WEBVTT - The IMF Admits We Were Right About Inflation 0:00:08.600 --> 0:00:10.639 Okay, that was that was that was slightly longer of 0:00:10.680 --> 0:00:13.080 an a total shriek. Now was ex backing. Robert has 0:00:13.119 --> 0:00:15.240 been coming after me for not doing a total shrieks 0:00:15.240 --> 0:00:18.160 to start the podcast enough so that that's how we're 0:00:18.200 --> 0:00:22.920 starting this episode. It could happen here the podcast where 0:00:23.160 --> 0:00:27.120 we taken into Noverhre's victory Lap Because yeah, so, if 0:00:27.160 --> 0:00:31.080 you've been following the discourse about inflation over the past 0:00:31.120 --> 0:00:35.400 about two two and a half years, and especially in 0:00:35.440 --> 0:00:41.400 the last like maybe year or so, so very interesting 0:00:41.400 --> 0:00:43.400 stuff has been happening, and the stuff that we've talked 0:00:43.400 --> 0:00:45.919 about on this show, and then also stuff that's been 0:00:45.960 --> 0:00:49.440 sort of moving around in the sort of broader discourse 0:00:49.479 --> 0:00:52.599 and has now reached like the IMF. And the thing 0:00:52.640 --> 0:00:56.760 that's been happening is that the theory of inflation that 0:00:56.800 --> 0:00:58.840 I've we've been pushing on this show and that also 0:00:58.960 --> 0:01:03.600 very importantly that has been being developed by Strange Matters 0:01:03.680 --> 0:01:07.640 has been like incredibly vindicated to the point of everyone 0:01:07.680 --> 0:01:11.040 else adopting it and then claiming that they invented it. 0:01:11.920 --> 0:01:14.319 So yeah, we're this is this is this is the 0:01:14.520 --> 0:01:16.920 this is the Inflation Victory Lab episode. And to talk 0:01:16.959 --> 0:01:21.039 about the fact that these two people and their colleagues 0:01:21.080 --> 0:01:25.080 were right about inflation and a bunch of other stuff too. 0:01:25.319 --> 0:01:28.240 Is John Michael Kolan and Steve Mann, who are both 0:01:28.280 --> 0:01:31.240 co editors of the magazine Strange Matters, And yeah, both, Fiji, 0:01:31.319 --> 0:01:32.039 welcome to the show. 0:01:32.240 --> 0:01:33.640 Thanks so much for having us. 0:01:33.959 --> 0:01:37.559 Yeah, and I'm excited about this because I've been wanting 0:01:37.600 --> 0:01:40.360 to do this episode for like ever since. So the 0:01:40.360 --> 0:01:46.240 the IMF tweeted out a graph that was arguing that like, 0:01:46.360 --> 0:01:49.000 I think it's like fifty percent of inflation, and the 0:01:49.000 --> 0:01:53.160 EU was based on corporate profits, which was like them basically, 0:01:53.200 --> 0:01:55.280 and this is this is them, and like all the 0:01:55.320 --> 0:01:59.000 mainstream economists are finally like having to admit that we 0:01:59.000 --> 0:02:00.320 were fucking right about it inflation. 0:02:01.080 --> 0:02:01.440 Yeah. 0:02:01.480 --> 0:02:04.480 So I guess before we get into what we what 0:02:04.520 --> 0:02:06.800 you two were arguing and what you collegues are arguing, 0:02:06.800 --> 0:02:09.760 we should talk a bit about, like I guess who 0:02:09.760 --> 0:02:11.720 you two are, and also like talk about Strange Matters 0:02:11.720 --> 0:02:14.119 again because I think it's been a bit since y'all 0:02:14.200 --> 0:02:14.639 have been on. 0:02:15.800 --> 0:02:20.320 Yeah. Absolutely, So, Strange Matters is a this is our 0:02:20.400 --> 0:02:25.280 kind of boiler plate, a magazine of new and unconventional thinking. 0:02:25.400 --> 0:02:29.200 In economics, politics, and culture, and we have a political bent, 0:02:29.480 --> 0:02:34.480 so we are broadly speaking all some flavor of libertarian. 0:02:34.600 --> 0:02:36.520 Socialist is kind of the umbrella term that we've used 0:02:36.560 --> 0:02:40.520 for ourselves, but that varies depending on the individual kind 0:02:40.520 --> 0:02:42.720 of members of the team. So we've got people who 0:02:43.000 --> 0:02:45.560 are anarchists, We've got people who are inspired by like 0:02:45.560 --> 0:02:48.840 democratic and federalism. We've got like people who don't like 0:02:49.040 --> 0:02:50.520 a lot of those labels but are really into like 0:02:50.520 --> 0:02:53.520 direct democracy stuff. But like you know, the the four 0:02:53.560 --> 0:02:59.960 of us basically converge on the direct democracy, you know, 0:03:00.080 --> 0:03:04.880 socialism is putting people in charge of the decisions that 0:03:04.880 --> 0:03:09.680 affect them kind of school of things. So in terms 0:03:09.720 --> 0:03:13.480 of our economics pages, however, we've for the last couple 0:03:13.440 --> 0:03:19.160 of years been really dedicated to publishing heterodox economists, economists 0:03:19.200 --> 0:03:22.919 who don't correspond to the usually quite right wing mainstream 0:03:22.960 --> 0:03:26.720 of the economics discipline, but challenging in fundamental ways. And 0:03:26.760 --> 0:03:30.080 there's a bunch of different schools of heterodox economics, like 0:03:30.480 --> 0:03:33.200 you know, everyone knows about, like Marxists, but there's also 0:03:33.600 --> 0:03:38.520 post Kinesians and ecological economics and feminist economics and a 0:03:38.520 --> 0:03:41.480 whole bunch of different schools. We've been dedicated to publishing 0:03:41.840 --> 0:03:44.800 people from all those different schools and trying to kind 0:03:44.800 --> 0:03:46.240 of get them to write in a style that's more 0:03:46.280 --> 0:03:49.000 accessible for ordinary people, so that some of those ideas 0:03:49.000 --> 0:03:51.840 actually start not just reaching the public, but actually reaching 0:03:51.840 --> 0:03:53.920 each other because they don't really talk to each other 0:03:54.080 --> 0:03:54.400 very much. 0:03:54.800 --> 0:03:55.960 This is this is one This is one of the 0:03:55.960 --> 0:03:59.080 big problems is like I mean even just inside of Marxism, 0:03:59.120 --> 0:04:01.040 like if you if you get six Marxist in the 0:04:01.040 --> 0:04:03.240 same we all have nine different positions and they'll all 0:04:03.280 --> 0:04:05.400 be like ready to murder each other over it. And 0:04:06.320 --> 0:04:09.200 that's that's just the Marxists, and then you expand out 0:04:09.240 --> 0:04:11.040 to all the rest of the other Heterodoxicontaoist people, and 0:04:11.080 --> 0:04:14.720 there's a lot of weird and sort of pointless rivalries 0:04:14.760 --> 0:04:17.839 going on that prevents people from like fusing really useful 0:04:17.839 --> 0:04:18.480 theories together. 0:04:18.839 --> 0:04:20.080 Yeah. Absolutely, Yeah. 0:04:20.120 --> 0:04:23.760 We tried to be a platform for diverging opinions to 0:04:23.839 --> 0:04:27.479 actually be put into dialogue with each other, and we've 0:04:27.640 --> 0:04:31.360 definitely I don't think there's been a single piece that 0:04:31.520 --> 0:04:35.080 all of us have been in lockstep agreement on theoretically, 0:04:35.600 --> 0:04:38.599 and I think that's a real strength. Actually, Yeah, like 0:04:38.640 --> 0:04:41.240 there's there's quite a there's quite a few pieces that 0:04:41.600 --> 0:04:44.720 at least one of us is like, I still don't 0:04:44.880 --> 0:04:48.159 really know about this thesis, but I've been there have 0:04:48.200 --> 0:04:50.479 been times in which I've been down on a piece, 0:04:50.520 --> 0:04:52.520 but it does amazing, so let's go with it. 0:04:53.800 --> 0:04:56.600 And also, you know, part of the reasoning for that 0:04:56.839 --> 0:04:59.040 is not just to kind of like Lucy Goosey, let's 0:04:59.080 --> 0:05:01.919 all get along and and sing around a campfire, but 0:05:02.120 --> 0:05:04.880 it's actually a very principled thing because part of the 0:05:04.880 --> 0:05:06.960 story that we're telling with the magazine is how we 0:05:07.000 --> 0:05:11.200 have these enormous problems, you know, climate change, the whole 0:05:11.240 --> 0:05:13.720 crisis that the democracies have been going through since the 0:05:13.720 --> 0:05:16.760 two thousand and eight crisis, the whole and since like 0:05:16.800 --> 0:05:20.400 the rise of global fascism in the twenty tens, like 0:05:20.720 --> 0:05:22.760 the what are we going to do about like the 0:05:22.760 --> 0:05:25.000 Internet and its future? What are we going to do 0:05:25.200 --> 0:05:30.320 about these these horrible culture war type issues that like, 0:05:30.400 --> 0:05:32.279 you know, people talk about it as the culture of war, 0:05:32.320 --> 0:05:34.920 but actually it's these massive reconfigurations that we have to 0:05:34.920 --> 0:05:40.520 do of our consciousness in order to think about you know, gender, 0:05:40.760 --> 0:05:43.000 national identity, and ethnic identity and all these other things. 0:05:43.000 --> 0:05:45.679 In different in new ways that are actually like freeing 0:05:45.720 --> 0:05:49.359 and emancipating and stuff like, Like all of these problems 0:05:49.440 --> 0:05:53.760 are vast and nobody actually knows what the answer is, 0:05:53.800 --> 0:05:56.360 and that includes leftists. Like there's a lot of these 0:05:56.360 --> 0:06:00.480 problems that are either like too technical or to complex 0:06:00.560 --> 0:06:02.760 for any one person to have the solution. So there 0:06:02.800 --> 0:06:04.280 needs to be a space where we kind of come 0:06:04.320 --> 0:06:07.000 together people who are kind of like of good faith 0:06:07.040 --> 0:06:09.080 and who like are trying to kind of do the 0:06:09.120 --> 0:06:12.400 whole democracy and egalitarianism thing, and we actually butt our 0:06:12.440 --> 0:06:14.520 heads together across lines of difference and are like, Okay, 0:06:14.560 --> 0:06:16.080 what are we going to do about this? And what 0:06:16.160 --> 0:06:19.080 are our different perspectives and what's the what's the common ground, 0:06:19.160 --> 0:06:21.719 and what are some little bits and pieces of things 0:06:21.720 --> 0:06:23.120 that people have figured out that we can kind of 0:06:23.120 --> 0:06:25.400 stitch together into something that will let us not just 0:06:25.480 --> 0:06:30.960 get steamrolled by the fascists. And that that's the kind 0:06:31.000 --> 0:06:32.960 of space that we're trying to be, and that's why 0:06:33.120 --> 0:06:36.039 we try to accommodate these different perspectives, even though we 0:06:36.080 --> 0:06:39.400 ourselves tend to come from rather strong perspectives both individually 0:06:39.440 --> 0:06:40.080 and as a group. 0:06:40.680 --> 0:06:44.400 Yeah, well, and I think we can like this inflation 0:06:45.200 --> 0:06:47.799 sort of argument that's been playing over the past few years, 0:06:47.920 --> 0:06:51.440 I think is a really like it's a really good 0:06:51.440 --> 0:06:54.000 indication of how well this stuff can work. If it's 0:06:54.040 --> 0:06:58.760 if it's like you know, like the fact that y'all 0:06:58.760 --> 0:07:01.960 have basically had the inflation theory that like a bunch 0:07:01.960 --> 0:07:04.719 of mainstream economists were going to stumble over in the 0:07:04.760 --> 0:07:09.440 last like eight months, had effectively written we're discussing and 0:07:09.480 --> 0:07:12.480 we're writing it like two years ago. Is a is 0:07:12.520 --> 0:07:14.360 a sign that something is going right? 0:07:14.920 --> 0:07:16.280 Yeah, we feel really vindicated. 0:07:16.440 --> 0:07:19.640 Yeah, it's it's been very, very very funny to watch. 0:07:20.800 --> 0:07:23.119 So I guess we should move into a bit about 0:07:23.160 --> 0:07:26.560 what this theory actually is, and the very very short 0:07:26.640 --> 0:07:29.480 version of it is that it's a supply chain theory 0:07:29.520 --> 0:07:33.160 of inflation. It's a theory of inflation that tracks, you know, 0:07:33.280 --> 0:07:38.760 tracks price increases based on like like price movement based 0:07:38.760 --> 0:07:43.240 on stuff happening like backwards in the supply chain. And yeah, 0:07:43.240 --> 0:07:46.120 that turns out to have been a really useful both 0:07:46.160 --> 0:07:49.320 predictive thing and explanatory thing once the inflation actually started. 0:07:50.200 --> 0:07:53.000 Yeah, I just really wanted to highlight that it's Steve 0:07:53.400 --> 0:07:55.760 who wrote the initial essay where we first put those 0:07:55.800 --> 0:07:59.440 pieces together, it's it's it's Steve's supply chain theory of 0:07:59.440 --> 0:08:02.520 inflation were anybody else's, So I definitely I defer to 0:08:02.560 --> 0:08:05.200 you in terms of, you know, laying the groundwork for it. 0:08:05.560 --> 0:08:09.040 Well. I wrote a piece called Notes toward e Theory Inflation, 0:08:09.720 --> 0:08:12.280 and it was kind of born partly out of frustration 0:08:12.400 --> 0:08:16.320 over the fuzzy language in which economists will try to 0:08:16.320 --> 0:08:19.120 speak about inflation. And when I was a grad student, 0:08:19.200 --> 0:08:23.480 I would like encounter it not just from any particular school, 0:08:23.520 --> 0:08:27.880 but from broadly speaking, most of the schools of economics. 0:08:27.960 --> 0:08:34.320 And like it's been prior to this inflationary episode and history, 0:08:34.360 --> 0:08:37.280 it has been almost forty years since we've experienced anything 0:08:37.320 --> 0:08:41.439 like this. And you know, in the in the last 0:08:41.480 --> 0:08:45.600 period of like runaway inflation in the eighties, people were 0:08:45.800 --> 0:08:49.439 having a similar reckoning, although they didn't quite coalesce around 0:08:49.480 --> 0:08:53.600 supply chain and cost puss related theories of inflation like 0:08:53.600 --> 0:08:57.480 they are at this time. But like the theory like 0:08:57.679 --> 0:09:01.120 in a nutshell, the supply chain theory of inflation is 0:09:01.200 --> 0:09:06.640 essentially saying that along there there are groups of businesses 0:09:06.720 --> 0:09:11.160 called supply chains who buy inputs from each other in 0:09:11.280 --> 0:09:13.920 order to produce products and sell them to either the 0:09:13.960 --> 0:09:16.920 next person in the chain or to outside consumers that 0:09:17.000 --> 0:09:22.800 the end user and over time, given stressful enough biophysical 0:09:22.840 --> 0:09:27.520 conditions that they all find themselves in even if they 0:09:27.520 --> 0:09:30.880 don't want to raise prices. And broadly speaking, we know 0:09:30.960 --> 0:09:34.240 from empirical studies that most businesses most of the time 0:09:34.440 --> 0:09:39.040 are very biased towards not raising prices. If the situation 0:09:39.120 --> 0:09:41.920 gets dire enough and they've run they've exhausted all of 0:09:42.000 --> 0:09:47.000 their non price based mechanisms for dealing with bottlenecks what 0:09:47.040 --> 0:09:49.640 are called bottlenecks in the supply chain, Like they just 0:09:49.640 --> 0:09:51.360 don't have enough of the inputs that they need in 0:09:51.440 --> 0:09:54.360 or to sell enough stuff at assert at their normal 0:09:54.400 --> 0:09:57.840 price in order to make enough revenue to socially reproduce 0:09:57.920 --> 0:10:01.400 themselves and their supply chain. Of evidentially, they will exhaust 0:10:01.400 --> 0:10:03.880 all options and there will be one person who's kind 0:10:03.880 --> 0:10:08.680 of like the progenitor price increaser. And because like every 0:10:08.679 --> 0:10:11.080 single and like, what is inflation really, it's a general 0:10:11.480 --> 0:10:15.040 rise in prices. What are prices? Prices are things that 0:10:15.200 --> 0:10:18.920 people themselves inside of firms, it's their job to set 0:10:20.000 --> 0:10:22.920 and so any theory of inflation needs to start with 0:10:24.200 --> 0:10:27.880 a theory of price essentially, and like, so these managers 0:10:27.920 --> 0:10:31.560 whose job it is to set prices, when they change prices, 0:10:31.679 --> 0:10:35.079 why did they do it? Well, we have answers going 0:10:35.120 --> 0:10:39.319 back many decades, almost a century of the surveys of 0:10:39.960 --> 0:10:43.600 economists who have gone out and actually conducted surveys asking 0:10:44.320 --> 0:10:47.920 under what conditions would you raise prices? And at no 0:10:48.040 --> 0:10:51.560 time did anyone say, oh, I raise prices because I 0:10:51.559 --> 0:10:53.760 looked at monetary aggregates and I saw that there was 0:10:53.800 --> 0:10:58.240 too much money, so I raised prices that and so 0:10:58.320 --> 0:11:00.200 like that was kind of a starting point for me 0:11:00.840 --> 0:11:04.800 when I read those these surveys conducted by Gardner Means, 0:11:05.040 --> 0:11:07.480 who is an economists and doing this work in the 0:11:07.480 --> 0:11:12.480 twenties and thirties long. If I don't burrow, I got 0:11:12.520 --> 0:11:14.880 really excited because I'm like, oh, of course, well, of 0:11:14.920 --> 0:11:19.160 course it's if inflation. There's so much mysticism about like 0:11:19.280 --> 0:11:23.040 piles of money building up, and then it's like demand 0:11:23.120 --> 0:11:26.440 pull and cost push, and like what does this all mean? Right? Well, 0:11:26.760 --> 0:11:29.720 at the bottom of it, it's what are pricing managers 0:11:29.760 --> 0:11:32.080 doing when they make that fateful decision to be the 0:11:32.120 --> 0:11:36.960 first guy to raise prices? Because there is one. It 0:11:37.000 --> 0:11:40.520 has to start with someone, and it's usually, like I 0:11:40.600 --> 0:11:43.600 was saying, they've exhausted all of their other methods of 0:11:43.640 --> 0:11:49.240 dealing with this, such as rationing inputs or economizing like 0:11:49.440 --> 0:11:53.720 increasing their efficiency and their production, or diversifying their product 0:11:53.760 --> 0:11:56.840 lines and all this stuff in order to maintain customer 0:11:56.840 --> 0:12:01.200 goodwill throughout a period of of his coal stress to 0:12:01.400 --> 0:12:03.920 the supply chain, and they're just going to raise prices 0:12:03.920 --> 0:12:05.520 because they have to get a certain amount of revenue 0:12:05.520 --> 0:12:09.160 in order to make it as a business. So that's 0:12:09.280 --> 0:12:12.080 essentially what the supply chain theory is is that when 0:12:12.080 --> 0:12:15.840 that happens, it propagates along supply chains first and then 0:12:16.120 --> 0:12:21.640 because nowadays our economy is so extremely integrated, it's not 0:12:21.720 --> 0:12:25.319 just one supply line. It's an entire supply chain network nowadays, 0:12:25.559 --> 0:12:28.400 and it's global in scope, so even if it can't 0:12:28.440 --> 0:12:33.480 it's it's increasingly less constrained to just like one industry 0:12:33.600 --> 0:12:35.079 or even one country these days. 0:12:37.360 --> 0:12:40.559 That was a that was a beautiful explanation. That's that's 0:12:40.600 --> 0:12:44.480 probably the most concise that we've that we've accomplished yet 0:12:44.520 --> 0:12:47.560 at boiling it down. I'll just because this is the 0:12:47.559 --> 0:12:49.400 problem is that we could go on for like thirty 0:12:49.440 --> 0:12:53.240 minutes about this. Yeah, just this. I guess I have 0:12:53.280 --> 0:12:55.720 a couple of things to add that are just like 0:12:56.160 --> 0:12:58.640 digging out a couple of nuances that I think are 0:12:58.760 --> 0:13:04.520 important for listeners to stand. What Steve said about inflation 0:13:05.000 --> 0:13:10.240 being about a continuous general increase in prices is really 0:13:10.280 --> 0:13:12.960 really profound. I think the first person to articulate that 0:13:13.080 --> 0:13:15.199 I'm aware of was John K. Galbraith in an essay 0:13:15.200 --> 0:13:18.320 that he wrote about that, but in like the fifties. 0:13:18.559 --> 0:13:22.960 But like, that's honestly not the way that we usually 0:13:23.000 --> 0:13:25.480 think of it, right, Like, usually we think that inflation 0:13:26.040 --> 0:13:29.680 is when money, the value of money goes down value 0:13:30.280 --> 0:13:33.240 money buys you less than it usually does. And that 0:13:33.400 --> 0:13:35.079 is not just because that's how we experience it in 0:13:35.160 --> 0:13:37.840 our pocketbooks. Everything else is just scott more expensive. It 0:13:37.880 --> 0:13:39.640 also has to do with the kind of history of 0:13:39.679 --> 0:13:45.000 theories of inflation, because back in the day, the first 0:13:45.040 --> 0:13:48.480 and og theory of inflation, which people still some of 0:13:48.480 --> 0:13:51.400 them believe in, is the quantity theory of money, and 0:13:51.440 --> 0:13:55.400 it basically envisions like the entire economic universe as a 0:13:55.400 --> 0:13:58.439 bunch of like atomized individual agents. And by the way, 0:13:58.440 --> 0:14:01.920 there's no like distinction between companies and households or anything 0:14:02.000 --> 0:14:05.600 like that. Here, everyone's kind of like funny, everyone's an 0:14:05.679 --> 0:14:08.680 individual agent. And there's a bunch of stuff that already 0:14:08.679 --> 0:14:10.880 exists out there in the economy. How it was produced, 0:14:10.960 --> 0:14:13.160 I mean, you deal with that in a production function. 0:14:13.240 --> 0:14:15.040 Other than that, like you don't talk about it. So 0:14:15.200 --> 0:14:18.320 there's a bunch of existing stuff out there in the economy, 0:14:18.360 --> 0:14:21.200 and it's scarce, right, so like how is it going 0:14:21.240 --> 0:14:24.520 to be distributed? Well, we're trading the stuff that we 0:14:24.600 --> 0:14:27.400 have for the stuff that we need. And when things 0:14:27.440 --> 0:14:31.760 are more scarce, they're more valuable. When things are more abundant, 0:14:31.760 --> 0:14:37.040 they're less valuable. And when we want them more they're 0:14:37.120 --> 0:14:39.880 more valuable, we want them less, they're less valuable. So 0:14:39.920 --> 0:14:43.800 that's kind of like like the very basic universe that 0:14:43.840 --> 0:14:47.320 they're kind of like operating in. And money was just 0:14:47.360 --> 0:14:53.000 seen to be one one good being traded like any other. 0:14:53.200 --> 0:14:54.600 It just so happens to be the one that we 0:14:54.680 --> 0:14:57.720 trade in exchange for everything else. So rather than doing 0:14:57.800 --> 0:15:01.280 barter like like of every thing, you know, this many 0:15:01.360 --> 0:15:05.720 chickens for this amount of haircut, you know, like, instead 0:15:05.760 --> 0:15:09.680 it's like, you know, we choose one thing to be 0:15:09.720 --> 0:15:13.160 exchangeable for everything else, but it still has a value, 0:15:13.280 --> 0:15:17.080 which is basically determined, according to this theory, by how 0:15:17.120 --> 0:15:19.480 much of it there is. So if you increase the 0:15:19.480 --> 0:15:23.320 money supply, money gets less valuable, which is why you know, 0:15:23.440 --> 0:15:28.480 everything becomes more expensive, prices go up. Whereas if the 0:15:28.520 --> 0:15:32.680 money supply shrinks, you know, then the value of money 0:15:32.760 --> 0:15:34.960 is higher relative to the goods that it buys, so 0:15:35.000 --> 0:15:38.120 therefore prices will go down. This was the theory that 0:15:38.280 --> 0:15:40.560 was developed in like the sixteen and seventeen hundreds to 0:15:40.560 --> 0:15:43.720 try to explain a massive global inflation that happened then 0:15:44.480 --> 0:15:49.040 in the so called price revolution of the seventeenth century. 0:15:49.120 --> 0:15:52.760 And frankly everyone by the twentieth century knows that there's 0:15:52.880 --> 0:15:55.720 huge issues with this, so they start trying to evolve 0:15:56.280 --> 0:15:58.960 away from it, away from the quantity theory of money, 0:15:58.960 --> 0:16:02.520 because it has no real empirical basis. I mean, some 0:16:02.560 --> 0:16:05.200 people tried to kind of like you know, juke the 0:16:05.240 --> 0:16:07.600 stats to make it look like there was but like, really, 0:16:07.880 --> 0:16:10.120 our best estimates of the money supply have no real 0:16:10.160 --> 0:16:12.720 good correspondence to prices in the economy. It's not it 0:16:12.720 --> 0:16:13.760 doesn't really work that way. 0:16:14.080 --> 0:16:16.800 So yeah, this is this is the sort of modern 0:16:16.880 --> 0:16:20.400 version of this is called monetarism, which is like that's real. Yeah, 0:16:20.440 --> 0:16:24.440 And this is like, this is maybe the only thing 0:16:24.520 --> 0:16:28.320 I have ever seen, even like most neoclassical economists drop 0:16:28.360 --> 0:16:31.800 because it's empirically wrong, like it's stunning, Like you do 0:16:31.800 --> 0:16:34.480 you know how wrong something has to be for neo 0:16:34.560 --> 0:16:38.400 classical economists to go, wait, hold on, maybe this isn't right, 0:16:38.840 --> 0:16:41.280 like I it's it's incredible. 0:16:42.240 --> 0:16:45.200 But the problem is that they retreated into theories that 0:16:45.760 --> 0:16:50.440 are not necessarily right either. Yeah, perhaps perhaps groping their 0:16:50.440 --> 0:16:55.000 way clumsily towards the truth, but not really that right. 0:16:55.160 --> 0:16:57.360 So this is this is where all that pull and 0:16:57.440 --> 0:16:59.560 push stuff comes in, and it's it's it's a little 0:16:59.560 --> 0:17:02.680 too technic to get into. Steve's essay has like the 0:17:03.160 --> 0:17:06.480 full version of it, but basically they started evolving away 0:17:06.480 --> 0:17:09.280 from a theory where the absolute amount of money in 0:17:09.320 --> 0:17:12.920 the economy is what matters most, and towards theories where, 0:17:13.000 --> 0:17:16.080 for example, it's the amount of money relative to the 0:17:16.080 --> 0:17:18.520 goods that can be bought by it. So if you 0:17:18.600 --> 0:17:21.479 have a bunch of people spending money to buy stuff, 0:17:21.840 --> 0:17:25.360 but there's not enough stuff to meet that demand. Then 0:17:26.440 --> 0:17:29.240 that will basically mean that there's like scarcity and shortages 0:17:29.320 --> 0:17:31.159 and things like that, and that will cost prices to 0:17:31.200 --> 0:17:37.119 go up. Although why they do, like the underlying microeconomics 0:17:37.119 --> 0:17:39.400 of why prices go up when they're shortages and stuff, 0:17:39.760 --> 0:17:42.200 this theory doesn't really address because it's a macro theory 0:17:42.240 --> 0:17:44.639 and it'll kind of like fall back on supply and 0:17:44.640 --> 0:17:48.040 demand stuff or various kind of weird hydraulic metaphors about 0:17:48.040 --> 0:17:54.240 like well god, yeah, yeah, yeah, you know, it's so 0:17:54.560 --> 0:17:57.360 it doesn't really like like you know, different people will 0:17:57.400 --> 0:18:00.119 have different versions of this that have totally differ and 0:18:00.119 --> 0:18:02.959 explanations of why it's happening, but they'll generally say, if 0:18:02.960 --> 0:18:05.000 you look at the economy as a whole, if the 0:18:05.000 --> 0:18:08.440 stuff that's being made is less than the orders being 0:18:08.440 --> 0:18:11.640 put in for it, then that causes inflation because you're 0:18:11.680 --> 0:18:14.080 just not producing enough stuff. And they call that demand 0:18:14.200 --> 0:18:18.040 pull because the poll of basically it's like demand pulling, 0:18:18.400 --> 0:18:21.520 you know, for stuff that isn't being produced, so it's 0:18:21.560 --> 0:18:24.960 like okay, well that that causes price rises. There was 0:18:25.119 --> 0:18:27.560 a parallel development where they're trying to get away from 0:18:27.600 --> 0:18:30.160 the QTM another way where some people were like well, 0:18:30.560 --> 0:18:34.679 what's the most important single cost for businesses across the 0:18:34.680 --> 0:18:38.359 economy And they say labor obviously, right, like everyone needs 0:18:39.440 --> 0:18:41.800 to pay somebody to do wages to keep the business going. 0:18:42.160 --> 0:18:44.280 So they just said, okay, well, if the cost of 0:18:44.359 --> 0:18:48.640 labor goes up across the economy, then that will cause 0:18:48.640 --> 0:18:52.040 prices to go up. So that's called cost push, which 0:18:52.520 --> 0:18:54.520 now theoretically this could be true of any cost. And 0:18:54.560 --> 0:18:56.720 this is kind of like where you know Steve's theory 0:18:56.760 --> 0:18:59.280 comes in is because it actually like starts talking realistically 0:18:59.280 --> 0:19:02.000 about what the cost of businesses are. But originally this 0:19:02.160 --> 0:19:04.880 was again a macro theory, so they picked the one 0:19:04.960 --> 0:19:06.840 cost that's common to all the things in the economy 0:19:06.920 --> 0:19:09.560 and they said that basically, inflation is the cost of 0:19:10.040 --> 0:19:13.240 workers agitating for higher wages, which leads wages to go up, 0:19:13.440 --> 0:19:17.399 which causes cost push inflation, the cost go up, so 0:19:17.440 --> 0:19:20.800 that pushes puts pressure down the supply chain because it's 0:19:20.840 --> 0:19:24.040 it's a cost for everybody downstream of it, so then 0:19:24.880 --> 0:19:27.800 it causes it to the prices to go up. Now, 0:19:27.840 --> 0:19:29.880 the problem with these theories is that like they're very 0:19:29.960 --> 0:19:33.160 like rigid. It's like it has one cause and it's 0:19:33.200 --> 0:19:36.840 also like, you know, and it's this one thing and 0:19:36.880 --> 0:19:39.760 it has to operate across the entire economy. Right, But 0:19:39.840 --> 0:19:42.280 that's not actually how our economy is put together. Because 0:19:42.320 --> 0:19:44.800 our economy is not this general equilibrium produced by the 0:19:44.840 --> 0:19:47.200 trading of individual agents who are buying cheap and selling 0:19:47.200 --> 0:19:50.880 deer to each other. That whole universe doesn't really exist. 0:19:51.640 --> 0:19:54.000 The universe that we actually live in is one where 0:19:54.040 --> 0:20:01.600 businesses are not isolated. They're interdependent. Right Like the the 0:20:01.680 --> 0:20:05.080 you know, the people who collect sands, you know, from 0:20:05.160 --> 0:20:09.399 the earth and other minerals, feed into the factories that 0:20:09.440 --> 0:20:13.320 turn it into glass, which feeds into the construction industry 0:20:13.320 --> 0:20:17.720 that puts those glass well actually, no, sorry I missed 0:20:17.760 --> 0:20:19.879 a step there. You know, it feeds into the factories 0:20:19.920 --> 0:20:22.640 that turn that glass into windows, which then feeds into 0:20:22.680 --> 0:20:26.040 the construction industry, which puts them into buildings that then 0:20:26.400 --> 0:20:29.520 feeds into like real estate conglomers that rent it, which 0:20:29.560 --> 0:20:33.080 then feeds into businesses and households that live there. Right Like, 0:20:33.160 --> 0:20:37.240 that's the entire supply chain, and all those businesses depend 0:20:37.359 --> 0:20:40.240 upon each other because they're each other's customers. So how 0:20:40.280 --> 0:20:43.359 much glass do they make in the in the glass factory? 0:20:43.359 --> 0:20:46.639 It depends on how much how many windows the window 0:20:46.720 --> 0:20:50.000 factories that are all their customers order. That's what determines 0:20:50.000 --> 0:20:53.760 how much they're gonna make. You know, this whole picture 0:20:53.960 --> 0:20:56.359 of the world as supply chains is common sense to 0:20:56.359 --> 0:20:59.480 anybody who actually like works a job, especially if they're 0:20:59.520 --> 0:21:01.600 like in a man position where they have to maybe 0:21:01.600 --> 0:21:04.440 be dealing with some of the supplier relations stuff or 0:21:04.480 --> 0:21:09.400 customer relations stuff. Economists just don't talk about it. It's 0:21:09.400 --> 0:21:11.680 not really in their models because their models are developed 0:21:11.680 --> 0:21:14.280 from the ground up from this kind of like everybody's 0:21:14.359 --> 0:21:18.360 just trading as individuals perspective. And that's a great deal 0:21:18.400 --> 0:21:21.720 of the reason why Steve's theory is so powerful. Now. 0:21:21.800 --> 0:21:26.040 A lot of this supply chain picture that I'm painting, 0:21:26.520 --> 0:21:28.720 besides coming from the real world, it also came from 0:21:28.720 --> 0:21:31.200 a particular heterodox economist that I wrote a very long 0:21:31.240 --> 0:21:33.440 profile of called Frederick S. Lee. 0:21:34.240 --> 0:21:36.600 Before we get into Lee, we unfortunately do need to 0:21:36.600 --> 0:21:41.520 take an ad break because capitalism. But do you know 0:21:41.560 --> 0:21:44.520 what Frederick Lee would have hated, and it's this ad break. 0:21:45.000 --> 0:21:59.560 We're about to do it, all right, and we're back 0:21:59.600 --> 0:22:01.760 to talk about Frederically, he was very cool and them 0:22:01.840 --> 0:22:02.280 very excited. 0:22:03.680 --> 0:22:07.359 Yeah, well, unfortunately started to the point. We're not gonna 0:22:07.359 --> 0:22:10.440 talk a ton about him. The only really important thing, 0:22:10.560 --> 0:22:12.520 so he was. He was a great guy. He was 0:22:12.920 --> 0:22:15.240 an anarcho syndicalist. He was a lifelong member of the 0:22:15.240 --> 0:22:18.280 i w W. He actually helped recover Joe Hill's ashes 0:22:18.560 --> 0:22:22.639 from the federal government and properly bury them. That's not 0:22:22.800 --> 0:22:25.200 in Part one of my profile, which is published. It's 0:22:25.200 --> 0:22:28.560 in part two, which is coming up. But in addition 0:22:28.600 --> 0:22:31.960