Tangle - Inflation (again).

Episode Date: July 14, 2022

Yesterday, the Bureau of Labor Statistics released its inflation numbers for June, and prices have once again risen sharply. Plus, an interesting question about the ripple effects of Roe v. Wade.You can read today's podcast here.You can subscribe to Tangle by clicking here or drop something in our tip jar by clicking here.Our podcast is written by Isaac Saul and produced by Trevor Eichhorn. Music for the podcast was produced by Diet 75.Our newsletter is edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight.

Interior Chinatown is streaming November 19th, only on Disney+. Chinatown is streaming November 19th, only on Disney+. From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle Podcast, the place where you get views from across the political spectrum, some independent thinking without all that hysterical nonsense you find everywhere else. I'm your host, Isaac Saul, and on today's episode, we are going to be talking about inflation again. Yes, we just got a new report on some of the latest numbers. It's very important. So we're going to jump in with

some of the best commentary we could find out there. But before we do, as always, we'll start off with some quick hits. First up, President Biden arrived in Israel yesterday, where he is expected to announce the normalizing of relations between Saudi Arabia and Israel this weekend. Number two, an Ohio man was arrested for the rape of a 10-year-old girl whose story of traveling to Indiana to seek out an abortion received international coverage. The judge overseeing the case said the accused rapist is believed to be an undocumented immigrant. 3. A former White House National Security Advisor John Bolton sparked controversy after he admitted to planning international coups on CNN during a discussion about the January 6th riots. Number four, Buchanan County in western Virginia received six inches of rain in a matter of hours, setting off a massive flood that has left 44 people unaccounted for.

Number five, Ray Epps, the man accused of being an FBI plant during the January 6th riots, sat for an interview with the New York Times. We previously covered the Epps story the man accused of being an FBI plant during the January 6 riots, sat for an interview with The New York Times. We previously covered the Epps story, and you can find a link to that interview in today's newsletter. This morning, new numbers from the federal government showing inflation rising faster than at any point in four decades. The White House playing defense today after another red hot inflation report. Inflation rose by a whopping nine point one percent in the month of June, which was well above expectations. There is no question that we still have work to do. But it is important to note that these numbers do not fully reflect

the recent drop in gas prices. Average national gas prices have fallen every day for nearly 30 days. Yesterday, the Bureau of Labor Statistics released its inflation numbers for June, and prices have once again risen sharply. A quick reminder, inflation is measured with the Consumer Price Index, or the CPI, which is designed by the Bureau of Labor Statistics to measure price fluctuations for urban buyers who represent the vast majority of Americans. The CPI tracks 80,000 items in a fixed basket of goods and services, representing everything from gasoline to apples to the cost of a doctor's visit. There is also the core CPI, which is a basket of prices that excludes energy and food,

which are much more volatile. In June, the consumer price index rose 9.1% from a year ago. Estimates were that it would rise 8.8%. Core CPI, which does not include the more volatile food and energy prices, rose 5.9% compared to the 5.7% estimate. Core inflation peaked at 6.5% in March, but the rate of increase has been coming down slowly since then. On a monthly basis, headline CPI rose by 1.3%, while core CPI was up 0.7% compared to respective estimates of 1.1% and 0.5%. A few snippets from these numbers. Rent prices rose 0.8% in June. Gasoline prices rose 11.2% in June. Electricity rose 1.7% in June. Used vehicles rose 1.6% in June, medical care costs rose 0.7% in June. Meanwhile, airline fares, meat, poultry, and eggs all came down slightly on a month-to-month basis. We have now covered inflation seven times in the last year, as polls consistently show it is one of the number one concerns for American voters. Last month, we wrote about the Fed's attempt to rein in inflation

by raising interest rates, which makes borrowing more expensive and which they hope will reduce spending and then prices. After the latest numbers were released, Wall Street traders began betting the Fed would raise interest rates by a full percentage point this month. Last month, they increased rates by 0.75%. The Fed is hoping to raise interest rates to reduce inflation without triggering a recession, which will be much more difficult the longer inflation remains persistent. Because of inflation, we are also witnessing the sharpest decline in real wages in decades. Since December, average hourly earnings for private sector workers have gone up 2.2%,

but consumer prices rose 5.4% in that same time period. Over the last 12 months, non-managerial workers have seen their average pay go down 2.7% when adjusted for inflation, the steepest drop in real wages since 1980, according to Axios Markets. According to the Bureau of Labor Statistics, inflation-adjusted incomes based on average hourly earnings fell 1% last month and were down 3.6% from a year ago. Americans on Social Security benefits, which include cost of living adjustments, could see their monthly benefit go up 10.5% in 2023 to account for inflation. While June's numbers were broadly considered bad news for Americans and the economy,

the Biden administration has emphasized that we've seen some deflation signals in the last few weeks, beginning in the end of June. Gasoline prices have fallen from their June peak, down 4.7% this month, and the S&P GSCI Commodities Index has fallen 7.3% so far in July, though it's still up 17.2% on the year. Wheat, soybean, and corn futures are all down since July 1 as well. In a moment, you're going to hear some reactions to the latest numbers from the right and the left, as well as what's been happening this month, and then my take. Okay, first up, we'll start with what the right is saying. Many called out how inflation is crushing workers. Some said the latest numbers should mean Congress stops its federal spending until inflation is under control.

Others criticized Democrats for how they have handled the issue. The Wall Street Journal editorial board decried the inflation tax under control. Others criticize Democrats for how they have handled the issue. The Wall Street Journal editorial board decried the inflation tax on workers. The greatest tragedy is for American workers who are suffering the largest reduction in real wages since the 1970s, the board wrote. Real average hourly earnings fell 1% in June alone and are now down 3.6% in the last 12 months. Average real weekly earnings fell even more, 4.4%, because of a decline in the average work week. Real wages have fallen in 10 of the last 13 months, and they have now fallen more since President Biden took office than they did during the recession caused by the financial crisis. From December 2008 to a trough in real earnings in February 2012, real average hourly earnings fell 1.8% measured in the 1982 to 1984 dollars, according to BLS.

They have fallen 4.8% since January 2021. As for fiscal policy, rising inflation should take more domestic congressional spending sprees off the table, the board said. The return of virulent inflation didn't have to happen, and the experience should discredit the policies that brought it on. The splurge of spending in 2020 and 2021 under Presidents Trump and Biden spurred excessive demand. The Fed kept the monetary spigots open for too long as Washington became enamored with modern monetary theory. Whatever short-term financial help to Americans that Democrats provided with their trillions of dollars in welfare payments has been more than offset by inflation. The U.S.

needs a return to growth economics rooted in stable money, supply-side tax policy deregulation, and fiscal restraint. That agenda hasn't been as important since 1980. In the New York Post, Brian Riedel criticized Biden and Democrats for not having any proposals to solve inflation. While many experts keep predicting inflation to slow down, the June rate soared at an annualized rate of 17%. Nearly all parts of the economy are buckling under rising prices. Price increases in the past year have leaped for groceries, 12%, gas, 60%, electricity, year have leaped for groceries, 12%, gas, 60%, electricity, 14%, new cars, 11%, and flights, 34%, Riedel wrote. Inflation is slowing down in one key area, wage growth, which means that real wages have collapsed by 3.6% in the past year as workers fall further behind. And what are

President Biden and congressional leaders doing to combat this deepening crisis? Pointing fingers, deflecting blame, and little else. President Biden spent 2021 dismissing inflation as transitory, even as he pushed through a $1.9 trillion American rescue plan that poured gasoline on the fire. The White House became a punchline for releasing a video bragging that the cost of a 4th of July cookout in 2021 is down 16 cents from last year. When inflation became too persistent to dismiss, the White House shifted to scapegoating, Riedel said. It has blamed COVID and big meat, termed it Putin's price hike, and endorsed the view that it is a high-class problem. This empty rhetoric is meant to cover up the White House's refusal to offer any concrete plan to bring down inflation.

Even as President Biden published an op-ed asserting that I have made tackling inflation my top priority, he offered no specific proposal to do so. Instead, his article punted the problem to the Federal Reserve, asserting the mundane reality that more productivity would help combat inflation and then suggested deficit reduction would help, even as he pushed legislation to hike deficits. Nothing specific, substantive, or legislative. National Review's editors said inflation still rages. When the current bout of inflation began, Democrats waved it away by pointing to volatility in energy prices and saying core inflation was doing fine, the editors said. Now they're pointing to energy prices to distract from core inflation. Biden was, however, wise to conclude his statement by saying,

I will continue to give the Federal Reserve the room it needs to help it combat inflation. He has consistently held that line, breaking a long tradition of presidents of both parties harassing the Federal Reserve to help their political fortunes. The task of bringing inflation back under control is indeed mostly on the Federal Reserve. The Fed can't do much about energy prices, but it can do more to tighten monetary policy. The total spending level in the U.S., unlike in Europe, remains above its pre-pandemic trend. And Congress must not make things worse by passing any major spending bills. News from Capitol Hill indicates that some form of Build Back Better is being discussed again. Even supposedly paid-for spending should be opposed,

both because the federal government has enough budget obligations already, and because Democrats' maximalist strategy on budget gimmicks, as demonstrated all of last year, means their pay-fors can't be trusted. U.S. bondholders must be reassured that the federal government intends to pay them back in real terms, not inflated currency, and that means a long-term commitment to basic fiscal responsibility. Even if headline inflation comes down next month due to a decline in gasoline prices, the fundamental task before the Federal Reserve will remain the same. All right, that is it for what the right is saying, which brings us to what the left is saying. The left is a little more optimistic about inflation, noting that the most recent signals are positive. Some still criticize Democrats and Biden for how they have navigated the issue. Others argue the Fed's attempt to get inflation down may end up backfiring for working-class

Americans. In Bloomberg, Matthew A. Winkler said the inflation alarm bells are actually getting softer. Minutes after the Associated Press, the wholesaler of news to broadcast digital and print media, reported on June 30th that the key inflation gauge tracked by the Fed remains a high 6.3%. The most visible measure of investor behavior signaled the opposite, Winkler said. Bond investors showed that they expect inflation to cool by betting that the gap will narrow between the yield of inflation-protected U.S. securities and ordinary Treasury bonds.

The rates on these bets actually plummeted on that day, with two-year break-even measure falling to 3.29% from 3.45% and the 10-year rate declining to 2.34%, the lowest point since 2021, according to data compiled by Bloomberg. Consumers may be voicing alarm about inflation, but their behavior is surprisingly optimistic, he said. Fears of continued inflation, the bane of the U.S. economy during the 1970s before the Fed belatedly imposed the worst recession since the Great Depression, would show up statistically in higher demand for autos, washing machines, and houses in anticipation of future price increases. That's not happening, according to the University of Michigan Consumer Sentiment Index, the same indicator used

to show how pessimistic Americans are even as unemployment remains just two-tenths of a percentage point above the 53-year low of 3.4%. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a The bottom line, investors are pretty sure that inflation is less of a threat today than it was two years ago. In the Washington Post, Catherine Rample said if politicians aren't going to make inflation better, they could at least stop making it worse. That message hasn't yet made it here to Massachusetts, where Democratic state lawmakers have proposed sending out checks to most residents to help absorb the increased costs due to inflation that have cut into family budgets. Inflation relief check proposals like this one, which have also been proposed or adopted in California, Indiana, Delaware, and several other states, are likely to be actively harmful in the fight against inflation. That's because these and other

tax cuts or rebates will make red-hot demand even hotter, Rample said. Inflation has lately reached 40-year highs because demand is strong while supply remains constrained. Consumers have a lot of cash on hand thanks to both pandemic-forced savings, delayed vacations, fewer restaurant outings, etc., and federal policies that pumped a lot of money into their pockets as well as the broader economy. Meanwhile, global supply chains are still snarled and worker shortages persist across many sectors, she said. How do you untangle global manufacturing and food supply chains, which are being disrupted by war, COVID lockdowns, and other freak events? How do you nudge more people into the labor force? How do you encourage oil companies to increase refinery capacity, which would help increase the supply of gasoline,

when doing so requires expensive long-term investments that these companies don't think will pay off. There are a few more modest things federal policymakers could do to help with the supply-side problems. These include allowing in more competition from foreign suppliers and ships, or fixing bottlenecks in our legal immigration system could increase the supply of workers. In MSNBC, Kate Bond said continuing to raise interest rates to get to 2% inflation, which is the Fed's goal, could backfire for many Americans. Very high rates of inflation hurt the families who spend more of their incomes on consumption, the daily cost of living, than they do on saving or investing, pinching their budgets and limiting their spending power, Bond wrote. But very low inflation also has lopsided benefits for asset holders, those with financial investments and stock holdings whose wealth, and what others may owe them, maintains its value. Between these two levels is a moderate inflation that benefits debt holders whose liabilities decrease in value as inflation reduces the real value of what they

owe. In this way, moderate inflation could essentially help redirect the vast flow of wealth from the wealthier, older households towards younger, middle-class households. In one hypothetical estimation, inflation in the range of 5% would redistribute wealth from households in the top 10% of the wealth distribution to middle-class households under age of 45, which would essentially receive a bonus of up to 45% of their net worth through reduced debt. Importantly, the government would also benefit. Inflation of 5% would reduce the real value of government debt in the range of 5.2% to 13% of gross domestic product. Still, you may hear economic commentators refer to the risk of

overheating the economy, leading to an upward spiral of costs and prices. But not only is there no evidence of a wage price spiral in the current economy, the connection between a low target inflation rate and healthy economic growth is also tenuous at best. All right, that is it for the left and the right's take, which brings us to my take. The June numbers are bad. There is really no other way to put it. The areas where little relief is shelling, like airline prices or gas, aren't going to make anyone feel better about rent, food, doctor's visits, and energy prices, which have all skyrocketed. Your average American family is making about $60,000 per year and now paying $500 more per month for the same goods and services they bought a year ago. At this point, I think there's a good argument that the Fed needs to

quote-unquote shock the economy with the kind of interest rate hike the markets aren't already pricing in. Noah Smith, one of my more trusted economists, has called for a 2% interest rate hike, twice what many people are expecting, to stop this in its tracks. He's also warned that if we wait too long, we could have no choice but to raise interest rates to something like 8%. Neither of those scenarios are good, but the latter would be awful. The truth is, as Smith and other economic writers like Derek Thompson have been documenting, there are actually some good signs on inflation. Disinflation seemed to start at the end of June and in early July. Smith and Thompson have been collecting those positive signals, and a few are worth pointing out. The price of shipping containers is falling, which will inevitably be passed on to consumers and suggest bottlenecks are finally being resolved.

Commodities, the raw materials like copper, grain, or beef that go into production, are seeing price drops. Rent, while having gone up in June, is also coming down so far this month. The prices for GPUs, the super valuable computer chips that go into cars and video games and cell phones, are also coming down. Gas prices are dropping sharply in the last two weeks and have for 28 days in a row, with the average price down 38 cents since mid-June. So, how do we hold all these things together? The truth is, nobody really knows. The nerdy economists I follow to learn more about the economy are describing our current situation as strange, very weird, very wild, and all sorts of other we-never-seen-anything-like-this-before descriptors.

Inflation is very high while GDP growth is negative. The jobs reports are very good and wages are rising, but real wages are plummeting. The person behind the neoliberal project's Twitter account put it like this, most of the economists I talk to are so confused by these contradictory indicators that they're just assuming the data must be bad, either the jobs data or the GDP data is wrong or busted in some way. I have a similar impression from reading endless articles about this, interviewing economists, and following a lot of their personal newsletters and social media accounts. Some things about this seem simple, like the idea that we shouldn't inject the economy with more government money through stimulus checks or legislation. But other things, like what it will take to ease inflation if that

easing has already begun, and how bad the economy will get under the weight of higher interest rates, seem much less straightforward. To me, next month's BLS report will be the most important we've had yet. After June's historically bad numbers, but coming on the heels of a few weeks of commentary about how things might be turning the corner, the July report will be one of our last chances for unambiguously good news about inflation. If it doesn't come then, given the early indicators we're getting now, consternation you're hearing about inflation could evolve into something more like panic. As Smith said in his most recent post, quote, hopefully I'm writing this post for nothing and in a month or two we can all breathe a sigh of relief as disinflation finally takes hold.

finally takes hold. All right, that is it for my take, which brings us to your questions answered. This one is from an anonymous reader in West Nyack, New York. They said, with the overturning of Roe v. Wade, I'm interested to hear your views about the potential impact on colleges and universities in states that have criminalized abortion. I am hearing from friends of soon-to-be college-age children that they will not send their daughters to schools in those states for obvious reasons. So anytime a major decision like this comes down, I think you should expect a lot of the unexpected. Honestly, I have no idea about how this will impact college admissions.

Your anecdote sounds totally plausible to me, though, and I suspect there will be many pro-choice parents making similar calculations about their kids, sons, and daughters over this. I also think there will be a lot of students making those calculations. In my work, I've encountered so many high schoolers who are passionately liberal, conservative, anti-abortion, pro-choice, etc., that I can imagine many of them making university decisions based on a state's laws, especially on abortion. One thing I said when this ruling came down is it will have ripple effects we can imagine and predict, and also effects we can't.

One such story is already coming into play. A French drug maker is now seeking FDA approval for an over-the-counter birth control pill, which for decades have required prescriptions. That was not something I was expecting, and the drugmaker has said it spent five years navigating FDA red tape to submit the application, and also that it did not have to do with the Roe v. Wade ruling. What it does have to do with, though, is the coverage the application got, and the popularity that such an over-the-counter pill may have, especially in states that ban abortion and for women who feel more comfortable getting birth control without going through a doctor in those states. The other thing I'd expect on college campuses is a lot more protesting and political activism. Abortion rights are going to be a potent

issue for many college-age students on both sides of the aisle, and I expect to see that become a lot more prominent on campuses in the near future. All right, next up is our story that matters for the day. The United Nations, Russia, Ukraine, and Turkey say they are making progress on a proposal to restart Ukrainian exports of millions of tons of grain. Since the beginning of the war, the grain has been stuck in a Ukrainian port, and Russian ships have blocked supplies from moving through the Black Sea. Ukraine accounts for 8.5% of the world's global grain supply and 22 million tons are trapped inside the country. The blockaded grain has driven up the cost of food globally and could lead to many developing nations facing the threat of famine.

The New York Times has the latest on those negotiations and there's a link to it in today's newsletter. All right, now on to our numbers section, always important in a story on inflation. The average price of a gallon of gasoline today is $4.60. The average price of a gallon of gasoline a month ago was $5.01. The average price of a gallon of gasoline a year ago was $3.14. The percentage drop in airline prices last month was 1.8%. The percentage increase in airline prices over the last year was 34.1%. The number of jobs added to the economy in June was 372,000. Alright, that is it for our numbers section, which brings us to our have a nice day section. A Missouri woman and her father recently performed a heart surgery together.

Dr. Sophia Roberts had always wanted to follow in her dad's footsteps and last week she got the chance. Dr. Harold Roberts, 66, has been practicing medicine for 32 years and joined Barnes-Jewish Hospital in Missouri as an associate professor last August. In May, he and his daughter ended up performing an aortic valve replacement in an unexpected chance for the two to work together. It was really very smooth, he said. I wouldn't have done the case any better if I had another heart surgeon assisting me. Good Morning America has the story and there's a link to it in

today's newsletter. Alright everybody, that is it for today's podcast. Quick reminder, we don't normally publish a podcast on Fridays, but we do always publish a subscribers-only Friday edition of our newsletter. If you want to receive that Friday edition, you have to subscribe. Go to readtangle.com slash membership to become a subscriber if you want to hear from us tomorrow. It's going to be a pretty good one. That's all I'm going to say.

Otherwise, we'll be right back here on Monday, same time. Have a good one. Peace. Our newsletter is written by Isaac Saul, edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle's social media manager, Magdalena Bokova, who also helped create our logo. The podcast is edited by Trevor Eichhorn, and music for the podcast was produced by Diet75.

For more from Tangle, subscribe to our newsletter or check out our content archives at www.readtangle.com. We'll see you next time. Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+.