Plain English with Derek Thompson - Could Putin’s War Crash the U.S. Economy?

Episode Date: March 22, 2022

Economic crises are piling up. U.S. inflation was surging before Russia invaded Ukraine. Since the war began, commodity prices have spiked, with gas screaming toward $5 a gallon. And now China is facing a new COVID wave. What is happening, and how will it end? Jason Furman, chief economic adviser to the Obama administration and professor of economics at Harvard University, is back on the pod to answer our burning economic questions, like, “Are we headed back to the 1970s?” Host: Derek Thompson Guest: Jason Furman Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joanna, do you ever wish you could definitively prove that you have the right opinions about movies? Uh, yeah, Neil, because I do have the right opinions about movies and television, right, Dave? No, because I'm more right about those things, and I demand trial by content. Oh boy, what is trial by content? Each week, we'll take on a huge question. Each of us will bring a choice and combine with listener submissions and your votes, we will come to a decision. It's trial by content every Tuesday on Spotify, the ringer.com, wherever you're listening right now. Don't let Neil win.

Don't let Dave win. Today we're going to talk about the increasingly strange and increasingly troubled U.S. economy, which is in the danger zone right now, not simply because of one crisis or another, but because we seem to live in a world where crises simply will not stop falling out of the sky. Let's look at inflation, for starters. For about a year, U.S. spending on hard goods like furniture, electronics, cars, had been running white-hot during a period of supply chain challenges. And the result was higher prices for furniture, electronics, and cars.

Then Putin invaded Ukraine, starting a war between countries that account for more than 10% of global oil exports, more than 20% of corn exports, and more than 30% of wheat exports. The result, higher prices for oil, corn, and wheat. Then a COVID wave smashed into southern China, to which the government responded by locking down factories and businesses. The result there is very likely going to be even higher prices for everything that passes through. Southern China. Last week, February's inflation rate came in at 7.9 percent. That is the highest mark since 1982. But that was February. Before the war accelerated. Before sanctions shut down the Russian economy, before oil prices spiked, before China's COVID surge. So there's no way to sugarcoat this stuff. This is bad news. But is it 2020?

Two will really suck for drivers and meat eaters, but then we'll be okay? Bad? Or is it, we're going back to the 1970s? Bad. That's the question I had for today's returning guest, Jason Furman. Jason was the chief economic advisor to the Obama administration. He's now a professor of economics at Harvard University. In this episode, we talked about what's happening with inflation, why the war in Ukraine is sending commodity prices to the moon, what exactly is going on with gas prices? and whether the Federal Reserve can softly land this plane, bring down the highest inflation rate in 40 years without crash landing into a recession.

The answer to that question might be the economic story of the decade. I'm Derek Thompson. This is plain English. Jason Furman, welcome back to the podcast. Great to be back. Jason, before you help me answer all the naughty mysteries of inflation

and this bizarre economy, I want to start with a big picture question that might be stupid or might be the deep place we just have to start. What's so bad about inflation? So there are few things bad about high inflation and especially rising and uncertain inflation. When does people hate it? I think we should actually take that seriously. We want to run an economy that makes people satisfied with their lives, satisfied with their economy. And it's not just here and now, but it's in the past in the United States, in other countries. Whenever inflation is high, people are just unhappy about it. So we'd like to avoid that.

Second, prices move more quickly than wages. So at a time like this, you can really see workers losing ground. Yes, they're getting bigger pay raises than they were a few years ago, but prices are going up even more than they were a few years ago. And so workers can really lose ground at a time like this. Finally, I'd almost flip the question and say, why do you want to have inflation? Because a lot of the benefits of the extra inflation are that you get your unemployment rate not permanently lower, but temporarily lower, in exchange for potentially permanently higher inflation

and possibly permanently rising inflation. And so a lot of this, in some sense, is almost unnecessary and not buying us a lot over the medium and long term in terms of better employment, but is costing us in, sort of inconvenient something people hate and something that might be eroding people's wages. So my goal for the rest of the episode is to get a more complete understanding of an economy that to me is looking increasingly berserk. And because this is complicated stuff, I thought the best way to do it was to break the conversation into three chunks. Chunk number one, why inflation was elevated before the war in Ukraine. Chunk number two, why the war in Ukraine is accelerating

inflation potentially. In chunk number three, how freaked out we should be. buy it. So Jason, for starters, what are the most important reasons why inflation was up so much even before Putin invaded Ukraine? You can tell a lot of different stories. Why did the price of cars go up? Why did the price of gasoline go up? Why did the price of rent go up? But I think you're much better off looking at it just from an overall macroeconomic perspective. People had a lot more money because they got checks from the government because they saved money in 2020, because interest rates were low because the stock market went up. They went out and spent a lot of that money and the economy could make more stuff for them, but not as much more stuff as they wanted.

And the difference between that was prices going up. So in a sentence, it is demand increased an enormous amount. Supply increased some, but not enough to match demand and the different was inflation. And a few months ago, I think there were a lot of economists who talked about this the last time you were on the show who said, oh, this is mostly about X, they would say, it's mostly about, let's say, cars. But now we're in a situation where vehicle inflation is basically zero, and we still have the highest inflation rate in 40 years. So can you tell me a little bit about, you know, in disentangling all these stories, how did inflation do you think work its way from a few categories, like say it, you know, mostly about used vehicles as it was maybe six months ago? to a more broader inflation that is touching rent and food and all of these other parts of the economy. It's very common that inflation when it starts is uneven. Inflation isn't everything goes up at the same rate, and all of a sudden the rate for everything changes.

It's people get more money or choose to spend more or whatever it is, and maybe they do it in one area. Maybe they do it in a different area. Maybe as time goes on, they shift. And so it's a classic mistake to make to look really, you know, at the individual items and not to try to see whether there is a bigger story that links all of them. And, you know, that's what we saw over the last year was really that bigger story came to dominate. So, okay, let's go on to the second chunk, which is how the war in Russia is going to potentially contribute to inflation in the U.S. Jay Powell, the chairman of the Federal Reserve, commented this week that commodity prices are starting to move up, energy prices are starting to move up, that that could work its way to the U.S. economy as well.

Jason, how do you think the war in Ukraine might continue to billow up inflation in the U.S.? Well, there's two possible ways. One is in the short run, and here is where the stories are a legitimate thing to say. It is very common to see temporary increases in the prices of gasoline, temporary increases in the price of food, that temporarily increases inflation, but then it goes away and it's as if it had never happened. That's a very common thing to see in the past. That is what we may be seeing right now, and in the good scenario, that's what we are seeing right now. The worry, though, is that what we could see coming out of the Russian invasion is something more persistent. There's two reasons that could be more persistent. One could be just oil prices themselves say high for years and years to come as there's a global realignment. But there's another one, which is inflation has a self-fulfilling quality to it.

If you think your competitors are going to raise prices, then maybe you'll raise prices. If you think your competitors are going to lure your workers away by paying higher wages, maybe you'll pay higher wages. Inflation expectations had been anchored for decades going into the pandemic. Now they might be unanchored. And when they might be unanchored, a temporary increase in inflation may get built into people's expectations and become self-fulfilling, even if there's no extra demand or reason for that inflation going forward.

This is really interesting, and I think it's very important. So let me try to restate what you just said, and you tell me how it might be wrong. It's one thing to have a supply shock. It's one thing to have, say, a country like Russia, which I believe exports something like 10% of the world's crude oil, to have that economy briefly stop exporting that much oil. And as a result, prices for barrels of oil go up 20, 30%. But then maybe they might come back down, as Putin maybe withdraws from trying to see, or otherwise changes his policy. But what we've seen in past inflationary spirals is that the supply shock,

the macroeconomic phenomenon, becomes a psychological phenomenon. People say, oh, well, if the price of bread and the price of even wages is going up 10% every single month, I need to buy a lot of bread right now. I need to get out and get ahead of the economy, get ahead of these price increases, and start spending as much money as possible. And if everyone starts feeling that way, then you suddenly have a huge surge of demand, which increases inflation even more, and then things become a little bit more unhinged.

So it's this passing of the baton from a macroeconomic phenomenon to a psychological phenomenon. Is this a part of what you're talking about and the sort of unhinging of inflation expectations that we might theoretically see if things take sort of the worst path forward? Yes.

You got it exactly right. You told part of the story. You told the story about a consumer who's worried car prices are going to go up even more so they accelerate their car prices. It could also be the car dealer who thinks their competitors are going to raise prices, so they raise prices more. It could be the business that is selling its products for more, so it needs more workers, and so it pays them more.

So there's a lot of different ways it manifests itself. But what they all have in common is people making, decisions based on what they expect inflation to be. Now, I should say this type of story we're telling right now did not happen at all in the 25 years up to the pandemic. It did happen in the 60s and 70s. And so the question people have had is why did it happen in the 60s and 70s? One version is there were powerful labor unions and big companies then. Now, we don't have those now. And so that story isn't going to happen now. Another version is when prices change a lot, people pay more attention to prices and that perpetuates itself.

And when things calm down, people stop paying attention and some of those links get broken. I place far more weight on the second story that high inflation is going to bring back some of the wage price persistence that we used to have rather than the first story that, oh, the labor unions are gone, so we don't need to worry about it anymore. That being said, I'm not sure. But what I wouldn't do is bet a lot of money that the statistical relationships of the 25 years before the pandemic are going to still apply in a very different economic time that we're in now. Right. It's the same way that Biden's talking about a new world order in the geopolitical realm. We might be looking at something a little bit like a new world order in the economic realm. I want to do a quick pit stop on gasoline prices.

Or an old world order, exactly, the 1960s and 1970s world order. Quick pit stop on gasoline prices. specifically. So on February 23rd, the day before the invasion, the barrel price of crude was $92. That's the West Texas intermediate price, which reflects prices in Texas. WTI then soared from $92 to $120 in the next few weeks, dip back down to $95, and now it's climbing back to $110. I have a couple questions about this herky-jurkey movement in gasoline prices. First, if the U.S. doesn't rely that much on Russia for oil, why are sanctions on Russian oil driving up our gas prices? First of all, I was just thinking that two years ago, the price of West Texas intermediate was

negative, and maybe we should have brought some then and put it in our garages stored in that was for about 36 hours, right, in the middle of the pandemic, I believe. Yeah, but we blew it. Everyone didn't buy oil back when it was negative. But oil is a global price. Even if the United States didn't export or import any oil, just the possibility that when the global price goes up, you can sell it abroad, or when the global price goes down, you could buy it abroad, is going to keep the U.S. price relatively close to the global price. Now, they can differ based on refinery capacity and pipelines being filled and the like for short periods of time, but they can't get very far apart for very long.

And that shows one of the follies of thinking that you can be energy independent. even if you produce as much oil as you consume, which, by the way, we do now in the United States, you are still going to be affected by the global price of oil. And second, if the prices for oil barrels are going up and then going down and then going up again, but the prices that people are seeing at the gas station are only going in one direction, just up and up and up, why are we seeing that discrepancy between that herky-jurkey movement in the price of oil barrel? but the linear trajectory of the price of oil,

which is just rising every single time I drive down my street. Mostly it's that gasoline requires a whole refining process. There tends to be a lag between oil prices increasing and gasoline prices increasing. When West Texas Intermediate went all the way up to $120 a barrel, in some sense, gasoline was cheaper than you would have thought it would have been given the price of oil. They didn't actually build that whole price.

in. So when it came down, there wasn't as much room to go down. Now, oil prices have gone up again. So there's a lag. There's some smoothing of it. And, you know, it's possible that this inflation expectations does give you more ability to, you know, build in price increases because you know everyone else is doing them. But by and large, sort of lagged slash moving average story gets you most of the way to where gas prices are today. I say, right. So if you're going to draw a line, like two lines overlapping each other of rising barrel prices and rising gasoline prices at the pump. One line for the barrels might be sort of up and down herky jerky, but the line for gas prices that we see on the street in big font just generally follows the same trajectory, just on a lag,

and a little bit, as you said, a trailing average of that up and down movement, that sort of squiggly movement that you might see in barrel prices. And so generally, as we're seeing barrel prices go up, we should generally continue to see oil prices go up as well. Now that I feel like I kind of have a good sense of the ingredients in rising inflation before the war in Ukraine and rising inflation that might be due to the war in Ukraine, I want to talk about what exactly the Federal Reserve can do to ameliorate the situation. Yesterday's headline was that Jay Powell, the chair of the Federal Reserve, would consider more aggressive interest rate increases to reduce inflation.

There is an implicit assumption here when people read these headlines that if the Federal Reserve raises rates, inflation will go down. But I was wondering if you could do a brief econ 101 lesson here. Why is it the case that when the Fed raises interest rates, one should have an expectation that that will reduce inflation? So the cheapest and easiest way for the Fed to bring down inflation is to change inflation expectations. And if everyone was building in, that prices are going to grow at 4% a year, and they said, say, oh, wait, the Fed is going to do something about inflation. Oh, wait, that means it's going to be lower. Oh, wait, that means I won't raise my prices as much. You might have a painless,

immaculate shift to lower inflation just because people think it'll happen. I do not think that is the most likely scenario, but it is the happiest and best scenario, and it's worth trying to achieve it because it has almost no downside and a lot of upside. I want to actually stop to right there because this is really important. We've talked about the Federal Reserve and interest rates in past episodes with you and some other economists. And I do think that it's underrated the degree to which just Jay Powell speaking can have an effect on the economy. If he shocks people into thinking that he will do something that he in fact maybe never even does, like dramatically raise interest rates to, you know, bring down inflation. As you said, people sort of anticipating

that the Federal Reserve will bring the hammer down might take it upon themselves to act in a way that reduces demand and reduces an inflationary spiral. Is that basically what you're saying, that he can sort of mind-trick, like Jedi mind-trick the economy into doing what he, J. Powell, wants? Yes, that's what I'm saying. And there's a chance that could work. And if that works, that would be spectacular.

That is not what I think the most likely scenario is. But it's worth trying, because we never know. The second thing the Fed is trying to do, and they don't quite phrase it this way, is raise the cost of borrowing so that people buy less stuff. Car loan prices go up, interest rates go up, and so people buy fewer cars. That will help relieve car prices. House prices, mortgage rates go up, so people buy fewer homes. Business borrowing costs goes up, so businesses borrow less to invest in new plant and equipment. So they're basically trying to raise the cost of borrowing.

Now, I don't know that this is their goal, but when you raise interest rates, that also can tend to lower the stock market. And that makes people a little bit less wealthy. And when they're less wealthy, they spend less. All of that in sort of, this is approach B to reducing inflation. There's sort of B1 is the unemployment rate continues to fall. It just doesn't fall as quickly as it would have otherwise. And then there's B2, which is the scarier one, where you're actually. trying to raise the unemployment rate in order to bring inflation down. Right. So this is, let me offer a maybe, not maybe, certainly dramatically oversimplified model of one thing that could happen if interest rates continue to go up and up, and you tell me if this is oversimplified. So high interest rates, higher interest rates, make it

harder for companies to borrow and invest. That means that there is less investment. As investment comes down, that means that companies and consumers might spend less money. Stocks, stocks go down. People feel less wealthy. As companies and consumers spend less money, prices go down. You are mechanically reducing demand. And so that's sort of the domino effect that could happen here, is that higher interest rates means less investment, means less spending, means lower prices, or at least a lower inflation rate.

Is that one sort of simple but somewhat helpful way to think about that domino effect? That's exactly right. basically the Fed is trying to have the opposite of what happened in 2021. In 2021, people's spending outstripped how much the economy could produce. This year, they're hoping they can slow the amount of spending in the economy without really slowing how much the economy can produce. The disconnect between them would be smaller and you wouldn't have the same price increases that we had in 2021.

So I want to move to talking about just exactly how bad. this is and how freaked out people should be. The economist Larry Summers co-wrote an article that got a lot of attention on Twitter, at least on my corner of Twitter, where he pointed out that since 1955, every time we've had inflation over 4 percent and unemployment under 5 percent, we've had a recession within two years. And that is important. Those numbers are important because both of them are true today. Inflation is over 4 percent and unemployment is under 5 percent. We are in that danger zone. So putting everything together, Jason, how worried do you think we should be about a recession in the next one to two years?

I'm worried, but I am nowhere close to panicked. The unemployment rate is 3.8%. Consumer spending continues to grow strongly. There is more room for business investment to grow. and interest rates are actually still pretty low, even if they're rising. So there's a lot of things in the economy that are quite strong that have more room to grow and have momentum. There's no deaf debating, though, that it's scarier now than it was a few months ago,

and that it's scarier now than it was a few years ago. The Fed has much less room for error. They raise rates too much, and they cause a risk. recession. They fail to cut rates in response to some bad thing happening, and that leads a recession to happen. We don't know if the situation in Ukraine is going to get even worse. We don't know the consequence of COVID in China for global supply chains. So there's a lot of both global uncertainty and just internal dynamics to the U.S. economy, the likes of which we haven't seen these large movements back and forth on things like inflation in decades. So yeah, I'm more nervous than usual,

but I'm not terrified. Of all of these factors, number one, the fact that domestic demand is outstripped supply for the last few years, number two, the war between Russia and Ukraine, and number three, this new COVID surge in Shenzhen and Shanghai that is shutting down some factories and companies in China and possibly snarling supply chains even further. Of those things, one, two, three, what were. you the most in terms of its potential to tip the U.S. into a recession in the next two years? Obviously, the combination is worse than anyone individually. I'm more worried about the domestic dynamic than I am about the international. We always should be concerned about international things,

but trade is a relatively small part of the U.S. economy. Our ability to absorb higher oil prices is pretty strong because it hurts consumers, but it does help the oil industry. And so for the U.S. economy, we're more hedged than we used to be. And, you know, it's just hard for me to imagine that China is going to shut down for six months. I think most likely they're going to give up on COVID-0, let it rip. And this will be a disruption, but not an incredibly prolonged disruption. But so I think often the global things are more dramatic and more noticeable. But it's, but it's a lot of, but it's it's really the domestic dynamics that are much more important to any economy. And I think that's true now as well. And for those wondering, how do the statistics of the economy right now

compare to the situation before the last major recession? Like, what are the most important differences between the U.S. in 2022 and the U.S. in 2006, 2007, before the last major recession? But we have very high house prices now, just like we did then. but there's much less borrowing against their home prices, and there's much less supposedly safe debt backed up by those mortgages. In fact, some of the debt that's backed up by them actually is literally guaranteed by the government, so it actually is guaranteed to be safe. There's actually been a big increase in residential investment, not nearly as big as there was then, but still pretty big that if it bursts could have some impact on, for example, construction jobs and economic

growth. So some of the conditions that we saw before the financial crisis are there now, but generally they're smaller, and the financial system is in vastly better shape than it was then. Banks have a much larger pool of capital. That's sort of extra money they can use to absorb their losses. are stricter now than they were then. So all of that is on the plus side. On the minus side, we have much higher inflation than we had going into the last crisis and

much broader inflation. We did have oil price increases. And so that may reduce the feds wiggle room some. But the type of recession to worry about now is more the standard post-war recession, where in an effort to control inflation, the Fed caused a recession, rather than a financial crisis, which is prolonged and painful. Right. So compared to 2007, in 2022, the U.S. has a much stronger consumer and a much stronger financial system. But on the other hand, we have higher inflation, broader inflation, and significantly well, and similarly high gas prices, I should say.

So it's much more like the economic conditions of the 1960s, 1970s, or the 70s. What do you think are the prospects for something like stagflation, the combination of a stagnant, a slow-growing or even recessionary economy, and inflation? Because, you know, one danger that I see is that, let's say, the Federal Reserve succeeds in reducing investment and spending and prices, but spending comes down much faster than prices do. So what we have is very low growth, or even negative growth, with persistent inflation, which is the famous equation that got us stagflation in the 1970s. What do you think are the prospects for something like stagflation in the next few years? They're higher than they've been in my professional lifetime.

They're still not what I think the dominant likelihood is for the U.S. economy, but there are a completely legitimate thing to worry about. And one way to think about it is the following, and I'm just doing this in round numbers. If you look at total spending, not adjusting for inflation, I think it rose at something like 13% last year. The economy was able to produce about 5% more, and the difference between those was 8% inflation. That total spending could slow, let's say, from 13 to 9. But growth could slow from, say, 5 to 1,

and you still have an inflation rate of 8%. And so, yes, we are definitely going to have slowing spending, growth this year, but we may have slower real inflation-addressed growth, too. And that's a very, that's a real possibility. It's a scary possibility because for the Fed, it's really easy to know what to do if you have low inflation and high unemployment. It's the playbook they used in the last many recessions. It's been 45 years where you have something where one indicator is telling you to do one thing, the other indicator is telling you to do the opposite, and it's not at all obvious what to do, because there's actually no perfect answer.

One of the things that I've done in this show, and maybe it's a little bit of a simplistic exercise, but I've tried to figure out what the best analog for our various challenges has been. So, for example, right as the economy was reopening, at the end of 2021, 2021, early 2022, it seemed a little bit like we were in the post-World War II economy, like 1946, 1947. Joe Biden thought he was going to be FDR, but he ended up being sort of midterm Harry Truman, where he was dealing with an economy that had been oriented toward one purpose, then the war, now the pandemic, and it was struggling to readjust to its post-crisis environment. Yesterday, Jay Powell, in his comments, said that there were a couple times in the history of the

Fed, that the Fed has succeeded in landing the inflation plane softly. I'm not sure if that metaphor makes sense. But we kind of did it in 1984. We kind of did it in 1994. What is what is the environment in the past that you think this economy is most akin to? Like, even if we aren't reentering the certainty of stagflation, are there more similarities that you're beginning to see now between the 2022 economy and the economy of the late 1960s or the 1970s? So I used to think that the best analog for the economy was 2021. That was my view last year. Now I've updated, and my view is the late 1960s.

I actually think that's a decent analogy. And in some ways, it's a hopeful one because inflation started rising. Prices started rising before wages. So it was a bad time for workers with their real wages falling. But then there was really a fork. And the problem was that policymakers continued to increase government spending. Monetary policy continued to accommodate. They kept telling story after story about inflation is just because, you know,

we can't get any Peruvian anchovies here in the United States or, you know, whatever it is. And so it was sort of a decade's worth of mistakes following. the late 1960s that brought us to the 1970s. So I think we're at a fork. And the fact that we know history means that there is less of a chance that we're going to repeat it this time. What, if anything, do you think the Biden administration and Congress should do about this? Because you've already said, and we've already talked about the fact that one way to reduce inflation is to reduce demand. And while we've talked about the sort of domino effect that higher interest rates by the Federal Reserve can reduce prices and demand. It's also the case that

the legislature can reduce demand by raising taxes or dramatically cutting spending. I wonder what you think the macroeconomic and political outlook are for those measures, raising taxes and dramatically decreasing spending in a midterm year, just to stack the deck on the political aspect of this. I mean, the political chances of it are zero. It's more likely we get a tax cut to help people with inflation that ends up fueling inflation and undoing its benefits than that we get a tax increase to control inflation. In terms of what economists think, most economists, and I share this view, think that the Fed, the central bank, should be the primary agency that deals with inflation by raising and lowering

interest rates. We think that because the Fed meets every six weeks, it's very technocratic. As the data continues to evolve, they can make adjustments. Oh, wait, it turns out inflation is not so bad. Let's hold off on our rate increases. Oh, it's even worse than we thought. Let's raise them even faster. Congress just isn't capable of doing anything like that. I would give the Fed about another year to maybe get lucky by getting inflation expectations under control. maybe actually slow down spending more than it slows down actual real growth. So inflation comes down. But if a year from now we're in a position similar to the one we're in now, I'm going to be banging the drums and saying, you know what? Maybe the Fed can't handle this all on its own. Maybe

it's undesirable for them to handle this all on its own. Congress needs to do it. Now, another benefit of the President and Congress using fiscal policy is that you can on net raise taxes or cut spending, so you're bringing the deficit down, while doing some targeted increases, you know, increase nutritional benefits, increase housing benefits. So you can protect, let's say, you know, one-fifth of the population, even while on net, you are restraining demand and bringing inflation down. The Fed can't do anything like that. It has a very blunt tool that affects everything across the economy. So, you know, I'd give it a year. It's not even realistic to imagine Congress could pass anything this year. But if we still have this problem a year from now, I do think that government

spending and taxes are going to have to play a role. Very last question for you is about gas prices. There's been a couple creative ideas that I've seen floating around about playing around with the strategic petroleum reserve and trying to sort of guarantee producers a floor for prices in the next few years to pull oil out of our reserve in the short term while encouraging oil producers to raise production in the medium long term. Do you have any read on what you think is the right approach for the Biden administration to respond to rising gas prices, even though, as you've said, this is a price set in global markets and not something that Joe has a knob for under his desk? Yeah. So it's hard.

even if we get produced more in the United States, that could lead other countries deliberately to choose to produce less. Saudi Arabia might say, you know, we would like to keep the oil price high, and so we're going to cut our production. So there's not a lot the U.S. can do to change its production. Even if it does change its production, there's nothing we can do to stop some of the other countries around the world from moving in the opposite direction. I support the release from the Strategic Petroleum Reserve, there's a chance that it affects market psychology or actual prices. Even if it doesn't work, you're still basically selling oil today at a high price, and then eventually a couple of years from now we'll buy it back at a lower price.

So it's not really a very costly step for the government to take. There's very little downside and this upside. But mostly, I would do in some sense. The other thing, he's doing, which is explained to people very correctly, that this is the price of the confrontation with President Putin and the result of the choices that he's making. And, you know, it's not great for us, but the alternatives for the Ukraine and for the future of the world order are far worse. This is actually the very last thing that I wanted to ask you about, which is communication and the power of communication in the economy. You've already mentioned the fact that Jay Powell, while we typically consider his powers to be circumscribed to that of raising interest rates,

also has the power of his voice. He can tell people what he will do or tell people how he sees the future of the economy, and that will change expectations. The president also has a bully pulpit, and I wonder what you think Biden should say about inflation. On the one hand, you could do the sort of classic Joe Biden, I feel your pain move. I know that inflation is high.

and I'm doing what I can to fix it. And on the other hand, you have the sort of war footing message that you just alluded to right here, which is that, yes, inflation is high, but this is an acceptable burden, and in fact a morally necessary burden because we are waged in a way in a kind of geopolitical struggle,

a proxy war against a geopolitical nemesis. How would you thread that? What's the right way for the president to talk about the pain that people are feeling at the pump, at the restaurant, all across the economy, while still making the case that there are reasons for the U.S. to enforce sanctions that might cash out as higher commodity prices for the entire West. Yeah. So if I were in the White House right now, no one would be looking to me for message advice. There's a chance, though, they'd be looking

to me to try to understand what was going on so that hopefully that would be an input into their message. And my pieces of advice, and they've been roughly the same for about a year, are one, don't assume it's transitory. Don't promise people that this is ending a month or two from now, because it's a very good chance it's not. Now, I might be wrong about that. In fact, I hope I'm wrong about that, but better to under promise and over-deliver than the opposite. The second thing I'd say, is this isn't just a psychological thing. This isn't just a problem that the media has made up. This is real. Prices tend to move more quickly than wages. So over the last year, the difference between them, real wages, have fallen. They've fallen at the fastest pace in decades. So yes, we had a lot

of job growth. Yes, the unemployment rate is low. Those are really good things. But there are 150 million people that on average are making less than they were a year ago. that less is a bigger decline than they've had in their lifetimes, unless they were working in the 1970s. And so don't pretend this is not real. It's real. The third thing I'd say is that if you want to blame this all on Putin, you are 100% right when you're talking about gasoline prices.

Well, 99% right when you're talking about gasoline prices. But you're only about 10% right when you're talking about the inflation overall. So you probably need at least some nuanceing of, gas prices, that's basically Putin's fault. Everything else, it's a bit more complicated. So the gas prices are Putin prices, but the grocery store prices are largely inflation prices. It's part of the whole jambalaya of inflation ingredients that we've talked about. Yeah, that's a good way to think about it. Exactly. Jason, thank you so much. It's been a pleasure. Thank you. Planning this with Derek Thompson is produced by Devin Manzi. Thank you so much for listening to this show.

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