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One of the things I wanted to do with this podcast is to record and to publish the kind of conversations that I’ve had for years in private.
Like when you’re a journalist, you develop sources, you talk to people who know more than you do who are smarter than you, but the truth is smart is not enough.
Lots of people are smart, and lots of smart.
People are wrong all the time.
People were wrong about Trump smart.
People were wrong about covid.
Smart people, wrong about the economy.
What I am looking for as a writer, as a podcaster from the people that I cultivated sources isn’t just who’s smart.
It’s who The quality of being, right.
And I know that sounds like a super fuzzy idea, but I think, if you think about it in your own life, you know what I mean?
We all have people in our Lives who we just trust over time because their advice is solid.
Their judgment is sound.
When I have a career decision, a work conundrum.
The first person I always calm is my best friend Drew.
I’m like, here’s a blizzard of thoughts and random considerations about what I should do with my life and then just like you should do this.
With your life and I reflect on it and I’m like, I should do that with my life.
And then I do that with my life and it works out.
You might have someone like this for relationships.
You’re going through a rough patch with a girlfriend boyfriend partner spouse.
The friend was mean to you?
A colleague was disparaging and you’re like, I need to talk to someone who can sort this out for me, who can give me the right frame.
Give me the right advice and maybe just listen to me vent, but then their opinions will have the quality of just being right.
So that’s my big wind up for today’s guest.
Jason was a top economic adviser to President Barack Obama.
He’s now an economics professor at Harvard University.
Jason has never been on this podcast technically, but in a deeper sense, you have heard Jason Furman on this podcast, many, many times.
Because when I talk about the economy, when I tell you what I think is happening in the economy, a lot of times.
What I’m doing is, just telling you the things that Jason Furman just told me on the phone or the things that Jason tweeted like 30 minutes before.
Press the record button.
So last year all the smart people said, the u.s.
Wouldn’t experience inflation.
My smart friends on the left, said it.
Nice smart friends on the right.
Said it most economists.
I follow said no inflation for 2021 but a tiny handful of people.
I follow including Jason said this Biden stimulus.
Bill, you remember the one that gave you the fortune hundred dollar check last year.
He said that bill is too big to not cause overheating.
It’s too big to not cause Cause inflation and then the checks were sent and then 2021 happened and then we got seven percent inflation.
The highest in 40 years.
This is not the first episode.
I’ve done on a why I was wrong about something.
It won’t be the last, the reason though.
I think these kind of confessionals are important is to things.
I don’t want to discredit myself and communicate to you.
The idea that I’m this like fool, who’s wrong about everything.
Because, otherwise, why would you continue to listen this podcast, but I also think and Jason’s about to Is a beautiful explanation of this in just a few seconds.
It’s really important.
To be honest with ourselves about whether our model of seeing the world is accurate at all.
And the only way to do that, the only way to stress, test your model of the world is to keep stock of your track record, to remember what you nailed and learn from what you didn’t because in a funny way, the people I know who are honest about their track record.
They’re the ones who have the quality of being, right?
I’m Derek Thompson.
This is plain English.
Jason Furman, welcome to the podcast.
I’m great to be on.
So I’m gonna ask you about all of the weirdness, all of the Mysteries, all of the berserk honest about the US economy, but I want to start with inflation which just hit its highest Mark in 30 to 40 years about one year ago.
The incoming B Administration was set on passing a pandemic relief bill that would distribute 4.
Teen hundred dollar checks to American households.
I thought this was a great idea with no downsides most liberals.
I knew thought this was a great idea with no, downsides, most economists.
I was talking to said, this is a great idea with very few, downsides.
There were very few pesky holdouts.
Who said this might create some inflation.
One of those holdouts was you.
So my first question isn’t even really a question.
I just give me the Jason Furman Theory of Everything in two minutes or Or so?
What happened in 2021 with inflation?
So I think a lot of these questions are actually quantitative.
I was a big supporter of checks in 2020.
I think expanded unemployment insurance with unbalanced, very good.
There are a lot of ways in which I might want to change it, and I thought there was a role for another round of checks.
The question was just how much money fundamentally the US economy can only Produce so much in a given year, it was producing less than its potential.
A year ago.
It was clear that if we kick started it it could do more but it couldn’t do an infinite amount.
And if you give every family in the country, ten thousand dollar check and there’s not enough to make for all of that money.
The difference is going to show up in higher prices.
And so for me, it was a matter of trying to calculate how much extra the economy could produce.
How much extra money people were getting and worried that the difference between those would show up in all sorts of ways of which inflation is the most notable.
So the body stimulus, plan accelerated spending, but the service economy was somewhat shut down because of the pandemic.
So a lot of our spending moves toward what economists call durable, goods.
Things like electronics and cars stuff, but for a variety of reasons, the US economy and the global economy.
He couldn’t produce enough stuff and what happens as opposed economists would say, is if you have lots of money, chasing too, few goods, it cashes out as higher inflation.
Is that the basic overview of what’s happened in the last few years?
Or what are the other pieces of this puzzle that are important to fit together?
I think it’s an open question, whether it matters that we’ve had a shift from services to goods.
And by the way, that shift is in part because, you know, You buy an exercise bike rather than paying for a gym membership because of the pandemic.
But it’s not just that good spending was skyrocketing in April May and June even as the pandemic was receding and even a service spending was growing.
So a lot of it is when you give people a one-time check, what do they do?
They make one-time purchases with it, but regardless of the causes, it’s clear that in the good sector.
We ran up against what when I’m teaching my class I’d call.
Inelastic supply curve.
It was hard to make that many more goods.
And so the price goes up more than the quantity goes up.
What does an open question is in a counterfactual world where everyone has taken their checks and gone to eat in a restaurant?
Instead of ordered something from Amazon.
We would have had few less Goods inflation, but maybe we would have had more restaurant inflation.
And so I think we probably would have had less inflation.
Ian, were it not for this weirdness of people switching from services to Goods, but I think we probably would have gotten a decent amount of inflation.
Anyway, it just would have showed up in different parts of the economy.
So sometimes the global economy can offer a nice natural experiment, because we can say, all right in the United States, we passed this big stimulus bill at the beginning of 2021, but other economies that are kind of similar like the UK, some economies in Europe.
They didn’t do the same thing.
They followed their own.
Ask, what do you see?
In terms of international inflation rates, the degree to which the US has a higher inflation rate than similar?
Does that strengthen the case that maybe the Biden Bill maybe the this that stimulus bill was a really critical part of why we’re seeing higher prices in the u.s.
I’ve closely been following inflation and a lot of other countries around the world and my favorite comparison is the United States in the Euro area.
Only by covid similar-sized economies are inflation.
Rate is running at a two to two and a half percent annual rate faster over the last two years.
So that means prices are up about four to five percent more over that whole period of time than they are in Europe.
So yes, you see headlines about high inflation in Europe.
Inflation is high everywhere.
I think that was inevitable with all the messiness of coming out of the pandemic, especially the It’s decreases that we saw in 2020.
But inflation is not just a thing.
You have or don’t have like a disease.
It’s more like your temperature.
It could be 100.
It could be 102 Europe’s more like 100.
We’re more like 102.
So the way that you described inflation and it’s just there was a natural imbalance or a relatively easy to foresee imbalance between demand.
The amount of people were spending and Supply, our economy and other economies ability to provide cars provided.
Atronics, you saw this this natural imbalance, but a lot of other people didn’t and I want to get your theory on why so many people got inflation wrong and I thought one useful way to ask that question might, it might be to begin with a confessional why I was wrong about inflation.
And I thought about this for a bit and I came up with three answers.
I was born in 1986.
I’ve never really experienced major inflation in my lifetime.
So it didn’t seem like the sort of threat that I should pay close attention to.
I like it in this way.
It’s a little bit A pandemic you under prepare for the sort of things for which you don’t have first-hand experience.
So that’s number one.
Number two, other also, very personal my career as a journalist started in 2009. 2010.
That’s the aftermath of the Great Recession and that was a period.
When unemployment was consistently too high and consumer demand was consistently too low.
I’m sure you remember this from your time of the Obama Administration, so I wasn’t thinking about, inflation, or supply-side stuff at all.
I was thinking about About how do we get unemployment?
As low as it can possibly be as fast as possible.
And this is the thing that maybe I shouldn’t say, but I think it would be dishonest not to admit it.
A part of me was kind of rooting for Biden.
I was just really happy, he beat Trump and I think I let my emotions drag me toward a position that said, Biden won’t have an inflation problem because I would rather he not have an inflation problem and like that’s a ridiculous thing to say out loud, a shameful thing to say out.
But I do think that might have been like five percent of my motivated.
How do you feel about those explanations for the entire media and economic industry?
Overlooking this inflation event recent experience.
Number one, number two over indexing to the experience of the Great Recession.
And number three, a bit of, let’s call it team, picking for Biden.
Yeah, I think those were all a part of it early on the forecasts were a lot of people across the political Spectrum were expecting low inflation Economist like Doug holtz-eakin and Kevin acid or very plugged into the Republican side of the equation.
We’re also talking about inflation being low.
I do think though that people on the left of center side of the aisle stuck with the low inflation longer than Republicans dead, there have been a lot of crying wolf in 2009 and 10.
There were people predicting massive inflation.
I really didn’t think it would happen then in 2010 and 11 when our unemployment rate was I don’t remember eight or nine percent.
There were people talking about Labor shortages.
I wrote a memo for President Obama about how absurd it was to talk about a labor shortage in the year.
I think it was 2010 when I wrote that memo for him because he was hearing that from people it’s Hard to get around this time.
I started to say, you know, what, actually there’s a labor shortage that we’re seeing right now.
And actually, the inflation is different.
So it’s very easy to root for your team.
It’s very easy to extrapolate from press Trends.
There’s the boy who cried wolf for me.
I think what helped the most is?
I spent a lot of time in the fall trying to figure out what I thought was the right size for a fiscal stimulus and coming up with two different.
That ologies a bottom-up, what?
You need to accomplish your goals and a top-down.
What’s the total hole in the economy?
And I was coming up with numbers.
And every time I revise them, the numbers would trick because the economy kept getting better.
And so, I had almost my out-of-sample registered my own idea before.
I heard what Biden’s idea was.
And when I heard, what his idea was, I communicated with them.
Some before, it just was so far from what I had written down my I guess is have more people had done that exercise very few.
People would have written down in November that we need 2.8 trillion dollars.
Just what we got between the December legislation, the marks legislation.
So it’s sort of a difference between deciding in advance what you think before, you know what your team thinks and oh wait, your team said it, you coalesce around that.
It’s a really interesting point that in, in some ways last year was like the Revenge of the wolf, right?
The wolf that the boy, I cried so many times.
Did never materialized.
Finally did materialize.
Not just with inflation, but also with labor shortages, which we’re going to get to in a second and that a lot of people may be in my position.
This is not a reason I thought of, but I think it is relevant.
People in my position and said, we’ve, we’ve heard you talk about inflation being right around the corner for the last 10, 11 years.
There’s no way you’re, you’ve been wrong so many times before.
How could you possibly write again, but then circumstances changed and they were The right?
And it goes to the point that like in our brief defense.
It’s so fascinating and strange to the greater, which the 2020s are shaping up to be the opposite of the economic phenomena that we saw in the 2010s.
Like we had a demand-side crisis in the 2010s, not enough jobs, high unemployment not enough spending and now in many cases the problems or the opposite supply chain crises High inflation.
Not fiscal austerity, but maybe spending too much.
And, and so it’s, it’s it can be hard.
Sometimes, I think to, to shift your Paradigm when when circumstances change sediment so dramatically, I want to move on to the Federal Reserve, which is very likely to raise interest rates in March.
The first of several possible rate increases this year in the most plain English, you a possible.
What is the Federal Reserve trying to accomplish by raising interest rates?
First thing to understand is the interest rates right now are extraordinarily low.
And so, in the The gas metaphor, which is a very common one.
The pedal is all the way down.
I think of it, when interest rates the FED funds rate, the rate that they target gets to to I think of that as your foot off the gas leak, when you go above to your starting to press the brake.
So the first thing to understand is that over the course of this year.
They’re actually still going to have their pedal on the gas.
It’s just not going to be pressed down as hard as it was.
What they’re trying to do is get rid of some of the Ordinary support they had for the economy fundamentally.
They’re hoping they don’t phrase it exactly this way to make it a little bit more costly to borrow.
Whether that’s to borrow to buy a house, borrow to buy a car or a business to borrow and invest.
And those are some of the sectors of our economy, where people and businesses are, just trying to buy much more on than we can produce and that’ll create a better match between supply and demand.
What the FED, fetch your pal is hoping for is that this actually won’t hurt employment and may not even slow and ployment growth very much.
Now, I’m not sure he’s going to get that wished or not.
But the hope is that it might be that there’s just a certain number of people working and you can have all of them working with just lower prices and lower wages on than you otherwise would have had.
I think that’s a possibility, more likely, it will do some slowing of the rate of job.
Growth as a result of this.
So at the gas metaphor, basically the Federal Reserve has its foot firmly.
Planted on the accelerator.
You’re going fast fast, fast interest rates are low quantitative easing.
They’re injecting a lot of the quiddity into markets into the economy and what they’re saying now is okay.
Things are running really, really hot.
Let’s pump the brakes a little bit by raising interest rates raising the federal funds rate, but I think sometimes people misunderstand that the Federal Reserve can’t directly Ali cannot directly like give households money or take money from households.
They are raising as you said, the cost of borrowing.
So the way that we could see a higher interest rate in the economy, Cash Out is something like what higher mortgage rates, higher auto loan rates, sort of a Slowdown in the housing and auto sectors, which should maybe bring down inflation.
A little bit is is that the way that that you see the fed’s policy sort of trickling down.
Into the inflation rate itself.
That’s the main channel is racing mortgage costs, raising costs for car loans, and then also businesses.
When businesses borrow at the bank or through issuing bonds making it more expensive for them to borrow for the next Factory.
They want to build now that all sounds unpleasant, but mortgage rates are near the lowest.
They’ve been in decades car.
Loan rates are near the lowest.
They’ve been in decades.
So there’s room for all of these to go up and still be very pleasantly low and then this gets back to what we were talking about before.
It would be nice to give everyone.
Tell everyone the country you have like, free money for free housing.
We can only build so many houses.
If you do that, the price of houses is just going to go up even more.
So yes, maybe your mortgage will be a little bit more, but maybe if you’re go out to buy a house, the price won’t be rising quite as quickly.
Talked about how the reason we have inflation has to do with two sides of the coin demand and Supply.
The Federal Reserve has a little bit of control over the demand side of that equation, but it doesn’t have control over Global Supply chains.
The Federal Reserve has no ability to tell Chinese or Asian semiconductor manufacturers to speed things up, because Americans need to like buy these cars for a little bit cheaper.
So, to what extent do you have sympathy for the argument that the Federal Reserve?
Reserve, just can’t really do that.
Much about the aspect of inflation, that is coming from the snarling of Supply chains.
Yeah, so I think Supply chains are part of the story but they’ve been overrated.
There are two things.
I would distinguish.
One is you just start making fewer microchips because covid sweeps through your factory or there’s an electricity crisis, in China or Ever it is.
That’s a genuine supply chain issue.
And we have some of that there’s then a separate completely different thing, which is you want to buy in what way more of something and they just can’t make as much more as you want to buy.
That’s more of a demand problem than a supply problem.
That’s what we’re seeing with our ports.
Our airports, our processing about 20% more volume than they were two years ago.
That’s a big increase.
We just like them to process.
I don’t know 25, 30 percent more and they just Can’t do it.
They just can’t keep up with the demand.
So there’s Supply can’t keep up with demand is one of our big problems, the FED can help with that and then there’s Supply got worse.
That’s the one.
The FED can help with their very mindful of this.
If we thought the inflation rate was 7 percent last year and going to be seven percent again.
This year, their hair and my hair would be way more on fire would want rates to go up really quickly.
So when you’re talking about these rate increases their essentially at a pace that is building in the idea that part of what we’re seeing is demand and that they can solve.
And part of what we’re seeing is Supply and they’re not going to worry too much about that part.
The only way to make sense of the relatively timid reaction to a huge amount of inflation.
So past performance is no guarantee of future results, but if you Jason were about as accurate, as anyone that I spoke to about the path of inflation in 2021.
I have no one else.
I’m going to trust more about the path, inflation 2022.
Even if I don’t hold you to like, pure Oracle, like status here.
What do you think is going to happen?
What is your 90 if you gave you the 90 second read of what happened and with inflation in 2021, you got it.
Pretty much, right?
What do you see as the path forward in the next 12 months?
Well, I’m going to give you 20, 22.
I’ll give you 20 23 as well.
Okay, Gran, you can have me back two years from now to hold me to account.
Here you see a handoff from Goods inflation to Services inflation car prices level off maybe even fall.
But you see some things especially things like rent and other services which are very labor-intensive, right?
Rise in price.
The net effect of all of that is an inflation rate.
Probably around three to four percent on this two different ways.
We measure it.
One way that the FED looks at closer to 3.
Re the one that gets all the headlines closer to 4, but then my worried or is that we might have actually lower than normal inflation this year because of some freakish things going in the opposite direction.
So where we had supply chain problems in 2021, by the end of 2020 to we may have some gloves where we produce too much.
And over responded.
We may actually see, you know, some of the unusual price spikes reverse and have prices.
Falling for things like cars.
So, all of that says, just like the inflation rate last year was a little bit higher than the underlying truth this year.
It might be a little bit lower than the underlying truth.
And so it goes up a bit more in 2023.
I mean I kind of think of this as the the problem of like a cottage in winter with a fireplace, right?
Like the cottage is freezing.
So you build a huge, huge fire and you’re throwing logs on at throwing logs on it, the Fire gets so.
So hot that suddenly the car.
At the cottage starts to overheat like, oh, we got a smother, some of the fire, but then, it’s freezing outside because it’s winter and here in a cabin and so, it starts to get too cold.
It’s really, really difficult to find that perfect equilibrium when you’re coming out of a crisis like this.
So, you know, 2020.
Beginning of the pandemic, no one was buying cars, right?
And so and certainly no one was renting cars.
You had all of these car rental companies, the Hertz is and the Avis is selling off their inventory, but that created a lot of weirdness in the car rental and Used car industry.
So that when the economy ramped back up, guess we’re inflation went like crazy.
It went like crazy in car rentals and it went like crazy in used cars.
And now you’re saying Are Over reaction to that.
Inflation might ironically create a glut of products in the car market.
That makes that Industries price level too cold.
Now we’re back in wintertime and so prices will will fall in the auto market.
That’s that’s an interesting sort of pendulum effect there.
I mean one thing to say about you.
Why people get things wrong, one way, you get things wrong.
Is if you constantly change the way you do your analysis.
And so, if you spent 20 21 taking at cars and saying, inflation is lower, that’s not a crazy thing to have done in 2021.
Make sure you still do that in 2022.
Even if it gives you a worse answer to your question, conversely, if you spent 20 21 taking credit for the lower inflation, you got because rent wasn’t growing very quickly in 2021.
Can’t all of a sudden 2020 to say, actually, you know, we should pull rent out.
So, you know, for me, I tweet every month on data.
My tweets are a little bit boring.
So I just a lot of what I do is update the graph.
I had the previous month and that makes it a little bit less creative, but it also is a discipline that you can sort of constantly add and subtract things and new ways to get what you want.
You’re sort of agreed on your measure and you’re gonna update and see what it tells you this issue.
That’s a great macro lesson, I guess from the podcast just in terms of becoming a better thinker about complex ideas is make sure that your models of the world from last week.
Last month are still legible to.
Don’t forget the model of the world that you used yesterday because by updating it by consistently making it visible legible to you.
You learn what you got wrong and you can maybe be better at predicting.
What’s going to come next.
That’s exactly right and you want to update your model, but you want to remember Like I know people who said there was a lot of inflation because the economy reopened too quickly in the first half of last year.
And then several months later.
They said there’s a lot of inflation because it’s not reopening quickly enough because and it’s possible, both those statements are true.
But a lot of them didn’t even remember that.
They had said the opposite a few months earlier and didn’t quite have a good crosswalk between the two.
Try to what did it my old model say now and then, do I have a good reason to change my old mom?
Or I just sort of don’t like the conclusion and I’m trying to squirm out of it.
What a move to the labor shortage that you’ve mentioned and the phenomenon of the great resignation that we talked about a little bit on this podcast, labor shortage great resignation.
These are terms that are thrown around a lot by the press, a lot in the economic media.
I want you again to just, give me your big picture theory of what is happening with the labor force.
What does it mean that we have a labor shortage and in what way does the great resignation play into that picture?
Labor spreads I think is an apt term.
The labor force participation rate is about 1.5 percentage points below where it was precisely clear.
That’s the share of typically working age adults that are working in the economy or looking for work.
So we’re talking more than two million people that are missing that you think would be working now and they’re not that.
The other thing is that Job opening are incredibly High.
Every employer has a help wanted sign.
You can just walk down the street and see it in the data, and wages are rising very quickly.
Now not as quickly as prices, but this still Rising very quickly.
So all of those are the Hallmarks of a labor shortage.
Not a lot of people looking for work, a lot of employers looking to hire wages going up.
The there’s a separate thing going on.
It’s a related but not quite the same way.
A lot of people are quitting their jobs.
The quits rate every month gets reported in the media.
It didn’t used to get much attention.
It’s getting a lot because it’s a record.
You never seen anything like it.
Most of those people quittin are going to take other jobs.
So they’re not really resigning.
There are switching jobs.
So what’s going on here?
I don’t know exactly.
It’s about half, man and half women.
It’s about 1/3 retirement, age people.
Oh about two thirds, not retirement, age people.
These are the people that are missing from the workforce that I’m talking about.
There might be a heterogenous set of explanations for this person.
Is this for that person?
It’s that the one thing everyone has in common is they were exposed to covid in one way or another.
They may have long covid.
They may have psychological Fallout from covid.
They may be dealing with the issues that it’s created for all of us.
So I think that’s probably the main thing going on.
That will probably mostly heal itself over the next year.
But then over and above that.
It’s always the case that when you have a hot labor market, more people quit and maybe you don’t need to take a job.
The first job that comes along, if you have a little bit extra cash cushion, and if you’re confident that they’ll be more jobs and month from to from now.
I think you can have more confidence in that today.
But at almost any time in the past.
Yeah, I think you may have been the one to explain it to me like this.
It’s Easier now to not take a job and harder in many cases, especially in the service sector to take a job, especially with exposure to Delta and Omicron.
And so that just changes the decision at the margin for a lot of people who might say, well may I have a little bit of savings from not going on vacations, not doing a lot of luxury spending during the pandemic.
The maybe I have, like, a partner who’s working, see, I could jump for the first job.
But what do I see in my city?
Well, it’s exactly what you just said.
We see in the Statistics, the highest job openings rate that we basically have on record.
So it’s actually kind of rationale for someone to say.
I’m going to easily be able to get a job in two weeks.
Three weeks, four weeks.
So eventually I’m going to hop back in but I’m not pressured to do.
So the same way, I might be in a typical economy where there are no jobs out there for me and I have to desperately desperately start looking for them right now.
I want to get your reaction to what I think is a very common misconception in the media.
Which is at the great resignation, is in large part.
A phenomenon of burned-out college educated, white collar workers, who are just done with capitalism, or whatever.
And saying, I’m just going to I’m going to quit when I look at the data.
I see a couple things.
The highest quits rate is clearly in lower wage service sector jobs, like restaurants.
And number two, the highest rate of quitting.
Is among people without a college or even high school education, which suggests, this is a lot of young people, less educated people who are working in again, fast food restaurants or or other Leisure and Hospitality sectors is, am I reading this?
The right way?
I is there like a harder example on misunderstanding of the great resignation?
Okay, go ahead. 100 degrees and it’s just amazing how much people’s introspection goes wrong prior to the pandemic.
There was this notion that Millennials were in jobs for you know, the returning over constantly couldn’t stay in the same place constantly moving and the data showed the exact opposite.
People were actually more stable jobs for longer periods of time that had been true in some earlier Generations.
So when you know, college-educated people on Twitter who don’t look at data start to introspect, they got a lot of things wrong.
I certainly do that too.
Until I like, I try to look at the data.
Yeah, I want to ask a question about the media’s representation of economic phenomenon, more broadly.
There is a raging debate about whether or not Americans are too pessimistic about the economy or whether the media is negativity, is creating all of this gloominess and speaking of national statistics, and making sure that we start with evidence.
As you just suggested.
It is the case that Consumer sentiment is extremely low relative to what you would expect based on things like the unemployment rate.
At the same time.
You look around the economy and inflation is really high.
And inflation is kind of scary.
And it’s just bizarre out there with Delta and Omicron and all sorts of covid.
Weirdness to, what extent do you think Americans have a right to be as upset as they are about the economy right now.
That’s a tough one.
I think that there’s definitely things going on with covid.
There’s definitely things going on with polarization, but I don’t love the, blaming the media for everything.
The media is heavily covering inflation because people really care about it.
When I go to my daughter’s softball games over the summer.
The other parents were talking to me about inflation like James and you know about this like this, just went up that went out.
Up, you know, I’m being pressed so much and because that was almost at a time when the media was almost being a little bit dismissive of inflation and treating it as transitory in a way.
They haven’t lately.
So I think it’s always better to say, you know, so what what’s going wrong?
And listen to and believe people rather than think they’re all sheep.
If anything, it’s the media that are the Sheep following, whatever it is that people are worried about.
So what are people worried about one inflation?
Really quickly, it went from two to five to seven, almost overnight, five-point increase wages.
Haven’t gone up.
Nearly as quickly.
If you’ve been in the same job.
It’s not like your employer is saying, hey, you know, I’m going to give you your normal raised which this year is 8% because I want to give you a more than your inflation rate.
People are hearing that the other thing and this is very speculative.
I wonder if the job gains.
These have been less of a positive make normally be.
If you’re coming out of a financial crisis and you get a job.
You’re thrilled out of your mind, if you’re coming out of a period.
When unemployment insurance, was paying you more than you’re getting for your job.
Mmm, and you weren’t sure you wanted to take that job right away, and that job is unsafe because it has face-to-face sort of less of a positive job growth that normally is now, that’s that’s purely speculative.
And that To some degree says, also that popular opinion is a victim of the success normally, in a recession incomes go way down, you come out of it.
Your income goes up here, incomes went way up in 2020 and the first half of 2021 because we gave people money.
And so the job is not raising your standard of living.
In fact, it’s not even keeping your standard of living up with what it was a year ago.
So jobs may just be a less exciting thing at the current moment than they normally would be.
This is an interesting way of putting it.
That actually connects a few dots to me that I hadn’t quite connected earlier, which is that.
My conception of the great resignation which that it was literally great.
We want people quitting their jobs that tends to indicate a stronger labor market stronger, worker power, but resigning your job is an expression of both optimism and negativity.
It’s a expression of both I can switch to a job that will pay me more and I really don’t like this thing that I’m doing right now.
And it’s possible that when you connect that little puzzle piece to the fact of Lower consumer sentiment, just a little bit more of a depressed economy or depressed, people in the economy.
Then a part of that is that we have all these jobs to be created in restaurants, and amusement parks, and other low-paying service sector work.
That people just aren’t as thrilled about coming back about those jobs coming back online.
And so, maybe there’s something there about the interest about the kind of jobs that we’ve gained, that is that is sort of restraining people’s enthusiasm.
Out a low unemployment rate which typically does cash out in in popularity for the president to what extent does when you juxtapose your time and the Obama Administration and the way the Press treated Obama and the economy under Obama.
When you put that side by side with the way that the media treats Biden and this white house.
And this economy.
Do you see any major differences, any major breaks in how the media?
She thinks about political economy in a post Trump.
A jam or polarized a jam or Internet mediated Edge.
I see far more commonalities than differences.
The most important commonality is presidents.
Get way, more credit than they deserve for good things in the economy and way more blame than they deserve for bad things in the economy.
The one thing people are most upset about is gas prices.
That’s probably the thing that President Biden has had the least.
That’s a global price of oil that depends on global events.
I did think under President Trump.
There was a little bit of a inability to credit him or the government with anything.
No one really noticed in 2020 that the poverty rate was actually down because we did actually a pretty good job of protecting people that the unemployment rate was improving much faster than anyone thought.
I think I could be read the coverage then.
In combination of sort of bad news bias in the media is not wanting to say, President Trump.
Did anything good.
By the way, you can argue it, whether he did it or Nancy Pelosi did it and he just signed it.
I’m not a matter of credit here.
I think there was an inability to give that there’s been this year a little bit more of an ability will read the New York Times, isn’t it?
Amazing how much child poverty has come down, which maybe the paper would have been more reluctant to but to a first approximation on the main thing the Is doing is what it always does, which is it personalizes things that are often?
Very large and impersonal, right?
I think in a previous podcast, being the media, no, no.
In a previous podcast with Jim Fallows.
I called this, the agency bias that we that we over scribe agency to the president.
In some phenomena that are purely just the the cashing out of global phenomena like gas prices.
There’s no button in the white house that’s like reduce gas prices by 50%.
You know what I’m pissed off at Americans.
I’m gonna raise gas prices by 25%.
By clicking this button over here, the it is just at the helm of a ship that’s being cast to and fro by Hurricane winds.
He can kind of turn the rudder on something like gas prices, but there’s really minimal.
There’s minimal choices from from that from that Commander in Chief at the top of the gas price shift to do anything about people’s people being pissed off.
And in fact, you know, we were saying at toward the end of last year that gas prices were overwhelmingly responsible for the decline of Biden’s approval rating, but then gas prices went down with the Omicron waves and people.
Remained rather pissed off at Biden and the White House, you know, I’m sure you talk to your friends, former colleagues may be acquaintances and the in the Biden White House.
Some do you have advice for them about what to do in 2022?
I don’t give a lot of message, advice, you know, some people blame like, oh, you should do this message issue that message really is any message that would make people happy with seven percent inflation.
Conversely, if inflation comes down to the Early matter that much, what your message is, life will get easier.
My, my argument is just leave no stone unturned.
And at the same time, make sure it’s clear that the FED is the main agency that deals with inflation and not make predictions that are going to be embarrassingly.
Falsified, six months later.
I think the White House, six months ago, maybe nine months ago, did a bit more of inflation is about to come down and their defense Lots.
Other people were saying it including lots of nonpartisan forecasters.
They weren’t out on a limb in a different place.
But you know in retrospect probably do, they wish they said that maybe not.
So just acknowledge the uncertainty acknowledge.
This will take time acknowledge the FED has a lot to do.
I’m and leave no stone unturned and I think they’re doing most of that, this a few Stones letting in more immigrants to work.
I think would help low.
Yes, kind of barriers I think would help not.
Neither of those are huge but none of the other things they’re doing or huge either.
Jason last question for you.
If inflation was the surprisingly obvious in retrospect story of 2021.
What do you think might be the story in 2022 that not a lot of people are talking about right now, maybe even some people are saying that thing won’t happen, but that one year from now if I have you back in the podcast and exactly 365.
Is will agree.
Well, obviously if people were updating a consistent model, they would have seen that X is the obvious in retrospect story.
I’m not usually a sort of profit in the wilderness who’s wandering around thundering that?
I see something that no one else sees last year.
There was a very big thing.
The government was set to put 10 to 15 percent of GDP into an economy to try to fill a hole.
Oh, that was probably only about 3% of GDP large and it was obvious to me that that was going to overflow and the Overflow would take the form of higher inflation than other people were talking about.
Think this year at a aggregate level, might be a little bit more normal looking last year.
But when you look down, I think we’re going to see some weirdness and some of the weirdest maybe almost the exact opposite of the weirdness.
We saw in 2021 we could easily Lacey Goods, prices falling and Cars.
We could have news stories about Supply, glut sand.
They’ll have dramatic footage of cars piled on top of cars with no one able to sell them to anyone and then quite know how you do the video footage for the service sector, but we could start to see us people return more to the service sector prices rising more quickly there.
And so you got net, that’s lower.
Ation than we had last year, but it’s a different form of inflation and potentially higher than people are counting on.
If they’re just thinking about the things he’s prices are going to go down and not remembering.
There’s a whole other set of shoes to drop with prices that will rise.
Well, in the land of the blind, the one-eyed man is King.
So, as far as I’m concerned, you’re an Oracle in my world.
And the way that I’m going to distribute this message is that if I have any friends that are Just did in both going on vacation and buying a car in the next 12 months.
I’m going to say I just had this conversation with Jason Furman, take that vacation.
Now because service sector flavors coming by the car later because there’s going to be a glut and that car you might be able to get for 10% off.
If you wait the optimal number of months.
Thank you so much for doing this and we’ll have you on back soon.
This is great.
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