a recession right now. But the problem with recessions is we oftentimes don't know that we're in one until we're in one just because those metrics do kind of take a long time to catch up to reality. I think that's the really tough part about that.

When we entered a recession in 2020, one thing that was talked about quite a bit is the semantics of a recession. We can be in one and calling it one doesn't really change the fact that we're in one. And so, that's what I try to talk about a lot with my audience, is like we are not in a recession. But even if we're in one, we won't know. It's just pure semantics at the end of the day. And you just stay focused on understanding what's happening in the economy. Understanding your portfolio and not get too caught up in a word. Even that doesn't go over super well though. And that's what I try to remind myself.

Ben Felix: Wait. Why doesn't it go over well?

Kyla Scanlon: Because I'm basically being like, "Don't worry." When you do have a recession, there's a lot to worry about. And so, I think it can be misconstrued as me minimizing that pain. And that's not the goal. It's just we don't know what's happening. And a label doesn't really matter at the end of the day. Your actions do.

Cameron Passmore: What is a vibecession?

Kyla Scanlon: A vibecession is a disconnect between consumer sentiment and economic data. There's a lot of different reasons for a vibecession. A lot of people have talked about it in ways that don't necessarily reflect what it is based on like what I wrote about back two years ago. But the vibecession is essentially that people are feeling much worse about the economy than the economic indicators which suggest they should be feeling.

And there are a lot of different reasons for that including structural affordability like a housing crisis. Elder care cost is $10,000 a month in the United States. Childcare costs are up 32% since 2019. Of course, people are going to be feeling bad. And none of that's really captured in economic indicators. GDP can be growing fine and elder care can be extremely expensive and housing costs can be through the roof.

And then it's also media headlines. Media has trended quite negative for a long time. I think the clickthrough rate for a negative headline is, if you have a negative word in the headline, the clickthrough rate increases by 2.7%. And if you have a positive word in the headline, the click-through rate decreases by 1.9%. That's human behaviour to crave negativity. But that obviously influences the "vibes" that people are feeling.

But, really, the idea behind a vibecession is like, "Hey, look. People are feeling pretty bad." And the worry is, if the economy does enter a downturn, how bad will people be feeling then? And how can we get in front of this right now? What do we need to do to help people feel better?

Mark McGrath: And how do recessions affect the economy?

Kyla Scanlon: Gosh. They impact everything. They impact hiring. They impact spending. They impact saving. They basically put the economy on hold for a little bit. It depends on the severity of the recession. We had a recession in early 2020 when the pandemic happened where there was a recession because the world stopped. And then we had a recession in 2008, which was because of all sorts of reasons, including the housing bubble bursting. And so, it just depends on what sort of recession it is. But I would say that, most of the time, you just see a massive slowdown in economic activity. You see people spending less businesses investing less. And you just see a general sense of worry.

Ben Felix: I'm looking forward to your take on this next question. How much of a problem is the US national debt?

Kyla Scanlon: Oh, why were you looking forward to my take? Just curious.

Ben Felix: I've heard you talk about it.

Kyla Scanlon: Oh, okay.

Ben Felix: And I like what you have to say.

Kyla Scanlon: Okay. Well, I don’t remember what I've said before. Yeah. I mean, I think that the national debt, there's like a few different ways to look at it. I mean, I think, number one, as long as the debt is productive, if we're spending the money on productive things, that's okay. And a lot of people don't like that because they're like, "Oh, gosh. What do you mean that debt’s okay?" But if you're spending it on growing the economy, the debt is going to essentially pay itself off over time, hopefully. I think that's like one way to look at the national debt. As long as we're spending it productively, it should be relatively all right.

And I think the other thing that is concerning that has popped up more recently with the national debt is that interest payments have risen quite a bit. With the Fed raising rates, that's raised the rates for everybody, including the US government and the rate that they have to pay on their debt and that's gotten quite expensive. And I think interest payments have now out-passed at one point military spending. That's not great. We don't want to be spending a bunch of money on paying off our debt. We want to have our debt be allocated to productive uses, like investing in green energy, like building housing, investing in manufacturing, which is what a lot of the expansion of the debt was. It was things like the CHIPS Act, the IRA, the IIJA. Yeah, interest payments are not so good. It's always a trade-off. I don't think that you can point at the national debt and be like oh it's good or bad. Because the US is so powerful.

There is this quote in this Bloomberg article that was like the next time the Bank of Japan raises rates, they should think about the US economy a little bit more. And I was like, "Okay." That means like the US is so powerful at this point that other central banks have to take into consideration where the US economy is at. And so, I think that's the other thing with the national debt. As long as other countries are continuing to buy it up, as long as investors are continuing to buy it, as long as there's still people who are willing to finance US debt, then it's also relatively okay.

But there's a chain of events that make it important. You have to be spending it productively, as I said. Ideally, it would not be going towards interest payments in a big way. But as long as it can be supported by markets, I think it's okay. But, of course, nobody wants a huge giant debt load. That makes it difficult to have mobility in the future as well.

Cameron Passmore: Why does the Fed exist?

Kyla Scanlon: The Fed is really interesting. Because during the late 1800s, there was all these like wildcat banks and everybody had their own currency. It just became totally untenable. Because everybody was dealing in their own currency and there was no stability. And so, all these banks were failing. And then in 1907, I believe, the San Francisco earthquake happened and all these banks were failing again. And so, there's all these bank runs.

And J.P. Morgan, the founder of J.P. Morgan Chase, was like, "I'm really sick of bailing everybody out. We need to have a centralized entity that's going to take care of this so I don't have to." And so, the Federal Reserve was essentially established. Because of that, they wanted to provide support to the financial system. They wanted to standardize some things. And that's why the Fed exists is to provide stability to the economy. There aren't all these bank runs. So that we can grow. Because it's really difficult to grow an economy if everybody's transacting in a different currency. And so, that's why the Fed was established, was to provide that. And since then, they've evolved quite a bit.

I talk about it pretty in depth in the book because I think the Federal Reserve is really interesting. But they're dual mandate evolved since then, too. They're focused on price stability and maximum employment. They're also focused a little bit on long-term interest rates and stability there. But at the end of the day, the FED exists to push the economy in the right direction. A lot of people think it's the worst thing that's ever happened, which I don't know if I entirely agree with that. I think worse things have happened. But I think it's important to have some sort of centralized entity sort of managing these things.

Mark McGrath: How does the Fed do that? How does it affect the stock market and the economy?

Kyla Scanlon: The Fed has their toolkit. They can raise and lower interest rates. The Fed funds rate. They can shrink and grow their balance sheet. And then they also have forward guidance, which is essentially them coming out and talking at meetings. And so, if they choose to raise rates, which they were doing up until about a year ago, that was them like looking around at the economy and being like, "Okay, we need to slow everything down so inflation slows down. We're going to make everything more expensive." So, it's more expensive for you to be alive. Hopefully, you stop spending so much money so the economy slows down. So, ultimately, inflation slows down.

And if they wanted to speed the economy up – not necessarily speed it up. But if they wanted to not slow the economy as much anymore, if they were looking around and being like, "Okay, things need a little bit more help." That's probably when they would start cutting interest rates, which is what we're about to probably enter into. And then shrinking and drawing the balance sheet is sort of the same mechanics. But providing more support or less support to certain aspects of the market.

And then they come out and talk. Give people a good sense of what's happening. They're going to have a meeting on Jackson Hole in the next few weeks. They're probably going to talk about how they're feeling about the jobs market. They're going to talk about where they think inflation is going. And a lot of people say that forward guidance is now more important than rates or their balance sheet. Yeah, memes, I guess, at the end of the day.

Ben Felix: And there are so many memes about the Fed.

Kyla Scanlon: Yeah. Yeah, they've become sort of an enigma in people's minds, for sure. They're kind of like this big – I always mess up this word. Pseudogovernmental. Psuedogovernmental? Pseudo. They're pseudogovernmental in the sense that they're not technically a part of the government but they do respond to Congress. But a lot of people are like, "Oh, no. The Fed is beholden to whatever side of the political aisle." But they're not.

Ben Felix: What problems can arise from strictly adhering to economic beliefs?

Kyla Scanlon: I think this is where the Fed is at right now. The Fed has – of 2% inflation. And so, for them, they're going to do whatever they can to get to that goal. And if inflation is above that 2% number, they're like, "Well, we're just going to keep rates where they're at. Or maybe we'll do another hike again." And so, that's the issue with adhering to strict economic beliefs for the Fed is that there's that tradeoff between managing inflation and managing maximum employment.

And I think a lot of people are looking at the Fed, they're like, "You're thinking about 2% like a little bit too strictly right now. Maybe you could have a little bit more flexibility." A lot of people talk about long-term average inflation targeting, like getting around 2%, which is what the Fed ends up doing at the end of the day. But I think that's a tough part. And a lot of people are pushing back, too. It's like, is 2% even the right number?

I think the 2% number was established by like some guy in New Zealand going on TV and being like, "Yeah, inflation should be around 2%." That seems to be the old wives' tale around inflation targeting. But a lot of people – I think Jeremy Rudd even wrote a paper saying that maybe it should be around 3% inflation targeting versus 2%. And I think that's the trouble with adhering to strict economic beliefs is that we do have a dynamic economy. Things are massively changing with AI. They're massively changing geopolitics. And if you're staying stuck in the same economic mindset, it can be very difficult to be reactive to that. And so, I'd say that's just one example of that. Yeah.

Ben Felix: Interesting. Pretty sure New Zealand was the first country to put an inflation target in place.

Kyla Scanlon: I think it was in the 1980s. Yeah.

Ben Felix: Yeah. Late 80s or 90s maybe.

Mark McGrath: Yeah. I remember reading an article about it and then looking it up. And it seemed like everybody was like, "Yeah, that's where it came from." And then I also remember that not being true. It's one or the other. Yeah.

Ben Felix: One or the other. Yep. Usually, it's one of those two. We had an economist a while ago tell us that their view is that the inflation target should be 0%. I'm sure there are many different opinions.

Kyla Scanlon: Interesting.

Ben Felix: I don't have one. But I don't know where 2% came from either.

Kyla Scanlon: Well, wouldn't that like disincentivize spending?

Ben Felix: I think the argument was that it would not. And that's why they were advocating for it. I don't know.

Kyla Scanlon: People would like that, I think. You asked me earlier how people understand economics. And a lot of people struggle not only with inflation as a word, but also the 2% target. They're like, "Why should things get more expensive over time?" And it's like, "Well, in a growing economy, that's kind of like what you have to do." And then I think a lot of people hear inflation going down and think that that means that prices should be going down. There's like actually quite a bit of confusion around the macroeconomic circumstances right now. Because people are like, "Well, I hear on TV that inflation is going down. But like my box of cereal is still $7. When is that going to change?" And it's like, "Well, no. That's deflation." And so, the terminology can be quite hairy to navigate. And I think it's just a different language. And so, when you're talking to a person who isn't entrenched in – or even a person who is entrenched in economics, sometimes the terminology can be quite hairy.

Cameron Passmore: How is the economy related to the mental health of citizens?

Kyla Scanlon: I talk about that in the book, too. Towards the end of the book, I got – or in all my work, I get like a little bit philosophical. I really like to try my best to be cross-disciplinary. And I think talking about mental health is important. Because I wrote this piece for Fast Company about a year ago talking about how Gen-Z – which is I'm a cusper. I'm technically Gen-Z – but how Gen-Z works, and part of how Gen-Z works is impacted by their mental health. How everybody works is impacted by mental health. And work, ultimately, influences the economy at the end of the day.

And so, I think mental health issues have been a huge expense. It's been very expensive to care for people, to care for anxiety, to care for depression, to care for the other issues that come along with that. And there doesn't seem to be any widespread treatment for it. Anxiety and depression have been diagnosed at sky-high rates, especially amongst our youth.

And so, I think, number one, as I was saying, it impacts the way that people work. Number two, it's extremely expensive. And then number three, I just think it impacts how people show up in the world. If you're dealing with anxiety and depression, it's going to impact the decisions that you make, which ultimately impacts the economy.

And so, that's something that I think other people who study economics have spent a lot of time thinking about. And it's something that I wish I could spend more time thinking about. But I think it's really important. We have sort of this loneliness crisis, too, that a lot of people push back on. They're like, "What do you mean there's a loneliness crisis?" But the number of children that are reporting that they're lonely, spending time alone, is also extremely high. People instead turn to their devices. And it makes sense. You have the whole world in your hand with your phone. Of course, you're going to turn to that at the end of the day. But the loneliness crisis is a great market opportunity, too.

Jules Terpak has a very good YouTube video on that where people will monetize people's loneliness. And that's kind of a feedback loop of sorts where it's like, "Okay, people are lonely. We're going to make them lonelier through certain products." That can worsen the mental health issue. I think, yeah, it's work, it's young people, and then it's the market opportunity of bad mental health.

Mark McGrath: We've talked about vibes, and social media, and memes. How does social media impact people's vibes?

Kyla Scanlon: Whenever I get asked this question, I always try to say that I'm a hypocrite. Because I am with what I'm about to say. Because my job is posting videos on social media. Talking about the economy. And I do think that social media ultimately is a tool but it is one that is oftentimes used for harm.

The way that it impacts the economy is like it's an incredible market opportunity. If you build an app, you can sell that app for quite a bit of money. Your eyeballs are the most expensive part of you because people really want to advertise to you. That's how social media impacts the economy. But in terms of its impact to the world at large, it is I think something that can be used primarily for bad. But it is a tool at the end of the day. And it is important to try to use it for good.

And so, social media is primarily the way that we connect with one another. It's where we learn a lot of things, where people spend a lot of time, and, of course, where people are is where advertisers are going to go. It's where people are going to try to launch products. It's where big parts of the economy end up existing.

Meta, for example, is social media and they're one of the biggest companies in the world. Apple is the facilitator of social media through the iPhone. And they make a ton of money off the app store. And, yeah, they're one of the biggest companies in the world, too. And so, social media is a huge part of the economy. I just don't know if we know how to navigate it.

Ben Felix: Can you talk about how the business model of media today is affecting vibes?

Kyla Scanlon: I mean, the business model of media is quite difficult because it's based on clicks. It's based on advertising dollars. And it's based on clicks. The way that you get people to click on something is to make it scary or something that they want to click on, which is usually something scary.

And so, that ends up influencing how people write headlines, which is what most people read. Most people do a morning headline scroll to figure out what's going on in the world. They don't necessarily read the articles. And that impacts how people feel about circumstances.

As I said, there's this really good research paper talking about how media has gotten so negative. And you just see the sentiment of headlines straight line downwards the business model of media being reliant on clicks and, therefore, being reliant on presumably making people feel bad has absolutely impacted how people feel about the economy. Because there's sort of an incentive model in place to make people worry about the economy.

There was a Bloomberg headline back in October 2022 that said that there would be a 100% chance that the US entered a recession by the end of the year. 100% chance. And we didn't enter a recession. But a lot of people saw the headline. That's the business model. And I think, Bloomberg, they do a great job. I work for the opinion section. It's good stuff. But I think that the headlines can oftentimes misconstrue the actual reality. Because you got to have people click.

Mark McGrath: I tweeted out an article that I found yesterday and it was, how to become a millionaire in a particular stock in 10 years. And it said all you have to do is invest $50,000 in this one stock and then add $500 a month and it'll be a millionaire in 10 years. I went and worked it out and it worked out to 31% annualized return in over 10 years. I think the media gets clicks by making those types of claims as well. Not just always negative claims. But then when you get beneath the surface, it's a little bit too good to be true.

Cameron Passmore: It's advertising-based model.

Mark McGrath: Yeah. And there was other stuff in the article that it was quite clickbaity. But a lot of people I'm sure clicked on that article because it's what a headline –

Kyla Scanlon: I would.

Mark McGrath: Right? Yeah. Of course.

Kyla Scanlon: Yeah.

Mark McGrath: You've been talking to people about economics and markets. What have your biggest learnings been from doing what you do?

Kyla Scanlon: My biggest learning is that there's always something to learn about. I have a background in econ but like I'm always learning about the best way to talk about the economy. I'm always learning about different aspects of economics and reminding myself of that. I think that the biggest lesson is that people really do want to understand this stuff. And, oftentimes, we just don't give them the chance.

I've kind of been shocked by how many people have been interested in just hearing about the Federal Reserve. And I think that we just – for a long time, we're like, "Well, it doesn't really matter. It doesn't really impact people." But the economy is everything that we do. Buying a cup of coffee is a massive economic transaction. If you think about the labor, and the beans, and the shipping and logistics that are required to get that cup of coffee to you. I think that's been the most pleasantly surprising thing is that people are very interested and they do want to understand the world around them. You just have to give them the tools to do it.

Cameron Passmore: Our final question for you Kyla, how do you define success in your life?

Kyla Scanlon: For me, it's always having a new project to work on. That sounds sad. It really is how can I keep on finding new ways to talk to economists about the economy and explain it to people. How can I find a new medium to simplify this for people? How can I find a new way to explain this kind of tough economic concept like the yen carry trade, and how can I do it all in less than 90 seconds?

And so, I think success for me is, number one, always having a new project to work on. But then number two, success also comes in the form of the messages that I've been so grateful to receive where people are like, "Oh, I've switched my major to economics because I didn't know economics is something you could major in." Or like, "I've decided to work in economics because I think it's really interesting and there's so much work to be done." And so, that's success, is just knowing that people are interested. They do want this in their lives. And that they feel like the information that I've been providing has been useful to them.

Cameron Passmore: I have to ask you, do you have a hack that you can share in terms of how you find a new project?

Kyla Scanlon: It's mostly just thinking through what I think would be fun to work on. The book was a really big project for quite a long time. But most of the time, right now, I haven't been working on this for super long. There's still so many new projects to work on. But there's a TV show that I've been working on for a little bit. I've been working on a graphic novel explainer of how to invest in the stock market. It really is just like borrowing from art and then applying that to economics. That's how I find my new projects. That's what I got started doing with skits about the economy. And I just tried to continue to borrow from art as a medium and apply it to economics.

Ben Felix: That really cool. I saw you tweet about JETSET, where you're speaking at it. What was that about? What were you talking to them about?

Kyla Scanlon: Oh, yeah. That was so much fun. My life was changed by my professors at my school. I went to Western Kentucky University. It was just such an honor to be able to talk to econ professors who I think are just doing amazing work. And so, I was the keynote speaker there. And I opened up their conference. I was talking about this survey that I did with my audience around their economics education background. Like how do people think about economics education? What can we do to help them understand the economy better?

I was talking about the results of my survey and just got a chance to talk to all the professors after. And it's just so cool. It's just so fun to hear about the different ways that people are teaching economics. Christopher Clark, who teaches at Washington State University, I think, does this lesson where he uses Hostess CupCakes to get into redistribution of wealth. He distributes the Hostess CupCakes. Has everybody distribute them and then talks about like what it feels like to distribute wealth. I just think it's so neat to think about the different ways to teach economics.

Ben Felix: You posted some of your slides. I guess this is from your survey. But it showed that like 30% of people are getting their economics information from social media. Is that from your survey? That's crazy.

Kyla Scanlon: Yeah. That's from my survey. Yeah. My survey is biased because I did post it on social media. But it was backed up by like Gallup and Pew.

Ben Felix: Okay. Wow.

Kyla Scanlon: The younger generation especially gets a lot of their news from social media. I was really shocked by the low numbers for traditional media on there. I was really surprised. People listen to podcasts, too, to get their news, which is where you all come in. There's so many different forms of information. Social media is a popular one.

Ben Felix: Yeah. Super interesting. Cool. That's the end of our questions for you, Kyla. We really appreciate you coming on the podcast.

Kyla Scanlon: Thanks for having me.

Cameron Passmore: Yeah. Treat to meet you. Thanks.

Mark McGrath: Thanks.

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