Plain English with Derek Thompson - We Have to Talk About Inflation


I want to talk about the economy today.

At any given moment.

There are like 1,000 things going on in the US economy, the unemployment rates doing this, and the stock, market’s doing that and Retail inflation or over here, doing their own thing.

It is a big messy, complicated story, but somehow when that big messy, complicated story is filtered through the media message making machine.


It only comes out in one of two ways.

Things are good or things are bad.

So, to kick off today’s episode.

I wanted to give myself a bit of an assignment.

Describe the Economy, this weird confusing economy in one sentence.


That’s actually true.

And here’s what I got.

All the good news has an asterisk and all the bad news has a silver lining.

What does that mean?

Well, try to tell a good story about this economy.

Alright, really good news.


We are coming out of the pandemic and the unemployment rate is already lower than it was in 2016.

That is amazing asterisk.

One of the reasons why it looks so good is that we’re actually missing seven million people from the labor force.

There is a big labor shortage now, try the other side, bad news.


Isshin gas prices are up, media.

Prices are up car prices.

Everything is getting more expensive Silver Lining.

Yeah, but that’s because the economy is kind of booming.

We’re literally buying more stuff than ever.


The good news has an asterisk and all the bad news has a silver lining.


I’m Derek Thompson.

This is plain English.


Today we have Michael bat, Nick and Ben Carlson joining for our, first-ever economic Roundtable on the plain English podcast.

Michael, and Ben co-host.

The wonderful animal spirits podcast.

Michael is the director of research for Ruth olds wealth management.

And Ben is the director of institutional Asset Management.


Michael Ben.

Welcome to the show.

Derek, we are so excited to be here.

I probably should have taken a Valium before we started because this is really our Super Bowl.

I don’t know if you know this but been bought stock and you when you were pre-ipo, when you were just a micro cap company probably in like, 2013, I would say, and I got shares a little bit later, post IPO, but we’ve been holding for, like, almost a decade.


So, imma Buy and Hold investor.

And we’re so excited to be on with you.

I was telling my wife that like the fun thing about just getting a podcast is that you can have people who are on Podcast that you listen to come on.

And it’s kind of like, when I was a kid, I used to go to my friend’s place to play N64, but then I got a PlayStation and then they got to come over to my house and play Playstation in my living room.


Like this is my PlayStation moment.

So your Super Bowl my PlayStation.

So what I want to do here is talk about what I see is the most interesting phenomena in the recovery and we have to start with inflation.

Michael CNN is saying that milk prices are going up, a thousand percent a month.


Obviously, that is nonsense.

You got people in.

Later saying that inflation isn’t even real.

That prices aren’t going up at all.

It’s all a right-wing sigh up.

That is obviously nonsense.

Please restore us to sanity here.

What is happening with inflation?

And why is it happening?


The whole messaging is very confusing good, because people say, or the FED is saying, they believe it’s transitory.

What does that even mean?

First of all, very simply transitory means not permanent.

Okay fine, but what’s not permitted?

What’s not and hopefully is the pace of inflation increases that were saying hopefully will slow down.


I don’t know when, but we’re not going to see 6% forever.

Unfortunately, what might be permanent is some of the price increases that we’ve seen, they’re not going to go necessarily back down.

Used car prices will go back down, that is totally a supply chain issue, but the sticky stuff like wages wages are never going back down.


So that’s where a lot of like the cross messaging people just I can pass each other in terms of what’s going up, its everything.

So let’s get into some of the prices that we saw in the most recent CPI report meet.

This is, these are all year over your numbers meat is up, 15% beef, and veal up 20% bacon.


We all eat bacon.

Well, not all of us.

Are you bacon up 20% chicken up 9%, eggs of 12%.

So that stuff that we see on a weekly basis when, we’re going to the grocery store.

Then you have things like Furniture, which by the way, if you’re talking about time inflation, forget about it because you’re not even getting your furniture I ordered Third bed stuff in November.


It came in May Furniture is up 12%.

Laundry equipment up, 15% used cars and trucks up 26% TVs, which had been going down for my entire lifetime or up to 10% and Sporting Goods or up 9%.

But here, let me use a ringer is mm.


I’m gonna zag here because what if Derek let me ask you this.

What if there were no supply chain disruptions.

What if Supply was actually able to meet the man would we truly have an overheating?

The answer is no.

The demand.

Recovery is outstripping the supply recovery.


Let me say that again.

In plainer, English Americans have more money than ever.

They are spending more money than ever, but businesses can’t keep up and all of this money chasing a shortage of stuff is cashing out as inflation, like, imagine your buddies.


You’ve got five roommates in New York City.

Imagine your buddies.

All get raises on the exact same day and you want to throw a party.

And you go to Bodega and you buy all the chips and dip until there’s one.

Last Ship bag and one less dip can and the owner of the bodega says I’m not going to sell this to you unless you’re willing to pay 3x what it says on the label.


So you pay it, you pay 3x.

What did you just do you paid an inflated rate for the last chip and dip for the shortage of chips?

And dip.

But that bad news that inflation is Downstream of the fact that you all got raises and Throwing a party.


So this is why I think it’s so important to say yes, inflation is real.

But also it’s a result of the fact that Americans are doing really well and trying to buy all the things.

Well, the other thing is remember, pre-pandemic.

The whole thing was, especially for Millennials.


We’re all about experiences and that stuff and guess what we all.

Remember, during the pandemic, we like to buy stuff and that’s what everyone is buying now, is more stuff.

And so you actually see in services like the service spending is way down people aren’t using as many services.

They haven’t, they’re not traveling as much as they did in the past and that’s kind of where hopefully this stuff shakes out a little bit, is that we get a little more balance and people aren’t just buying as much stuff and back logging all the stuff.


We’re open to wait for these container ships and Los Angeles where we can we can actually just have people get back to a more normalized spending level and I think some of that is going to happen because the checks aren’t coming anymore for a lot of people write like those, those checks came through the system.

People got this huge, huge inflow in cash and people’s people saw their savings rates go up and their income go up.


A pandemic, we had this nasty recession and I think as that slowly goes away and people aren’t getting the money anymore.

I think we’re going to normalize eventually.

I wish I could tell you the time frame that’s going to happen and inflation this transitory thing happens, but I think you could see I don’t know three six nine months where it remains elevated like this and people to your point Derek about being the psychological component that’s going to make a lot of people really on edge or nervous about what’s going on in the economy.


I think it’s so important to point out what feels a little bit like a paradox.

It’s that when you go to a grocery store sometimes or you go to the CVS and you see these empty shelves, it feels like and it looks like an everything shortage.

But then you look at the economic statistics and it’s saying Americans are actually consuming more stuff more durable goods than ever and it’s partly.


And so the shortages that we see on some shelves is an indication of the fact that we’re buying so much stuff in other parts of the economy that the supply chain, the the shipping containers and the trucker’s can’t keep up with all of it.

Same time.

I do want to just point out because I think this is politically so important gas prices like gasoline saw, its highest inflation.


Since the early 1990s.

I have a somewhat rollers Theory, the gas prices matter.

Not only because people need gasoline to move around but because every other price in our life is printed on like size 8 font on a receipt and then gas prices are printed in size 1 million font on the side of the road.

Like if every shell and Exxon and Piggly Wiggly in America, replace their gas science with like the price of a thing of butter fingers, like the Butterfingers inflation.


Index would Loom rather large in the American imagination, but it’s gas that we see in in size, 1 million font.

Then you were touching on the the duration of this inflation.

You know, it’s already been higher and already lasted longer than a lot of economists thought.


Paul Krugman has said he was surprised a lot of people at the Federal Reserve are clearly a little bit surprised by the level of inflation and how long it’s lasted.

Why do you think they got it wrong?

Hold on.

But bad for you answer.

We should wish for the richest Fair full disclosure been noticed that sympathizers to special adviser to Jay Powell on the down low.


I think this is a huge Grand economic experiment that we’ve never gone through before not only the pandemic but the amount of spending like if you compare now the amount of spending now, this is talking about like this isn’t like anything we’ve seen in a recession in the last 70 years.

This is like World War Two level spending and guess what?


Back then people were going away to war and they had there.

Focus and concentration on all these other things right now.

People are sitting at home.

And so they had nothing else to do but spend money and they could do it, you know, using the internet.

It it’s way easier to spend money now than it ever has been in the past.

And I think that surprise people with because for 10 years or so, after the great financial crisis, everyone said we’re pushing on a string and there’s no way to get demand back and inflation is slow and wages are slow.


And then all the sudden, the government gives a giver because their own some checks.

And guess what, when those checks come through especially for people on the lower end of the income scale.

It’s going to get Bent.

And I think it’s surprising how much.

So the Great Depression back in the day left us through this generation of people who are Frugal misers and didn’t want to spend their money.


The great pandemic has left people who are speculating and spending their money at will.

And I think they probably miss under underestimated, the the psychological component of that of what it would spring, and people that wanted to have something to do to bide their time, and that was retail therapy and speculating in.


The markets.

Yeah, let me ask you guys, this, you know, what’s, you know what?

I wear.

I haven’t noticed, supply chain disruptions.

I’m still getting my Amazon orders on a very timely basis.

What about you guys?

I’m getting it pretty timely.

I mean, what I have found in terms of supply chain has been so messed up, are our larger deliveries like right?


My wife and I just moved into a new place in Washington.

D.c., I mean, the furniture deliveries forget about it.

You’re watching TV on bean bags, and yoga, mats for the foreseeable future.

Like that stuff is just not coming.

So for me, what I’ve The everything shortage has basically been a combination of empty shelves everywhere.


The 30-minute shopping trip, just necessarily becomes a 90 minute shopping trip because you sometimes have to go to three different places to find all the shampoo and Rapid covey’s testy one and then the larger deliveries, right?

The, the electronics and, and the furniture.

But Michael, actually, I want to stick with the supply chain because you know, we touched on inflation and obviously one part of inflation is really really healthy demand.


This is in many ways a kind of booming.

Ami, but another part of it is constrictive Supply chains.

What are you watching right now?

To determine whether or not we’re seeing any easing in supply chain constrictions, like, what are the reasons why Supply chains are still messed up?



I think one of the things that people miss about inflation or argue past each other as they look at CPI, or they look at their part.

Well, they look at their personal experience, and everybody has a different lifestyle, everybody experiences inflation different.

Some people are infected big-time and others aren’t one of the things that a lot of people share in common.


Our Guest prices are grocery stores and our vehicles.

There are I think 162 million registered vehicles.

And so when people are going to renew their car lease or buy a car, they’re saying a giant sticker shock.

Holy shit.


There’s no cars.

I have to and be it’s so much money.


So my car lease is up in February.

I’m actually going to purchase my car today.

I saw the so I have a car broker because going to an auto dealership.

The ship is about the worst experience possible besides, for eating razor blades and I called him.

And I said, hey, yeah, and what do you got my car?


My wife’s car is coming.

Due in February.

What do we?

You know, how’s business been a few?

It’s this really good or really bad for you said, Michael.

I used to do 300 cars a month.

I’m doing 20.

So, if you tell me what you want.

I need like six months and maybe I can get you something.

I can’t promise a color.

So that’s what I’m looking at.


So, like I said, I am going to buy my wife’s car today.

Instead of getting a new lease at 30% higher.

I could buy the car, I might It is actually go down 20%.

So the good news is there was a there was a I didn’t read the post.

Somebody said that ship shortages.

I forget who put this at Morgan Stanley said that Malaysian Fabs are back to 100% The auto-ship shortage is now in the rearview mirror.




I mean, I just saw JP M JP Morgan note.

That basically said look we think that semiconductor production is going to come back.

Shipping costs from Asia that went totally Bonkers.

This summer are finally dropping one of the big problems that we have the supply When was that, the delta waves were sweeping through Malaysia and Vietnam.


Just As Americans were demanding more stuff that had to pass through Malaysia and Vietnam.

Those delta waves at least in terms of deaths have piqued.

There’s some improvements were seeing at the Los Angeles and Long Beach ports.

Then what are you paying close attention to right?

Now when it comes to the supply chain mess.


So I think I wish I had like a signal, like I’m counting the ships in the harbor.

Right there, waiting people.

People keep posting the pictures of that.

I actually think it gets back to just demand.

I think that’s a bigger shock than anything.

So, The retail sales numbers just came out this morning before we taped and those numbers are 20% higher than pre-pandemic levels year over year is up. 15% the pre-pandemic highest year-over-year increase ever since they have this data going back to 1990 with 10% in 1999.


So we’re seeing this demand shock, unlike any other, and I think what’s going to help?

The supply shock is going to be demand, eventually going away a little bit, right?

And people just not spending as much money and I think that you’re seeing this happen.

Because so the during the pandemic, Make people had all this money and nowhere to spend it.


Nothing to do.

They couldn’t go on trips.

They couldn’t go out to eat with her friends.

They couldn’t do any of the stuff.

They were used to, they couldn’t go to shows the savings rate in the United States.

Got up to 26% by far, the highest it’s ever been.

So people had all this money, the government was giving them money and they weren’t spending it.

So with this double whammy that allowed people to save, now?


It’s going back down its back under nine percent.

People have spent down some of that people repair their balance sheets over the last 18 months, which is great.

We’re the the US consumer is in better shape than they’ve ever been coming out of a recession.

By far not even close, but I think eventually as people spend this money down and oh wait, there’s not another another government.


Check coming in for me or my wage negotiates with my employer is stalling and not getting is higher wages.

I got a bum before I’m going to reign in my spending a little.

I think that’s the thing that’s going to help us is people normalize and obviously corporations are going to invest in.


I think Automation in this stuff is coming, right.

That’s going to.

I think corporations aren’t just going to sit there and let this happen.

You talk about Amazon giving the packages on time.

Some of these bigger places are going to figure it out.


Don’t think they’re just going to sit on their hands and allow this to happen.


I forget somebody you were talking on Twitter.

Somebody about all that we see from the media is is the bad, news is the inflation and we don’t see the repair balance sheets.


And the fact that consumers never been in a stronger position.

And this is the business model.

Not that, they’re intentionally guess lighting us, but if it bleeds it leads, we know that.

And so, for example, that CNN clip the other day about 12 gallons of milk, like that sort of stuff is what people want.

That’s what we want.

That’s what consumers want.

We want to be pissed off.


So, they’re just giving us what we On.

But we’re only seen that side of the story and not enough.

Attention being paid to how well the consumer is really doing.


I think it’s important to point out on the one hand, that inflation is real and it’s serious and people get pissed.

If they see that the price of gas is going up fifty percent in one year which it has which is the highest rate in 30 35 years at the same time.


This is not stagflation.

This is not the 1970s.

This is Boom flashin.

This is a combination of fast growth.

‘The and inflation.

Like you said been retail sales, 20% above pre-pandemic levels restaurants, which I thought were going to totally go in the crapper.

I thought they were suffering an extinction-level event.


There are above pre-pandemic levels in terms of the amount.

They were spending on restaurants.

So there is a lot going well right now, but at the same time, things are just weird because we are spending a lot of money on Goods.

Drawing on has been, you pointed out all of these checks that we got expanded unemployment benefits.


Lots of savings during Pandemic, we’ve got a lot of cash and we can’t necessarily spend it on Leisure and travel the same way we used to because there’s still some border closings.

They’re still a little bit of covid.

No Vin it nervousness.

So where else you going to spend it?

You’re going to spend it on Goods, but what’s, the problem?


We’re demanding more Goods than Supply chains can actually provide.

And as a result, it appears on our CVS shelves, on our wall, green shelves, at the car market.

It appears as a shortage like that sort of my grand picture synthesis of everything that’s happening.

So, if people are frustrated, With the economy, I get it.


If people are pointing at the statistics and saying it’s a kaboom economy.

I also get it.

It’s just a really strange combination of good shortages and extraordinary demand at the same time.

But go ahead.

Eric, you mentioned you mentioned, you mentioned, you mentioned stagflation and that’s definitely been in the headlines.


If you look at the misery index, which is year-over-year CPI.

Plus unemployment.

We are nowhere near so.

Stagflation was a weird phenomenon that happened in the 1970s.

We That end, the misery index is nowhere near what it was in the 1970s.

Not even close unemployment is low.


Yeah, I agree.

We and stagflation.

I should probably in plain English style tease apart, that, that, that word stagflation was this was stagnation plus.

Inflation is was this idea the 1970s were growing really slowly.

But at the same time we also had this really high inflation which was fairly unique as you’re saying.


It’s basically, it’s like it’s a diverse man.

It’s a nightmare scenario.

And it’s not what we see.


Now, what we see right now is that we’re growing pretty quickly.

Quickly, we also have inflation.

We also have really low unemployment.

I want to move on the unemployment Parks.

I think this is really, really critical.

There is a labor shortage.


There is at least some enormous number as high as six or seven million number of workers.

That seem to be missing from the labor force.

Then what do you think is going on there?

Well, there’s a ton of different things.

First of all, the the fed put out a report a couple weeks ago, saying, if you look at the trend of people retiring pre-pandemic to now, There are one and a half million, more people who retired early than would have if the trend would have continued as they think based on demographics, see that a ton of that and I think part of it is people have their net worth of the highest level.


It’s ever been.

They feel pretty good about themselves.

I think you could probably see some of those people come back and deliver first, at some point, as I said, if they spend on their savings and they realize wait, I have 20 30, maybe 40 years ahead of me for retirement.

I do think there’s a big thing with childcare.

That is not easy right now.

Daycares are having a hard time finding people with a labor shortage personally.


We my wife, we have three young children, aged 7 and under, and we were having these quarantines happen because of a case in a school and having to take a week off, and then a week on and then covid hits, and you have all this stuff happened.

My wife actually stopped working during the pandemic because it was so hard for to take care of our kids in all this, right and home school and all this stuff.


I’m sure there’s tons of that going around.

We have not nearly as many immigrants coming to this country.

Frankly, right?

Remember a few years ago.

The story was immigrants are coming to take all the jobs from us, right?

Like now we need more immigrants to come in and take some of those jobs that people don’t want to do.


It seems right and then of course you have health issues and people who just frankly, died from covid.

So there’s there’s all these different things going on.

I do think getting back to the supply stuff as people figure out their money might not last them as long as they got as the as it did for this last 18 months or so.


I think this labor shortage eventually sorts itself out, but on the positive side of things workers have never had more of an upper hand.

And I don’t know in the last four decades, then they have now over their employer where they can actually find a place that has maybe better benefits higher pay a better, you know, work-life balance, all these things.


I’ll job.

They don’t hate.

I think you had this really big reassessment of people thinking wait, is that really a job?

I want to do and put myself, you know, put my health on the line and have this job that I hate and I’m not being paid or not being treated well, so I think there’s been a reassessment to and people have taken less your nap to think.



Is this a job?

I really want and can I maybe make more money elsewhere?

Then you’re talking about the fact that workers are clearly enjoying a kind of advantage in the economy right now that they didn’t necessarily have in the 2010s and we see the showing up at the quits numbers in April, the number of Americans that quit their job broke the all-time record in July, it broke that record in August, it rewrote the record and then in September, it broke the record again.


So this is the great resignation that people talk about and in some Warners, I see the great resignation being interpreted as a negative economic indicator.

I can see certainly how if you’re a hiring manager.

It’s going to be frustrating.

If a lot of people are quitting on you all the time, at the same time, Michael quitting, while it gets a bad reputation in life.


Sometimes is in a labor force, an indication of optimism on the perspective of workers.

It says, I’m leaving this job because there’s another job that I can move to.

So, I mean, how do you See the Great Recession.

What do you see is the is the meaning of the Great Recession to the larger economy.


There was a lot to unpack here because it’s not black or white.

It’s good for some people.

It’s bad for others.


Some of the powder, some of the powers being transferred from to lower, wage employees and corporations.

And what I mean by that is it’s great that young people and lower people can demand a living wage.


It’s phenomenal.

It’s horrible for small medium sized businesses for locally owned businesses.

And It’s good ish for Amazon and giant corporations.

That can absorb these what these wage increases no problem.

So, it’s not good.

It’s not bad.

It depends who you’re asking.

So, what’s really interesting is you, is if you look at the wage growth tracker by age, you’ll see this playing out.


So 16 to 24 year-olds.

So a 10 percent wage increase over the last 12 months by far, the highest of any cohort.

And if you look at 55 plus, which is where a lot of the middle classes, they are in the lowest wrong, and so it’s interesting.

That I feel like the middle class is in many ways be left behind the Atlanta fed fed has a wage growth tracker where they showed Louis turn and quartile versus the highest-earning quartile.


And those are going the opposite direction in ways that you wouldn’t expect finally people on the lower rung are getting taken care of, which is a beautiful thing to see.

But it’s coming at the expense of people that can’t necessarily afford to pay their wages.

So it’s not good.

It’s not bad.

There’s there’s a lot of different cross currents here.


Yeah, the economy is hundreds of millions of people.

So it’s it’s you know, if low-income people are getting a higher wage than those who employ lower-income, people are going to struggle if they are quitting at higher rates and demanding higher wages, which I think they should.

But I also understand that that stuff for especially these small companies.


I saw an amazing statistic.

It was a graph.

I think online that broke down the quits rate that people leaving their jobs by the size of the companies.

They were leaving.

Write the number of employees that deck those companies had And basically Michael, it goes to exactly, you are point.


It is small and medium-sized companies that are losing workers and they’re moving to bigger companies.

You’re like, why would they do that?

Is because of, you know, predatory big business.

Well, we had this idea in America.

Sometimes that big is bad and small is good, that big companies are bad, small companies are good.


But if you look at where wages are higher, if you look at where compensation including health care and retirement benefits are better.

It’s often big companies that have the resources to pay those higher wages that higher compensation.

And so when you have something like say a great resignation revolution in America that the the flow of that resignation is moving from small companies that are struggling to keep employees to the larger companies, the Amazons and and their ilk.


Then I want to ask because I wrote this piece of the Atlantic about the great resignation and it’s acceleration where I said, you know, we’re seeing a couple other great ours as well.

There’s the great rudeness.

A lot of customers, especially on airlines, you’re being absolute dicks, to attendance.


I think the the incidence rate in American in All American Airlines, broke the annual record in June.

So, which means that the pace of rudeness is twice as high.

This year is in a year on record.

There’s also the great reset as you talked about in your own family.


A lot of people are saying, you know, I’ve taken the last few years to replace the The role of work in my life and in my identity, do you think that’s a part of it?

Or am I sort of reaching a little bit too far into psychology to explain what we’re seeing in the economy.


Well, I think psychology is a big part of it, because a lot of it could also be like a confidence thing, right?

Remember after the Great Recession in 2008.

Everyone said you should just be happy to have a job and I’m not going to look for a job.

Not in this economy.


How am I supposed to fight?

And now, people, it’s a confidence thing.


So I think, yeah, it’s a lot of those factors, but I think if you’re looking at it from Spin it positive or negatively.

I’m a glass-half-full kind of guy.

I think this is great for the economy because people are saying either a, my finances are good enough to quit my job and I can handle it.

You know, we can handle with one wage earner in the family or be.


There’s a job that’s better out there for me that either I’m not getting, you know, having this awful customer service, you know, you go to these fast-food restaurants, right?

And in the Drive-Thru, my kids love to go to McDonald’s or I’m a terrible parent.

And you see the signs that say, please be patient with us.

We don’t Have enough people like stop yelling at us that sort of thing.


Like, it’s sad that you have to see that stuff.

But that makes understand why.

Sometimes people say, well, take this job and shove it.

Then I’m not going to have people yell out mean, berate me when I’m trying to do my best.

So from that perspective again, I think these huge corporations that have the means Amazon a McDonald’s in these ones.


You talked about, eventually, they’re not, they’re not good.

It’s going to keep raising wages and pay people thirty dollars an hour.

They’re going to say alright, we’re reinvesting back in this business in the future.

You’re ordering from a touch screen that you can touch.

In the Drive-Thru ordering from your phone and you’re not going to talk to anyone.

And so I think that’s another place that that’s something that else is coming out of this, right?


We’re going to have more automation.

People been worried about automation taking our jobs for years.


We need that to happen in some cases, right?

We need self driving trucks to take all these car goes for us bed and I almost wrote a book.

A few years ago.

We really caught the working title was out of the ashes and we were going to write about all of the companies that were born in the depths of recessions.


And I think this is going to be a special time where the Innovation that we see in the The next way of a trillion dollar companies I think are going to be born in 2001, a from all the people leaving their and there’s also people that are leaving, Google that are leaving the really high-paying jobs and say, you know what?

I’m done.

I’ve been waiting for for an opening and here’s the door and I’m heading for the exits.


Yeah, I wrote this article four years ago called America’s losing its Mojo, where I said, you know you, if you look at the trends in entrepreneurship and Trends in migration America just doesn’t have nearly the dynamism that Used to we’re moving so much less than we used to.


We’re starting companies so much less than we used to it.

There’s like something fundamentally broken in the US economy.

And now all of that has changed.

People are moving more than they did three years ago, and they’re starting companies at near-record Paces.

Like the business formation rate is really impressive.


So I totally agree.

I think it’s really exciting that in the churn that you’re seeing, which yes is causing lots of pain for some Oil.

That churn is inherently good to the overall economy.

It means more people are rethinking work and life rethinking how businesses and system should work starting companies.


And maybe that one person, three person company grows into the next big thing in the late 2020s and 2030s.

I want to pick up on the labor shortage and ask about the political Dimension here.

What should you buy didn’t do?


This guy is getting creamed in his approval rating and I there’s all sorts of reasons why, you know, people are shocked by Delta.

He promised normalcy and 2021 has been anything but normal, but I think you’re a fool.

If you think that the state of the economy and the state of inflation has nothing to do with, with Biden’s, low approval rating.


What can or should he do?


My thinking is that inflation is very psychological.

You talk about the gas prices being up in big letters in the million font.

I think that they’ve dropped the ball in the messaging here big time because they’re letting the news handle it and every day you see on the news.


There’s a different flashin.

It’s meet flashin today and conflation.

You see this on the news, right?

My wife watches the Today show every day and I see a new inflation story and I think they haven’t gotten ahead of the message on this to say.

All right, listen folks.

We’re going to have maybe six months of higher prices from this because we had to give all this money to Stave off of depression.


You can’t go through the counterfactual and understand what would have happened if we didn’t do this and unemployment state at 20% and people out of jobs and your stock portfolio was at an all-time high in your house, didn’t go up 20%, So just bear with us, but I think what they also need to say is even if it’s just Optics.


Listen, we’re going to do everything we can.

In our power to make these supply shortages like run smooth until Christmas.

So we’re going to send the National Guard out, and we’re going to help unload those container ships and draft.

Some trucks.

We’re going all the tariffs that the previous administration put on.

We’re going to put a six-month moratorium on them.


So we’re going to do everything in our some of the gas reserves.

Going to let go whatever everything in our power to like let these, these shortages help them a little bit.

He’s them because we don’t want to stop the boom.

Because the last time after the 2008 crash, the problem was there was no demand and we had to slow and plodding recovery.


So they want I, what I would like them to say is listen.

Ian, we’ve got the demand for a booming economy.

We could have the Roaring Twenties here.

If we can just get through this transitional phase and let this stuff work itself out, we’re going to do we can like you’re going to have the greatest economic boom.

We’ve ever seen.

Instead, people are complaining about inflation and they want the FED to put an end to it already.


We’ve had, we had 10 years of a slow plodding recovery.

And now we that 18 months of a boom and people are go.

Whoa, wait, but we have inflation, we can’t have that, right.

So I think they need to get ahead of the message.

You can say we’re going to help out with the supply stuff as much as we can.

Some of the stuff we can’t help we can’t go make Tips for you in Malaysia, right?


We can’t handle that.

But there’s stuff we can do, and I think that they’re bats, what they’ve, they’ve dropped the ball and is that they should be telling people we’re going to help see you through this inflationary period to get either side where we can have this great economic boom, continue potentially because people want to spend money obviously, and get back to life as usual.



What should I do?

It’s easy.

It’s easy to be an armchair quarterback.

Like I kind of, really think I can run the John’s bed and David Goldman, but I don’t know if I actually could, but with this, the messaging stuff is Is so is so out of touch but and I were talking on the podcast yesterday that George Stephanopoulos was talking to one of Biden’s political, advisors or economic advisors, and he asked him about inflation and his first response was first things first, we need to get our kids vaccinated and okay fine, but that is not even close to the question that was being asked and the messaging is just to Ben’s point.


I don’t even I don’t know what they’re doing.

It’s not good.

And so I think of like the the home were sent there.

The Simpsons like meme, stop it.

He’s already dead.

They’re not they’re not they’re not fighting back right there doing it.

I’m honestly very torn here.

I can I have time for a lot of different arguments.


I’m not sure which one of them is, right.

I’ve time for Ben’s argument that this is fundamentally a Communications problem or at least.

It is a first order Communications problem, and we need to change the way.

The administration should change.

The way that it talks about inflation.

I could see the case for saying This initiation needs to just declare Victory and move on unemployment is under 5% and we just came out of the pandemic.


That should be the message going forward.

Every we have so many jobs in this country, that if you want a job, you get it.

If you want to quit your job at, you can apply for one of 10 million more that are open in this economy.

This is the best time to be a worker especially a low-income worker in the 21st century.


We did that.

That’s under our watchword is going to declare victory.

Mission accomplished, I can see that argument.

They should hardly time.

I am I think it’s really important to tell people that you feel their pain and people that are afraid of inflation and they’re afraid of the meat flashin and the pork flashin and The Gaslight.


They’re afraid of all the Flesh and Portman toes.

It’s not all Republicans siop right?

It’s not all manipulation and conspiracy.

They are afraid of inflation because they’re afraid of the 1970s because they’re afraid of the psychological aspect of inflation.


That essentially says what we are price is just going to keep Rising.

Like my wage is locked in at the next 12 months.

I don’t know what’s going to happen to gas.

The next six months, There’s real fear there.

And so I think where I come down my synthesis and what the Biden White House should say is you have to tell people that you feel their pain.


You have to declare Victory.

We’re real Victory.

Is there to be declared?

And you should also set yourself up to succeed, like give yourself a self layup.

I don’t know.

What kind of ism this is like, there’s there.

Sure is MM, which is just talking about popular stuff.

I don’t know what is in this is.


But like if you say there’s a supply chain crisis in Los Angeles.

And so, what we’re going to do is XYZ whatever said, The National Guard, invest this much in Automation and, you know, Force, the people out there to work 24/7, our ships, or have a 24/7, our Workforce on, on those ports, present a problem that’s easily solved.


So you’re focusing.

The media’s attention on something, you can actually dunk right on Absolution.

You can actually throw through the net that I think is has to be a part of this and instead.

I just don’t see Biden and the White House, having the clarity of vision to Rio.


Set the message towards something.

They can Notch a win on.

How do you feel about that?

Yeah, so Mike, what I talked about in the depths of everything and March 20, 22, April, 20, 20, and they announced all this spending and people at the time said, well, this isn’t going to be will stop a pandemic and, of course, it didn’t, but it helped stop an economic depression.


We’d said at that time.

If we get to the point where we have higher inflation, that means we won, right?

Because the opposite would have been a deflationary depression and that’s way worse than this.

But again, you can’t travel back to take that different path, not taken, right?

That road, not taken.


You can’t understand what that would have been like, if we didn’t do this.

So, I agree.

You have to take some take some victories.

When you can and say listen, the unemployment rate went from 18% to under five.

Now, we’re going to probably be at full employment by the end of the next year, your housing prices up, 20% your stock market for 1K portfolio is higher than it’s ever been all these good things.


Then you have the one bad thing over here, inflation.

Yes, that is bad.

But you have all these other things that sort of tipped us.

In the direction of, this was better than the alternative.

I agree.

They have to you have to spike the football eventually.

The danger that I see is they’re not controlling the narrative and if the narrative is such that inflation is running away from us and we need to do something to curtail it.


Raising interest rates is one of those tools and so I am worried that we are going to fold to that.

I think that the 40 billion dollar month Bond purchasing mortgage Bond purchasing was went on for too long.

And so I’m glad that they’re tapering now and they should be done by the middle of next year, but I’m worried that we’re going to raise rates too early, which might rain in Spain.


In fact, it would weigh in in speculation, which is probably a good thing.

It would potentially nuke the market.

What it wouldn’t do.

It wouldn’t help the ships in Los Angeles, on load quicker.

It wouldn’t help truck drivers get back to work.

So I don’t know what that accomplishes and by and the administration losing control of the narrative.


I think that’s where there might be some, some hit some danger in plain sight hiding.


I don’t know.

I don’t know.

Those people who aren’t familiar with monetary policy as you guys are.

So let me try to recast what you said and let me know if I’m doing a good or bad job.

A certain aspect of the inflation that we see and therefore certain Mac, a certain aspect of the economic pain that we feel comes from supply chain snarls that have nothing to do with monetary policy.


Monetary policy is Bond purchases to a certain extent, you know, quantitative easing and is control over interest rates, and yes, it’s possible that as you continue to A bond purchases.

And as you continue to raise or start to raise interest rates, you could potentially have a downstream effect on inflation.


But if inflation is fundamentally about the supply chain snarls, we maybe we should just wait, maybe they’ll just be over in five months, six months and we’ll look back at November December 20, 21 and say, why did we ask the Federal Reserve to overreact to a crisis that was fundamentally outside of their control.


It had to do with container ships in Los Angeles.

It’s and thereby sort of constrict, the economic recovery and hurt people because for six weeks, we just could not take an inflation print of 6%.

So that’s exactly right.

And since we’re on the ringer property, it just missed diagnosing the problem.


So the Giants couldn’t move the football.

And so we drafted a running back with out any other support to go along with that.

And so it is fundamentally the wrong prescription for a real problem.

But raising rates is not going to alleviate any of the pressures that we’re seeing, right?


So the whole idea of so Derek monetary policy said that the FED sets interest rates and this is why people savings accounts are paying out basically zero percent, right?

Now because the FED has the shortest term interest rate, basically set it 0 or 0.25 percent, but it was like that for seven years following the 2008 crisis and we had we got no inflation.


So I think this was actually a pretty good experiment in terms of what causes inflation.

Well, it’s not anything, the FED does with interest rates.

It is the government spending money and giving money for people to spend its actual direct money.

People always thought that the Fed was printing money and just throwing it into the stock market.


When in fact, it was much more complex than that the government on the other hand.

I was actually giving people checks and higher unemployment insurance and all the stuff that money.

Definitely went directly into the system and that can cause inflation and that can cause the supply issues.

Well, that’s what did it.


It was, it was, it was not monetary policy.

It’s not low interest rates.

We had low interest rates, and inflation.

It was the fiscal policy.

But if I could taste exaggerate this analogy, a little bit too far.

I don’t want to tear our ACL and and then like it’s no good for anyone.

We do want to take on Berkeley this.

That’s exactly right.

All right.


I have one less big picture.


What is the lesson of the 2021 economy?

Like, if the lesson of the Great Recession and the 2010s aftermath was that we should have been much more aggressive on stimulus and giving money back to people and focusing on the unemployment rate and not letting this economy languish for a full decade.


We should have did the opposite this year.

We juice demand as much as we possibly could and to a certain extent.

We are paying for it with inflation.

Ian and maybe it’s a good deal.

But what should we take from this year?

What’s going to be the lesson in 2030 of 2021?


The next time unemployment hits 20%, The first thing you should do is buy should coins, right?

That’s, that’s obvious.

I think I think it’s still too early to say what the lessons are because the story is still unfolding.

But one tangible piece of evidence that I think we have that could take us to the next time is that it’s much easier to turn back on demand that it is.


I, I don’t know if we necessarily thought that through going, you know, ahead of time.

But to me, that’s the obvious take away.

My takeaway is, there is never going to be in equilibrium.

The economy.

You’re never gonna make everyone happy.

So right now, GDP is at all-time highs stock prices, all-time highs people’s net worth in America, all-time highs.


We never had this many job openings.

The quit rate is at all-time highs new, businesses are booming.

All this stuff.

We’ve talked about wages.

Are finally rising and interest rates remain on the floor, but we have inflation and so I think any time you try to make things perfect in the economy and keep everyone happy.


It’s never going to happen.

You’re never going to make everyone happy and is no perfect equilibrium.

So you always have to plan for unintended consequences and that unintended consequence right now is people really hate inflation.

No matter what’s happening, everywhere else.

They hate seeing Rising prices at the grocery store, at the gas pump, you have to account for the fact that there’s going to be some backlash.


When there’s something that happens, that people don’t like, I think you’re right.

I think my takeaway is that I’m stealing this a bit from Neil Irwin at the New York Times.

We are very very good in United States at winning.

The last war we have reacted to the pandemic.



As we should have reacted to the Great Recession by juicing demand and making sure that we did not languish in this economy with 9%.

Unemployment, for whatever 36 months.

We have snapped right back in terms of employment.

We snapped right back.

In terms of GDP snapped right back at restaurants, spending and durable, good spending and to Michael’s point.


It’s because we’ve learned how to cut checks, just send people money and they will largely spend it.

And that’s how you essentially accelerate your way to the end of a recession.

At the same time.

I’m a little bit worried that if America is always fighting the last war and Republicans had learn from the 2021 economy that the president will always get.


Kicked in the mouth.

If inflation goes over 4%, They might learn the opposite lesson.

They might learn the lesson of austerity and say, the one thing we can’t do is that even if everything is wonderful in this economy, if there’s a teensy-weensy bit of inflation, we will get punished for it.


And so we’re going to not cut checks.

We’re gonna not accelerate the recovery.

We’re not going to hand out the checks.

That’s that’s my fear.

Well, we’ll learn the wrong lesson.

And we’ll be right back.

Unfortunately to where we started and on.


That happy note.

Thank you guys so much for joining me.

Thank you for kicking off the first economic Roundtable on this podcast.

It was just really a delight to see you.

A question that will talk to you soon.

Thanks Derek.

Plain English with Derek.

Thompson is produced by Devon.



Have a great weekend.

We will see you next week.

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