Tangle - The inflation problem.

Episode Date: May 11, 2022

Yesterday, President Biden addressed the country on inflation, telling Americans he understands what they are grappling with and that solving the issue is his top priority. A spike in inflation has pushed the consumer price index up 8% annually, and the average cost of gas per gallon hit a new high on Tuesday. Plus,  a listener question about the trustworthiness of news sources.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.

From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle Podcast, a place where you get views from across the political spectrum, some independent thinking, without all that hysterical nonsense you find everywhere else. I am your host, Isaac Saul, and on today's episode, we're going to be talking about inflation, some of the latest numbers we just got this morning on inflation and what the Biden administration is trying to do about it. As always, before we jump in, we'll start off with some quick hits. In West Virginia, the Trump-endorsed Alex Mooney beat fellow incumbent David McKinley

in the second congressional district primary. In Nebraska, Republicans nominated Jim Pellin for governor over the Trump-endorsed Charles Herbster, who faced allegations of groping. Number two, Elon Musk said he would reverse Trump's Twitter ban if he became the owner of Twitter. Twitter co-founder Jack Dorsey said he agreed with the decision. Number three, the U.S. intelligence community says Russia is preparing for a prolonged war in Ukraine that is likely to become more unpredictable and more escalatory. Number four, gun homicides in the U.S. hit their

highest levels since 1994 during the first year of the pandemic, that is according to a new CDC report. Number five, Palestinian-American journalist Shireen Abu Akhla was killed in the West Bank on Wednesday. Al Jazeera and the Palestinian authorities say she was shot by Israeli military forces despite wearing a clearly marked press vest. today's report from the government is expected to show that america's 40-year high inflation has already peaked the big question now when will prices start dropping we're going to begin with the latest on the critical inflation report from the White House to economists to Wall Street, all looking for clues to where the economy is headed. I want every American to know that I'm taking inflation very seriously and it's my top domestic priority. Yesterday, President Biden addressed the country on inflation, telling Americans he understood what they are grappling with and that solving the issue is his top priority. A spike in inflation has pushed the consumer price index up 8% annually, and the average cost of gas per gallon hit a new high on Tuesday.

I know that families all across America are hurting because of inflation, Biden said in a speech from the White House. I want every American to know that I am taking inflation very seriously and it is my top domestic priority. Biden pointed the finger at the COVID-19 pandemic, supply chain issues, and Russia's war in Ukraine for the rising cost of goods. He also went on the attack against congressional Republicans, criticizing Senator Rick Scott's ultra-MAGA agenda that would raise taxes on 75 million Americans, according to Biden. He also went on the attack against congressional Republicans, criticizing Senator Rick Scott's, quote, ultra-MAGA agenda that would, quote, raise taxes on 75 million American families, end quote. Republicans and some economists have

included the trillions of dollars of COVID-19 aid passed by the Biden and Trump administrations in the blame, as well as Biden's infrastructure bill. Biden said some of the roots of the inflation are outside of our control. Inflation, we'll remind you, is measured using the Consumer Price Index, or 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, including everything from gasoline to apples to the cost of a doctor's visit. On Wednesday morning, the latest inflation numbers were released, showing an 8.3% year-over-year increase in April. This was slightly ahead of the expected 8.1% increase,

but down 0.2% from the 40-year high of 8.5% in March. Core CPI, which excludes volatile goods like food and energy, rose 0.6% month-over-month, higher than the 0.4% that was expected. Both numbers will be concerning for the Fed and the Biden administration. As we've explained before, the Federal Reserve is primarily responsible for navigating inflation. Headed by Jerome Powell, the Fed can take actions like moving interest rates, which can be used to mitigate inflation. If inflation is high, for example, the Fed could increase interest rates, which would dissuade certain spending by contracting the monetary supply, thus slowing inflation. Last week, the Fed did just that. It raised interest rates a half a percentage point, the highest such bump in 20 years.

In the historical context, though, interest rates are still low, meaning it's likely the Fed will have to continue to raise them to tamp down inflation. That has created growing fears that attempts to wrangle inflation will cause a recession or consecutive quarters of the U.S. economy shrinking. The economy already shrank at 1.4% annualized rate in the first quarter of this year, the first decline since the beginning of the pandemic. Consumers are feeling inflation most acutely at the pump. The average price of a gallon of gasoline in the U.S. was $4.37 per gallon yesterday, a new all-time high. A month ago, the cost was $4.11, and a year ago, it was $2.96. Inflation-adjusted gas prices are now similar to what they were in the early 1980s,

but below highs that we saw in 2008. Meanwhile, industry data shows home prices have risen 18.8% in 2021 and rent has climbed 17.6% in the last year. Food inflation has risen 8.8% annually and the cost of agriculture chemicals like fertilizers and pesticides has risen nearly 50% over the last year. In a moment, you're going to hear some opinions from the right and the left on this issue, and then my take. Hey guys, this is Isaac here. If you are listening to this podcast, it's probably because you're interested in finding some common ground. If that's the case, I have a great recommendation for you. It's a new podcast called Let's Find Common Ground.

They are trying to do the opposite of what a lot of other news organizations do, which is seize on fear, anger, distrust, and division. Remarkable, innovative people who are working to bridge differences and reach an understanding with those who see the world a little differently than they do are having conversations on this podcast every day. You'll hear from politicians, scholars,

activists, journalists, and everyday people. They share their personal stories about finding common ground on race, the environment, criminal justice reform, and all the other controversial topics you can think of. New podcast episodes are released every two weeks, and you can join hosts Richard Davies and Ashley Milne-Tight for Let's Find Common Ground. You can find episodes at commongroundcommittee.org slash podcast or wherever you get your podcasts. That's commongroundcommittee.org slash podcast. First up, we'll start with what the right is saying. The right criticizes Biden, saying he needs to take a different course on inflation. Some criticize the Fed for continuing to lie to Americans about the

real cause. Others say Biden's next big proposal, which is forgiving student debt, will only make the issue worse. The Wall Street Journal editorial board said Biden should do the opposite of his every policy instinct. The president again called on Congress to pass his Build Back Better, er, sorry, Building a Better America plan, including more subsidies for green energy, electric cars, child care, housing, and more, the board said. He also doubled down on his proposed billionaire's tax, i.e. unconstitutional wealth tax, and Medicare drug price controls. Mr. Biden again blamed inflation on the pandemic and Vladimir Putin, omitting that Democrats poured kerosene on the accelerating economic recovery last March

with their $1.9 trillion spending bill. Inflation was already at 7.9% when Mr. Putin invaded Ukraine. At the same time, their policies are hampering the supply side of the economy in a myriad of interconnecting ways. Consider energy and food, the board said. The administration's war on oil and gas created enormous regulatory uncertainty that is stanching investment in new production despite high energy prices. Producers can't find workers. Many left the industry when the prices nosedived early in the pandemic and are reluctant to return because Democrats have promised to put drillers out of business. Then there's the left's blockade on pipelines, which is limiting natural gas production in the Northeast's rich shale deposits. What the country needs is more investment to boost the

supply side of the economy, which will increase worker productivity, real wages, and living standards. Mr. Biden's plan to hammer businesses and investors with increased taxes and regulation will do the opposite. Steve Hanke and Kevin Dowd said the Fed is looking for inflation in all the wrong places. When the Fed turned on the money pump, it reassured us that inflation wouldn't appear. Once it did, the oracles at the Fed told us that inflation would only be temporary, they wrote. The Fed and its Keynesian camp followers cast around for scapegoats. They have blamed COVID-19, supply chain disruptions, high oil prices, corporations not wanting to pay their fair share of taxes, price gouging, and now Putin. They blame everything except the factor that was

most responsible, the Fed's own monetary policy, which financed the vast increase in government expenditures since March of 2020. Of course, other factors did play a role, but the Fed's boosters ignored the monetary elephant in the room. True to form, the Fed, as well as the White House, have the public looking for the causes of inflation in all the wrong places, they wrote. The Fed still faces a monetary hangover that is entirely of its own making. Since February 2020, the Fed has flooded the monetary bathtub by increasing the M2 money supply by a cumulative 41%. Money has been flowing into the bathtub much faster than it is draining out of either the real GDP drain or the money demand drain. When more money flows

into the bathtub than drains out, money overflows as inflation. At present, only roughly 25% of the money that has flowed into the tub since February 2020 has drained out to accommodate either the growth in real GDP or the demand for money, meaning that inflation will inevitably persist despite any hawkish action that the Fed now takes. So, the excess money in the bathtub, roughly 75% of the cumulative money supply increase since February 2020 will overflow as inflation and will persist for at least the next two years. In the Miami Herald, Nicole Russell said, if you think inflation is bad now, just wait until Biden wipes out student

loans. Sure, any adult who pays rent or a mortgage, a car loan, student loans, and monthly Amazon Prime, Hulu, Netflix stars, HBO, Disney Plus subscriptions, would love to have a small percentage of their monthly budget wiped out by a magical fairy operating as a really forgiving president. But the idea is asinine on many fronts, Russell said. The president doesn't have executive authority to wipe clean a debt knowingly and purposefully accrued. The federal government issues more than 90% of all student loans, and the rest are owned by private banks and managed by the government. Forgiving student loans would add to inflation because that's how the economy works. What do you think people will do when they suddenly have an

extra $300 to $400 a month, she asked. That's enough for a small car payment, unless Biden wipes those loans clean too, or to put down toward a vacation or even a home. The sudden influx of spending into the marketplace will cause inflation to go up even further. It would also hurt the federal government's bottom line. Canceling $10,000 per borrower would cost the federal government around $373 billion, while the estimated price of eliminating $50,000 per borrower would tally nearly $1 trillion. Alright, that is it for what the right is saying, which brings us to the left's take. The left says Biden is in trouble, especially because so few people understand inflation. Some call out corporate greed as the cause of rising prices. Others argue that Democrats are unfairly framed as worse on the

economy than Republicans. In MSNBC, Hayes Brown said Americans don't get how inflation works, and that is a problem for Biden. What most Americans don't seem to get is what it means for the federal government to fight inflation, Brown wrote. For that, we turn to another recent poll, this one released on April 30th by Axios and Ipsos. It found that 34% of respondents knew the Federal Reserve plays a role in fighting inflation. Encouragingly, 51% had heard the Fed had increased interest rates in March as part of its efforts to rein in price increases. But here's the bad news for Biden. The vast majority of Americans don't know the Fed is independent of the White House. Respondents were asked to identify whether the statement the president can order the Federal Reserve to address inflation was true or

false. 52% didn't know. Another 23% incorrectly said it was true. It's also not clear that Americans get what the Fed's interest rate increases entail and what it hopes to achieve, Brown wrote. Rate increases are meant to make it harder to borrow money, which in turn prompts saving by individuals and businesses instead of spending, cooling off an economy. What a cooler economy most likely means, though, is a rise in unemployment and a freeze in wage increases. So let's say the government did what voters wanted and addressed inflation. That would involve either having the Federal Reserve boost interest rates even further, which Biden can't order it to do, and trigger a recession, or it would involve Biden's going to the Roosevelt-Nixon route and setting up price controls, which would require an act of Congress

to make possible and would give the GOP a new creeping socialism attack to trot out. In the New York Times, Lindsay Owens said corporate profiteering is the real culprit of inflation. Curious how CEOs were justifying their higher prices, my team and I started listening in on hundreds of earning calls where, by law, companies have to tell the truth, Owens wrote. What was striking in the earning calls was not the supply chain shortages or companies' typical profit motives. It was the plain old corporate profiteering. The economics 101 adage that inflation is just too much money chasing too few goods doesn't come close to the full story.

This raises the question, when companies are exploiting consumers in a time of national crisis, when should the government step in? Companies that historically might have kept prices low to pick up profit by gaining additional market share are instead using the cover of inflation to raise prices and increase profits. Consumers are now expecting higher prices at the checkout line, and companies are taking advantage. The poor and those on fixed incomes are hit the hardest. The Federal Reserve Chair, Jerome Powell, said that sometimes businesses are raising prices just because they can. He's right, Owens said. Companies have pricing power when consumers don't have choice. Sometimes this is because demand for consumer staples like toilet paper, toothpaste, and hamburger meat is relatively inelastic.

If you need a box of diapers, you need a box of diapers. Other times, pricing power comes from concentrated market power. In industries like meatpacking and shipping, in which giants have over 80% of market share at times, it's easier to take big markups when there aren't major competitors to undercut you. What we learned on these earning calls was quickly reflected in the data. Despite the rising costs of labor, energy, and materials, profit margins reached 70-year highs in 2021. And, according to an analysis from the Economic Policy Institute, fatter profit margins, not the rising costs of labor and materials, drove more than half of price increases in the non-financial corporate sector since the

start of the COVID-19 pandemic. In the new republic, Timothy Noah defended Democrats' record on the economy. The United States has had 17 recessions over the past 100 years. Want to guess how many began under a Republican president? 13 Republican recessions, including the absolute biggest downturns, he wrote. Pick a metric, any metric. Economic growth? Going back to Franklin Roosevelt, the four presidents who logged the biggest growth in gross domestic product were, in declining order, the Democrats Roosevelt, Kennedy, Johnson, and Clinton, according to a February New York Times

infographic. Three of the four presidents who logged the smallest GDP growth were Republicans. Job creation? The six presidents with the fastest job growth rate were the Democrats Roosevelt, Johnson, Carter, Truman, Kennedy, and Clinton. The four presidents who logged the slowest job growth rate were all Republicans. Median household income, another roller coaster per another Rosenberg graph. It goes up steeply under Clinton and then falls during George W. Bush's first term, then rises during Bush's second term, then falls hard in Bush's final year. It keeps falling through Obama's first term and then shoots up during his second. To be fair, the Obama increase in median household income continued under Trump, but on an inflation-adjusted basis, it started falling about halfway through Trump's final year in office. The stock market? Up 226% under Clinton, up 145.4% under Obama per Rosenberg

and Tomaschi. By comparison, it was up 45.7% under George H.W. Bush and 36.7% under Trump. This is a rare metric where Trump doesn't come in last. That honor goes to George W. Bush, who presided over a 23.7 stock market drop. All right, that is it for the right and the left's take, which brings us to my take. So I'm quite nervous. Inflation is such an intractable issue. I don't see many good routes for the Biden administration to take, and Americans are getting a very difficult lesson on the domino effects that exist in our economy and how easy it is to begin the topple. A simple example, gas prices go up, which means the cost of shipping goes up, which means the cost of shipping food goes up,

which means the price of groceries goes up, which means you have to pay more at your local grocery store. Throw in a labor shortage, which allows some of the folks running the ship or driving or checking you out at the cash register to be paid more, and in order to keep profits stable, companies have to charge even more again. One of the most alarmist pieces ever published in Tangle was about the supply chain issues facing the globe. A few months later, I graded that story an F because many of the most dire holiday season predictions like empty shelves, weeks-long delay in gifts, falling retail sales, and overwhelmed workers didn't come to fruition. But if I were to grade it again now, I may bump it up to maybe a C-. Since one thing that was right

about the general framing was that our supply chain issues were incredibly difficult to solve and were not going anywhere soon. That has proven true. Throughout our coverage on inflation, over and over, I've said that the causes were complex and multifaceted, rejecting any singular issue. I've also continuously expressed my fears and beliefs that this could turn into a long-term issue, which many readers got upset with me about early on. It may have been too speculative, but it ended up being right. Today, there are two leading drivers for inflation that I'm becoming more and more inclined to call out. The Fed's monetary policy and corporate opportunism. The former was not something I was sure of early on.

I'm not an economist, and the intricacies are difficult. I've pleaded ignorance as often as I can on this issue, but with each passing month, it seems more and more obvious that part of the reason inflation refuses to go away is the simple fact there's just too much money. Hanke and Dowd's national review piece, cited above, is one of the most convincing stories on this I've seen yet, almost entirely because they quote economists and members of the Fed who are conceding they were wrong about inflation's transitory nature and the results of printing too much money. The amount of evidence it takes for people like that to reverse course on their public comments is high, and there are too many such people to be

ignored. The latter is an idea that I was almost allergic to because of its simplicity. Corporations are greedy and they're jacking up prices because they can. But it's hard to deny the evidence any longer. Lindsay Owen's piece in the Times is a tour de force, with direct quotes from CEOs celebrating their ability to drive up prices and profits under the cover of inflation stories. The data is even more damning than the quotes. Despite the rising costs of labor, energy, and materials, profit margins reached 70-year highs in 2021, Owens wrote. And according to an analysis from the Economic Policy Institute, fatter profit margins, not the rising costs of labor and materials, drove more than half of price increases in the

non-financial corporate sector since the start of the COVID pandemic. Owens calls for a federal price gouging statute to stop companies from exploiting the pandemic any further. That solution is hard for me to embrace given the heavy hand of government regulation it would require. But there's no doubt she's above the target when she talks about one of the core issues here, companies juicing their profits with little regard for the consumer. Of course, none of this means the supply chain issues, the war in Ukraine, or Biden's energy policies don't play a role. Obviously, the pandemic is the core issue that set most of this off, the first gigantic domino to fall. But the more I understand where we are, the more I sense these issues were prequels to the Fed's monetary policy

and the corporate greed that are both plain as day now. All right, that is it for the left and the right's take and my take, which brings us to your questions answered. Ashley in Lawrence, Kansas asked, how do we know that our trusted news sources of information are actually reliable? Whenever I read about widespread mis- or disinformation, for example, ordinary Russian citizens who believe Ukraine is ruled by Nazis, I spiral into wondering how I would recognize if I were surrounded by such deeply rooted propaganda. As a journalist, what gives you confidence in a news source? So, we don't know that our sources of information are actually reliable. That's kind of an uncomfortable truth, but it should create a level of healthy skepticism

in you. I think American propaganda is everywhere. just look at recent history and the way the media rallied the country around wars in Iraq and Afghanistan. Now that Americans better understand them, we are deeply critical of them. That's not to say all information sources are equal or deserve equal skepticism, just that it's okay to accept that even the most reliable news outlets get stuff wrong, sometimes egregiously so. Honestly, part of the reason I started Tangle was precisely because I don't think it's easy to trust news outlets unless you're taking in a story from a holistic set of sources. That's the whole concept behind this newsletter. Every reporter and team of editors at every news outlet has different sources, different original reporting, different access to stories, and thus

will report those stories out differently. I wrote about this in my exhaustive piece on media bias. Generally, my rules are trust news outlets with big teams. Big teams mean more eyes to catch mistakes, more people to protest misleading information, and more editors to flesh out trustworthy content. Trust reporters covering their beat. If you are reading about agriculture, best to follow a reporter who covers agriculture for a living, not a 25-year-old general news reporter who drops in on a story. Finally, suss out source information. If a story is about a video of a police shooting, watch the video for yourself if you can stomach it. When the source material is accessible, access it. When it isn't, reserve some skepticism. Most big,

reputable news outlets and reporters won't publish something they know is untrue because, even if libel laws are hard to enforce, such an act can destroy your reputation or cost you your job. But big news outlets also sometimes have corporate ties, powerful donors, rich owners, and profit margins to hit, so don't forget to keep an eye on the money, too. At the end of the day, you should feel grateful that we're not in Russia. We live in a country with robust press freedom, where diverse narratives are right at your fingertips. That's a blessing, but sometimes can make the world a lot more complicated. Alright, that is it for our reader question, which brings us to our story that matters.

School districts are preparing to raise school lunch prices in anticipation of federal lunch programs expiring this summer. As part of the pandemic relief legislation, the U.S. Department of Agriculture increased reimbursement rates and loosened requirements for food nutrition and preparing, allowing schools to provide free lunches to all students regardless of parents' income levels. Approximately 90% of schools serve free meals, but that program is now set to end on June 30th, and with the cost of food rising, many parents are about to be hit with a new expense. Axios has the story. There's a link to it in today's newsletter. Next up is our numbers section. The percentage consumer prices rose in April was 0.3%. The percentage consumer prices rose in March was 1.2%. The percentage consumer

prices rose in April on a month-by-month basis was 0.3%. The percentage consumer prices rose in April on a month-by-month basis was 0.3%. The percentage consumer prices rose in April was 0.3%. The percentage consumer prices rose in March was 1.2%. The percentage cost of airfare rose 19% in the month of April. The percentage cost of airfare rose 35% over the last three months. The percentage restaurant dining prices increased in April was 0.9%. The percentage increase of the cost of a used car or truck over the last year is 22.7%. All right, last but not least, our have a nice day section. Maria Alyokhina, the leader of the Pussy Riot Band, has escaped Russia after being held under house arrest on trumped-up charges. Aliyokina is notorious for her anti-Putin protests that began in 2012

and has been sentenced to prison and house arrest numerous times for charges like hooliganism. In April, Putin announced he would send Aliyokina to a penal colony as he cracked down on criticism of his war in Ukraine, so she decided it was time to flee. In a Hollywood-esque escape, she dressed up as a food courier to evade Moscow police, left her cell phone inside the apartment the police had been staking out, and made it to the border of Belarus. A week later, she crossed into Lithuania, where she gave an interview to the New York Times. There's a link to that story in today's newsletter. interviewed the New York Times. There's a link to that story in today's newsletter.

All right, everybody, that is it for today's podcast. As always, if you want to support our work, go to readtangle.com slash membership. And either way, we'll see you right back here same time tomorrow. Peace. For more from Tangle, subscribe to our newsletter or check out our content archives at www.readtangle.com.