WEBVTT - The Current U.S. Economy: Recession, Inflation, and Interest Rates – Lab 079 0:00:00.360 --> 0:00:04.080 I'll tell you one thing. What yesterday's price is not 0:00:04.120 --> 0:00:09.039 today's price. A okay, the price went up. I feel 0:00:09.119 --> 0:00:15.280 like that's every day, literally every day, and for everything everything, 0:00:15.760 --> 0:00:18.600 gallon of milk, bread, cheese. 0:00:18.600 --> 0:00:22.840 Chicken, chicken wings. Nothing is safe, No one is safe. 0:00:23.200 --> 0:00:25.640 All of our pockets are getting got. They did say 0:00:25.640 --> 0:00:29.000 the chicken wing price went back to pre pandemic prices. 0:00:29.040 --> 0:00:30.920 Well, I don't know how. There was a wing shortage, 0:00:30.960 --> 0:00:34.760 but not a rest of the chicken shortage. Anyway, it 0:00:34.800 --> 0:00:37.280 didn't affect me because you know I'm roasting whole chickens 0:00:37.280 --> 0:00:39.879 at my house. Oh yeah, yeah, that's. 0:00:39.680 --> 0:00:40.680 True, my friend. 0:00:40.760 --> 0:00:43.560 Oh my gosh, you remember when you put that turkey 0:00:43.560 --> 0:00:44.280 breast on the grill. 0:00:44.960 --> 0:00:46.720 It was so good? 0:00:46.880 --> 0:00:48.200 Those were good times. Man. 0:00:48.800 --> 0:00:50.240 The kid cooks so good it make you want to 0:00:50.360 --> 0:00:52.400 fight her because you know you're not gonna eat that 0:00:52.400 --> 0:00:52.760 good again. 0:00:52.760 --> 0:00:54.360 Well, I won't do it again. Not if you ain't 0:00:54.400 --> 0:00:57.720 like that, be so mad. 0:00:57.760 --> 0:00:59.760 I'm like, man, because I know it's gonna be a 0:00:59.800 --> 0:01:01.480 lung time before I eat this good again. 0:01:03.040 --> 0:01:05.880 So if you think about that turkey that I had, 0:01:05.920 --> 0:01:11.000 then if you look at inflation and the changing prices, 0:01:11.640 --> 0:01:15.040 the price of meat has gone up from anywhere between 0:01:15.080 --> 0:01:16.679 nine and a half and ten and a half percent 0:01:16.720 --> 0:01:19.480 and twenty twenty two. Oh so if that turkey was 0:01:19.480 --> 0:01:23.440 twenty dollars last year, then this twenty two dollars this year. 0:01:23.480 --> 0:01:24.640 That's a large percentage. 0:01:24.840 --> 0:01:28.600 Yes, And that is the difference between having Thanksgiving and 0:01:28.640 --> 0:01:29.800 not having Thanksgiving. 0:01:30.200 --> 0:01:33.679 That's the difference between Thanksgiving and thank you. Come again, 0:01:33.800 --> 0:01:35.559 because we will be at the drive through coming. 0:01:43.040 --> 0:01:45.919 Okay, Oh my god. 0:01:46.240 --> 0:01:51.440 Our friend she's a comedian, Honey, comedic timing chef kid. 0:01:52.760 --> 0:01:56.320 I'm TT and I'm Zakiah and from Spotify. This is 0:01:56.400 --> 0:01:57.160 Dope Labs. 0:02:22.720 --> 0:02:26.360 Welcome to Dope Labs, a weekly podcast that mixes hardcore science, 0:02:26.480 --> 0:02:29.680 pop culture, and a healthy Delta friendship. We want to 0:02:29.720 --> 0:02:34.640 help you, our listeners and ourselves, yes, understand the economy. 0:02:34.840 --> 0:02:37.720 We've heard things about it slowing down, speeding up, people 0:02:37.720 --> 0:02:38.760 needing to tighten the reins. 0:02:38.880 --> 0:02:40.560 It sounds like we're talking about a whorse. 0:02:42.120 --> 0:02:46.440 And we've also heard some buzzwords like inflation and recession 0:02:46.520 --> 0:02:48.560 and a lot of people talking about those things. 0:02:48.960 --> 0:02:51.760 And we've been hearing about different types of interventions like 0:02:51.800 --> 0:02:55.160 the student loan forgiveness program, and people have been acting 0:02:55.280 --> 0:02:58.800 crazy on Twitter about that, right, if you're a friend 0:02:58.800 --> 0:03:01.040 of the show, you know at Dope we can find 0:03:01.080 --> 0:03:05.440 science anywhere. So today we're talking all about the economy. 0:03:05.800 --> 0:03:17.480 Let's get into the recitation. What do we know? 0:03:18.040 --> 0:03:19.320 We know that prices are up. 0:03:19.600 --> 0:03:22.160 But another thing that I do know is that I 0:03:22.200 --> 0:03:26.440 did not do well in freshman economics. 0:03:26.600 --> 0:03:28.320 Okay, that was one of. 0:03:28.240 --> 0:03:31.600 The worst performance in college I had was in my 0:03:31.720 --> 0:03:34.280 freshman year economic scores. So I don't know much about 0:03:34.320 --> 0:03:37.200 the economy. Did I even have economics? 0:03:37.480 --> 0:03:41.880 I feel like everybody's first foray into economics was those 0:03:41.920 --> 0:03:44.360 people set up in the student center in college giving 0:03:44.360 --> 0:03:46.360 you credit cards with too high of an interest rate. 0:03:46.840 --> 0:03:51.480 That was my first adventure in economics. Okay, shoot yeah, 0:03:51.720 --> 0:03:53.880 mine was a victorious secret credit card. 0:03:55.040 --> 0:03:57.160 I have a job, like I can barely pay for 0:03:57.200 --> 0:03:58.880 this now, how am I gonna pay interests to? 0:04:01.160 --> 0:04:03.840 And what I know is I'm still figuring those same 0:04:03.880 --> 0:04:05.160 things out today. 0:04:05.680 --> 0:04:10.120 All right, So what do we want to know? Well, 0:04:10.360 --> 0:04:10.880 I want a. 0:04:10.800 --> 0:04:14.200 Bird's eye view of the US economy, like what is 0:04:14.240 --> 0:04:15.640 it and what's going on? 0:04:16.040 --> 0:04:19.400 And what is the current state of the US economy 0:04:19.400 --> 0:04:22.719 because it feels like, you know, depending on what station 0:04:22.800 --> 0:04:25.080 you're listening to. Some people are saying, Oh, everything's gonna 0:04:25.080 --> 0:04:28.560 be okay, the Fed has got it covered, and other 0:04:28.600 --> 0:04:31.480 people are like, hold on to your wallets, it's about to. 0:04:31.400 --> 0:04:32.320 Be a dude. Yeah. 0:04:32.360 --> 0:04:33.960 So I don't know what to believe and I don't 0:04:34.000 --> 0:04:37.080 know what any of this means and is. 0:04:37.000 --> 0:04:39.839 There a recession or not? Are we in it? 0:04:40.160 --> 0:04:44.080 And it's just not deep or coming, like is it 0:04:44.120 --> 0:04:47.040 like a tidal wave? Because people have been talking about 0:04:47.040 --> 0:04:51.039 a recession since mid twenty twenty, and I'd really like 0:04:51.080 --> 0:04:54.520 to understand. You know, I've lived through one recession, but 0:04:54.800 --> 0:04:56.839 I didn't have any money anyway, so it didn't really 0:04:56.880 --> 0:04:59.640 mad didn't matter and I didn't understand the economy. Then 0:05:00.040 --> 0:05:02.760 go ahead and recess, right, it's just a break. 0:05:02.839 --> 0:05:03.280 I love. 0:05:03.360 --> 0:05:09.480 Recess is what I really want to understand, Like what 0:05:09.560 --> 0:05:12.880 does it mean and what are the effects and at 0:05:12.880 --> 0:05:15.840 this big age, how should I be preparing. Let's jump 0:05:15.880 --> 0:05:27.440 into the dissection. Our guest for today's lab is doctor 0:05:27.560 --> 0:05:28.480 Vanessa Perry. 0:05:28.720 --> 0:05:30.120 My name is Vanessa Perry. 0:05:30.480 --> 0:05:34.120 I am a Professor of Strategic Management Public Policy at 0:05:34.320 --> 0:05:37.920 the George Washington University School of Business. I am also 0:05:38.200 --> 0:05:41.400 a non resident Fellow at the Urban Institute's Housing Finance 0:05:41.480 --> 0:05:42.240 Policy Center. 0:05:42.800 --> 0:05:45.799 Okay, so with doctor Perry, we had to start very basic, 0:05:46.000 --> 0:05:50.760 and so our first question was, what is the US economy. 0:05:50.640 --> 0:05:57.040 Our system of production and consumption that creates wealth and 0:05:57.360 --> 0:05:59.159 sort of encompasses the sum. 0:05:59.160 --> 0:06:00.520 Total of our recent sources. 0:06:00.560 --> 0:06:03.760 That's what we mean by our economy and the US 0:06:03.880 --> 0:06:09.880 economy are roughly speaking, those aspects those institutions that are 0:06:10.000 --> 0:06:10.680 US based. 0:06:11.320 --> 0:06:14.000 Now, it's really hard to talk about the US economy 0:06:14.040 --> 0:06:17.600 without the context of the entire global economy. And this 0:06:17.640 --> 0:06:19.960 is because we live in a global society in the 0:06:20.080 --> 0:06:23.920 United States and the world economy are inextricably tied. But 0:06:24.000 --> 0:06:26.040 for the main purposes of this lab we're going to 0:06:26.120 --> 0:06:29.680 mainly talk about the state of the United States economy 0:06:30.040 --> 0:06:32.560 without looking at what's happening around. 0:06:32.279 --> 0:06:36.080 This Over the last six to ten months, there's been 0:06:36.240 --> 0:06:39.200 a lot happening with the economy, and it seems like 0:06:39.279 --> 0:06:42.279 it's been dominating the news cycles with talks of inflation 0:06:42.480 --> 0:06:45.200 and a possible recession. And we'll get to those things 0:06:45.240 --> 0:06:48.000 a little bit later, But first we wanted to ask 0:06:48.040 --> 0:06:50.480 doctor Perry about the current state of the economy. 0:06:50.760 --> 0:06:55.320 The US economy is doing extremely well and has since 0:06:55.360 --> 0:06:59.679 the beginning of the pandemic. That is highly unexpected because 0:07:00.080 --> 0:07:03.600 what I think most people anticipated was that the pandemic 0:07:03.600 --> 0:07:05.760 and nobody knew how long it was going to last. 0:07:05.920 --> 0:07:08.919 But once we went past sort of the three month mark, 0:07:09.880 --> 0:07:14.600 nobody expected the economy to boom the way that it has. 0:07:15.200 --> 0:07:18.840 That's really interesting because there is a lot on my 0:07:18.960 --> 0:07:22.960 television saying that the economy is going down, down, down. 0:07:23.520 --> 0:07:26.680 So what does it really mean when you say the 0:07:26.720 --> 0:07:29.720 economy is doing well? According to doctor Perry, it means 0:07:29.720 --> 0:07:32.640 that the economy is growing, there's an abundance of jobs, 0:07:33.000 --> 0:07:36.240 incomes are fairly high, and unemployment is low. 0:07:36.720 --> 0:07:38.760 Okay, so how did we get here? 0:07:39.240 --> 0:07:45.160 Even though the pandemic sort of shifted purchasing behavior and 0:07:45.800 --> 0:07:50.840 lifestyles in many ways, it also sparked a lot of 0:07:51.240 --> 0:07:55.000 just different kinds of consumption, So what we used to 0:07:55.040 --> 0:07:57.240 do just kind of got swapped out for other things. 0:07:57.640 --> 0:08:00.680 In Lap thirty nine, ad Tocarte with Christoph for he 0:08:00.800 --> 0:08:03.920 told us that once the pandemic hit, people were purchasing 0:08:04.160 --> 0:08:08.640 everything online, and so the economy did a lot better 0:08:08.720 --> 0:08:12.800 than expected because we turned into like hyper consumers. We 0:08:12.800 --> 0:08:16.920 were getting our groceries delivered. We were buying toilet paper 0:08:16.960 --> 0:08:19.360 on Amazon everything, but. 0:08:19.360 --> 0:08:22.480 That was twenty twenty. I don't have no money now. Well, 0:08:26.920 --> 0:08:29.880 I don't know how it's still booming, but doctor Parry 0:08:29.880 --> 0:08:31.960 says it is. I'm not contributing to the boom. 0:08:32.960 --> 0:08:35.800 I feel like I am a little bit contributing to 0:08:35.840 --> 0:08:36.160 the boom. 0:08:36.200 --> 0:08:39.000 I need to stop contributing. Send your contributions this way. 0:08:40.280 --> 0:08:44.480 In fact, it was moving so quickly that the government 0:08:44.880 --> 0:08:47.360 started to get concerned that it was actually growing too fast. 0:08:47.400 --> 0:08:52.679 It was getting too hot, and that often leads to inflation. 0:08:59.280 --> 0:09:02.480 Inflation is rate of increase in prices over a given 0:09:02.520 --> 0:09:05.000 period of time, and we're seeing a lot of that 0:09:05.160 --> 0:09:08.040 right now. We buy certain things kind of all the time, 0:09:08.120 --> 0:09:11.640 from groceries to gas to clothes, and you might have 0:09:11.760 --> 0:09:15.000 noticed that things are not the same price that they 0:09:15.120 --> 0:09:15.600 used to be. 0:09:16.000 --> 0:09:18.520 The annual inflation rate for the United States was eight 0:09:18.520 --> 0:09:21.320 point five percent from July of twenty twenty one to 0:09:21.440 --> 0:09:24.400 July of twenty twenty two, and according to the US 0:09:24.520 --> 0:09:28.920 Labor Department, it's the highest it's been since nineteen eighty one. 0:09:29.520 --> 0:09:31.360 But how is inflation even measured. 0:09:31.800 --> 0:09:36.760 It's usually measured by the Consumer Price Index that's the 0:09:36.840 --> 0:09:40.760 number one measure of infliction and it's created by the 0:09:40.800 --> 0:09:43.360 Bureau of Labor Statistics, which is part of the. 0:09:43.400 --> 0:09:44.520 US Department of Labor. 0:09:44.720 --> 0:09:46.480 How do I know this because my mother's one of 0:09:46.520 --> 0:09:50.680 her first jobs was actually computing the Consumer Price Index. 0:09:50.760 --> 0:09:52.679 That was before the government even had a computer. 0:09:53.559 --> 0:09:57.600 And the CPI, this index, simply put, is just a 0:09:57.679 --> 0:10:01.280 basket of products and services and they go out is 0:10:01.320 --> 0:10:04.080 then they measure the price at one point in time, 0:10:04.120 --> 0:10:05.760 and then they go back and measure the price at 0:10:05.760 --> 0:10:09.560 another point in time, and then they combine these into 0:10:09.679 --> 0:10:10.760 an index. 0:10:11.040 --> 0:10:14.960 To show how much the prices for those same goods went. 0:10:14.920 --> 0:10:17.360 Up over that period of time. And that's roughly what 0:10:17.400 --> 0:10:18.960 the CPI is telling us. 0:10:19.400 --> 0:10:23.320 Okay, so that's the CPI. But what caused the inflation 0:10:23.440 --> 0:10:24.880 that we're seeing right now? 0:10:25.240 --> 0:10:28.960 What caused those The pandemic and the effects that the 0:10:29.000 --> 0:10:34.040 pandemic had on supply chains ability to be able to 0:10:34.400 --> 0:10:36.680 get goods and services to where they needed to be, 0:10:37.840 --> 0:10:41.120 and things like wars and multiple parts of the world 0:10:41.160 --> 0:10:45.559 that have affected the supplies of food and energy, and 0:10:45.760 --> 0:10:50.960 those have combined to create these inflationary pressures where companies 0:10:51.000 --> 0:10:54.240 can't provide goods and services at the same price, so they. 0:10:54.200 --> 0:10:55.040 Raise the prices. 0:10:55.559 --> 0:10:59.160 We heard earlier that the economy is doing so well, 0:10:59.480 --> 0:11:02.000 incomes higher and unemployment is lower. 0:11:02.200 --> 0:11:03.640 So what does that mean for inflation. 0:11:03.920 --> 0:11:06.760 Does it have as much of an impact Do we 0:11:06.880 --> 0:11:09.040 just not feel the sting of inflation if people are 0:11:09.040 --> 0:11:09.880 making more money. 0:11:10.280 --> 0:11:13.720 It's particularly a problem when prices go up faster than 0:11:13.920 --> 0:11:16.719 our incomes go up, because if our incomes were to go. 0:11:16.720 --> 0:11:19.040 Up at the same rate, it wouldn't matter. We would 0:11:19.160 --> 0:11:19.959 notice the inflation. 0:11:20.400 --> 0:11:25.760 We notice it because our incomes increases lag inflation, and 0:11:26.200 --> 0:11:32.760 they almost always will because companies, governments, employers will argue 0:11:32.760 --> 0:11:35.600 that they cannot afford to keep up with these high 0:11:35.640 --> 0:11:37.520 inflationary rates. 0:11:42.280 --> 0:11:45.840 Aside from making things less affordable, inflation can really be 0:11:45.880 --> 0:11:48.840 a problem because it's an indicator of a potential recession. 0:11:49.480 --> 0:11:52.040 A recession is basically when the economy comes to a 0:11:52.080 --> 0:11:55.520 screeching halt. People stop buying things, people are laid off 0:11:55.520 --> 0:11:58.760 from their jobs, and really just generally face a lot 0:11:58.800 --> 0:12:00.160 of financial hardship. 0:12:00.480 --> 0:12:06.920 So inflation is one thing that might lead to recession, 0:12:07.320 --> 0:12:10.679 but that is not necessarily the case or always the case. 0:12:11.440 --> 0:12:14.800 I know it sounds like I'm being circular because it 0:12:14.840 --> 0:12:16.480 is extremely complicated. 0:12:16.520 --> 0:12:20.880 A and B. None of these things are precise. 0:12:21.480 --> 0:12:24.760 The National Bureau of Economic Research has a Business Cycle 0:12:24.840 --> 0:12:27.320 Dating Committee, and it's the department of the government that 0:12:27.360 --> 0:12:31.280 can officially declare a recession. They define a recession as 0:12:31.320 --> 0:12:35.040 a significant decline in economic activity that is spread across 0:12:35.040 --> 0:12:37.920 the economy and that lasts more than a few months. 0:12:38.360 --> 0:12:41.600 The last major recession we had was over ten years ago, 0:12:41.880 --> 0:12:44.040 and that was the Great Recession of two thousand and eight, 0:12:44.040 --> 0:12:46.400 and that was fueled by the collapse of the housing market. 0:12:46.679 --> 0:12:47.920 And then there was also. 0:12:47.679 --> 0:12:50.560 A mini recession and it was the shortest on record, 0:12:50.840 --> 0:12:53.400 and that was between February and April of twenty twenty, 0:12:53.480 --> 0:12:57.200 and that was due to unprecedented levels of unemployment during 0:12:57.200 --> 0:12:58.679 the COVID nineteen pandemic. 0:12:59.160 --> 0:13:02.760 The opposite of a recession is an expansion. Expansion is 0:13:02.760 --> 0:13:06.240 the economy's natural state, and recessions are more short lived. 0:13:06.600 --> 0:13:10.119 Recessions are a natural part of the cycle of our economy, 0:13:10.440 --> 0:13:12.560 but they're not very pleasant. 0:13:12.960 --> 0:13:14.920 So the question on everybody's. 0:13:14.360 --> 0:13:17.520 Mind is is there a recession coming. 0:13:18.000 --> 0:13:21.640 Well, we're in this weird space where a lot of 0:13:21.640 --> 0:13:24.520 people are predicting that a recession is coming, but then 0:13:24.520 --> 0:13:27.880 there are other indicators that suggests that maybe it's not, 0:13:28.160 --> 0:13:32.240 or maybe it will be later rather than sooner. It's 0:13:32.320 --> 0:13:34.559 really hard to tell. And anybody that tells you that 0:13:34.640 --> 0:13:39.800 they know precisely is lying because they're all sorts of predictions. 0:13:39.840 --> 0:13:41.880 And all we have to look at is what's happened 0:13:41.920 --> 0:13:42.520 in the past. 0:13:42.920 --> 0:13:46.439 And you know, we've never really been in these particular circumstances, 0:13:46.520 --> 0:13:49.160 so looking to the past can only get us so far. 0:13:49.720 --> 0:13:54.600 We haven't had a pandemic since nineteen seventeen, and certainly 0:13:54.800 --> 0:13:57.200 we didn't have the internet then, okay, and so we 0:13:57.240 --> 0:13:59.840 didn't have access to all this technology, so it's kind 0:13:59.880 --> 0:14:03.480 of hard to predict what's gonna happen. Tt you said 0:14:03.640 --> 0:14:08.280 that you heard all the ready that a recession is inevitable. Yeah, 0:14:08.320 --> 0:14:10.320 that's what they were saying. And I was very scared. 0:14:10.640 --> 0:14:12.080 And I don't even know what to do to prepare 0:14:12.080 --> 0:14:14.120 for a recession, right, is it? 0:14:14.160 --> 0:14:15.240 Beans? What do you do? 0:14:15.600 --> 0:14:17.600 I need to get all the bread and all the 0:14:17.640 --> 0:14:19.800 milk and pack a go bag. 0:14:21.320 --> 0:14:22.440 You know, I love a go bag. 0:14:22.680 --> 0:14:25.680 My friend loves a go bag. But is a recession 0:14:25.760 --> 0:14:28.520 something that has to happen or is it a course 0:14:28.560 --> 0:14:31.480 correction or can we keep the recession at bay? 0:14:31.920 --> 0:14:36.880 We can keep it at bay temporarily, but recession is 0:14:37.080 --> 0:14:42.120 part of an economic cycle that always has booms and busts. 0:14:42.120 --> 0:14:45.880 The economy always has gone up, then slows down, then 0:14:45.960 --> 0:14:50.080 it picks up, then it slows down, and those cycles, 0:14:50.360 --> 0:14:55.400 those bumps, those dips get triggered by different things. But 0:14:55.480 --> 0:14:57.960 I don't think anybody would predict that will never have 0:14:58.040 --> 0:15:00.320 a recession again. The question is is it going to 0:15:00.360 --> 0:15:04.600 be in twenty twenty three or are we going to 0:15:04.680 --> 0:15:08.040 be able to ride sort of the current wave of 0:15:08.160 --> 0:15:10.880 stability for longer period of time. 0:15:11.280 --> 0:15:14.040 And things are already sowing down. The GDP or the 0:15:14.080 --> 0:15:17.520 gross domestic product, and this value is the value of 0:15:17.560 --> 0:15:21.160 goods produced and services provided in a country during one year. 0:15:21.880 --> 0:15:25.320 So the GDP is falling, which is also sometimes considered 0:15:25.320 --> 0:15:29.000 an indicator of the beginning of a recession. Recessions are 0:15:29.080 --> 0:15:31.680 an inevitable part of the economy, but that doesn't mean 0:15:32.160 --> 0:15:32.920 they don't suck. 0:15:33.440 --> 0:15:36.480 A recession can cause a lot of suffering for people. 0:15:37.000 --> 0:15:39.920 And if there is a recession, what can the government 0:15:40.000 --> 0:15:41.160 do to help? 0:15:41.440 --> 0:15:43.360 Well, there are a number of things that the government 0:15:43.400 --> 0:15:44.960 can do to help people, and we can look at 0:15:44.960 --> 0:15:47.640 that little mini recession in twenty twenty as an example. 0:15:48.120 --> 0:15:49.720 So there were a lot of people that were out 0:15:49.760 --> 0:15:51.920 of work at the beginning of COVID, and the government 0:15:51.920 --> 0:15:55.200 stepped in and put a moratorium on evictions and foreclosures. 0:15:55.680 --> 0:15:58.920 Private sector adjusted the credit score system so people weren't 0:15:58.960 --> 0:16:03.360 penalized for payments. There was the Cares Act, payments that 0:16:03.400 --> 0:16:06.040 went right into folks' bank accounts, and this kind of 0:16:06.120 --> 0:16:08.440 leveled things off until the economy could pick up again. 0:16:09.000 --> 0:16:12.840 There are interventions that can occur in both the private 0:16:12.840 --> 0:16:16.960 and public sector that can alleviate some of the negative 0:16:17.000 --> 0:16:22.160 effects of the recession on individuals and households. But when 0:16:22.160 --> 0:16:25.560 it's all said and done, there will be higher unemployment, 0:16:25.880 --> 0:16:30.840 there will be lower incomes, and if this is coupled 0:16:30.880 --> 0:16:35.600 with inflation, that means buying power will be reduced. 0:16:36.080 --> 0:16:40.640 So we want to avoid that two punch combo exactly 0:16:41.000 --> 0:16:45.760 of low wages and high prices. We don't want to 0:16:45.800 --> 0:16:49.000 lose that buying power. I want somebody to regulate that. 0:16:49.120 --> 0:16:53.400 I want that to stay far away. 0:16:57.520 --> 0:17:00.240 Another way that the government can manipulate the to me 0:17:00.640 --> 0:17:05.120 not necessarily in a recession is to increase the interest rate. 0:17:05.480 --> 0:17:08.120 It seems like all summer there have been headlines about 0:17:08.119 --> 0:17:11.280 the Federal Reserve or the FED raising the interest rate 0:17:11.440 --> 0:17:11.960 yet again. 0:17:12.520 --> 0:17:16.480 So the Federal Reserve Bank is the central bank of 0:17:16.520 --> 0:17:20.080 the United States. All countries have for central bank, and 0:17:20.119 --> 0:17:23.600 actually sometimes a region will have a central bank, and 0:17:24.119 --> 0:17:26.439 their job is essentially to be the bank for the 0:17:26.480 --> 0:17:32.240 banks and to regulate their operations and to make sure 0:17:32.440 --> 0:17:36.440 that the banks, even though many of them are private corporations, 0:17:36.760 --> 0:17:39.480 but the goal is to make sure that they continue 0:17:39.640 --> 0:17:45.560 to serve the overall economy because that's where the country's money. 0:17:45.320 --> 0:17:47.720 Resides, right It's in the banking system. 0:17:48.200 --> 0:17:50.880 So the FED is able to control the money supplied 0:17:50.920 --> 0:17:54.480 by controlling interest rates. You can think about interest rates 0:17:54.520 --> 0:17:57.480 as the price of money. If I borrow a hundred 0:17:57.520 --> 0:17:59.520 dollars from you, how long are yougo let me have 0:17:59.560 --> 0:18:01.760 that one hundred dollars before you charge me one hundred 0:18:01.760 --> 0:18:03.320 and five dollars for it? 0:18:03.359 --> 0:18:05.880 Is this hypothetical you really want to know? I don't 0:18:05.880 --> 0:18:09.000 think I want to know. Let's keep this friendship with that. No, 0:18:09.840 --> 0:18:11.520 I would never ask for the money back. 0:18:12.320 --> 0:18:15.760 So that's zero percent interest. But if the interest rate 0:18:15.840 --> 0:18:18.640 is higher. You know, you might say, Okay, you're gonna 0:18:18.640 --> 0:18:19.960 have to pay me a little bit to hold that 0:18:20.000 --> 0:18:22.520 one hundred dollars. And the more I have to pay you, 0:18:22.960 --> 0:18:24.719 it means the price of the money is higher. So 0:18:25.200 --> 0:18:29.240 rate increases mean higher payments on credit cards, on cars, 0:18:29.240 --> 0:18:32.000 on student loans, things that you're financing. And that also 0:18:32.080 --> 0:18:34.359 means that you're not able to save as much because 0:18:34.359 --> 0:18:37.560 you're spending it paying more on the money you've borrowed. 0:18:38.000 --> 0:18:40.280 So when interest rates go up, it means people are 0:18:40.320 --> 0:18:43.240 going to pull back on their spending and it becomes 0:18:43.359 --> 0:18:46.879 more expensive to borrow that one hundred dollars. 0:18:47.240 --> 0:18:50.920 Now, my favorite analogy for this is a fish tank. 0:18:51.640 --> 0:18:54.760 Fish tank, you fill it with water. If you put 0:18:54.800 --> 0:18:57.520 too much water in the fish tank, it overflows, makes 0:18:57.560 --> 0:19:00.399 a mess. If you have too little water in the 0:19:00.400 --> 0:19:04.400 fish tank, fish can swim effectively. And so that's the 0:19:04.400 --> 0:19:06.800 fed and the money supply. They've got to make sure 0:19:06.960 --> 0:19:10.680 that the right amount of cash is in that tank 0:19:11.600 --> 0:19:14.240 so that the economy, the fish. 0:19:14.280 --> 0:19:16.920 The consumers, the producers. 0:19:16.920 --> 0:19:22.040 Can exchange value in a way that makes sense that 0:19:22.200 --> 0:19:27.520 works without spilling water over the tank. And they certainly 0:19:27.760 --> 0:19:30.200 want to make sure that they don't put too much 0:19:30.280 --> 0:19:34.400 water in the tank, because that then will also throw 0:19:34.480 --> 0:19:38.000 off the balance of what's going on with the fish. 0:19:38.200 --> 0:19:40.560 So this all makes sense on a kind of macro level, 0:19:41.040 --> 0:19:43.920 but we wanted to know what does this mean specifically 0:19:43.920 --> 0:19:46.080 for folks who are affected by the decisions that the 0:19:46.080 --> 0:19:48.520 Fed makes and the state of the economy in general. 0:19:48.920 --> 0:19:51.680 So if the interest rate is going up, what does 0:19:51.720 --> 0:19:52.640 that mean for folks. 0:19:53.040 --> 0:19:55.639 It's hard to say a negative impact on one group 0:19:55.960 --> 0:19:59.960 because there's sort of positive and negatives for everyone. So people, 0:20:00.000 --> 0:20:06.359 people who are lower moderate incomes, younger consumers, people with 0:20:06.480 --> 0:20:14.399 student loan balances. These people can actually suffer negative consequences. 0:20:14.840 --> 0:20:18.399 For example, people saving for a house when interest rates 0:20:18.520 --> 0:20:21.240 go up, they can afford less because they have to 0:20:21.280 --> 0:20:24.760 pay more in interest. Or if you're trying to pay 0:20:24.800 --> 0:20:27.560 down your debts, it's harder because your interest rates have 0:20:27.640 --> 0:20:31.399 gone up and so your payments are higher. But this 0:20:31.560 --> 0:20:34.480 is different for folks who have plenty of money in savings. 0:20:34.840 --> 0:20:38.400 For example, the Federal Reserve raises interest rates to try 0:20:38.440 --> 0:20:42.119 to manage inflation, and that's one of the tools that 0:20:42.160 --> 0:20:46.760 the FED has. When that happens, it's a great time 0:20:46.800 --> 0:20:48.560 to save money if you can. If you have any 0:20:48.560 --> 0:20:50.359 extra money, put it in the bank. 0:20:51.000 --> 0:20:53.320 This is blowing my mind because I don't really think 0:20:53.320 --> 0:20:56.520 about interest rates in terms of saving. Like, whenever I 0:20:56.560 --> 0:20:59.920 think about interest rates, I'm thinking about borrowing in aprs 0:21:00.040 --> 0:21:03.200 and all of that. So I think I didn't consider 0:21:03.280 --> 0:21:05.080 that if you got a lot of money under your 0:21:05.080 --> 0:21:07.560 mattress when the interest rate is up, put it in 0:21:07.600 --> 0:21:08.160 the bank. 0:21:08.440 --> 0:21:13.159 The other part of the issue when interest rates go up. 0:21:13.280 --> 0:21:15.600 And think about this now from the perspective of a 0:21:15.600 --> 0:21:18.879 business owner. Businesses have to borrow money as well in 0:21:19.040 --> 0:21:22.320 order to keep their operations going, and they may borrow 0:21:22.359 --> 0:21:25.439 money to cover labor costs or other kinds of costs 0:21:25.440 --> 0:21:29.080 that they face. And so who pays for that? Consumers 0:21:29.119 --> 0:21:33.080 pay for that. That actually can feed into higher prices 0:21:33.520 --> 0:21:37.119 because the costs of doing business are increased when interest 0:21:37.160 --> 0:21:37.880 rates go up. 0:21:38.800 --> 0:21:41.080 What this really captures is that it's a double edged sword. 0:21:41.280 --> 0:21:44.000 So sure, if you have money to save, you can 0:21:44.040 --> 0:21:45.960 make some more money on it, But can you really 0:21:45.960 --> 0:21:48.879 save money when everything is so expensive because the interest 0:21:48.920 --> 0:21:51.439 rates are up. Let's take a break, and when we 0:21:51.520 --> 0:21:53.840 come back, we're going to talk about what the government 0:21:53.920 --> 0:22:10.360 is doing to rain this economy in. Okay, we're back, 0:22:10.480 --> 0:22:12.439 but before we get back into the lab, we just 0:22:12.440 --> 0:22:14.800 want to let you know that we'll be off next week. 0:22:14.920 --> 0:22:17.480 So we'll be sharing a special lab from the archives 0:22:17.720 --> 0:22:19.800 and we'll be back with a brand new lab on 0:22:19.840 --> 0:22:20.880 September twenty ninth. 0:22:21.280 --> 0:22:22.520 Let's get back to the lab. 0:22:22.960 --> 0:22:26.359 We've been talking to doctor Vanessa Perry all about the economy. 0:22:26.560 --> 0:22:29.520 Doctor Perry has already mentioned that the economy is cyclical. 0:22:29.800 --> 0:22:32.520 We're going to go through these booms and busts, and 0:22:32.560 --> 0:22:35.920