♪ >> Welcome to This Week In South Carolina.

I'm Gavin Jackson.

This week, we're looking at the latest on the economy as well as a state Supreme Court decision on school vouchers.

But first, we're going to talk about the economy with Dr. Joey Von Nessen.

He's a research economist at the University of South Carolina Darla Moore School of Business.

Joey, welcome back.

Dr. Joey> Thank you Gavin.

Always good to be here.

Gavin> We have a lot of news to get into, including a major rate cut by the Federal Reserve this week.

I want to ask you about that.

The Federal Open Market Committee decided on a 0.5% rate cut on Wednesday.

Everyone's been watching for this.

Some folks were expecting a 0.25% cut.

It was bigger than that, at 0.5%.

Markets are pretty happy with it.

Folks, I think overall are pretty happy about it.

Tell us about the significance of this decision and some of the ramifications we can expect to see.

Dr. Joey> Well, I think it's important to first level set, for the viewers, and to say first that the economy right now in South Carolina and at the national level is very strong, and we see that in terms of steady consumer spending, which is the principal contributor to GDP.

We see that in the form of a strong labor market and also strong wage growth.

And I would suggest that if we were going to give the economy a grade, we graded it B-plus, because most metrics are positive, but we still have that lagging effect of the loss in purchasing power that most Americans have felt, and they have not been able to claw back that loss in purchasing power yet.

So that's still a major challenge.

So that's why we see a B-plus.

But overall, a strong economy in terms of where we are in September of 2024, but we are losing momentum and have been losing momentum throughout the year.

And so what the fed's decision basically means is that they're taking that loss in momentum seriously.

They're trying to get ahead of it and make sure that we can preserve the strong economy that we have today, and that we don't continue to see a loss of momentum that leads to a downturn in the coming months.

Gavin> That loss of momentum was, I guess, slang for a soft landing, essentially.

Dr. Joey> Exactly.

>> You know, trying to avert that hard landing after, you know, coming out of a pandemic, and there's all that talk about recession.

No one's talking about recession right now.

We're talking about trying to walk this fine line.

And it seems like they're doing it right now.

Dr. Joey> They are.

They've done a very good job so far.

And this also signals that they are pivoting to a focus on the labor market, that is about a 50/50 split.

In other words, the fed is just as concerned now with preserving the health of the labor market as they have been with keeping inflation low.

And the other factor here is that it does signal confidence that inflation is largely under control now.

At 2.5%, inflation is not licked yet, but we're getting closer.

Remember the Fed's goal is 2.0%.

And we've seen meaningful improvement in that direction.

And this also signals the Fed's confidence that inflation will continue to tick downwards in the coming months, so they can focus more on making sure the labor market remains strong.

Gavin> Yeah, their dual mandate, right there.

So then Joey, what can Americans, what can the average American expect to see out of this, lower mortgage rates, lower borrowing costs?

What are we going to see trickle down from this?

Dr. Joey> Yes both of those.

So, in general we're going to see Americans, pay less for big ticket items on things they would normally be borrowing money for.

The housing market is likely to see some significant impact, and the challenge in the housing market really has been a lack of inventory.

When we look at the high levels of prices in most markets, that's certainly true in South Carolina, particularly in, in the coastal areas like Myrtle Beach, and in Charleston and Hilton Head.

But those high prices, largely the result of a lack of supply, a lack of inventory, and part of that lack of inventory has been that existing homeowners have not been willing or been interested in selling their home.

Gavin> That 3% rate?

>> That 3% rate.

Gavin> Got that 7% mortgage instead, yeah.

Dr. Joey> If you're locked into 3%, then a 6% or 7% is not, not attractive.

And so now we might see some more movement there.

And that could help, free up some inventory.

And the housing market, from a sales perspective, has seen a significant downturn in the last couple of years.

So, this will help to further stabilize it.

Gavin> And our housing market's a little bit more pinched too, than maybe the rest of America since we're such a fast growing state, too.

Dr. Joey> Very much so.

We had the highest population growth rate in the country, in the last 12 months.

And more people are moving in, generating high levels of demand and the lack of supply, the lack of inventory, creates a major mismatch.

And it's really the first time in 20 plus years that we've seen this decoupling between growth in sales and growth in prices.

We've seen a double digit pullback in sales activity.

And yet prices continue to rise.

Gavin> A good problem to have in some sense- Dr. Joey> Yes.

Gavin> Joey, kind of going back to that dual mandate that the Federal Reserve has a full employment and low inflation at 2%.

Inflation is coming down like we were talking about the employment rate.

The unemployment rate is at 4.2%, which is solid.

That's been coming down, too, thanks to a cooling labor market.

So do you think if we see maybe more drastic pullback in the unemployment rate and, and jobs numbers, that there could be more aggressive interest rate cuts, this year by the Fed?

Dr. Joey> I think they are looking to stay ahead of the game by having this aggressive rate hike of 50 basis points that we saw this week.

Going forward, I think they're going to continue to look at the data.

They've been very clear that they're making these decisions as new data come in.

So we expect to see some, some stabilization as a result of this first cut.

And just depending on what that what that implies for manufacturing, housing markets, other industries that are affected by, by big ticket items and of course, by businesses as well.

You know, we've talked about the consumer, but not about the business side and stimulating investment activity.

So just seeing how this ripples through, but I think that this opens them up to, more rate cuts going forward.

It signals that they are serious about making sure that we do stabilize the labor market.

And assuming that inflation doesn't begin to tick back up, that's the other, that's the other key factor, then I think we'll see rates probably settle in the 4% range, next year in 2025.

Gavin> And what could, what could impact that decision?

I mean, when it comes to inflation ticking back up, would that have to be some sort of, another shock to the global supply chain or something like that, in order for them to say, hey, you know, this wasn't what was in the cards when we first decided to start cutting rates?

Dr. Joey> That's certainly part of it.

If we see any disruption in shipping costs, for example, like we did earlier this year, because of some of the, the attacks in the Red Sea, which had a meaningful impact.

It tripled shipping costs during the first half of the year.

And it doesn't take much.

Right.

So that can have a meaningful impact on inflation, because all we're talking about is 2 or 3 tenths of a percentage point, that can lead the Fed to potentially change course.

And the other factor, of course, is if the labor market, continues to remain strong and we continue to see or we begin to see an uptick in wage growth, that can have an impact.

And then, of course, housing prices.

The other factor there, too.

So there's still a lot of, a lot of uncertainty.

And that's why the Fed, I think, is going to wait and see and just see how this first rate cut plays out.

Gavin> But we still expect to see a couple more rate cuts this year, probably getting down about 4.4% is what it looks like?

Dr. Joey> Right now, the consensus is probably two more cuts of 25 basis points each between now and the end of the year.

Again, we'll see if inflation, what, what the data look like on the inflation side and of course how the labor market continues to evolve.

But, and until and unless we see a change in course from where we are now, I think another 25 basis points again, two times before the end of the year is the most likely outcome.

Gavin> Joey, how surprised are you...?

We've been talking about this before when we talk about the high inflation which is coming down, but prices still remains pretty stubborn, but we see the American consumers still spending, very well for carrying a lot of debt, too.

Dr. Joey> Yes.

Gavin> We've also seen that retail sales, grew for four months straight now.

Can anything stop the American consumer at this point?

What's going on?

Dr. Joey> They've been very resilient.

Well, consumers are still in pretty good financial shape.

And this actually goes back all the way to 2020.

And if we look at disposable income levels for, again, the average household, they are approximately the same as where they were before the pandemic began.

And so the obvious question is, "Well, how can that be?

", given that we've seen prices going up and consumers losing purchasing power?

And part of that is the result of the, stimulus checks and the other access they had to that $6 trillion stimulus package or packages, I should say, in 2020 and in 2021.

And so we saw a significant uptick in the financial health of households.

We've also seen a booming stock market.

So if we look at the financial asset portfolios of the average household, that's been doing very well.

So consumers have been able to draw on these additional financial resources and continue to spend.

But we actually are at a point now where we're back to pre-pandemic norms.

And that's another reason the Fed is acting because they recognize that.

So we're at the point that if consumers have to continue to draw on their excess finances, they're not many left, and so that would potentially, lead to lower demand, and again, cause a pullback in market activity.

>> And give everyone some breathing room, too, at the same time lower these rates.

But what about the costs?

Why are things still so expensive?

When we're talking about inflation coming down, we still see, you know, certain goods still remaining high.

Dr. Joey> Yeah.

So that's a great question.

And it gets to the, the difference between a pullback in inflation and deflation.

So in other words, we're seeing, when we talk about a decrease in inflation, in the inflation rate, we just mean that prices aren't rising as quickly as they were previously.

But it doesn't on the whole mean that prices are actually going down.

And unfortunately for most, for most goods and services, that's, that's not going to be the case.

We're not going to see prices come back down, certainly not back to pre- pandemic levels, in most cases.

And the reality is that we don't want to, because the only way you get a major decline in the overall price level is, is with a recession.

So that's, that's an unfortunate consequence.

So we are seeing inflation come back down.

But again, that just means that consumers don't have to be as worried about prices rising as quickly in the future.

Gavin> We can talk about one price that has come significantly down from last year, and that is the price of gas... very volatile, of course.

We're down $0.30 from a month ago, and I think about $1.70 or so from a year ago.

So obviously, always fluctuating there.

The world market has a lot to do with that.

We can talk about global impacts in a moment, but, still, we're hearing a lot of good news all around, well, especially with job announcements here in the state, too.

So are you seeing any red flags when it comes to the American economy, when it comes to South Carolina's economy, at this point?

Dr. Joey> In South Carolina's economy, no.

It still remains fairly strong.

We do see an unemployment rate that's ticking up, in South Carolina.

So it's actually up almost a full percentage point since January from 3.0% to 3.9% today.

But that's not because people are losing their jobs.

It's not because we're seeing layoffs.

It's simply because we have so much population growth that it's just taking longer now for people moving in to find jobs, because the labor market has been slowing down.

We're not creating jobs as quickly.

So that absorption rate is just a bit longer than it was.

And so while they're searching for work, they're considered to be unemployed.

So, so that in and of itself, the increase in the unemployment rate, right now is not a red flag, but nationally, where we do see some concerns is with consumer debt, which is now just in the last few months, surpassed pre-pandemic norms.

And once again, that suggests that consumers have exhausted these financial reserves and so we're now having to borrow more to sustain their spending.

And of course, that's not sustainable long, long term.

So, so that I would say is the biggest we'll call it the yellow flag, for now.

So there are some warning signs.

But again, I think that's another reason why it was important for the Fed to get out ahead, as they have with the with the larger rate cut.

Gavin> But the economy, as itself, on a whole, is not some sort of train wreck, as some, maybe in the political world like to refer to it, as.

It's strong.

It's solid.

The indicators are all very solid at this point.

Dr. Joey> Yes.

Overall, the economy continues to do well.

I think resilient is the right word.

And, and again, I go back to if we were going to give it a grade, I think a B-plus would be fair.

So most metrics are very positive and strong, with the exception being that consumers are still struggling with these higher prices because they lost a lot of purchasing power, are still trying to claw it back.

And so that, that's, that's the major weakness, right now, that we see.

Gavin> Joey talk to us about, the global economy right now, you do a lot of, international dealings, a lot of communications with your counterparts abroad.

You just gave us a B-plus on the economy here in the United States.

But talk to us about folks in Germany, Japan and China.

I'm sure they'd be jealous of where we are right now as a country, especially with a lot of stagnation going on with our economies.

What are you telling your colleagues, that they're asking you about how things are going here, the pulse on the ground in America?

Dr. Joey> Well, the major difference between what we're seeing in the US and in other economies, particularly, the European economy, for example, is energy prices.

They're struggling a lot more because of the war in Russia and Ukraine, which has affected their energy prices more so than they have in the United States and Europe specifically, has been teetering on recession for the last year.

Germany is included in that.

So, again, very weak growth overall.

So we've, we've been very fortunate, in that, our economy has really been an outlier and that it has seen very resilient growth and continues to do well.

Despite the fact that we've seen inflation that's been, global.

Right.

So that's not a phenomenon that was unique to the United States.

Gavin> Joey, we have about two minutes left, and I want to save my, my most political question for the end, because that's not what you're here for.

But of course, politics will play into all of this, especially with some 50 days away from the big election, November 5th.

There are political ramifications from this Federal Reserve rate cut.

I expect we will see some heated rhetoric on the campaign trail, maybe some misinformed rhetoric like we've been talking about trying to, get ahead of here.

But this...concept that the Federal Reserve is political, even though Chairman Jerome Powell was nominated by Donald Trump, was re-nominated by Biden, he's independent from the administration.

Talk to us about the role of the Federal Reserve and how they are independent, and they're not political when it comes to making these decisions.

Dr. Joey> Yes.

They are not political.

And that is intentional because when the political party in power, whoever that is, has control over the Fed and is directing decisions, that can be motivated by particular special interests or by certain groups of Americans, or business or whomever.

But the Fed remaining independent allows them to look at how we can generate a strong economy with low or rather low inflation, price stability, and high employment for all Americans.

So that's, that's what their mission has been.

I think that's likely what it will continue to be.

And we see success with that, with that model.

And that's...that will continue into, into 2025.

Gavin> We're having a pretty common sense discussion here.

So I guess maybe your advice for folks who are watching, I always ask you about what to look for in the coming months and weeks.

But of course, the election can be a big factor here.

So what do you tell folks when maybe they're telling you one thing about the economy, when, you know, it's very much the opposite of the case?

What should they be doing?

Dr. Joey> Well, I think, in general, when we're looking at the election, when we're looking at how the economy is going to unfold in 2025, while different candidates have different policies, and we're just seeing those be, debuted now, and we don't know what the specifics look like.

But the, the fundamentals of the economy are going to remain strong, regardless.

And it's going to as we look ahead to 2025, we have to look at broader patterns, in terms of how an election could influence the economy.

And if we look more broadly, one of the things that we do see is that both parties are more engaged in what I would call active and industrial policy, meaning that we've moved away from globalization and more of a free market focus, and that's especially apparent on tariffs.

So one thing that we there's a lot of uncertainty about what, what specific policies will be implemented next year.

But I think one thing that we can say, regardless of who's elected, is that tariffs are likely to be a part of it because both parties have... suggested a willingness to use tariffs in their policies going forward- Gavin> -and some big tax policy debates too.

So a lot to look forward to in 2025 that's Dr. Joey Von Nessen with the USC Darla Moore School of Business.

Thanks as always, Joey.

Dr. Joey> Thank you Gavin.

My pleasure.

Gavin> Joining me now to discuss the Supreme Court's decision that found the school voucher bill unconstitutional on South Carolina books is USC law professor, Derek Black.

Derek, thanks for joining us.

Derek> Yeah, thanks for having me.

It's good to be back.

Gavin> So, Derek, the Supreme Court this month ruled 3 to 2 that it is unconstitutional to use public funds in education scholarship trust funds for private school tuition and fees, but money can be used for indirect expenses like books, tutoring, technology, etc..

This is the latest in a long running effort to get school vouchers in this state.

So how do you interpret this ruling?

Derek> Well, it's pretty emphatic, just like the last one, three years ago, saying that public funds only go to public schools.

And, you know, this program was taking money directly out of the Treasury, the Treasury.

It had a short sort of stop on the side of the road, I suppose, but still went directly to, the private schools.

And of course, the Constitution doesn't allow that.

Gavin> Yeah, and when we talk about that, Derek, they're talking about, basically saying, well, this money, you know, comes from a trust fund, and even though it originates from the public treasury, though.

So it's kind of surprising... when you look at article six, section four of the state constitution, which directly says no money should be paid to public funds from public funds or, the credit of the state for its subdivisions to be used for the direct benefit of any religious or private educational institution.

So, you also had Gary Hill, who wrote the opinion here, say, after we clear away the window dressing, we can see the act funnels public funds to the direct benefit of private schools.

This is what our Constitution forbids.

So it's pretty direct here.

How do they get.

They don't really get around that.

The state's defense was basically saying, well, if we move the money around, it works.

Derek> Yeah.

It was, it was really the state, you know, last time the state just wrote the check directly out of the Treasury to the private schools.

This time they said, well, let's put it in another state account before we send it there, and we'll call that account a trust.

You know, Gary Hill also got into the point of like this isn't, this doesn't operate like any trust that that he at least had seen before.

And so, they were putting a name on a thing, but at the end of the day it was a state account.

And...those funds were going to go directly from... they weren't going to somehow go to parents in between.

They weren't going to stop somewhere for parents.

Parents weren't going to be able to do whatever they wanted.

Parents weren't going to be able to choose any school in the state.

It was going to go into a state account and still have a lot of state management and decisions about who could get access to that money when, where and how.

And Gary says, look, still like, you know, public money going directly to private schools.

Gavin> And when we talk about this money, it's a current pilot program that allowed up to 3000 students to receive $1,500 each, with plans to expand the vouchers up to $6,000 a year for 5000 students, then eventually 15,000 students.

So we're talking about $90 million dollars annually, that would have been moving around here.

That's not the case now for at least tuition and fees.

So do you think that this program will still survive in some shape or form when it comes to funding things like books, like tutoring?

Derek> Yeah, I'm sure there's a lot of, private school parents out there that could use help with tutoring or school books.

And, you know... there's no problem with that.

The Constitution doesn't prohibit that.

So, I don't think it's going to the money is not all going to be spent.

I think it's going to be hard for probably, for most parents to spend that much money on sort of things around the edges.

Gavin> So, Derek when you look at other states across the country, obviously there's school vouchers.

I think programs push at least 16 states right now.

How how do we rank, I would say, like when it comes to, does every other state have a constitutional decision like this, a constitution on the books where it's saying that you cannot use this directly, versus maybe something that's different in another state where it's a little bit looser, that's how they get around these laws?

Derek> Yeah.

So there are about half of the states that have what we call no aid provisions.

And some of them simply say no aid to private schools.

I say, private, religious schools.

And the Supreme Court declared that type of language unconstitutional, two years ago.

So all these, a number of states, I don't know if it's 15 or 20, but a number of them, those provisions are unconstitutional.

South Carolina's falls in another subset which says, we don't care whether you're religious or non-religious, we don't want public dollars going to public funds.

So, the United States Supreme Court said that's fine.

Right.

And so there are, you know, a handful of states in that position.

And, people have tended to be successful in challenging these programs.

A year ago, the Kentucky Supreme Court struck down a voucher program there.

Like five or so years ago, Nevada struck down one there.

So, you know, every state is different, has a different history.

But, you know, South Carolina, I guess, has the sort of prototypical public funds for public schools type of, constitutional provision.

So in that respect, it's not entirely surprising that our Supreme Court came out this way and that history is long.

I mean, I think that's an important thing.

You know, we get so caught up in what we want today and, you know, in sort of changing times.

But there was a commitment in 1868, in this state that said, we've got to get this public school system off the ground.

We believe this is crucial to the future of citizenship, both for formerly enslaved people and middle class and working class White folks didn't have public schools.

And they said, we can't spare a dime for anything else.

And we also don't want people coming and lobbying us for this money.

Right.

Like the railroads used to do.

Right.

And so let's just, let's just make it simple.

Let's make a commitment.

And public education is a singular, constitutional obligation of the state.

And they don't have any choice but to have public schools.

And so, in mandating that choice, they're also excluding another choice.

And of course, there's a lot of Jim Crow and other things that that went under the bridge since then, but that sort of idea that money ought to be reserved exclusively for public schools is one that's about, you know, 170 or so years old at this point.

Gavin> Yeah.

Derek, I was going to ask you about tracing those roots, especially when it comes to school choice, when we look back, after the Brown decision, which was rooted in, you know, Briggs v Elliott here in South Carolina, where they, the Black parents down in Clarendon County just wanted a school bus for the kids to get to school.

That sprouted into talk about equality for everyone, and then it became that Brown decision which took decades to get actually implemented in South Carolina.

So you can tell me maybe, look at how some of school choice is rooted in that decision, that resistance to integration.

Derek> Yeah.

And I think, you know, Justice Hill and the other members of the court really did a good job of sort of talking through that history.

I think it's important for us to appreciate our history instead of just worrying about the minute details, so...the minute, current details.

But so there was a period of time in the 1960s when it became clear the Supreme Court was going to make, the South desegregate its schools.

And there were a number of states that said, well, we'll just do away with public education.

And in fact, in Virginia, Virginia legislature passed a bill, whereby, any school district could close its doors, didn't have to operate, and it would replace those with vouchers.

And, that case ends up going to the Supreme Court.

But there was a 3 or 4 year period in which schools did not operate, in a couple of, in a county in Virginia, and the White children went to private schools on vouchers.

Now, the Black children, interestingly enough, said, we're not going to do that.

In fact, the White community had offered to set up private, Black schools for them.

They said, we're not going to do that.

And so I think that history really stuck with a lot of the communities there.

South Carolina's story is a little bit different.

We didn't close our schools but we did remove, as Justice Hill's opinion goes through, it did remove that education mandate from the Constitution, moving in that direction that that Virginia was, was moving.

And I think, you know, with some good leadership of governors and other leaders here in the state, they said, you know, look, you know, we need to stop this.

Let's put, education back in the Constitution.

Let's make it clear we're not going to spend money on vouchers.

And so that's where more recent, iterations of this, no aid clause, are definitely tied up in that, in that history, you know, and to be clear, and I think this is what strikes a lot of emotions is that and I'm not saying that, you know, or I don't think people are arguing with the people who are, for vouchers now are trying to create, you know, a Brown versus Board situation or resistance.

But I think the criticism is that you don't realize that there's a very good reason and fear that the Constitution has blocked this.

And so, you know, regardless of what your motivations are, we're just not going there anymore.

And so, you know, a lot of us maybe don't know our history or just think times have changed and aren't as worried about it.

But I think the court the court was clear we're going to stick with history on this.

Gavin> We've got two minutes left, Derek.

I'm going to ask you about your book, "Schoolhouse Burning: Public Education "and the The Assault on American Democracy".

We last talked about that in 2020.

There was a really important passage in there that I talked to you about then and I want to talk to you about now is, it said "Far too many people are not equipped with the education "they need to distinguish fact from fiction, "good policy from bad, or even their own self-interests.

"A large chunk of society has lost "faith in government's capacity to do anything good, "so it lashes out against government.

"Those who know better, are exploiting these knowledge "and perception gaps and clamoring for restrictions "on voting and public education.

"If education becomes a bystander "in a political power struggle, "democracy could lose a tool it needs to heal itself."

Do you think that education is maybe not so much even a bystander now, but almost a victim of modern politics?

Derek> You know, it sounds like you're telling the story of my next book.

I mean, I think that- Gavin> -Spoiler.

>> Well, you know, there was this sort of hopefulness in my last book that, and I think a lot of, a lot of bipartisan support and advocacy groups thought that maybe public education can help us get out of this divisive moment, maybe it can heal our democracy.

And I think actually, a lecture I just gave the day before yesterday in Pennsylvania on Constitution Day, said, look, education has now become, unfortunately, intertwined with the unraveling of certain parts of our democracy.

And that's, that's unfortunate.

It used to be something that we could all agree upon.

And now, we seem to be at each other's throats, on that issue as well, today.

Gavin> And just with 30 seconds left, what is the path forward when it comes to voucher programs in the state now?

Derek> Well, you know, the Supreme Court, has spoken twice and strucken them down twice.

You know, the legislature could spend a lot of time trying to unlock a lock box and find some new way to, to get around that, and maybe it gets struck down a third or fourth time.

You know, I think our Constitution is clear that this is unconstitutional.

And, you know, if the voters want something different, let's, let's put it to the voters.

And that's what the Supreme Court says.

There's a way to change this.

That's an amendment.

And, you know, I'm confident, that the voters, just as they made the right decision in 1868 and in the 1970s, I'm confident they'll make the right decision again today, if given that opportunity.

Gavin> Got you.

Well, we'll have to leave it there.

USC law professor, Derek Black.

Thank you for joining us.

And thank you for joining us for South Carolina ETV.

I'm Gavin Jackson.

Be well, South Carolina.

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