Plain English with Derek Thompson - This Guy Predicted the 2021 Economy. I Asked Him What's Next.

Episode Date: February 4, 2022

Jason Furman is a Harvard professor who served as a top economist for the Obama administration. More than just about anybody Derek spoke to last year, he nailed the rise in inflation. What did he see that others didn't? What's happening to inflation, the Great Resignation, labor shortages, and the Federal Reserve right now? And what will happen in 2022? Host: Derek Thompson Guest: Jason Furman Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

Head into the Ringerverse to stay up to date with all things superheroes and nerd culture entertainment. Hosted by a rotating lineup of superfans at the Ringer, including Mallory Rubin and Van Lathen, shows will provide instant reactions to blockbuster releases, insightful backstories on canon, and mind-bending theories, as well as fresh takes on the latest news and rumors. Check out the Ringerverse on Spotify or wherever you get your podcasts. 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. Smart people, we're wrong about Trump. Smart people. We're 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 cultivate sources isn't just who's smart. It's who has the quality of being right. Now, I know that sounds like a super fuzzy idea, but I think if you think about it in your own life, you'll 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 call is my best friend, Drew. I'm like, here's a blizzard of thought, and random considerations about what I should do with my life.

And then Drew's like, oh, 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. A 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, 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 Furman. Jason was a top economic advisor 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 I pressed 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. My 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 $1,400 check last year, They said, that bill is too big to not cause overheating. It's too big to not cause inflation. And then the checks were sent. And then 2021 happened. And then we got 7% inflation the highest in 40 years. This is not the first episode I've done on why I was wrong about something.

It won't be the last. The reason, though, I think these kind of confessionals are important is two 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 to this podcast? But I also think, and Jason's about to give us 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 going to ask you about all of the weirdness, all of the mysteries, all of the berserkness about the U.S. 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 Biden administration was set on passing a pandemic relief bill

that would distribute $1,400 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. Just give me the Jason Furman theory of everything.

In two minutes or so, what happened in 2021 with inflation? Yeah. 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 was on balance very good. There were 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 U.S. 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 kickstarted it, it could do more, but it couldn't do an infinite amount. And if you give every family in the country a $10,000 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 Biden stimulus plan accelerated spending, but the service economy was somewhat shut down because of the pandemic. So a lot of our spending moved toward what economists called durable goods, things like electronics and cars, stuff. But for a variety of reasons, the U.S. economy and the global economy couldn't produce enough stuff. And what happens, I suppose,

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? Yeah. 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 as 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 goods sector, we ran up against what, when I'm teaching my class, I'd call an 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 is an open question is, in a counterfactual world where everyone had taken their checks and gone to eat in a restaurant, instead of ordered something from Amazon, we would have had less goods inflation, but maybe we would have had more restaurant inflation. And so I think we probably would have had less inflation, 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 experience. 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 path. What do you see in terms of international inflation rates, the degree to which the U.S. has a higher inflation rate than similar economies? Does that strengthen the case that maybe the Biden bill, maybe that stimulus bill, was a real, you critical part of why we're seeing higher prices in the U.S.? Yeah, I've closely been following inflation in a lot of other countries around the world,

and my favorite comparison is the United States in the euro area. Similarly by COVID, similar-sized economies, our 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 price 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 describe inflation as just there was a natural imbalance or a relatively easy to foresee imbalance between demand, the amount that people were spending, and supply our economy and other economies' ability to provide cars, provide electronics. You saw 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 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. Number one, 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. In this way, I guess, it's a little bit like a pandemic. You underprepared for the sort of things for which you don't have firsthand experience. All right, so that's number one. Number two, 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. Sure, you remember this from your time in the Obama administration. So I wasn't thinking about inflation or supply-side stuff at all. I was thinking about how do we get unemployment as low as it can possibly be as fast as possible.

Third, 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 loud. But I do think that might have been like five percent of my motivated reasoning. 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. Economists like Doug Holteacon and Kevin Hassett, who are 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 did. There have been a lot of crying wool. 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, 8 or 9%, 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 in April, I started to say, you know what? Actually, it is 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 past 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 methodologies, 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 revised them, the numbers would shrink 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'd communicated with them some before, it just was so far from what I had written down. My guess is if more people had done that exercise, very few people would have written down in November that we need $2.8 trillion. which is what we got between the December legislation, the March legislation. So it's sort of a difference between deciding and 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 some ways, last year was like the revenge of the wolf, right?

The wolf that the boy had cried so many times that 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 had said, we've heard you talk about inflation being right around the corner for the last 10, 11 years. There's no way you've been wrong so many times before. How could you possibly right again? But then circumstances changed and they were right. And it goes to the point that, like, in our brief defense, it's so fascinating and strange to the degree to 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 are the opposite. Supply chain crises, high inflation, not fiscal austerity, but maybe spending too much. And so it can be hard sometimes, I think, to shift your paradigm when circumstances change 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 Englishy way possible, what is the Federal Reserve trying to accomplish by raising interest rates? First thing to understand is that interest rates right now are extraordinarily low. And so in 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 two.

I think of that as your foot off the gas. I think when you go above two, you're starting to press the brakes. 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 extraordinary 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 than we can produce. and that'll create a better match between supply and demand.

What the Fed Chair Powell is hoping for is that this actually won't hurt employment and may not even slow employment growth very much. Now, I'm not sure he's going to get that wish 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 than you otherwise would have had. I think that's a possibility. I think more likely it will do some slowing of the rate of job growth as a result of this.

So with 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 liquidity 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, 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 you see the Fed's policy sort of trickling down into the inflation rate itself? Yeah, exactly. That's the main channel, is raising 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 tell everyone in 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 go out to buy a house, the price won't be rising quite as quickly. We've 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 chain. 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 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.

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 whatever 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 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 ports are 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% more. 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 their supply got worse. that's the one the Fed can help with. They're very mindful of this. If we thought the inflation rate was 7% last year and going to be 7% again this year, their hair and my hair would be way more on fire. We'd want rates to go up really quickly. So when you're talking about these rate increases,

they're essentially at a pace that is building in the idea that part of what we're seeing is demand in 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. It's 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 of inflation in 2022, even if I don't hold you to like pure Oracle-like status here. What do you think?

is going to happen? Like, what, what is your 90, if you gave me the 90 second read of what happened 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 2022. I'll give you 2023 as well. Okay, great. And you can have me back two years from now to hold me to account. This year, 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 rise in price. The net effect of all of that is an inflation rate probably around 3 to 4 percent. It's two different ways we measure it.

One way that the Fed looks at closer to 3, the one that gets all the headlines closer to 4. But then my worry 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 2022 we may have some gluts where we produce too much and over responded. We may actually see 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.

Interesting. Yeah. I mean, I kind of think of this as 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 it, throwing logs on it. And the fire gets so, so hot that suddenly the cottage starts to overheat. You're like, oh, we've got to smother some of the fire.

But then it's freezing outside because it's winter and you're 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 certainly no one was renting cars. You had all of these car rental companies, the Hertz's and the Avis's 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 were inflation went like crazy? It went like crazy in car rentals and it went like crazy in used cars. And now you're saying our overreaction to that inflation might ironically create a glut of products in the car market that makes that industry's price level too cold. Now we're back in wintertime. And so prices will fall in the auto market. That's an interesting sort of pendulum effect there. Yeah. I mean, one thing to say, by the way, you were talking about 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 2021 taking out 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 2021 taking credit for the lower inflation you got, because rents,

wasn't growing very quickly in 2021, you can't all of a sudden in 2022 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't sort of constantly add and subtract things in new ways to get what you want. You're sort of agreed on your measure and you're going to update and see what it tells you. That's actually, 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 you. 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 models, 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. 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. So, yeah, try to sort of what did my old model say now? And then do I have a good reason to change my old model? Or I just sort of don't like the conclusion and I'm trying to squirm out of it. What to move to the labor shortage that you've mentioned and the phenomenon of the great resignation that we've 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 What does it mean that we have a labor shortage? And in what way does the great resignation play into

that picture? Yeah. So labor shortage, I think, is an apt term. The labor force participation rate is about 1.5 percentage points below where it was prior to the crisis. That's the share of typically working age adults that are working in the economy or looking for work. Yes? Exactly. So we're talking more than 2 million people that are missing that you'd think would be working now, and they're not. The other thing is that job openings 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 they're 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. There's a separate thing going on that's related, but not quite the same, which is a lot of people are quitting their jobs. The quits rate every month gets reported in the media. Now it didn't used to get much attention. It's getting a lot because it's a record. We've never seen anything like it. Most of those people quitting are going to take other jobs. So they're not really resigning. They're switching jobs. So what's going on here? I don't know exactly. It's about half men and half women. It's about one-third retirement-age people, 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 heterogeneous set of explanations.

You know, 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. I think 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 there'll be more jobs a month or two from now.

I think you can have more confidence in that today than 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, A, I have a little.

bit of savings from not going on vacations, not doing a lot of luxury spending during the pandemic. B, 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 national statistics, the highest job openings rate that we basically have on record. So it's actually kind of rational 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 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 that the Great Resignation is a large part of phenomenon of burned out college-educated white-collar workers who are just done with capitalism or whatever and saying, just going to quit. When I look at the data, I see a couple of things. Number one, 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 other leisure and hospitality sectors.

Am I reading this the right way? Is there like a very broad misunderstanding of the Great Resignation? Okay, go ahead. A hundred and it's also 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, that were turning 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 of some earlier generations. So when college-educated people on Twitter who don't look at data start to introspect, they get a lot of things wrong. I certainly do that, too, until I try to look at the data. Yeah. I want to ask a question about the media's representation of economic phenomena more broadly.

Right now, there is a raging debate about whether or not Americans are too pessimistic about the economy or whether the media's 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's really high, and inflation's kind of scary,

and it's just bizarre out there with Delta and Amacron 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. I think the media is heavily covering inflation because people really care about it. You know, 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 up. You know, I'm being pressed so much. And I feel 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 that happened lately. So I think it's always better to say, you know, sort of 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, the people are worried about. So what are people worried about? One, inflation came really quickly.

It went from two to five, two to seven, almost overnight, a 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 raise, which this year is 8%, because I want to give you more than your inflation rate. Very few people are hearing that. The other thing, and this is very speculative, I wonder if the job gains have been less of a positive than they'd 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, 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 than it normally is. Now, 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. That's such an interesting way of putting it that actually connects

a few dots for me that I hadn't quite connected earlier, which is that my conception of the great resignation was 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, that a part of it is that we have all these jobs we created in restaurants and amusement parks

and other low-paying service sector work that people just aren't as thrilled 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 sort of restraining people's enthusiasm about a low unemployment rate, which typically does cash out in popularity for the president. To what extent does, when you juxtapose your time in 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 thinks about political economy in a post-Trump age, a more polarized age, a more internet-mediated age?

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. One thing people are most upset about is gas prices. That's probably the thing that President Biden has had the least to do with. That's a global price of oil that depends on global events. I did think under President Trump, there was a little bit of an 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 if you read the coverage then, a combination of sort of bad news bias in the media, plus not wanting to say President Trump did anything good. By the way, you could argue it whether he did it or Nancy Pelosi did it and he just signed it. I mean, it's 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. You'll read the New York Times. you know, 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 news 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. Now I'm blaming the media. No, no, no, no. In a previous podcast with Jim Fallows, I called this the agency bias,

that we overscribe agency to the president in some phenomena that are purely just the cashing out of global phenomena, like gas prices. There's no button in the White House that's like reduced gas prices by 50%. You know what? I'm pissed off at Americans. I'm going to raise gas prices by 25% by clicking this button over here. The president 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 that commander-in-chief at the top of the gas-price ship to do anything about people's people being pissed off. And in fact, You know, we were saying, for 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 wave, and people just remained rather pissed off at Biden and the White House. You know, I'm sure you talk to your friends, former colleagues maybe, acquaintances in the Biden White House. Do you have advice for them about what to do in 2022? I don't give a lot of message advice. You know, since people blame like, oh, you should do this message, you should do that message. I don't think there's any message that would make people happy with 7% inflation. Conversely, if inflation comes down, it doesn't really matter that much what your message is.

Life will get easier. My argument has 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 of 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, and leave no stone unturned. And I think they're doing most of that.

There's a few stones, letting in more immigrants to work, I think would help. Lowering trade barriers, I think, would help. Neither of those are huge, but none of the other things they're doing are 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 in exactly 365 days, 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 that was probably only about 3 percent of GDP large. And it was obvious to me that that was going to overflow and the overflow would take before. of higher inflation than other people were talking about. I think this year at a aggregate level might be a little bit more normal looking than last year, but when you look down, I think we're going to see some weirdness. And some of the weirdest may be almost the exact opposite of the weirdness we saw in 2021. We could easily see goods prices falling and cars getting cheaper.

We could have news stories about supply gluts and they'll have dramatic footage of cars piled on top of cars with no one able to sell them to anyone. And then I'm quite know how you do the video footage for the service sector, but we could start to see as people return more to the service sector, prices rising more quickly there. And so I think on net, that's lower inflation 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 whose 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 interested 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 inflation is coming, buy 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. Jason, thank you so much for doing this, and we'll have you on back soon. This is great. Plain English with Derek Thompson is produced by Devin Manzi. If you like what you hear, please follow, rate, and review us. New episode drops on Tuesday.

Have a great weekend.