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

Episode Date: November 19, 2021

Our first Economic Roundtable discusses rising prices, the Great Resignation, labor shortages, the supply chain mess, Joe Biden’s puking approval numbers, and what the White House can do to turn things around.  Host: Derek Thompson Guests: Michael Batnick and Ben Carlson  Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

I want to talk about the economy today. At any given moment, there are like 1,000 things going on in the U.S. economy. The unemployment rate's doing this, and the stock market's doing that, and retail and inflation are over here doing their own thing. It is a big, messy, complicated story. But somehow, when that big, messy, complicated story is filtered through the media message-making machine, it only comes out in one of two ways. Things are good or things are bad.

So to kick off today's episode, I wanted to give myself a bit of an assignment. Describe the U.S. economy, this weird, confusing economy in one sentence that's actually true. And here's what I got. All the good news has an asterisk and all the bad news has a silver lining. What does that mean? Well, try to tell a good story about this economy, all right? Really good news. We are coming out of a pandemic and the unemployment rate is already lower than it was in 2016. That is amazing. Astrosk. One of the reasons why it looks so good is that we're actually missing seven million people from the labor force. There is a big labor shortage. Now try the other side. Bad news. Inflation. Gas prices are up. Media prices are up.

Car prices. Everything is getting more expensive. Silver lining. Yeah, but that's because the economy is kind of booming. We're literally buying more stuff than ever. All the good news has a and all the bad news has a silver lining. I'm Derek Thompson. This is plain English. Today we have Michael Batnik and Ben Carlson joining for our first ever economic roundtable on the Plain English podcast. Michael and Ben co-hosts the Wonderful Animal Spirits podcast.

Michael is the director of research for Ritholt's Wealth Management. And Ben is the director of institutional asset management. Michael, Ben, welcome to the show. Derek, we are so excited to be. here. I probably should have taken a volume before we started because this is really our Super Bowl. I don't know if you know this, but Ben bought stock in you when you were pre-IPO, when you were just a microcap company, probably in like 2013, I would say. And I got shares a little bit later post-IPA, but we've been holding for like almost a decade. So I'm a buy and hold investor.

We're so excited to be on with you. I was telling my wife that like the fun thing about just getting a podcast is that you can have people who are on podcast that you listen to come on. And it's kind of like when I was a kid. I used to go to my friend's place to play N64, but then I got a PlayStation, and then they got to come over to my house and play PlayStation in my living room. Like, this is my PlayStation moment. So you're a Super Bowl on my PlayStation. So what I wanted to do here is talk about what I see is the most interesting phenomena in the recovery. And we have to start with inflation. Michael, CNN is saying that milk prices are going up 1,000% a month. Obviously, that is nonsense. You've got people on Twitter saying that inflation isn't even real.

that prices aren't going up at all. It's all a right-wing sigh up. That is obviously nonsense. Please restore us to sanity here. What is happening with inflation? And why is it happening? The whole messaging is very confusing because people say, or the Fed is saying, they believe it's transitory. What does that even mean? First of all, very simply, transitory means not permanent. Okay, fine. But what's not permanent? What's not permanent, hopefully, is the pace of inflation increases that we're seeing, hopefully we'll slow down. I don't know when, but we're not going to see 6% forever. Unfortunately, what might be permanent is some of the price increases that we've seen. They're not going to go necessarily back down.

Used car prices will go back down. That is totally a supply chain issue. But the sticky stuff, like wages, wages are never going back down. So that's where a lot of like the cross messaging, people just talking past each other. In terms of, of what's going up. It's everything. So let's get into some of the prices that we saw in the most recent CPI report. Meat. These are all year-over-year numbers. Meat is up 15%. Beef and veal up 20%. Bacon. We all eat bacon. Well, not all of us. I eat bacon. Up 20%. Chicken up 9%. Eggs up 12%. So that's stuff that we see on a weekly basis when we're going to the grocery store. Then you have things like furniture, which by the way, if you're talking about time inflation,

forget about it because you're not even getting your furniture. I ordered bed stuff in November. It came in May. Furnitures up 12 percent. Laundry equipment up 15 percent. Use cars and trucks up 26 percent. TVs, which had been going down for my entire lifetime, or up 10 percent. And sporting goods are up 9 percent. But here, let me use a ringerism. I'm going to zag here. Because what if, Derek, let me ask you this, what if there were no supply chain disruptions? What if supply was actually able to meet demand? Would we truly have an overheating economy? The answer is no. The demand recovery is outstripping the supply recovery. Let me say that again in Planner English. Americans have more money than ever. They are spending more money than ever,

but businesses can't keep up. And all of this money, chasing a shortage of stuff, is cashing out as inflation. Like, imagine your buddies. You've got five roommates in New York City. Imagine your buddies all get raises on the exact same day and you want to throw a party and you go to the local bodega and you buy all the chips and dip until there's one last chip bag and one last dip can and the owner of the bodega says, I'm not going to sell this to you unless you're willing to pay 3x what it says in the label. So you pay it. You pay 3x. What did you just do? You paid an inflated rate for the last chip and dip for the shortage of chips and dip. But that bad news, that inflation is downstream of the fact that you all got raises and your, and your, you're,

you're throwing a party. So this is why I think it's so important to say, yes, inflation is real, but also it's a result of the fact that Americans are doing really well and trying to buy all the things. Well, the other thing is, remember pre-pandemic, the whole thing was, especially for millennials, we're all about experiences and not stuff. And guess what we all remember during the pandemic? We like to buy stuff. And that's what everyone is buying now is more stuff. And so you actually see in services, like the service spending is way down. People aren't using as many services that they're not traveling as much as they did in the past. And that's kind of where hopefully this stuff shakes out a little bit, is that we get a little more balance and people

aren't just buying as much stuff and backlogging all this stuff. We're hoping to wait for these container ships in Los Angeles, where we can actually just have people get back to a more normalized spending level. And I think some of that is going to happen because the checks aren't coming anymore for a lot of people, right? Like those checks came through the system. People got this huge, huge inflow in cash, and people saw their savings rates go up and their income going up during a pandemic when we had this nasty recession. And I think as that slowly goes away and people aren't getting the money anymore, I think we're going to normalize eventually. I wish I could tell you the time frame that's going to happen in inflation, this transitory thing happens. But I think you could

see, I don't know, three, six, nine months where it remains elevated like this. And people, to your point, Derek, about being this psychological component, that's going to make a lot of people really on edge or nervous about what's going on in the economy. I think it's so important to point out what feels a little bit like a paradox. It's that when you go to a grocery store sometimes, or you go to the CVS and you see these empty shelves, it feels like, and it looks like, and everything's shortage. But then you look at the economic statistics and it's saying Americans are actually consuming more stuff, more durable goods than ever. And it's partly, and so the shortages that we see on some shelves is an indication

of the fact that we're buying so much stuff in other parts of the economy that the supply chain, the shipping containers and the truckers can't keep up with all of it. at the same time. I do want to just point out, because I think this is politically so important, gas prices. Like, gasoline saw its highest inflation since the early 1990s. I have a somewhat trollish theory that gas prices matter, not only because people need gasoline to move around, but because every other price in our life is printed on, like, size eight font on a receipt, and then gas prices are printed in size one million font on the side of the road. Like, if every shell and Exxon and Piggly Wiggly in America replace their gas signs with, like, the price of a thing

of Butterfingers, like, the butterfingers, like, the butterfingers, inflation index would loom rather large in the American imagination, but it's gas that we see in size 1 million font. Ben, you were touching on the duration of this inflation. You know, it's already been higher and already lasted longer than a lot of economists thought. Paul Krugman said he was surprised. A lot of people at the Federal Reserve are clearly a little bit surprised by the level of inflation and how long it's lasted. Why do you think they got it wrong? Hold on, Ben, before you answer, we should further, just full disclosure,

Ben noted Fed sympathizers, a special advisor to Jay Powell. On the down, though. I think this is a huge grand economic experiment that we've never gone through before. Not only the pandemic, but the amount of spending, like, if you compare now, the amount of spending now, this is talking about, like,

this isn't like anything we've seen in any recession in the last 70 years. This is like World War II level spending. And guess what? Back then, people were going away to war, and they had their, focus and concentration on all these other things. Right now, people were sitting at home. And so they had nothing else to do but spend money and they could do it using the internet.

It's way easier to spend money now than it ever has been in the past. And I think that surprised people with, because for 10 years or so after the great financial crisis, everyone said we're pushing on a string and there's no way to get demand back. And inflation is slow and wages are slow. And then all of a sudden the government gives everyone gives everyone some checks. And guess what? when those checks come through, especially for people on the lower end of the income scale, it's going to get spent. And I think it's surprising how much... So the Great Depression back in the day left us with this generation of people who were frugal misers

and didn't want to spend their money. The great pandemic has left people who are speculating and spending their money at will. And I think they probably misunder underestimated the psychological component of that, of what it would spring in people that wanted to have. have something to do to buy their time. And that was retail therapy and speculating in the markets. Yeah. Let me ask you guys this. You know what's, you know what I, where I haven't noticed supply chain disruptions, I'm still getting my Amazon orders on a very timely basis. What about you guys? I'm getting it pretty timely. I mean, what I have found in terms of the supply chain

has been so messed up are, are larger deliveries. Like my wife and I just moved into a new place in Washington, D.C. I mean, the furniture deliveries, forget about it. You're watching TV on beanbags. and yoga mats for the foreseeable future. Like, that stuff is just not coming. So for me, what I've called the everything shortage has basically been a combination of empty shelves everywhere. The 30-minute shopping trip just necessarily becomes a 90-minute shopping trip because you sometimes have to go to three different places to find all the shampoo and rapid COVID-tests

that you want, and then the larger deliveries, right? The electronics and the furniture. But Michael, actually, I want to stick with the supply chain because, you know, we touched on inflation. And obviously, one part of inflation is really, really healthy demand. This is in many ways a kind of booming economy. But another part of it is constrictive supply chains. What are you watching right now to determine whether or not we're seeing any easing

in supply chain constrictions? Like, what are the reasons why supply chains are still messed up? Okay. I think one of the things that people miss about inflation or argue past each other is They look at CPI or they look at their, well, they look at their personal experience. And everybody has a different lifestyle. Everybody experiences inflation different. Some people are infected big time and others aren't.

One of the things that a lot of people share in common are gas prices, our grocery stores, and our vehicles. There are, I think, a 162 million registered vehicles. And so when people are going to renew their car lease or buy a car, they're seeing a giant sticker shock. Holy shit, A, there's no cars. And B, it's so much money. So my car lease is up in February. I'm actually going to purchase my car today. So I have a car broker because going to an auto dealership is about the worst experience possible besides for eating razor blades.

And I called him and I said, hey, Jan, what do you got? My wife's car is coming to in February. What do we, you know, how's business been for you? Is this really good or really bad for you? He said, Michael, I used to do 300 cars a month. I'm doing 20. So if you tell me what you want, I need like six months and maybe I can. get you something. I can't promise the color. So that's what I'm looking at. So like I said,

I am going to buy my wife's car today. Instead of getting a new lease at 30% higher, I could buy the car and my payment is actually going to go down 20%. So the good news is I didn't read the post. Somebody said that chip shortages, I forget who put this out, Morgan Stanley said that Malaysian fabs are back to 100%. The auto chip shortage is now in the rear of your mirror. We'll see. Yeah. Yeah. I mean, I just saw JPM Morgan note that basically said, look, we think that semiconductor production is going to come back. Shipping costs from Asia that went totally bonkers this summer are finally dropping. One of the big problems that we have with the supply chain was that the delta waves were sweeping through Malaysia and Vietnam,

just as Americans were demanding more stuff that had to pass through Malaysia and Vietnam. Those delta waves, at least in terms of deaths, have peaked. There are some improvements we're seeing at the Los Angeles and Long Beach ports. Ben, what are you paying closest attention to right now when it comes to the supply chain mess? So I think, I wish I had to, had like a signal, like I'm counting the ships in the harbor, right, that are waiting. People keep posting the pictures of that. I actually think it gets back to just demand. I think that's a bigger shock than anything. So the retail sales numbers just came out this morning before we taped. And those numbers are 20% higher than pre-pendemic levels. Year over year,

it's up 15%. The pre-pendemic highest year-over-year increase ever since they have this data going back to 1990 was 10% in 1999. So we're seeing this demand shock unlike any other. and I think what's going to help the supply shock is going to be demand eventually going away a little bit, right? And people just not spending as much money. And I think that you're seeing this happen because so during the pandemic, people had all this money and nowhere to spend it, nothing to do. They couldn't go on trips. They couldn't go out to eat with their friends. They couldn't do any of the stuff they were used to.

They couldn't go to shows. The savings rate in the United States got up to 26 percent by far the highest it's ever been. So people had all this money. The government was giving the money and they weren't spending it. So we had this double whammy that allowed people to save. Now it's going back down and it's back under 9%. People have spent down some of that. People repaired their balance sheets over the last 18 months, which is great.

The U.S. consumer is in better shape than they've ever been coming out of a recession. By far, not even close. But I think eventually as people spend this money down and, oh, wait, there's not another government check coming in for me. Or my wage negotiations with my employer is stalling and I'm not getting as higher wages as I got a bump before. I'm going to rein in my spending a little bit. I think that's the thing that's going to help is people normalize. And obviously, corporations are going to invest in, I think automation in this stuff is coming, right? I think corporations aren't just going to sit there and let this happen.

You talk about Amazon giving the packages on time. Some of these bigger places are going to figure it out eventually. I don't think they're just going to sit on their hands and allow this to happen. Derek, I forget somebody, you were talking on Twitter or somebody about all that we see from the media is the bad news, is the inflation. And we don't see the repaired balance sheets and the fact that the consumers, ever been in a stronger position. And this is the business model. Not that they're intentionally gaslighting us, but if it bleeds, it leads, we know that. And so, for example, that CNN clip the other day about 12 gallons of milk. Like, that sort of stuff is what people want. That's what

we want. That's what consumers want. We want to be pissed off. So they're just giving us what we want, but we're only seeing that side of the story and not enough attention being paid to how well the consumer is really doing. Yeah, I think it's important to point out. On the one hand, that inflation is real and it's serious. And people get pissed if they see that the price of gas is going up 50% in one year, which it has, which is the highest rate in 30, 35 years. At the same time, this is not stagflation. This is not the 1970s. This is boomflation. This is a combination of fast growth and inflation. Like you said, Ben, retail sales, 20% above pre-pandemic levels. Restaurants, which I thought were going to totally go in the crapper. I thought they were

suffering an extinction level event. They're above pre-pandemic levels in terms of the amount they were spending on restaurants. So there is a lot going well right now, but at the same time, things are just weird because we are spending a lot of money on goods, drawing on, as Ben, you pointed out, all of these checks that we got, expanded unemployment benefits, lots of savings during the pandemic. We've got a lot of cash, and we can't necessarily spend it on leisure and travel the same way we used to because there's still some border closings. There's still a little bit of COVID nervousness. So where else are you going to spend it? You're going to spend it on goods. But what's the problem? We're demanding more goods than the supply chains can actually provide.

And as a result, it appears on our CVS shelves, on our Walgreens shelves, at the car market, it appears as a shortage. Like that's sort of my grand picture synthesis of everything that's happening. So if people are frustrated with the economy, I get it. If people are pointing at the statistics and saying it's a kaboom economy, I also get it. It's just a really strange combination. of good shortages and extraordinary demand at the same time. Go ahead. Derek, you mentioned you mentioned stackflation, and that's definitely been in the headlines.

If you look at the Misery Index, which is year-over-year CPI plus unemployment, we are nowhere near. So Stackflation was a weird phenomenon that happened in the 1970s. We are, that the misery index is nowhere near what it was in the 1970s, not even close. Unemployment is low. Yeah, I agree.

And stagnation, I should probably, in plain English style, tease apart that word. Stagflation was this stagnation plus inflation, was this idea in the 1970s, we were growing really slowly, but at the same time, we also had this really high inflation, which was fairly unique. As you're saying, Michael. It's the nightmare scenario. It's a nightmare scenario, and it's not what we see right now. What we see right now is that we're growing pretty quickly. We also have inflation, but we also have really low unemployment.

I want to move on the unemployment part, because I think this is really, really critical. there is a labor shortage. There is at least some enormous number as high as six or seven million number of workers that seem to be missing from the labor force. Ben, what do you think is going on there? Well, there's a ton of different things. First of all, the Fed put out a report a couple weeks ago saying if you look at the trend of people retiring pre-pendemic to now, there are one and a half million more people who retired early than would have if the trend would have continued as they think based on demographics. So you've had a ton of that,

and I think part of it is people have their net worth at the highest level it's ever been. They feel pretty good about themselves. I think you could probably see some of those people come back into labor first at some point. As I said, if they spend on their savings and they realize, wait, I have 20, 30, maybe 40 years ahead of me for retirement.

I do think there's a big thing with child care that is not easy right now. Daycares are having a hard time finding people with the labor shortage. Personally, my wife, we have three young children, age seven and under, and we were having these quarantined, happened because of a case in a school and having to take a week off and then a week on and then

COVID hits and you have all this stuff happen. My wife actually stopped working during the pandemic because it was so hard for to take care of our kids and all this, right? In homeschool and all this stuff. I'm sure there's tons of that going around. We have not nearly as many immigrants coming to this country, frankly, right? Remember a few years ago? The story was immigrants are coming to take all the jobs from us, right? Like now we need more immigrants to come in and take some of those jobs that people don't want to do, it seems. And then, of course, you have health issues and people who just frankly died from COVID. So there's all these different things going on. I do think getting back to the supply stuff, as people figure out their money might not last them as long as they got,

as it did for this last 18 months or so, I think this labor shortage eventually sorts itself out. But on the positive side of things, workers have never had more of an upper hand, I don't know, in the last four decades than they have now, over. their employer where they can actually find a place that has maybe better benefits, higher pay, a better, you know, work-life balance, all these things, a job they don't hate. I think you had this really big reassessment of people thinking, wait, is that really a job I want to do and put myself, you know, put my health on the line and have this job that I hate and I'm not being paid well, I'm not being treated well. So I think there's been a reassessment

too, and people have taken the last year and I have to think through, is this a job I really want? and can I maybe make more money elsewhere? Ben, you're talking about the fact that workers are clearly enjoying a kind of advantage in the economy right now that they didn't necessarily have in the 2010s. And we see this showing up at the quits numbers. In April, the number of Americans that quit their job broke the all-time record. In July, it broke that record. In August, it re-broke the record. And then in September, it broke the record again.

So this is the great resignation that people talk about. And in some corners, I see the great resignation. being interpreted as a negative economic indicator. I can see certainly how if you're a hiring manager, it's going to be frustrating if a lot of people are quitting on you all the time. At the same time, Michael, quitting while it gets a bad reputation in life sometimes, is in a labor force an indication of optimism on the perspective of workers. It says, I'm leaving this job because there's another job that I can move to.

So, I mean, how do you see the Great Recession? What do you see as the meaning of the Great Recession to the larger economy? There is a lot to unpack here because it's not black or white. It's good for some people. It's bad for others. Clearly, some of the powers being transferred from to lower wage employees and corporations. And what I mean by that is it's great that young people and lower pay people can demand the living wage. It's phenomenal.

It's horrible for small and medium-sized businesses, for locally owned businesses. and it's good-ish for Amazon and giant corporations that can absorb these wage increases, no problem. So it's not good, it's not bad. It depends who you're asking. So what's really interesting is if you look at the wage growth tracker by age, you'll see this playing out. So 16 to 24-year-olds saw a 10% wage increase over the last 12 months, by far the highs of

any cohort. And if you look at 55 plus, which is where a lot of the middle classes, they are in the lowest run. And so it's interesting that I feel like the middle classes in many ways being left behind. The Atlanta Fed has a wage growth tracker where they showed the lowest earning quartile versus the highest earning quartile. And those are going the opposite direction in ways that you wouldn't expect. Finally, people on the lower rung are getting taken care of, which is a beautiful thing to see. But it's coming at the expense of people that can't necessarily afford to pay their wages. So it's not good. It's not bad. There's a lot of different cross currents here.

Yeah, the economy is hundreds of millions of people. So if low-income people are getting a higher wage, than those who employ lower-income people are going to struggle if they are quitting at higher rates and demanding higher wages, which I think they should. But I also understand how that's tough for especially these small companies.

I saw an amazing statistic, it was a graph, I think, online, that broke down the quits rate, the people leaving their jobs by the size of the companies they were leaving, right? the number of employees that those companies had. And basically, Michael, it goes to exactly your point. It is small and medium-sized companies that are losing workers, and they're moving to bigger

companies. You're like, why would they do that? It's because of, you know, a predatory big business? Well, we had this idea in America sometimes that big is bad and small is good, that big companies are bad and small companies are good. But if you look at where wages are higher, if you look at where compensation, including health care and retirement benefits are better, it's often big companies that have the resources to pay those higher wages than higher compensation. And so when you have something like, say,

a great resignation revolution in America, the flow of that resignation is moving from small companies that are struggling to keep employees to the larger companies, the Amazon's, and their ilk. Ben, I want to ask because I wrote this piece for the Atlantic about the great resignation and its acceleration, where I said, you know, we're seeing a couple other great R's as well. There's the great rudeness. A lot of customers, especially on airlines or being absolute dicks to attendance. I think the incidence rate in American, all American airlines broke the annual record in June, so which means that the pace of rudeness is twice as high this year as in a year on record. There's also the great reset, as you talked about in your own family. A lot of people

or saying, you know, I've taken the last few years to replace the role of work in my life and in my identity. Do you think that's a part of it, or am I sort of reaching a little bit too far into psychology to explain what we're seeing in the economy? I think psychology is a big part of it, because a lot of it could also be like a confidence thing, right? Remember after the Great Recession in 2008, everyone said, you should just be happy to have a job. And I'm not going to look for a job, not in this economy, right? How am I supposed stuff. And now people, it's a confidence thing. So I think, yeah, it's a lot of those factors. But I think if you're looking at it from like spin it positively, I'm a glasses half full kind of guy. I think this

is great for the economy because people are saying either A, my finances are good enough to quit my job and I can handle it. You know, we can handle it with one wage earn or the family. Or B, there's a job that's better out there for me that either I'm not getting, you know, having this awful customer service. You know, you go to these fast food restaurants, right? in the drive-through. My kids love to go to McDonald's, sorry, I'm a terrible parent. And you see the signs that say, please be patient with us. We don't have enough people. Like, stop yelling at us, that sort of thing. Like, it's sad that you have to see that stuff. But that makes you understand why some of these people say, well, take this job and shove it then.

I'm not going to have people yell at me and berate me when I'm trying to do my best. So from that perspective, again, I think these huge corporations that have the means, Amazon and McDonald's and these ones you talk about, eventually they're not just going to keep raising wages and pay people $30, an hour, they're going to say, all right, we're reinvesting back in this business. And in the future, you're ordering from a touchscreen that you can touch in the drive-thru or you're ordering it from your phone. You're not going to talk to anyone. And so I think that's another place that that's something that else is coming out of this, right? We're going to have more automation. People have been worried about automation taking our jobs

for years. Now we need that to happen in some cases, right? We need self-driving trucks to take all these cargoes for us. Ben and I almost wrote a book a few years ago. The working title was out of the ashes. And we were going to write about all of the companies that were born in the depths of recessions. And I think this is going to be a special time where the innovation that we see in the next wave of a trillion-dollar companies, I think are going to be born in 2020, from all the people leaving their – and there's also people that are leaving Google that are leaving their really high-paying jobs and saying, you know what, I'm done. I've been waiting for an opening, and here's the door and I'm heading for the exits.

Yeah, I wrote this article four years ago called America's Losing Its Mojo, where I see, said, you know, if you look at the trends in entrepreneurship and trends in migration, America just doesn't have nearly the dynamism that it used to. We're moving so much less than we used to. We're starting companies so much less than we used to. There's like something fundamentally broken in the U.S. economy. And now all of that has changed. People are moving more than they did three years ago, and they're starting companies at near record paces. Like the business formation rate is really impressive. I totally agree. I think it's really exciting that in the churn that you're seeing, which, yes, is

causing lots of pain for some people, that churn is inherently good to the overall economy. It means more people are rethinking work and life, rethinking how businesses and systems should work, starting companies, and maybe that one person, three person company grows into the next big thing in the late 2020s and 2030s. I want to pick up on the labor shortage and ask about the political dimension here. What should Joe Biden do? I mean, this guy is getting creamed in his approval rating. And there's all sorts of reasons why, you know, people are shocked by Delta. He promised normalcy in 2021 has been anything but normal. But I think you're a fool if you think that the state of the

economy and the state of inflation has nothing to do with Biden's low approval rating. What can or should he do here? My thinking is that inflation is very psychological. You talk about the gas prices being up in big letters and the million font. I think that they've dropped the ball in the messaging here, big time, because they're letting the news handle it. And every day you see on the news, there's a different flation. It's meatflation today and carflation. You see this on the news, right?

My wife watches the Today Show every day, and I see a new inflation story. And I think they haven't gotten ahead of the messaging on this to say, all right, listen, folks, we're going to have maybe six months of higher prices from this because we had to give all this money to save off of depression. You can't go through the counterfactual and understand what would have happened if we didn't do this. And unemployment stayed at 20%, and people out of jobs and your stock portfolio

wasn't at an all-time high in your house didn't go up 20%. So just bear with us. But I think what they also need to say is even if it's just optics, listen, we're going to do everything we can in our power to make these supply shortages, like run smooth until Christmas. So we're going to send the National Guard out, and we're going to help unload those container ships and drive some trucks. We're going all the tariffs that the previous administration put on. We're going to put a six-month moratorium on them.

So we're going to do everything in our – some of the gas reserves are going to let it go, whatever. Everything in our power to, like, let these shortages help them a little bit, ease them, because we don't want to stop the boom. Because the last time after the 2008 crash, the problem was there was no demand. And we had the slow and plotting recovery. So what I would like them to say is, listen, we've got the demand for a booming economy. We could have the roaring 20s here. If we can just get through this transitional phase and let this stuff work itself out, we're going to do what we can. Like, you're going to have the greatest economic boom we've ever seen.

Instead, people are complaining about inflation and they want the Fed to put an end to it already. We've had 10 years of a slow plotting recovery, and now we have it 18 months of a boom and people all go, whoa, wait, but we have inflation. We can't have that. Right. So I think they need to get ahead of the message and say, we're going to help out with the supply stuff as much as we can. Some of the stuff we can't help. We can't go make chips for you in Malaysia, right? We can't handle that. But there's stuff we can do. And I think that that's what they've dropped the ball on is that they should be telling people, we're going to help see you through

this inflationary period to get to either side where we can have this great economic boom continue potentially because people want to spend money, obviously, and get back to life as usual. Michael, what should you do? It's easy. Yeah, it's easy to be an armchair quarterback. Like, I kind of really think I can run the Giants Beto and David Gettleman, but I don't know if I actually could. But with this, the messaging stuff is so is so out of touch. Ben and I were talking on the podcast yesterday that George Stephanopoulos was talking to one of Biden's political advisors or economic advisors, and he asked him about inflation. And his first response was, first things first, we need to get our kids vaccinated.

And okay, fine, but that is not even close to the question that was being asked. And the messaging is just, to Ben's point, I don't even, I don't know what they're doing. It's not good. And so I think of like the Homer, the Simpsons like memes, stop, but he's already dead.

They're not, they're not fighting back. Right. I know what they're doing. I'm honestly very torn here. I can, I have time for a lot of different arguments, but I'm not sure which one of them is right. I have time for Ben's argument that this is fundamentally a communications problem, or at least it is a first order communications problem,

and we need to change the way, the administration should change the way that it talks about inflation. I could see the case for saying, this administration needs to just declare victory and move on. Unemployment is under 5% and we just came out of a pandemic. That should be the message going forward. We have so many jobs in this country that if you want a job, you get it. If you want to quit your job, you can apply for one of 10 million more that are open in this economy. This is the best time to be a worker, especially a low-income worker, 21st century, we did that. That's under our watch. We're going to declare victory and mission accomplished. I can see that argument. At the same time, I think it's really important to tell

people that you feel their pain. And people that are afraid of inflation and they're afraid of the meat flation and the porkflation and the gas flake. They're afraid of all the flation port montos. it's not all a Republican sciop, right? It's not all manipulation and conspiracy. They are afraid of inflation because they're afraid of the 1970s, because they're afraid of the psychological aspect of inflation that essentially says, wow, wait, are prices just going to keep rising? Like, my wage is locked in if the next 12 months, I don't know what's going to happen to gas the next six months. There's real fear there. And so I think where I come down, my synthesis, and what the Biden White House should say is you have to tell people that you feel their pain.

You have to declare victory where real victory is there to be declared. And you should also set yourself up to succeed. Like give yourself a self-lay-up. I don't know what kind of ism this is. Like there's shoreism, which is just talking about popular stuff. I don't know what isom this is. But like, if you say there's a supply chain crisis in Los Angeles. And so what we're going to do is X, Y, Z, whatever. Send the National Guard, invest this much in automation, and, you know, force the people out there to work 24-7-hour shifts or have a 24-7-hour workforce on those ports. Present a problem that's easily solved. So you're focusing the media's attention on something you can actually dunk, right? On a solution you can actually, you know, throw through the net.

That, I think, has to be a part of this. And instead, I just don't see Biden and the White House having the clarity of vision to reset the message towards something they can notch a win on. How do you feel about that? Yeah. So Michael and I talked about in the depths of everything in March 2020 and April 2020, and they announced all this spending. And people at the time said, well, this isn't going to be able to stop a pandemic. And of course it didn't, but it helped stop an economic depression.

We'd said at that time, if we get to the point where we have higher inflation, that means we won. right? Because the opposite would have been a deflationary depression and that's way, way worse than this. But again, you can't travel back to take that different path not taken, right? That road not taken. You can't understand what that would have been like if we didn't do this. So I agree, you have to take some victories when you can and say, listen, the unemployment rate went from 18% to under five now. We're going to probably be at full employment by the end of the next year. Your housing price is up 20%. Your stock market 401k portfolio is higher than it's ever been. all these good things, then you have the one bad thing over here, inflation. Yes, that is bad. But you have all these other things that sort of tip the scale in the direction of this was better than the alternative. I agree. They have to, you have to spike the football eventually.

The danger that I see is they are not controlling the narrative. And if the narrative is such that inflation is running away from us and we need to do something to curtail it, raising interest rates is one of those tools. And so I am worried that we are. going to fold to that. I think that the $40 billion a month bond purchasing, mortgage bond purchasing, went on for too long. And so I'm glad that they're tapering now and they should be done by the middle of next year. But I'm worried that we're going to raise rates too early, which might rain in spec. In fact, it would wait in speculation, which is probably a good thing.

It would potentially nuke the market. What it wouldn't do, it wouldn't help the ships in Los Angeles unload quicker. It wouldn't help truck drivers get back to work. So I don't know what that accomplishes. And by and the administration losing control of the narrative, I think that's where there might be some some, some danger in plain sight hiding. Yeah. I don't know, I don't lose people who aren't just familiar with monetary policy as, as you guys are. So let me try to recast what you said and let me know if I'm doing a good or bad job. A certain aspect of the inflation that we see. And therefore, a certain aspect of the economic pain that we feel comes from supply chain snarls that have nothing to do with monetary policy. Monetary policy is bond purchases

to a certain extent, quantitative easing, and its control over interest rates. And yes, it's possible that as you continue to taper bond purchases and as you continue to raise or start to raise interest rates, you could potentially have a downstream effect on inflation. But if inflation is fundamentally about those supply chain snarls, maybe we should just wait. maybe they'll just be over in five months, six months, and we'll look back at November, December, 2021, and say, why did we ask the Federal Reserve to overreact to a crisis that was fundamentally outside of their control?

It had to do with container ships in Los Angeles and thereby sort of constrict the economic recovery and hurt people because for six weeks, we just could not take an inflation print of 6%. So that's exactly right. And since we're on the ring of property, just misdiagnosing the problems. So the Giants couldn't move the football.

And so we drafted a running back without any other support to go along with that. And so it is fundamentally the wrong prescription for a real problem. But raising rates is not going to alleviate any of the pressures that we're seeing. Right. So the whole idea of so Derek monetary policy said that the Fed sets interest rates. And this is why people's savings accounts are paying out basically zero percent right now. Because the Fed has the shortest term interest rate basically set at 0 or 0.3. 25%. But it was like that for seven years following the 2008 crisis, and we got no inflation.

So I think this was actually a pretty good experiment in terms of what causes inflation. Well, it's not anything the Fed does with interest rates. It is the government spending money and giving money for people to spend. It's actual direct money. People always thought that the Fed was printing money and just throwing it into the stock market, when in fact it was much more complex than that. The government, on the other hand, was actually giving people checks and higher unemployment insurance and all the stuff. And that money definitely went directly into the system. And that can cause inflation and that can cause the supply issues. Well, that's what did it. It was it was not monetary policy. It's not low interest rates. We had low interest rates and no

inflation. It was a fiscal policy. But if I could take this exaggeration, this analogy a little bit too far. I don't want us to tear our ACL and then like it's no good for anyone. We don't want to say, Con Barkley, this. That's exactly right. All right, I have one last big picture question. What is the lesson of the 2021 economy? Like, if the lesson of the Great Recession and the 2010's aftermath was that we should have been much more aggressive on stimulus and giving money back to people and focusing on the unemployment rate

and not letting this economy languish for a full decade, we should have did the opposite this year. We juiced demand as much as we possibly could, And to a certain extent, we are paying for it with inflation. And maybe it's a good deal. But what should we take from this year? What's going to be the lesson in 2030 of 2021? The next time unemployment hits 20%.

The first thing you should do is buy shitcoins, right? That's obvious. I think it's still too early to say what the lessons are because the story is still unfolding. But one tangible piece of evidence that I think we have that can take us to the next time is that it's much easier to turn back on demand than it is supply. I don't know if we necessarily thought that through going ahead of time, but to me, that's the obvious takeaway. My takeaway is there is never going to be an equilibrium in the economy. You're never going to make everyone happy. So right now, GDP is at all-time highs. Stock prices is all-time highs. People's net worth in America,

all-time highs. We never had this many job openings. The quit rate is at all-time highs. New businesses are booming. All this stuff we've talked about. Wages are finally rising. and interest rates remain on the floor, but we have inflation. And so I think anytime you try to make things perfect in the economy and keep everyone happy, it's never going to happen. You're never going to make everyone happy, and there's no perfect equilibrium. So you always have to plan for unintended consequences. And that unintended consequence right now is people really hate inflation.

No matter what's happening everywhere else, they hate seeing rising prices at the grocery store and the gas pump. And you have to account for the fact that there's going to be some backlash when there's something that happens that people don't like. I think you're right. I think my takeaway is that, and I'm stealing this a bit from Neil Irwin at the New York Times, we are very, very good in the United States at winning the last war. We have reacted to the pandemic exactly as we should have reacted to the Great Recession by juicing demand and making sure that we did not languish in this economy with 9% unemployment for whatever, 36 months. We have snapped right back in terms of employment. We've snapped right back in terms of employment. We've snapped for, right back in terms of GDP, snapped right back at restaurant spending and durable good spending. And to Michael's point, it's because we've learned how to cut checks. Just send people money and they will largely spend it. And that's how you essentially accelerate your way to the end of a recession. At the same time, I'm a little bit worried that if America is always fighting the last war and

Republicans learn from the 2021 economy that the president will always get kicked in the mouth if inflation goes over 4%. They might learn the opposite lesson. They might learn the lesson of austerity and say, the one thing we can't do is that even if everything is wonderful in this economy, if there's a teenyy, a bit of inflation, we will get punished for it. And so we're going to not cut checks. We're going to not accelerate the recovery. We're not going to hand out the checks. That's my fear. We'll learn the wrong lesson and we'll be right back unfortunately to where we started. And on that happy note, thank you guys so much for joining me. Thank you for kicking off the first economic roundtable on this podcast. It was just really a delight to see you.

And we'll talk for you soon. Perfect. Thanks, Derek. Plain English with Derek Thompson is produced by Devin Manzi. Have a great weekend. We will see you next week.