Stuff You Should Know - What Causes Inflation?

Episode Date: June 1, 2021

Inflation seems super boring, but if you know how it works (important point: no one really does) you can exist as a functioning human being in a modern economy.  Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

Hey, I'm Lance Bass, host of the new iHeart podcast Frosted Tips with Lance Bass. Do you ever think to yourself, what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place because I'm here to help. And a different hot sexy teen crush boy bander each week to guide you through life. Tell everybody, yeah, everybody about my new podcast and make sure to listen so we'll never, ever have to say bye, bye, bye. Listen to Frosted Tips with Lance Bass on the iHeart radio app, Apple podcast, or wherever you listen to podcasts. I'm Munga Chauticular and it turns out astrology is way more widespread than any of us want to

believe. You can find in Major League Baseball, International Banks, K-pop groups, even the White House. But just when I thought I had a handle on this subject, something completely unbelievable happened to me and my whole view on astrology changed. Whether you're a skeptic or a believer, give me a few minutes because I think your ideas are about to change too. Listen to Skyline Drive on the iHeart radio app, Apple podcast, or wherever you get your podcasts. Welcome to Stuff You Should Know, a production of iHeart Radio. Hey and welcome to the podcast. I'm Josh Clark. There's Charles W. Chuck Wayne, Waynester, Wayne Tran, what's your what, what, Wayne Bryant, and there's Jerry Jerome Rowland

over there. And this is Stuff You Should Know. Yeah, kill me episode. Whatever, dude. This is fine. I knew I was going to say that. I know. It's again, we just did an economics episode. What was it? I don't know, but I think economics is literally right there besides like chemistry and physics for me now. Maybe worse because at least those are interesting to me. Chemistry and physics still make sense because they're really hard to understand. Economics doesn't make sense because it's BS. And it's just so like. That's the key to understanding economics. I'm good. Here, I'll tell you where I'm going to need help. I'm good except for like four paragraphs right there where it says kill me. It really does say kill me right there. And then right there where it says

wake up listeners. Whatever. I'm going to need your help there. The rest of it. This is a personal challenge to keep everyone interested. Okay. That's funny because on the John Muir document, I have blah, blah, blah. Oh boy. Is that where we're headed now? People are seeing how the sausage, that's like year one stuff. No, we've been doing that forever. I think we generally are into one another's topics. Yeah, no, it's not the topic and I think economics is boring as heck. I don't think he was, what we'll talk about John Muir and the John Muir episode. How about that? I was about to defend my position on that have already been out. I don't know, man. We'll find out. I think people should play these back to back. So you should, especially the cleft episode because the

listener mail from the cleft episode really sets up some of the jokes in the night trap episode that follows. Right. So listen to those two out order. Well, those are too fun to listen to. I think listeners listen to these two back to back. It's like Thelma and Louise territory right into the Grand Canyon. What does that mean? Have you never seen Thelma and Louise? I have, but I don't get how it applies to listening to these episodes out of order. Spoiler alert for Thelma and Louise, everybody. Well, you already kind of mentioned the Grand Canyon. They drive into the Grand Canyon at the end, just straight off that cliff and that's what would happen if they listened to both of these episodes back to back. Well, I'll tell you what, if you watch Thelma and Louise as they're

driving, it really is as they're actually, I've only seen the last 10 minutes to tell you the truth. Really? Yeah, really. You're like, what was their problem? Yeah, why'd they do that? Seems a little overreacting. As you listen really, really closely, I mean, like turn your volume up so loud that you can hear the fuzz of the video, the grain of the video making it sound. Okay. You can hear, I can't remember, who's Thelma? Oh, why'd you ask me? I always get these too confused. I think, I think Gina Davis is Thelma. I thought she was Louise. Okay, Jerry's got it. Jerry's so mad right now. So, it is Thelma. It's Gina Davis says to Louise, well, we can thank John Muir for this beautiful view on the way to our deaths.

Because no one else cared about the natural environment until he came home. That's absolutely right. He's still alone. No one thought the way that he thought. That's great. So, we're talking about inflation, obviously. That was the most fun part of this episode, by the way. No, it's not, Chuck. I refuse to believe that. We're talking about inflation. And the reason that I picked this is because inflation's kind of a thing right now. There's a lot of fear until today. Yeah, I think until today, when the Fed came out and said, everybody calm down, stop being dramatic. Joe Biden's not ruining the country. There's not going to be an inflation fear. Or there's not

going to be inflation. Stop your fears. And as a matter of fact, the fear stopped. Everybody stopped worrying about inflation because the Fed came out and said something. Really? Yes. But the reason I picked this is because it's good to know what people are talking about when they're like, we should be really worried about inflation right now. And all you have to do is understand a few basic things. And all of a sudden, you're in the convo, baby. Sure. And we're going to explain those few basic things to everybody. And then the next time inflation starts to go crazy, you can say, everybody just calm down. Yeah. It's just cost push going on. Yeah. You'll be like, at every party you go to, you can talk about that. And you'll be the equivalent of Colleen Robinson.

Who's that? From what we do in the shadows? Is that the energy vampire? Oh, yeah. Yeah. He probably sits around and talks about inflation. Yeah. Yeah. You threw me off with the Colleen. Well, that's how. Yeah, I understand. No spoiler alert. We're watching that again a little bit just because it's good. What we've been watching is and just finishes, I'll be gone in the dark, the great documentary about the Golden State killer and Michelle McNamara's research and dogged pursuit. What's it? What's it called? I'll be gone in the dark. Is it Netflix? No, it's HBO Max, but it's great, but it's so heavy. We will then cleanse the palette with reruns of what we do in the shadows. Very smart. The great palette cleanser, which is what I'm going to do

right after we record this. Okay. Are you done stalling now? Yeah. So one of the things that really kind of gets people about inflation is the idea that like, if you go back to the 60s. Yeah. The good old days. You could buy like a brand new car for like three grand. Cost nothing. Brand new car. And that's when they made them big and shiny. Yeah. You want to, and very unsafe. Do you want a house? Right. Give me, I don't know, $22,000. It's yours. And that's a nice house too. Very nice house. Like a ticket to a movie cost a dollar. Now, if you pay a dollar, see a movie, you have to see something terrible like Hidalgo or national security or something. That's like a dollar movie today. This was like good movies. Yeah. The dollar movies were a penny.

Right. Yeah. Basically. So all of this sounds like, or it makes it sound like the good old days were just this cheap, idyllic paradise. But that's just not the case because of inflation, where you can't really compare today's, you know, cars or today's houses or today's movie ticket prices without using an adjustment for inflation. Yeah. Cause I think in 1967, if you were like, if you made a lot of money, you made about $19,000 a year. That was a lot of money. Yeah. 60% of American households are in less than $8,300 a year. And so, yeah, I mean, they have all these inflation calculators. This is one of our favorite things to do. Let's go look at inflation calculators online. On West Egg. Yeah. West Egg is one I use mostly,

but there are a couple more because I think one of them sometimes doesn't go back far enough. But honestly, when it goes back too far, it's just a little bit of like, I don't know, this seems about right. Well, that was the thing. Do you remember when, I can't remember what we were talking about, but it wasn't too long ago. And I was saying like, I don't think this fully captures this adjustment for inflation. I think things were cheaper or things were more expensive. And that's the point of like tracking inflation is to say, actually, yes, things were more expensive back then. Things do actually get cheaper over time because technology becomes less novel. Yeah, some stuff. Sure. So for example, like a TV,

like if you wanted to buy a new color TV when it came out in the 60s, you pay probably about $1,000 for that TV, right? That's a crazy price back then. It was an enormous price. Like you would pay, that would mean then in today's dollars that you would pay something like 10 grand for a new TV. Yeah. And TVs when they first started coming out with the new flat screens were really expensive. And then like you said, that technology gets better and they get cheaper and cheaper and cheaper where now you can get a, I mean, it depends on what kind of flat screen, but you can get a good flat screen for 500 bucks. Tops. A decent one for 500 bucks. Yeah. I mean, you walk in a Costco, they just give you one for walking in. Yeah,

that's true. And it's huge. They're huge. They're much better. They're enormous. They're lighter. They look better and they're cheaper. I think like a TV today, like a 60s TV is about a 20th of that, how much it would cost the person 1954 buying that color TV. So all of this kind of goes to say, like prices may go up over time, but they actually relatively might actually be going down too. Right. Or they could just be going up. Thankfully, there are people who track this kind of stuff because when you look at inflation, when you look at the cost of price, the rise of prices over time, that's what inflation is one way to put it. Yeah. Overall prices, goods and services. It's not just like, oh, gas is a lot for the next three months because the summertime, that's not

inflation. Right. Right. It's more like hubba-baba costs way more today than it did when we were kids. Sure. That's a good example of inflation, but it's a general rise in prices. And if you track this stuff, you can actually track allegedly the health of your economy and make allegedly good decisions on how to juice that economy to keep it growing at a steady controllable rate, but ever upward. Right, which is what the Fed does. Did we do one on the Fed or we just danced around them a lot? I don't remember. I know we've done one on currency, how much money there is in the world. Not bad. We did one on stagflation, which we'll mention in a few. Yeah, that was all right. I thought it was groundbreaking. We did a whole remember when all the rage was those

super stuff guides. Yeah, the super stuff guide, the audio books. We did one on economics. Remember that guy who was like chicken? He kept using chicken as an example. Really? Yeah, he was great. And then, yeah, it was a good listen if you asked me. Okay. I'm glad those didn't become a thing, though. Why? I don't know. It's a lot of work for Jerry and us. Jerry loved it. No, she didn't. She keeps asking when we're going to bring those back. So there are a couple of ways to look at this. And it's funny how like when you look at most of this stuff, economists don't all agree. There's a lot of chicken and the egg stuff going on. Chicken. Yeah, exactly. Where it's like, you're just saying the same thing in a different way. It's still the same thing.

And this is sort of the first example. It's a little maddening, isn't it? It is. Because some people say, you know what, in a free market and an open market, it's just supply and demand like it always has been. If the product is greater in supply, it's going to go up in price. If it's greater than demand, then prices are going to go down. And it's really just as simple as that for these products and for money and cash. And some people say, well, no, that's not true at all. Inflation is the thing that happens first. And you don't increase the supply of money beyond demand because some people say, oh, well, the Fed just increases the supply of money. Right. And they did it too much and now prices are going up because another way to put it is not

just that prices rise, but that inflation actually is a decrease in the buying power of the dollar. Yeah, which is, again, the exact same way to say the other one. I know, but it's like the nuances. So nitpicky. It really is very nitpicky, but we're talking macroeconomics for the money of 300 million people and how it kind of moves and interacts. So if you could figure this out, if you could just kind of crack the code, but you can't, they haven't been able to so far. And inflation is a really good example of that because nobody can agree on exactly like you're saying what causes it. So one way to look at it is that you can split explanations in a couple of ways. Is it based

on a change in the demand or the cost of goods or services or the products, or is it because of money? So the first one is that money thing where there's too much money on the market. Right, which just, if you don't get into economics, that just sounds like a mind-numbing thing to even think about. But it's really simple to understand. Money's just like anything else. If there's a lot of money, there's a big supply. That means anybody has it, who cares, which means that there's less value to it. Yeah, and that's not just cash and circulation. It's cash and credit. It's like everything we think of as kind of like buying power, I guess. Yeah, and another way to look at it is if there's a lot of money on the market,

that means the average person has more money than usual. That means that they can buy more stuff than usual. That means that more people are requesting, trying to buy more goods than they usually are. So if demand is increasing, that means prices will rise, which means it costs more money to buy those things. And a good way to put it is that there's lots of money chasing fewer goods. That's how that one's explained. That's one explanation for inflation. There's too much money which causes prices to rise because there's more people trying to buy those goods than usual. That's right. And I think one example here, Professor John T. Harvey at TCU, he's who I was talking about earlier, where he's like, no, that's not really true. He says inflation

happens first and that they don't increase the supply of money beyond demand. Because you need more money because prices are going up. So then that brings more money in the market, right? That's right. Growth accompanies the inflation. It doesn't cause it. Yeah. So again, all these economists are saying, no, there's too much money. And this guy's saying, no, the prices are rising, which brings more money into existence. And in the meantime, everyone else in the room is like, I got to go to the bathroom. I got to go take a call. I got to get some more finger foods. Yeah. And we say it every time, but the fact that you have liberal economists and conservative economists, that right there is that reveals it all. It's all made up. It's all who-do.

Let's take a break on who-do. That's a nice little cliffhanger. That was my signal. And we'll come back and talk about two other theories that are kind of the same thing right after this. I'll be there for you. Oh man. And so my husband, Michael. Um, hey, that's me. Yep. We know that, Michael. And a different hot, sexy teen crush boy bander each week to guide you through life step by step. Oh, not another one. Kids, relationships, life in general can get messy. You may be thinking, this is the story of my life. Oh, just stop now. If so, tell everybody, everybody about my new podcast and make

sure to listen. So we'll never, ever have to say bye, bye, bye. Listen to Frosted Tips with Lance Bass on the iHeart Radio app, Apple podcast, or wherever you listen to podcasts. I'm Mangesh Atikular. And to be honest, I don't believe in astrology. But from the moment I was born, it's been a part of my life. In India, it's like smoking. You might not smoke, but you're going to get second hand astrology. And lately, I've been wondering if the universe has been trying to tell me to stop running and pay attention. Because maybe there is magic in the stars, if you're willing to look for it. So I rounded up some friends and we dove in and let me tell you, it got weird fast. Tantric curses, major league baseball teams, canceled marriages,

K-pop. But just when I thought I had to handle on this sweet and curious show about astrology, my whole world came crashing down. Situation doesn't look good. There is risk to father. And my whole view on astrology, it changed. Whether you're a skeptic or a believer, I think your ideas are going to change too. Listen to Skyline Drive and the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. So Chuck, I just want to say you're doing great, by the way. Well, that's because I haven't gotten to those paragraphs yet. It's going to be just easy. So there are another couple of theories.

Again, economists are going to agree and disagree about these two theories. They are the cost-push theory and the demand-pull theory. It's even right there in the title, push and pull. Essentially, it's the same action going on. But one is choosing to look at one side and one's choosing to look at the other. So cost-push means that it's the increase of the cost of labor or the cost of raw materials. Basically, anything that's going to end up getting a loaf of bread on a shelf, including the fuel for the trucking and packaging and all that stuff, that that is what is going to push up in prices. That is the driver of inflation. Which makes a lot of sense. Apparently, right now, I don't know if it's still going on,

but it definitely was the spring, there was a shortage in wood, in lumber. It's still happening. Okay. Because of, at least in part, the wildfires that California suffered last year, it was so devastating that it actually affected the national supply of lumber. Yeah. And I also read that the lumber people decreased production overall because of the pandemic. They thought there was going to be a big lull. They didn't want all this extra inventory on their hands. It turned out everyone was like, no, I want to build stuff now. Exactly. And they just miscalculated. So not a good time to build a pavilion at your family

camp. Let's just say that. Right. Or to try to increase the housing stock, right? So that means then that lumber going up in price makes building a new house that much more expensive. So the house, the finished product, has become more expensive because of the input that raw material lumber. That's a really good example of cost push theory of why prices are rising because of something downstream in the production process. Yeah. But there's a key little factor here. All of this is true when companies are running already at full production capacity. So that's a really key element there. It can't be a company that's like behind or whatever. It's like, it's a company that's just humming along basically. And then something happens in the supply chain, let's say. Yeah.

Big increase in fuel or lumber cost or any kind of raw material. I think, did Dave help us with this? This is a Dave House of Works article. Oh, okay. Yeah. Wow. I know. Hats off. We found another one. But he uses bread as the example. The cost of wheat goes up. The cost of flour is obviously going to go up. And the cost of bread is eventually going to go up under the CP theory. And so people like you and I end up paying more for a new house or more for a loaf of bread or more for whatever because something somewhere that was a component in that caused this rise in prices. Right. That's the cost push example or theory of inflation. Kind of opposite of that, but I don't even know if opposite is the right word. They say, no, no, no. It's not the raw materials

that cause the increase in prices. It's actually the demand for that finished product that causes the increase in prices. And so housing right now actually is a really good example of both cost push and demand pull. At the same time. Yes. It's crazy. And it's also demonstrating like, okay, we have a new idea of what's going on. Or at the very least that these things don't exist in isolation. And that is that people like you're saying during the pandemic, we're like, no, we want to move. I don't want to live in the city anymore. I want to live as far away from other people as possible, but only as close as Instacart will deliver. That's as close as I want to live to other people. Or Webvan. Sure. I got one of those cars. Yeah. So it was totally unpredicted,

but the upshot of it is that there is a lot of people trying to buy houses right now and the housing market has just gone through the roof. And so that's caused housing prices to increase. And it's caused like all of the other components of the housing market to increase as well. So downstream, that demand for houses caused every bit of housing to increase as a result. Yeah. And the example, Dave, to stick with the bread as well, because it's a, I think it's slightly easier to understand than the housing market because it's a weird be affected by a lot of things right now. Sure. Is that if the cost of, if a lot of people want bread, the baker doesn't immediately raise the prices because of that demand until they run

out of the flour, then they got to go back and buy more wheat. And the wheat farmer might say, well, no, it's a little more expensive. Yeah. There's a lot of bakers who have high demand. Everybody wants my wheat right now. And so that's when the cost is eventually pulled. And then increased, I guess, for the consumer. Right. So it looks like, if you're just looking at it like, oh, this wheat price, this raw material, rose in cost and that caused bread to rise. And people are like, no, no, that's an illusion. It was actually this demand for bread that increased that caused the wheat to rise. And again, it sounds so similar to cost push, demand pull does, that it doesn't even matter, but it really does matter. It does matter because in this part is

the key here. If you're at home and you're just like, God, stop talking. This is what kind of drove it home for me. The difference in those two, it might seem like just words and nitpicky, but it's really not because in one scenario and demand pull, you've got an economy that's really humming and people are like, I want to buy all that stuff. Yeah. It means a lot of people have a lot of money that they want to spend and that, yes, that means like you have a healthy economy right then. Right. And under cost push, it's more like, hey, people feel like they have to do this repair on their house and I'm sorry, it's just a lot more expensive. It's not like, ooh, I need this new thing. It's like, I have to pay for this thing and it's a lot more expensive because of the

raw materials or whatever the labor has gone up. Right. And yeah, it's much worse because that means like you said, the company is humming along at max capacity and all of a sudden it's like, we don't have wheat anymore and we aren't going to be able to satisfy demand because we don't have this basic component. It means that there's something broken in your supply chain or the mechanisms of production and that's not a good place to be in. So it's very healthy economy where everybody has money increasing demand or demand increases because you can't supply the basic parts to create those goods. Right. Okay. I know the beginning of this part, so I'll take it and then I have a cot set up in the next room. I'm just going to go. I feel like you're setting me up

for failure. Now you'll do fine because there's no math. Well, there is math involved, but you'll still do fine. Where is there math involved? In this part, the annual rate of inflation calculation. Oh, God. But if we get it wrong, we'll just say Dave got it wrong. We'll pass that. We'll cost push it his way. Yeah, that's a great idea. So we're talking about how inflation is actually measured now and this is a big deal because we like to keep track every year and say that inflation, what is it usually between about one and a half percent to three and a half percent annually in the US generally, unless it's like the 1970s or early 80s? I think over the last several years, it's gone between negative 2.1 and like 5. something percent. Which is pretty,

5. something is pretty high. It's generally in the two to three range. It is for our experience, but in the early 80s, it was as high as almost 14 percent inflation. That's bad. Yeah, it was very bad, but not as bad as like the Weimar Republic, Germany or Zimbabwe, which we've talked about a million times where their hyperinflation was just out of control. Yeah, we'll get to that. Okay. So we have to measure the inflation rate because we like to keep tabs on our economy so the Fed can do their weird black magic. And so the Bureau of Labor Statistics, the BLS is who kind of sets this stuff by working through a big data collection system called the Consumer Price Index. It's nuts. It is nuts how big it is. They take what they try and fill up is what's called

the CPI market basket. And it's basically, if you imagine a grocery basket that includes everything, everything basically. Like 80,000 items. Yeah, I'm not just groceries. They have 200 categories of products in eight major groups, food, housing, apparel, transportation, medical care, recreation, education, communication, and then other, which is basically everything else. Funerals and manicures basically is other. And saunas. Saunas. Yeah, definitely. That might be under recreation. You think? I think it might be. Or medical care. It's good for you. Yeah, for sure, depending on how progressive your Bureau of Labor Statistics agency is at the time. That's right. So every couple of years. Thank you for waiting until I finish that.

The Bureau of Labor Statistics interviews 24,000 American families on the stuff that they bought. Yeah, because if you want to figure out what 80,000 items you need to include in this basket, you have to find out what Americans are actually buying. Yeah, I bought you a slide whistle. That's right. They called me up and I said, I bought a slide whistle. That's the only thing I bought this year. They said, you're the one. And they said, that must have been for a very special guy in your life. And I said, it's true. Wow, I'm blushing. Then they have another 12,000 families that are keeping a spending diary basically. It's kind of like Nielsen a little bit. Yeah. For that one. It did kind of remind me of that a little bit because they're just trying

to get a big broad overview of what a typical schmuck here in America spent. Sure. And you say, where's my three or five dollars? And they just go, they hang up real quick. Exactly. Call somebody else. And then every month, they have a big team of assistants that records the prices of those 80,000 things. And this is an effort to get just a good look at what that big market basket looks like. Yeah. So two years, they figure out what they need to be buying or what Americans are buying. They use that data for another couple of years. But every month, they go and price all 80,000 items in that market basket every single month. Yeah. If you're going to figure out inflation, you got to be as current as possible. Yeah. So to figure out what item needs to be in the basket.

So there's like 200 categories, eight broad categories, 200 subcategories. So transportation will have auto insurance category. Subway affairs. Exactly. Yeah. Or food will have like, you know, cheese will be one. But in that cheese category sample, I think they call it, there's, you know, a bunch of different kinds. Not everybody buys like craft singles. Some are Velvita slice people like me. Oh man, I still love Velvita. It's still good. I haven't had it in decades. I will buy you somebody. Do you get blocks of Velvita? No, we don't get blocks of Velvita. You get slices now. Okay. But it's not cheese, right? Isn't it cheese product? No, it's in no way shape or form cheese. But I think it still qualifies under the cheese sample in

the market basket. But if you're making a chili cheese dip or something, you got to use it. Sure. Yeah, that's good. No, but this is, it's good for grilled cheeses too. Of course. So that particular brand, but not just that brand, like the, you know, 16 slice package they find, it makes up 70% of the market for that type of cheese. So they'll pick that one. They use that for four years and then they go reevaluate it. This is like the level of detail the BLS is putting into their basket. And so they take all this and they price it every single month. They literally go to the store. I meant to say literally that time and say, oh, well, the, you know, Velvita cheese slice 16 pack is 349 right now. Is that about right? Write the price

down. I think so. Okay. And then they go back and they type in it. And every month they say, this is how much that this costs. And they compare it strangely to 1982. Right. Take it from here, Chuck. Well, 1982 was basically, was it 1982? Okay. That was the baseline year where they said, all right, here's our CPI index. It's not a actual, it's an index. It's not a dollar figure. I know. I looked everywhere. I'm like, how much does the 80,000, you know, item basket cost in real dollars? They won't tell you, they won't. Sorry, index buddy. Yeah, they'll talk about UFO sooner than they'll tell you how much is in that basket, how much that basket costs. So 82 is when that baseline figure was set, which was the consumer price index is 100.

In 2006, it hit 200 in April 2006, which basically at that point, they should have said, they should have just reset it and said, we have a new base year. Yeah. Because we doubled it and they didn't know, they just, and I'm not sure why really, they just sort of left it in 1982. It seems like a, maybe they're just used to that math. It seems like it would be a lot of extra math. And it wasn't, no, it wasn't that they doubled it. It was that it was the exact same in 1982, I think, or was it that they doubled it? No, it was doubled. Okay. But they said they should, I mean, some people say they should have said like, all right, well, we have a new baseline. Right, I got you. But they're still using the 1982. I guess, I just don't

know why. I don't either. Or why not? Maybe it makes perfect sense. So the actual number that they come up with is a number that's relative to the amount that it costs in 1982. Yeah, this is where I kind of got a little foggy. So for example, and by that, I mean, I fell asleep on my desk. In 2019, the CPI, the Consumer Price Index, for that basket of goods was 249.222. Okay. Meaning that that amount of goods cost almost two and a half times what that same basket of goods would have cost you in 1982. Sure. So you say, okay, I don't care how much it cost in 1982. I want to know how much it's affecting me now. And they said, well, just settle down, settle down. They can take that number and say, well, how much was it last month? Yeah. Or how much was it last

year? So they can compare, say, like the 2019 and 2020 CPIs and find that there was a difference of something like about 3.026 between those two numbers. Then they divide that by the 2019 number and they get the actual percentage that says the CPI, the Consumer Price Index, the amount of basically what it cost people to just live in 2019 was 1.2% less than it costs in 2020, which means that inflation rose 1.2% between 2020 and 2019. Right. And when you hear about annual inflation rate, that is generally what people are pointing to. But as we will see, that is not how everyone likes to look at inflation. There are other things to take into consideration. I think the Fed likes to look at core inflation, which is that CPI minus

volatile things like food and energy, things that like the prices kind of go up and down more volatively. Sure. Is that a word? Yeah. Molybdenum. And then the Fed also looks at another data set compiled by the Bureau of Economic Analysis. This gets a little wonky, but it actually does make sense. The difference between the BLS and the BEA indexes comes down to the fact that if chicken cost a lot more money all of a sudden because of some supply shortage or whatever or increased demand rather, then people might go to the other white meat and say, well, I'll start buying pork then. Yeah. That was explained by Benjamin Applebaum from the New York Times economics blog. Benjamin? Okay. Yeah. He said, I swear to God, I nailed it.

Applebaum? Applebaum. Oh, okay. Yeah. That's my imaginary friend, Benjamin Applebaum. So he was explaining it like that. That's the difference that people adjust. We're not just like automatons. We're like, okay, well, we're buying chicken and that's all we eat. And we also buy X amount of hot dogs. It's like, yeah, if the price of chicken goes up, you're going to eat something else that month. That's just how people do. And so he was saying that the Bureau of Economic Analysis really is much better at taking that into consideration. And so since about 2000, the feds kind of relied a little more on that one than the CPI. But the CPI is still very much the most broadcast one. But it turns out that economists use whichever one suits their needs

and politicians in a given month. Absolutely. Our policies are right and yours stink. That's a great place for a break. And we'll come back and talk about why inflation even matters and what we can do about it, which is nothing right for this. Hey, I'm Lance Bass host of the new iHeart podcast Frosted Tips with Lance Bass. The hardest thing can be knowing who to turn to when questions arise or times get tough, or you're at the end of the road. Okay, I see what you're doing. Do you ever think to yourself, what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place because I'm here to help. This I promise you. Oh, God. Seriously, I swear. And you won't have to send an SOS because I'll be there for

you. Oh, man. And so my husband, Michael, um, hey, that's me. Yeah, we know that Michael and a different hot sexy teen crush boy band are each week to guide you through life step by step. Oh, not another one. Kids relationships, life in general can get messy. You may be thinking this is the story of my life. Just stop now. If so, tell everybody, yeah, everybody about my new podcast and make sure to listen so we'll never ever have to say bye, bye, bye. Listen to Frosted Tips with Lance Bass on the iHeart radio app, Apple podcast or wherever you listen to podcasts. I'm Mangesh Attica there. And to be honest, I don't believe in astrology. But from the moment I was born, it's been a part of my life in India. It's like smoking. You might not smoke, but you're going

to get secondhand astrology. And lately, I've been wondering if the universe has been trying to tell me to stop running and pay attention. Because maybe there is magic in the stars, if you're willing to look for it. So I rounded up some friends and we dove in and let me tell you, it got weird fast. Tantric curses, Major League Baseball teams, canceled marriages, K-pop. But just when I thought I had to handle on this sweet and curious show about astrology, my whole world can crash down. The situation doesn't look good. There is risk to father. And my whole view on astrology, it changed. Whether you're a skeptic or a believer, I think your ideas are going to change too. Listen to Skyline Drive and the iHeart Radio app, Apple Podcast, or wherever you get your podcasts.

All right. So we're back to wrap this up. This wasn't as bad as I thought. Why is that funny? I'm glad we're reaching the end here. I'm glad to see that you've come around. A little bit. You did great explaining everything. Oh, I appreciate it. So, strength of Dave's research, I think. Sure. Not like the John Muir person. Dave's wonderful at his work.

He is. He's great. So inflation can be a bad thing because of some sort of obvious things. But one is if you have a fixed income and you're living off a pension or something, a lot of times, most times, that pension isn't going to go up because inflation goes up. Luckily, social security does. It's tied to that CPI, which was a really smart thing to make people like not absolutely loathe social security in every way. But yeah, social security will go up, but your pension won't. So that's a big deal, and that's why inflation matters. Yeah. I mean, it also stinks for those of us who are like, man, I'm paying way more for a bread than I was this time last year, and why should I? It also has an effect on investments,

too. Remember, a different way of looking at inflation is not just that prices are rising, but that the buying power of the dollar is going down. Yeah. That includes your investment. Yeah. If you have an investment that's worth 10 grand, five years from now, the dollar amount is still worth 10 grand, but the value of the dollar is far less than it was five years before, and so that 10 grand just doesn't amount to quite as much. Another thing that can happen is your interest rates might go up or not your interest rate will reset. But if you go to buy a house or something, the interest rate might be higher

because a bank might say, you know, I think inflation is going to be pretty bad this year, so we're going to have to charge more money on that loan because we're losing that dollar value. Right, exactly. And banks don't like losing money. There's also a lot of uncertainty that could come when inflation is going on. Remember, I said there are a lot of inflation fears until today? Mm-hmm. That has a really deletrious effect on business in that it's harder to plan for the future. They don't know how much the cost of the goods that they need to make their finished products are going to be right, so you don't know if you're going to buy a whole bunch of mealworm spray for your flour to make bread with. Is it better to buy it now?

Is it better to buy it later and how much am I going to price this bread for? It's just a catastrophe and then they eventually just give up and go home and watch Judge Judy. Yeah, I got to say that's like with Emily's small business that I think especially with small businesses, she can't just be like, oh, well, shipping is a lot more now because fuel costs are going up or packaging is increases, so she can't just raise and lower her prices willy-nilly when you're a small business selling soap and lotion and candles. Which is funny because that is one of the major explanations for inflation. I know, but you just can't do that as a small business. You can be like, oh, our soap's a quarter more all of a sudden. It's true.

Or a quarter less. She kind of has to lock in for a little while. A price increase for a small business like that is sort of a big deal. You got to really think it through. Absolutely. Yeah, I do. That's actually another problem with it too. It's like if Emily can make less money selling her wares, but she's paying more to make them, her profit margin declines in that sense, she might have less to expand to hire more people. And so that has a ripple effect through the economy where it can affect employment. Higher prices can actually lead to lower employment. Yeah, like she gets killed on shipping. That's her big one. Like she loses money, a lot of money every year on shipping costs. But you can't just like, she's not Amazon,

so she can't ship for free and you can't also charge what it really costs to ship. You just have to kind of take the hit. It's interesting. I guess we can talk about hyperinflation a little bit. We've covered it a few times over the past 13 years, but the one big one that people always talk about is like you mentioned earlier, the Weimar Republic of Germany, when the mark exploded from 2,000 marks to the US dollar in 1922 to 4.2 trillion marks to the dollar less than a year later. Isn't that nuts? That is. I mean, you can't even wrap your head around. I remember in Zimbabwe in... Yeah, that was the other one. I can't remember what decade it was, the 80s, maybe in the 90s, where they were using wheelbarrows to cart trillion dollar bills to the grocery store and

still could barely buy bread or toilet paper with it. The US, like I said earlier, it had its own brush with, I don't know if you call it hyperinflation, but definitely much higher inflation than anybody was comfortable with. And that actually came... I was researching this today. A lot of people blame the OPEC oil embargo, a lot of other stuff, but it apparently can all be laid at the feet of Richard Nixon, who juiced the economy. He fired his Fed chairman and replaced him with a sycophant who had no formal economics training and then started telling him what to do. That sounds familiar. To juice the economy, to get reelected. And it worked for a minute, and then all of a sudden it was like this plane going up and then the gas was no longer in the

fuel injector and started to tumble back toward the earth. We had almost 14% inflation, huge unemployment. That's a real number that makes an actual difference in American families, like getting what they need. Gas and food and paying bills. So it took a good decade or so to come out of that death spiral that it was in and it took the Fed. This was actually a big reason why the Fed plays such a big role in the economy today is because of that. The Fed had to step in and basically do the opposite of easy money and basically get money off of the market to basically say all these people who have money right now, we need to take some of their money to lower demand to cause prices to go down. It was a really hard time to be an American

in the late 70s, early 80s because it caused us the great inflation and then a pretty big recession. There are a few things that the Fed can do to one thing that you might see on stupid Facebook comments is just print more money, Fed. That's all they do anyway. Just put more cash into the economy. They don't do that. The Fed doesn't just print more money. They can influence the money supply though in a few ways. One is there's something called the reserve requirement which is basically they say, you know what, if you're a bank, you have to have a certain percentage of your customer deposits that you don't, you can't touch. You got to leave it in there in reserve so they can lower that requirement a little bit meaning that in theory more money can be in

circulation because they're loaning out more or they're able to loan out more. So that's one thing they can do. They can also, they actually buy and sell bonds. This is where it gets so crazy to me like this just sounds so weird. But I mean there's a whole market there that actually is basically how money gets on or off the market in the economy. There's sales of bonds where companies can buy bonds, companies can sell bonds and the Fed will buy or sell them too. And when the Fed buys bonds, it's putting money on the market. And when the Fed sells bonds, it's accepting money. It's taking money off the market. It's trading those bonds for money and making sure that that money isn't in circulation anymore at least temporarily.

That's what's happening today. They're going to auction off $100 billion in bonds. So $100 billion will not be in the economy tomorrow after this auction today because the Fed's taking it off the market, which was enough to calm those inflation worries. Everybody said, oh, the Fed's stepping in, it's fine. Well, no, they're like 100 people that understand that said, oh, okay. And everyone else just read the headline TLDR and said, all right, we're not supposed to worry. So I won't worry. But at the same time, you made reference though earlier that it was like Joe Biden screwing up the economy, that they were blaming those stimulus checks for everything from people not working purposefully to there being too much money and increasing

demand for regular stuff. And whether that's true or not, the Fed's stepping in and saying, well, we're just going to get some money off the market. Another thing the government can do is the opposite of something like stimulus checks. It can actually raise taxes. And that's another way for the government rather than the Fed to get money out of circulation by taking it from people's end of year account. Right. End of year account. Sure. And then the other, the final thing the Fed can do is they can lower their discount rate, which is the rate that is going to charge a bank for a short-term loan. And in theory, if a bank is paying less for a loan, then they can lend at a lower rate as well if you're going and asking

for a loan. And then lastly, there's supply side economics. Another thing the government can do, which is basically deregulate industry in the hopes that it will make industry leaner, more competitive, all that stuff. And that that will cause prices to go down because businesses will become more efficient when it's dog eat dog. Right. I think we've seen, thanks to Reaganomics, that that doesn't necessarily work very well. That's what they say. That's my two cents. And hey, man, I'm just as much an economist as any economist. It sounds like it. If you want to know more about economics and inflation and stagflation and deflation and all the flations, go do some research and it will blow your mind. And since I said that, it's time for listener mail.

I'm going to call this one of the many great responses from our Girl Scout episode. Good morning, Josh and Chuck. I had the pleasure of listening to the Girl Scout episode when I was sewing the badges onto my daughter's vest in time for our bridging ceremony. My daughters are fourth generation Girl Scouts, and I'm a third generation leader. I love this. Very big in our family. I have the honor to serve as one of five leaders in a multi-level troop. Our troop is girls from kindergarten through seventh grade, encompassing Daisy Brownie Jr. and cadet levels. We formed as a multi-level troop so sisters could be in the same troop. That's really sweet. And so that their parents could have one troop to keep track of. It's a great

way for the older girls to practice leadership skills with the younger girls and gives the younger girls role models. This sounds great. It's very sweet. They should do this everywhere. Yeah. Everyone else is doing it wrong. She said, but no Juliet's are allowed. Yeah, no Juliet. Another unique thing about our troop is that we do not charge dues. Everything our girls do from uniforms, programs, supplies, and activities are funded solely through cookie sales. Nice. We asked new girls to buy their first vest for their uniform. And from their cookie sales, take care of the rest. Caroline here leads the daisies in their troop and says, even at the youngest levels, the emphasis is on a girl-led

experience. That means they choose their activities and badges, plan and run the meetings, practice leadership skills, each chance they get. It takes a lot of practice and self-control on the part of the leaders to give the girl space to lead, but the end result is so rewarding. I will leave you with one last lesson that I've learned in Girl Scouts and a motto that my family has always lived by. This is great. This is what everyone should do. Leave a place better than you found it. Oh, yeah. Whether it's cleaning up a little extra garbage at the campsite or making a positive impact on the people and places you come across in life, leave it a little better than you found it. Thank you for all the many years of podcasts that have brightened many adult car ride

and countless rounds and chores from my family, except for the inflation episode. Huh, that's weird. How'd she know? So that is from Caroline in Richfield, Minnesota, and she sent in pictures of the daisies and the girl bridging ceremony, and it's just adorable, these cute little girls in their masks. And for sure. Doing stuff. Yeah, who was that? That's Caroline. Caroline. That's what I thought. Thanks a lot, Caroline. That was some great info. I'm glad you enjoyed that episode. We enjoyed it too. And I guess that's it, huh, Chuck? Yeah, I should point out she wrote back and said, by the way, my husband is going to be jealous.

I'm getting this on listener mail. I should mention that he went through Boy Scouts all the way through high school just so he could go camping. All he did was enough to get the badges so he could qualify for camping trips. That's awesome. That's great. So the rest of them, he said, we don't need no stinking badges. That's right. Well, if you want to get in touch with us like Caroline did, you can do that via email. Send us one to StuffPodcasts.iHeartRadio.com. Stuff You Should Know is a production of iHeartRadio. For more podcasts on my heart radio, visit the iHeartRadio app, Apple podcasts, or wherever you listen to your favorite shows.

Bye, bye, bye. Listen to Frosted Tips with Lance Bass on the iHeart radio app, Apple podcasts, or wherever you listen to podcasts. I'm Munga Chauticular, and it turns out astrology is way more widespread than any of us want to believe. You can find in Major League Baseball, international banks, K-pop groups, even the White House. But just when I thought I had a handle on this subject, something completely unbelievable happened to me and my whole view on astrology changed. Whether you're a skeptic or a believer, give me a few minutes because I think your ideas are about to change too. Listen to Skyline Drive on the iHeart Radio app, Apple podcasts, or wherever you get your podcasts.