Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Tracy Alloway and.
Speaker 2: I'm Joe Wisenthal.
Speaker 1: Joe, do you remember the episode we did. I think
Speaker 1: it was just a couple months ago with the core
Speaker 1: BOO strategist Samuel Rhines about companies are telling us the
Speaker 1: real reason they're raising prices.
Speaker 3: Yeah, there was great episode that sort of helped me
Speaker 3: like analyze like corporate earnings calls from then on and
Speaker 3: really like think about particularly in the consumer space, where
Speaker 3: he had this thesis that companies are like very explicitly
Speaker 3: willing to sacrifice volume expansion in favor of higher prices
Speaker 3: and higher margin.
Speaker 1: Right, he called it price over volume. And since that episode,
Speaker 1: so we actually wrote an article based on that episode
Speaker 1: and we had a lot of quotes from Sam. We
Speaker 1: also cited a research paper from an Odd Lot's favorite,
Speaker 1: Isabella Weber, and we talked about this phenomenon. We called
Speaker 1: it excuse flation. So this idea that companies are using
Speaker 1: all these one off emergencies as an excuse to raise prices.
Speaker 1: But since then, this whole idea has exploded into the
Speaker 1: public consciousness in various ways under different umbrella terms. So
Speaker 1: Isabella used the term seller's inflation. I've seen like profit
Speaker 1: led inflation, creedflation, although I think that's a bad term
Speaker 1: for it personally, but it's everywhere now, right.
Speaker 3: And it's funny because it's one of these things where
Speaker 3: you know, economists are sort of like scandalized by sort
Speaker 3: of alternative ideas about inflation. And it's like they have
Speaker 3: certain things like some people say money, so they say
Speaker 3: like labor costs and wages, but like it feels like
Speaker 3: on Wall Street there's kind of less mystery. It's like, no,
Speaker 3: they're like, at least you know, according to people read
Speaker 3: the calls. It's like, no, they're telling us they're willing
Speaker 3: to push price, and I guess the question is like,
Speaker 3: you know, well, there's lots of follow on questions, but
Speaker 3: I think there's some really interesting policy ramifications from some
Speaker 3: of this identification.
Speaker 1: Totally, And it is funny. It's not PEPSI isn't talking
Speaker 1: about like, oh, the money supply is increasing, therefore we're
Speaker 1: raising our prices. They're talking very explicitly about, well, we
Speaker 1: have these one off reasons maybe to raise our prices,
Speaker 1: and so we're going to see how far we can
Speaker 1: take it to the consumer so anyway, everyone is talking
Speaker 1: about this, whether you call it gre inflation, excuse flation,
Speaker 1: profit led inflation, seller's inflation. We need to go back
Speaker 1: to one of our favorite guests, Yes, who's done a
Speaker 1: lot of academic work on this topic. We specifically cited
Speaker 1: her work in the piece that we did. We're going
Speaker 1: to be speaking with Isabella Weber.
Speaker 2: I'm psyched on set all.
Speaker 1: Right, Isabella Weber, economics professor at University of Massachusetts Amherst.
Speaker 1: Thank you so much for coming back.
Speaker 4: On Thanks so much for having me back. And it's
Speaker 4: a true passion to be in person.
Speaker 2: Yeah, this is this is a tree.
Speaker 3: I didn't realize up until like five minutes ago that
Speaker 3: you were gonna be outset. I think we're going to
Speaker 3: look at the.
Speaker 1: First time we're actually meeting in person. Have you been
Speaker 1: surprised at all by how quickly this seems to have become.
Speaker 1: I hesitate to call it mainstream because people are still
Speaker 1: debating it, but it's in the Wall Street Journal, it's
Speaker 1: in New York Times, certainly in Bloomberg coverage.
Speaker 4: Yeah.
Speaker 5: I think it has been very surprising, especially since some
Speaker 5: of the key data on the profit margins actually already
Speaker 5: came out in the fourth quarter of twenty twenty one.
Speaker 5: So and you guys have actually been covering that at
Speaker 5: the time. You were covering the profit margin explosion that
Speaker 5: happened at the same time as inflation started to take off.
Speaker 5: And in this by now probably infamous Guardian piece that
Speaker 5: I wrote, I actually started by saying, there is so
Speaker 5: far pretty much undiscussed phenomenon, which is an explosion of
Speaker 5: profit margins that coincides with inflation, and we should take
Speaker 5: a closer look at that. So I think in many ways,
Speaker 5: when our paper came out at the beginning of this year,
Speaker 5: it has kind of been something that had been going
Speaker 5: on for a long time, and companies have been saying
Speaker 5: this on earnings calls for a long time. The groundwork
Speaker 5: folks have been calling this out for a long time time,
Speaker 5: but now it really took off.
Speaker 3: So I guess one of my questions and have many,
Speaker 3: is you know, there are different factors that people talk
Speaker 3: about driving inflation, and obviously the tight labor market, fest
Speaker 3: wage growth, high levels of consumer demand, a lot of
Speaker 3: the supply chain bottlenecks that we've talked about over the
Speaker 3: years on the show, the supply side factors.
Speaker 2: Why is it important.
Speaker 3: That's sort of it to sort of like think about
Speaker 3: correct identification of different causes.
Speaker 5: Yeah, I mean when economists talk about causation, they have
Speaker 5: very high standards, right, So I'm not yet there to
Speaker 5: say like what I did. It's like a cause analysis.
Speaker 5: Just to put this out there, it's kind of a disclaimer.
Speaker 5: But I think this is kind of part of the
Speaker 5: challenge that we face because we are in a really
Speaker 5: unprecedented moment in the world, in the economy, in the
Speaker 5: global economy, right, and inflation is kind of part of
Speaker 5: that whole unprecedented moment. So you are getting these pieces
Speaker 5: of data that are coming out and you kind of
Speaker 5: have to reason on them. However incomplete the data might be.
Speaker 5: And if you just look at it from the perspective
Speaker 5: of your standard inflation paradigm, then you basically just look
Speaker 5: at money supply, aggregate demand, and maybe wages, and you
Speaker 5: don't look at all these other stuff that you guys
Speaker 5: have been reporting about four months and months and months, right,
Speaker 5: But if you sit in a corporate boardroom, then you
Speaker 5: are actually looking at all this other stuff. So then
Speaker 5: from your perspective, prices present themselves as something very different.
Speaker 5: So what we are doing with this research, I think,
Speaker 5: is to kind of say, let's take the information that
Speaker 5: we have, however incomplete it still may be, and try
Speaker 5: to make sense why we are seeing what we are seeing.
Speaker 5: What we are seeing is that on earnings calls time
Speaker 5: and again, corporate leaders are saying that they can take
Speaker 5: pricing and that they can increase prices in ways that
Speaker 5: they might not even have expected, and that they can
Speaker 5: increase prices even when volumes are going down, which is
Speaker 5: just against the logic of basic supply demand right where
Speaker 5: we would expect that demand going up the prices going up,
Speaker 5: and not the other way around. Now you might say, well,
Speaker 5: it's about the bottleneck, and then demand is strong, so
Speaker 5: therefore it's still a demand kind of story. But then
Speaker 5: I would say, well, if I look at their earnings
Speaker 5: calls in the latest quorder right where clearly the bottlenecks
Speaker 5: for the most part have ceased and taking price when
Speaker 5: volumes are going down, then ka, this is also not
Speaker 5: a pure kind of bottleneck type of story.
Speaker 1: Well, maybe just to step back for a second, talk
Speaker 1: to us about what seller's inflation this is the term
Speaker 1: that you use actually is, and how maybe it differs
Speaker 1: to traditional conceptions of greedflation, because this is one reason
Speaker 1: I remember when we were writing that piece shoe, this
Speaker 1: is one reason why I wanted to call it something
Speaker 1: other than greed flation, because it's not like everyone woke
Speaker 1: up in March twenty twenty and suddenly decided to become
Speaker 1: more greed.
Speaker 2: Which is a common critique of like that, yeah, right.
Speaker 5: Yeah, and quite frankly, I think that everybody agrees on that. Like,
Speaker 5: no one is saying that there has been this sudden
Speaker 5: grady impulse where firm leaders just became more greedy than
Speaker 5: they used to be, right, that is just not a
Speaker 5: good theory.
Speaker 4: So the question is, how.
Speaker 5: Can it be that in incredibly concentrated industries we had
Speaker 5: decades of surprising price stability, right, even like deflation in
Speaker 5: some periods, and now in the same highly concentrated kind
Speaker 5: of setup, we suddenly get this price of a volume
Speaker 5: type of pricing behavior.
Speaker 4: Right.
Speaker 5: And what we are arguing in our paper is that
Speaker 5: there's basically different components that coordinate price hikes in ways
Speaker 5: in which they could not be coordinated without these emergencies happening.
Speaker 4: So one prominent thing is a cost shock.
Speaker 5: I mean, we have had gigantic cost shocks coming out
Speaker 5: of energy, right, that kind of stand a signal to firms, Okay,
Speaker 5: now is the time to increase prices, which means that
Speaker 5: they can be fairly sure that their competitors are also
Speaker 5: increasing prices, because the way that they are pricing is
Speaker 5: to protect their profit margins. So the first goal is
Speaker 5: to make sure that they profit margins are not going
Speaker 5: to collapse, which means that if costs go up, they
Speaker 5: are going to.
Speaker 4: Increase their prices.
Speaker 5: Now, this is like kind of the most benign form
Speaker 5: of coordination, but they can also be bottlenecks that can
Speaker 5: then coordinate pricing behavior, and that can coordinate this pricing
Speaker 5: behavior even when the actual bottleneck might already start to cease,
Speaker 5: because there's still this signal to the whole sector that
Speaker 5: something different is going on. And then there is I guess,
Speaker 5: the component that the excuse flation label is getting at,
Speaker 5: or from the perspective of the consumers, it's also more
Speaker 5: legitimate to see prices going up when there are clear
Speaker 5: reasons why they're going up. But if you imagine you
Speaker 5: go to your favorite coffee shop every day, and then
Speaker 5: from one day to the next, the coffee costs twice
Speaker 5: as much. Then you would probably say like, oh, somehow
Speaker 5: the guy who's running the coffee shop went nuts.
Speaker 4: Right.
Speaker 5: If this guys has been telling you over and over
Speaker 5: again that they are expecting a rent increase, and then
Speaker 5: you come back and the price of coffee goes up,
Speaker 5: you'll probably go like, oh, yeah, of course makes sense, right,
Speaker 5: something like this. But on a sectoral, global level, I
Speaker 5: think has been going on, for example, in the food
Speaker 5: sector where no one can judge. I mean, you had
Speaker 5: this amazing episode on grain prices and prices of food
Speaker 5: items that use grain, right, And I mean as a consumer,
Speaker 5: I don't know how much is the cost component of
Speaker 5: grain in my pasta, right or my bread? But if
Speaker 5: I hear on the news in the radio on TV
Speaker 5: that grain prices are exploding and I see pasta price
Speaker 5: going up, it kind of makes sense. So there is,
Speaker 5: in other words, also a component of legitimacy in pricing behavior.
Speaker 4: Right.
Speaker 5: It's something that in economic theory we have a very
Speaker 5: hard time capturing. It's not like people walk around with
Speaker 5: a budget constraint and a given set of preferences on
Speaker 5: their mind, and like robots, they react in the price
Speaker 5: that they see, But they look at the context. Right,
Speaker 5: So if in normal times or if normal times, there
Speaker 5: are basically two things that would constrain firms in their
Speaker 5: pricing behavior. On the one hand, competition, that is, fear
Speaker 5: of losing market shares to their competitors, right, which would
Speaker 5: happen they start hiking prices and kind of a unilateral action.
Speaker 5: Then that fear is kind of gone once these price
Speaker 5: hikes start to be more or less coordinated due to
Speaker 5: these emergency situations.
Speaker 4: And the second constraint would be fearing that customers are
Speaker 4: just not.
Speaker 5: Willing to pay these prices, right, like, whether they actually
Speaker 5: can pay these prices or not, they might just be
Speaker 5: deterred if prices suddenly go up for no obvious reason. Now,
Speaker 5: if there are obvious reasons, they seem to be more
Speaker 5: willing to accept these price increases. So therefore, both of
Speaker 5: these constraints quite dramatically softened in this emergency situation that
Speaker 5: we have been living through.
Speaker 3: So some economists might listen to the story and now
Speaker 3: they're head say, yeah, this makes sense. But for whatever reason,
Speaker 3: prices are going up and workers are going to demand
Speaker 3: higher wages to compensate for the higher prices, And you
Speaker 3: get this self sustaining you know, increase more demand, and
Speaker 3: they're like, okay, I can fit this into the typical
Speaker 3: inflation expectation story, and therefore defense should be hiking rates regardless,
Speaker 3: Like why could this fit into a typical inflation expectation story?
Speaker 2: This is how it becomes entrenched.
Speaker 3: Yeah, maybe it's like a different thing than like nineteen
Speaker 3: seventies inflation, but it's still the thing, and ultimately the
Speaker 3: fittest to respond the same way.
Speaker 4: Yeah.
Speaker 5: I mean, first, on the wage part of that story,
Speaker 5: what we are seeing is basically, eventually labor is trying
Speaker 5: to fight back against collapsing real wages as workers are
Speaker 5: basically losing purchasing power.
Speaker 4: Right. But this is a very different story. If you
Speaker 4: have an initial.
Speaker 5: Cost shock that comes from the energy market, that comes
Speaker 5: from commodity markets, comes from shipping and so on, basically
Speaker 5: comes from upstream stuff, and then you have a propagation
Speaker 5: amplification of that shock as firms react by.
Speaker 4: Pricing over volume type of behavior, right, and.
Speaker 5: Then eventually labor goes like wait a minute, like my
Speaker 5: purchasing power has collapsed and I'm trying to fight back
Speaker 5: to regain some.
Speaker 4: Of this lost territory.
Speaker 5: Then this is a reaction to inflation rather than the
Speaker 5: origin of inflation. This really matters for how we think
Speaker 5: about what to do against inflation. But secondly, also, I
Speaker 5: mean when we talk about expectations and expectation anchoring and
Speaker 5: so on, we somehow think that firms look at the
Speaker 5: fat and they kind of like reread these signals from
Speaker 5: the fat to anchor or de anchor the inflation expectations.
Speaker 5: I'm not saying none of this is going on, but
Speaker 5: when I am reading the earnings calls, I don't see
Speaker 5: them talk about the fat a lot. I see them
Speaker 5: talk about what their competitors are doing. I see them
Speaker 5: talk about rational pricing environments. I see them say things
Speaker 5: like this new force measure, like the winter storm, Alliot,
Speaker 5: this has made our pricing environment even more conducive. So
Speaker 5: they are looking at their immediate environment. They are looking
Speaker 5: at our customers accepting of these price increases, which is
Speaker 5: a completely different set of expectations than what we think
Speaker 5: of when we talk about expectations in this kind of
Speaker 5: central bank center type of factory.
Speaker 1: So throughout economic history, I mean, the classic worry about
Speaker 1: inflation has always been this wage price spiral that you
Speaker 1: kind of just outline. But if that's not what's happening here,
Speaker 1: or if it's not the actual cause of higher prices,
Speaker 1: if instead we have, like I guess, a profit price
Speaker 1: spiral of some sort, what should we do, like what
Speaker 1: actually arrests this behavior, Because again, if you listen to
Speaker 1: the company earnings calls, you can see the executives talking
Speaker 1: about how surprised they've been, about how strong customer demand
Speaker 1: has been, how far they've been able to push up prices,
Speaker 1: and also you see the share price reactions they're getting
Speaker 1: rewarded for raising prices. So it seems like there's very
Speaker 1: little incentive or a catalyst for this to actually stop.
Speaker 5: Absolutely, And I would actually say that the investors expectations
Speaker 5: and is another set of expectations that's probably more immediate
Speaker 5: from the perspective of people taking pricing decisions.
Speaker 4: Right.
Speaker 5: When representatives of let's say Morgan Stanley, just to pick
Speaker 5: a random example here are asking questions on earning scores
Speaker 5: about pricing, they are also asking on behalf of a
Speaker 5: player that is actually going to invest quite substantial amounts
Speaker 5: of money, right, So there's that.
Speaker 4: Layer to the expectations story too.
Speaker 5: But to actually go to your question, I think, first
Speaker 5: of all, we need to stop these impulses, right, I
Speaker 5: mean these like gigantic cost shocks.
Speaker 4: That then coordinate these kind of price hikes.
Speaker 5: If they can be arrested kind of in the onset,
Speaker 5: that I think would have made a huge difference. I
Speaker 5: think something like the strategic Pictronum Reserve, which of course
Speaker 5: eventually was mobilized in twenty twenty two. If that had
Speaker 5: been mobilized sooner, because there was a mindset on the
Speaker 5: part of policymakers to say oil prices going up as
Speaker 5: they started going up in twenty twenty one is a
Speaker 5: problem and has the potential to undermine price stability and
Speaker 5: economic stability, then they might have acted sooner, and they
Speaker 5: might have acted more decisively. Now it's of course not
Speaker 5: only about oil. It's also about gas are the sources
Speaker 5: of energy. It's about other forms of raw materials, and
Speaker 5: importantly about grain. I think for grain, actually we ideally
Speaker 5: would need some sort of a coordinated international buffer stock,
Speaker 5: which is an idea that Keane's had for the Bretton
Speaker 5: Woods Institutions, something that he wanted to see as one
Speaker 5: of the breton Was institutions, but that did not materialize,
Speaker 5: and there have been proposers like this in the seventies,
Speaker 5: when I mean, obviously they were also very major commodity
Speaker 5: price cycles.
Speaker 4: Going on at the time.
Speaker 5: So I think these type of ideas are pretty important.
Speaker 5: And they are important not only like looking back and saying, oh, yeah,
Speaker 5: the last three years, somehow we'ren't great, but now we
Speaker 5: are back to normal life.
Speaker 4: So this is a nicet for.
Speaker 5: Editor of Anicdotter or something like this, but they're important
Speaker 5: because we are living in an age of overlapping emergency
Speaker 5: and as far as I understand, people in the grain
Speaker 5: market are saying things like we are basically one major
Speaker 5: weather event away from another price bike in grain, right,
Speaker 5: and if there are bad harvests that are related to
Speaker 5: climate change happening much faster than many of us might
Speaker 5: have thought, tipping points being reached much sooner than climate
Speaker 5: scientists to stay projected not that long ago, or then
Speaker 5: I think this is something that is quite likely to happen.
Speaker 5: So what I'm thinking about here is really a form
Speaker 5: of economic disaster preparedness, so that we have shock absorbers
Speaker 5: where shocks to these systemically important things like grain, like
Speaker 5: energy can be absorbed locally so that we don't even
Speaker 5: get this gigantic impulse in the first place. Now for
Speaker 5: this propagation and amplification that comes as firms react to
Speaker 5: these shocks, I think what we basically need is some
Speaker 5: sort of a binfall profits tax that would kick in
Speaker 5: whenever there is a major emergency, because we have now
Speaker 5: learned that in these emergencies, these pretexts that happen can
Speaker 5: present situations where prices can go up very quickly. And
Speaker 5: I think that if corporate leaders had to learn this
Speaker 5: this time, then next time around they have a playbook
Speaker 5: in hand, right, they know how price over volume works,
Speaker 5: they know what to look for, they know what they
Speaker 5: did last time. And if this is a coordination issue
Speaker 5: in the sense that it depends on what your competitors
Speaker 5: are doing, and last time it worked out really well
Speaker 5: because everybody kind of implicitly agreed to be doing exactly that,
Speaker 5: then next time around they just have to look back
Speaker 5: at what they did last time.
Speaker 2: Winfall profits tax. How does that fight inflation?
Speaker 3: Because some people would hear that it's like, oh, you're
Speaker 3: going to add taxes, You're going to add cost Maybe
Speaker 3: there's some like redistribution element or punishing the ranch or
Speaker 3: punishing the success.
Speaker 4: What does the.
Speaker 2: Mechanism via which this is an inflation fighting tool.
Speaker 5: Well, it's a mechanism that basically takes away the incentive
Speaker 5: to do a price over volume strategy, right because price
Speaker 5: over volume makes if you can't increase prices so much,
Speaker 5: then even when you are selling less, you still end
Speaker 5: up making more money because you have hike prices so much.
Speaker 5: Right now, of course, there can be situations where price
Speaker 5: over volume happens to just protect profit margins, so a
Speaker 5: winfo profit sex would not have with that, But we
Speaker 5: have seen situations where firms actually have managed to quite
Speaker 5: dramatically increase their margins with this kind of pricing behavior.
Speaker 5: So it would kind of cut off the edge of
Speaker 5: that process, right, would cut off what we are calling
Speaker 5: in our paper amplification. So you have this initial shock,
Speaker 5: and then this shock is actually not just propagated through
Speaker 5: your system, but it's amplified as as it coordinates these
Speaker 5: additional profit increasing price hikes.
Speaker 1: So what do traditional ways of fighting inflation? How do
Speaker 1: they actually play out in a seller's inflation world? So,
Speaker 1: for instance, the FED hikes interest rates in theory, that's
Speaker 1: supposed to curb demand and therefore prices start going down.
Speaker 1: But what's instinct on how that actually plays out in
Speaker 1: a world where companies are the driving force behind prices.
Speaker 5: Yeah, I mean, at best in a very roundabout way.
Speaker 5: I mean, in any cases, it's always a very roundabout instrument. Right,
Speaker 5: we have to keep in mind that this is a
Speaker 5: very very indirect tool of fighting inflation, which, by the way,
Speaker 5: if we are in a situation where we are already
Speaker 5: at the edge of a recession, where we are already
Speaker 5: at the edge of a banking crisis, where we have
Speaker 5: had a pandemic, and we have a war, and now
Speaker 5: let's say we have another major climate shock, and let's
Speaker 5: say we have already hiked interest rates to a point
Speaker 5: where even hawkish people feel like, okay, really shouldn't go higher.
Speaker 5: I mean, what are you going to do, right if
Speaker 5: you have another shock that unleashes this kind of process.
Speaker 4: So, first of all, I would say.
Speaker 5: It's too blunt of a tool to deal with frequent,
Speaker 5: extremely sectorial shocks, as I think they have become more likely.
Speaker 5: Of course, no one hopes that they will happen. I
Speaker 5: don't hope they are happening, but I think they have
Speaker 5: become more likely, So I don't think we are prepared
Speaker 5: to actually achieve price stability with the tools that we
Speaker 5: have in terms of just relying on the center bank.
Speaker 5: I also think that if it is the case that
Speaker 5: there is such a big energy shock, which then center
Speaker 5: banks would say, oh, we are actually looking through this, right,
Speaker 5: then your mindset is like, oh, yeah, this is something
Speaker 5: that is not part of the core inflation. I'm just
Speaker 5: looking through this like la la la, that's not happening, right.
Speaker 5: I think this is not the right mindset that we
Speaker 5: need because this is like a very very dangerous impult.
Speaker 5: So it's kind of leading us in the wrong direction.
Speaker 5: But also, at the end of the day, what happens
Speaker 5: with interest rate hikes is that it's designed to cool
Speaker 5: down the labor market. Right now, if it is a
Speaker 5: case that inflation erases purchasing power and rage increases, we're
Speaker 5: not the origin of this inflation. This means that the
Speaker 5: majority of page dependent people are actually being hurt by inflation,
Speaker 5: and then then I kind of punished a second time
Speaker 5: by cooling down the labor market.
Speaker 4: Right.
Speaker 5: So, I think, even from a kind of justice perspective,
Speaker 5: that is mutually problematic, but it's also not very effective
Speaker 5: because it's kind of getting it the wrong thing.
Speaker 3: So I take your point about things like the strategic
Speaker 3: petroleum Reserve and how the logic of these sort of
Speaker 3: buffer stocks, particularly of commodities could be used in like
Speaker 3: future shocks as buffers in both directions. But how do
Speaker 3: you think about this idea with respect to services, because
Speaker 3: it's hard to believe. Okay, maybe we keep a lot
Speaker 3: of oil that we don't use in tankers. Hard to
Speaker 3: believe we would say, like, you know, we're not going
Speaker 3: to underbook, you know, have all flights be eighty percent
Speaker 3: booked or all hotels be eighty percent book they're all
Speaker 3: veterinarians like carve twenty percent of their time and services
Speaker 3: in terms of right now, even like you know, in
Speaker 3: spring twenty twenty three, like services inflation is particularly what
Speaker 3: the FED is like focused on. So how do you
Speaker 3: like think about some of these things outside of the
Speaker 3: sort of pure goods commodity realm, like applying some of
Speaker 3: the same insight and logic.
Speaker 5: Yeah, so I think if we look at services, shipping
Speaker 5: has probably been the most important service that had a
Speaker 5: very large price explosion that I would see as part
Speaker 5: of the impulse stage. And I think what we saw
Speaker 5: there is that basically you had I mean a literal
Speaker 5: butter deck, right, Like if you think back to how
Speaker 5: the Port of la looked, I mean, this is the
Speaker 5: image of a bottle deck, right, And shipping companies could
Speaker 5: increase their freight rates several times over, so prices went up,
Speaker 5: and they had actually the largest profits in years and years, right,
Speaker 5: So they were in a situation where as I mean,
Speaker 5: if I was a leader of one of these large
Speaker 5: shipping companies, I was in no rush to get out
Speaker 5: of this buttle deck because it's the best of times
Speaker 5: for me.
Speaker 4: Right.
Speaker 5: So for example, for shipping, I think a we need
Speaker 5: protocols like I mean, how do you unblock a port
Speaker 5: and be some sort of a price couching legislation of
Speaker 5: the type that the New York State Attorney General is
Speaker 5: currently introducing. Also for essential stuff that is further up
Speaker 5: the value chain rather than just the essential consumer facing stuff,
Speaker 5: I think could be really helpful. Because this is not
Speaker 5: to say that prices cannot go up at all if
Speaker 5: this kind of emergency happens, and shipping companies have higher
Speaker 5: costs because things get complicated, But it's to say that
Speaker 5: they don't get these perverted incentives of having freight rates
Speaker 5: that increase multiple times over which I think would actually
Speaker 5: also give them more incentive to get out of the
Speaker 5: blockage as opposed to basically profit from the situation. So
Speaker 5: this is an example of a very specific service industry,
Speaker 5: but I think one that matters quite largely.
Speaker 1: So just on this point, can you talk to us
Speaker 1: a little bit about investment, because the classic argument against
Speaker 1: some sort of windfall tax or price control would be, well,
Speaker 1: you don't want to artificially bring down the prices. You
Speaker 1: want people to make a ton of money, and that
Speaker 1: way they'll invest more in their business and build out capacity,
Speaker 1: and eventually the additional production is going to be the
Speaker 1: thing that maybe starts to resolve the bottleneck and bring
Speaker 1: down prices. How does that work? And is that a
Speaker 1: viable critique of some of the measures that you're talking about.
Speaker 5: Well, I mean, first of all, I would say that
Speaker 5: hiking interest rates is a recipe designed to bring down investment. Right,
Speaker 5: So if we are talking about different ways of fighting inflation,
Speaker 5: that I am more worried about the interest rate hiking
Speaker 5: policy than I am about an emergency price couching law
Speaker 5: or a a national emergency win.
Speaker 4: For a profit tax or something like that.
Speaker 5: But also we have to see that if we are
Speaker 5: talking about price over volume, then were in a situation
Speaker 5: where with lower volumes firms can make more money, right,
Speaker 5: which means that they are basically contracting their capacity. And
Speaker 5: I think that if we look at the oil sector,
Speaker 5: which on my mind has been a very important element
Speaker 5: in this inflation story, that it's quite clear that they
Speaker 5: are saying very explicitly on the earning scolles that they
Speaker 5: are taking a discipline approach to investment because they are
Speaker 5: reaping record profits as they have reduced capacity.
Speaker 1: Everyone remembers twenty thirteen and the big expansion, and they
Speaker 1: don't want to repeat.
Speaker 4: That exactly exactly.
Speaker 5: So it's not necessarily the case that if you can
Speaker 5: and I mean if you have learned that you can
Speaker 5: actually re record profits when your supply is constrained, that
Speaker 5: this then encouragters you to have a lot of redundant
Speaker 5: extra capacity or to hugely expand your capacity and therefore
Speaker 5: go for big investments. Where there are areas where we
Speaker 5: are particularly worried about curtailing investments. With these kind of
Speaker 5: policy measures, I think you could have a policy that
Speaker 5: basically stipulates that if you're investing in, like let's say,
Speaker 5: green technologies, Like let's say you are using the crisis
Speaker 5: a moment to upgrade your technology to become a low
Speaker 5: carb and manufacturer or something this, that you could have
Speaker 5: a tax right off for these kind of investments that
Speaker 5: we really want, that we want for a green transition,
Speaker 5: which that would not count towards the ways in which
Speaker 5: your mindful profits tax is calculated, so that in this
Speaker 5: kind of situation, these firms might still have an incentive
Speaker 5: to do a price or a volume, but at least
Speaker 5: they would use the money that they get to invest
Speaker 5: in the stuff that we really need to make our
Speaker 5: economy more resilient rather than to Buybeck shares or do
Speaker 5: these kind of things.
Speaker 3: You know, it's interesting in going back to this point
Speaker 3: that part of the impulse or part of the expectation
Speaker 3: comes from investors themselves, and these sort of expectations you're.
Speaker 2: Going to push price too. You're going to push price too.
Speaker 3: Do you think there's any element here where corporations themselves
Speaker 3: would like to get out of this game that you
Speaker 3: that a sort of like third party administrator of supply
Speaker 3: of price of investment comes in and actually like solves
Speaker 3: the problem for corporation so that they get off this treadmill.
Speaker 3: Because one thing that I think about sometimes is any
Speaker 3: individual company may benefit from higher prices and higher margins,
Speaker 3: but on the whole, a series of like fed rate
Speaker 3: hikes to high inflation is not great for stocks, which
Speaker 3: is how most.
Speaker 2: Of these you know, a lot of executives get paid.
Speaker 5: Yeah, absolutely, I think there is like, on the one hand,
Speaker 5: a lot of coordination, right, But these price hikes, on
Speaker 5: the other hand, there's a lot of coordination fail if
Speaker 5: you want so, because there are outcomes of this process
Speaker 5: that in sometimes not sustainable, right. And actually, if we
Speaker 5: look at what happened after World War One, when you
Speaker 5: had like kind of price hikes coming out of a
Speaker 5: bottleneck kind of transition from ward to post war economy,
Speaker 5: you had a very short lived boom that was very inflationary,
Speaker 5: and then a sharp turn into a deflationary recession. I
Speaker 5: don't think that such a sharp turn is in the
Speaker 5: cards because now we have these very concentrated sectors for
Speaker 5: most of the economy, which means that in these sectors
Speaker 5: firms are pricemakers, and they tend to not lower prices
Speaker 5: in these kind of sudden ways in which we would
Speaker 5: see it in commodity markets or price taking markets. So
Speaker 5: I'm not so worried about this sudden turn as I
Speaker 5: would have been in a different setup. But nevertheless, yes,
Speaker 5: it does trigger. It does trigger rate hikes. It does
Speaker 5: create a situation where I think a lot of corporate
Speaker 5: leaders are also nerve. It's like, how hard can we
Speaker 5: take this?
Speaker 4: Right?
Speaker 5: It's like it's a bit like you're in this gambling
Speaker 5: game where you keep winning, but you kind of don't trust.
Speaker 1: And everyone seems surprised that it's actually paid off much
Speaker 1: for so long.
Speaker 4: Right, Yeah, everybody seems to be really surprised that that.
Speaker 5: I mean that, yeah, so the degree of coordination on
Speaker 5: that front has been totally surprising. But then you can
Speaker 5: also not chicken out, right. I mean we saw in
Speaker 5: Walmart and for very short blips of time was making
Speaker 5: announcement that they are Discounter and that they are not
Speaker 5: going to play this price hiking game, and then they
Speaker 5: had this share sell off, right, So I mean there's
Speaker 5: also like kind of a discipline from financial markets to
Speaker 5: keep doing this, But at the same time it's kind
Speaker 5: of clear that maybe it cannot keep going. But also
Speaker 5: we have to see that if we look at the
Speaker 5: data of changes in profit margins, it's very roughly speaking,
Speaker 5: about two thirds of sectors that benefited and one third
Speaker 5: or so that did not benefit. I don't have a
Speaker 5: very clear picture yet like how this distribution works, but
Speaker 5: in any case, we know that there are that there
Speaker 5: are also sectors, and that they are firms that are suffering.
Speaker 4: Pretty badly from this. Right.
Speaker 5: And if we think of a capitalist economy as being
Speaker 5: coordinated by the profitability of different things, right as the
Speaker 5: most important signal for capital allocation, and this profitability gets
Speaker 5: kind of random because in some sectors firms can play
Speaker 5: this price of a volume game, and then some other
Speaker 5: sectors it might be more difficult to pour this off.
Speaker 5: And this doesn't have reasons that necessarily tied into the
Speaker 5: entrepreneurial genius of one firm versus the other, or the
Speaker 5: necessity for society for production of.
Speaker 4: One thing over the other.
Speaker 5: But it just has to do with whatever specific constellation
Speaker 5: enabled these kind of price hikes. And I think we
Speaker 5: us really have a problem, right if profitability becomes random.
Speaker 1: Right, So, maybe like the egg companies do really well
Speaker 1: for some reason because everyone's heard about bird flu for instance,
Speaker 1: we did a whole episode on it. And so all
Speaker 1: the egg companies raise their prices at the same time
Speaker 1: and make a lot of money. But meanwhile, there's some
Speaker 1: I don't know, software startup doing something really cool, but
Speaker 1: they can't push through the same kind of price increases.
Speaker 5: Absolutely, and even like between product lines in individual firms.
Speaker 4: Like if you look at what.
Speaker 5: Happened in the car sector, right, were suddenly because I
Speaker 5: mean there you actually had a real physical bottleneck, and
Speaker 5: car companies decided to only, i mean not only, but
Speaker 5: predominantly produce higher end models that then recited a situation
Speaker 5: where all these cars that normal people are driving became
Speaker 5: basically not available on the market, right, which is an
Speaker 5: outcome that is in many ways undesirable because then maybe
Speaker 5: people can't make it to work because they can't afford
Speaker 5: a car, which then like kind of makes the labor
Speaker 5: market less fluid in a situation where we already have
Speaker 5: labor shortages in a certain areas.
Speaker 1: So but yeah, so since we're on the topic of
Speaker 1: capital allocation and capitalist economies and how it's supposed to work,
Speaker 1: can we maybe talk about slightly less capitalist country. But
Speaker 1: the first time we ever had you on the show,
Speaker 1: it was to talk about China, and I'm wondering, if
Speaker 1: you contrast and compare inflation in the West, in Europe
Speaker 1: and the US with what's going on in China, it
Speaker 1: does seem like, although there are some pockets of high
Speaker 1: prices in the East, it does feel like on the
Speaker 1: whole it's less of an inflation story. So what are
Speaker 1: you thinking about in terms of that comparison.
Speaker 5: Yeah, I think it's really an important thing to look at.
Speaker 5: I think we haven't discussed this like generally enough that
Speaker 5: there has been really this pretty dramatic divergence between Europe
Speaker 5: and the US with this high inflation in China, with
Speaker 5: almost a deflation kind of problem.
Speaker 4: In some stretches.
Speaker 5: I think, of course, it has to do a bit
Speaker 5: the different timeline of COVID.
Speaker 4: I mean, no question about that, right.
Speaker 5: I mean they have had shutdowns when we were not
Speaker 5: in shutdown, and they were open when we were in
Speaker 5: shutdown and so on, right, So clearly, microeconomically speaking, they
Speaker 5: are at a different point. They also did not have
Speaker 5: the kind of similars packages that they had in the
Speaker 5: global financial crisis and so on, So certainly the macro
Speaker 5: environment is different. But I think there's still the question
Speaker 5: of how did the global food and energy price shock
Speaker 5: arrive in China, right, and why did this shock not
Speaker 5: unleash similar kind of dynamics, right.
Speaker 1: It didn't seem to get propagated as much as it
Speaker 1: did elsewhere.
Speaker 5: Yeah, so I think that like different layers. So first
Speaker 5: of all, I mean for grain, which I think is
Speaker 5: an important one. For food, they have, of course a
Speaker 5: gigantic national reserve system, right, and they basically have to
Speaker 5: a certain degree buffer their domestic prices against international prices.
Speaker 5: So Chinese prices used to be for important grains like rice,
Speaker 5: sweet used to tend to be higher than the international prices,
Speaker 5: but stable, and when the international prices exploded, they kind
Speaker 5: of stay, broadly speaking, where they wear. And the way
Speaker 5: that they have managed that is that, first of all,
Speaker 5: they have a very high self sufficiency rate. But I
Speaker 5: don't think this is enough because I mean, the US
Speaker 5: has a very high self sufficiency rate, right, It's even
Speaker 5: like a major exporter. Germany for example, also has a
Speaker 5: very high self sufficiency rates, also an exporter. But still,
Speaker 5: these international price movements have a right, right In China,
Speaker 5: they have not because the import quota is very strictly managed,
Speaker 5: and it's basically a situation where most of the imports
Speaker 5: are managed by a very large state.
Speaker 4: Owned company KOVCO.
Speaker 5: And then domestically, so in that sense that the international
Speaker 5: domestic prices are not really as interlinked as they would
Speaker 5: be in other situations. And domestically they still have a
Speaker 5: minimum purchase price so that they basically ensure that wherever
Speaker 5: it's it's reasonable to cultivate with this minimum purchase price, grain.
Speaker 4: Is being cultivated.
Speaker 5: And then they have these grain auctions where they would
Speaker 5: be adding supply to the grain market if there is
Speaker 5: a shortage from basically a state owned reserve system. So
Speaker 5: in some sense they have for grain what the US
Speaker 5: has with the Strategic Petroleum Reserve, just on a probably
Speaker 5: even much more gigantic scale. And I'm saying probably here
Speaker 5: because we don't really know the size of the reserve.
Speaker 4: It's a state secret.
Speaker 1: I think there's a strategic pork reserve as well, right,
Speaker 1: it is my favorite whenever they replenish.
Speaker 5: The Yeah, so there's actually I mean there's actually also
Speaker 5: a live pick reserve. In other words, like state owned
Speaker 5: pork farms a picktort. You can't have a pork farm,
Speaker 5: you only can have a pickform, so state owned pick farms,
Speaker 5: they have frozen pick reserves, and they are also like
Speaker 5: kind of attempts of the state.
Speaker 4: But again, these auctions.
Speaker 5: And I mean purchases and auctions to basically send signals
Speaker 5: into the market. So it's not really just about the
Speaker 5: physical supply, but it's also about like let's say there's
Speaker 5: a price hike for pork and then there's an announcement
Speaker 5: that the state is now doing a major auction of pork.
Speaker 5: Then this is sending a signal to all market players
Speaker 5: that this price hike might not continue, which then should
Speaker 5: encourage people to get rid of the inventories.
Speaker 4: In there by also at supply.
Speaker 3: So it sounds like, I mean, we have our SPR
Speaker 3: and it was never really used as a price stabilizer.
Speaker 3: So in addition to all these vehicles like the strategic
Speaker 3: pork supply and other it seems like they also have
Speaker 3: practice in this that actually like unlike OURSPR, which was
Speaker 3: sort of pivoted or like, oh, we don't have to
Speaker 3: use it just for strategic purposes, that this is like
Speaker 3: part of like a more ingrained in macro management.
Speaker 5: There absolutely and I mean the pork example is actually
Speaker 5: one where it doesn't work that great because hawk cycles
Speaker 5: are a thing, right, and they are I think China too,
Speaker 5: and you have like millions of small holders farming pigs,
Speaker 5: so you have very intense hawk cycles. So you can
Speaker 5: smoothen the cycle, but you never get rid of it.
Speaker 5: But it's technically not at all simple, right, I mean
Speaker 5: you need to have basically a system that can store
Speaker 5: that stuff in a way that the pork that they
Speaker 5: sell is the pork that you want to buy an
Speaker 5: e eat, right. You need to have agents that are
Speaker 5: able to purchase this on a relatively large scale. You
Speaker 5: then have to have these auctions that have to be
Speaker 5: professionally organized. And you also have to understand the market
Speaker 5: really well. I mean, remember when there was an announcement
Speaker 5: earlier this year that the US war was going to
Speaker 5: buy back or to replenish its strategic petronium reserve, and
Speaker 5: then oil prices started spiking, right, So you have to
Speaker 5: have a very good handle on how to communicate with
Speaker 5: the market, like when to say something about what you're
Speaker 5: doing and when not to say something about what you
Speaker 5: are doing. So it's quite demanding and a lot of
Speaker 5: things can go wrong.
Speaker 1: Yeah, and even in China, where they do have practice
Speaker 1: doing this. I mean I remember with pork specifically after
Speaker 1: the African swine fever outbreak, they actually made the cycle
Speaker 1: even worse because they told everyone ramp up production and
Speaker 1: then it was too much, and then prices collapsed and
Speaker 1: everyone got out. And so it's just been going like
Speaker 1: sea sawing ever since then.
Speaker 5: Absolutely, and it's actually been for the first time a
Speaker 5: situation where European pork importers have had difficulty selling in
Speaker 5: China because suddenly the prices collapsed in China and in
Speaker 5: Europe they were going up with the very high grain prices.
Speaker 5: So that Yeah, absolutely.
Speaker 1: I didn't mean to make this a pork discussion, But
Speaker 1: can I can I ask a personal question?
Speaker 4: Oh? Can I say what more? Sorry? That's awkward.
Speaker 5: So actually, I mean you're saying you didn't want to
Speaker 5: make this a pork discussion. But the funny thing is,
Speaker 5: while I was in China, I was seeing many interviews
Speaker 5: with people on inflation, including foks from the Word Bank,
Speaker 5: from the IMF, from major banks and so on, And
Speaker 5: eventually every single economist that I talked to started to
Speaker 5: talk about pork. How they even have all these like
Speaker 5: jokes on pork, so they say, like the CPI in
Speaker 5: China actually send for the China.
Speaker 1: That's pretty I love that all the economists are viewing
Speaker 1: inflation through the lens.
Speaker 2: Of pork, like we do with the oil here in
Speaker 2: this country.
Speaker 1: It's true. But can I ask a personal question, which
Speaker 1: is you know you mentioned well, we started off this
Speaker 1: conversation talking about how this idea of seller's inflation has
Speaker 1: really gathered steam in recent weeks, and you mentioned the
Speaker 1: Guardian article where you talked about price controls, and I
Speaker 1: remember when that came out, you got a ton of
Speaker 1: criticism online, lots of Twitter people calling you various names.
Speaker 1: Paul Kirkman said, some not very nice things. But since then,
Speaker 1: we've seen price controls in Europe. We've seen on the
Speaker 1: subject of seller's inflation and maybe windfall taxes. We've seen
Speaker 1: the UK, for instance, talking about capping grocery items and
Speaker 1: things like that. How do you feel about how this
Speaker 1: is sort of seeping into the mainstream.
Speaker 5: Yeah, I mean, maybe to act to your list. We
Speaker 5: have also, of course seen the European gas price cap,
Speaker 5: which is an international i mean transnationally coordinated kind of
Speaker 5: price cap, and the OI price cap against Russian or
Speaker 5: which I mean principle could be for all oil, right,
Speaker 5: I mean just in terms of the technicality of the
Speaker 5: price control mechanism. So yes, absolutely, it's been a totally
Speaker 5: astonishing to me. The reason why I wrote this article
Speaker 5: at the time was because a I felt that the
Speaker 5: debate amongst economists was polarized between those who were saying like, Oh,
Speaker 5: we don't have to worry about inflation too much, it's
Speaker 5: just transitory, and those who were saying, oh, inflation is
Speaker 5: really a problem.
Speaker 4: Therefore we have to hike interest rates yesterday.
Speaker 5: And I felt like there was a position missing there,
Speaker 5: which is like, yeah, we have very large price spikes
Speaker 5: and they are a problem. But if you have a
Speaker 5: fire in the kitchen, you don't set your whole house
Speaker 5: under water, but you try to put out the fire
Speaker 5: in the kitchen. Right, So, not as an apologis of
Speaker 5: price controls, but to say, hey, there is something sector
Speaker 5: that we can do, and direct means of price civilization
Speaker 5: can be an emergency measure to buy time when you
Speaker 5: are faced with these kind of crazy price spikes. Now
Speaker 5: the key word here, I think is emergency measure, and
Speaker 5: my sense is that the more urgent the emergency became
Speaker 5: the more acceptable these kind.
Speaker 4: Of measures ended up being.
Speaker 5: And I think that in Europe you can see this
Speaker 5: very clearly in terms of the reactions to the war.
Speaker 4: But then also like basically, as it.
Speaker 5: Became colder, right, and the fear of winter just became
Speaker 5: very real, the perceived emergency became more intense, and the
Speaker 5: willingness to take these kind of measures became greater. The
Speaker 5: Sellus inflation story, I feel like it's related but also
Speaker 5: kind of slightly separate in the sense that the price
Speaker 5: control debate is really about emergency measures that you take right,
Speaker 5: and the Sellus inflation paper is really about how do
Speaker 5: we understand this kind of inflation? But I think the
Speaker 5: shift that we are seeing now that of course it's
Speaker 5: not complete and so on, but that at least it's
Speaker 5: becoming more acceptable to think about other ways of understanding
Speaker 5: how inflation came about. It's kind of the first step
Speaker 5: that we need to take to move towards a different
Speaker 5: kind of economic stabilization paradigm that I personally think we
Speaker 5: really need in this age of overlapping emergencies. So it's
Speaker 5: been quite a wilde, right, but I guess talking today
Speaker 5: and it has been very wide, so God knows what's
Speaker 5: going to happen next.
Speaker 4: It looks like there has.
Speaker 5: Been some movement in a good direction in the sense
Speaker 5: that the discourse is becoming more open, and I think
Speaker 5: that an open discourse is really what we need if
Speaker 5: we are faced with these unprecedented situations. Because he cannot
Speaker 5: respond to an unprecedented situation by saying we have always
Speaker 5: known how exactly works.
Speaker 1: Isabelle A weavor. Thank you so much for coming back
Speaker 1: on our thoughts. Really appreciated having you in person as well.
Speaker 2: Thank you, Thank you so much.
Speaker 1: So Joe, I always enjoyed talking to Isabella. It is
Speaker 1: crazy to see how quickly things seem to be changing
Speaker 1: in this particular area of discourse.
Speaker 3: Totally and you know, I know we didn't really get
Speaker 3: into it, but I also just think that like the
Speaker 3: Internet and Twitter and like it sort of cuts in
Speaker 3: both directions because you can put out an idea and
Speaker 3: get tons of abuse and backlash, but there's also like
Speaker 3: a really rapid way which ideas proliferate in a way
Speaker 3: I don't think would have happened in like, you know,
Speaker 3: a different era where you like wait like five years
Speaker 3: to get a paper you know, referee in a journal or.
Speaker 2: Something like that.
Speaker 3: But I'm fascinated, as I think we both are, by
Speaker 3: like how ideas like can move so fast and like
Speaker 3: especially in the native crisis.
Speaker 1: Absolutely, And the other things that stood out to me
Speaker 1: are one you mentioned this treadmill idea of like, you know,
Speaker 1: it sounds great companies raising prices in order to pad
Speaker 1: their profit margins, but at some point you have to imagine,
Speaker 1: like there are some executives who get nervous about how
Speaker 1: far they can actually push this.
Speaker 3: Yeah, I like Isabella's a point about like the gamble, right,
Speaker 3: because at some point, like you could imagine where you're
Speaker 3: like going with a pricing strategy and you really miss
Speaker 3: time it and suddenly you really do like lose share
Speaker 3: in like a meaningful way or you damage your brand,
Speaker 3: which seems plausible. It's like, oh, this company is greedy
Speaker 3: at a time, and so it sort of depends on
Speaker 3: the sort of coordination. And I do wonder whether like
Speaker 3: executives whatever like off the treadmill. Yeah in some way.
Speaker 1: Right, they're sort of they're pulling the lever of every
Speaker 1: quarter and so far it's paid out each time, but
Speaker 1: maybe one day it won't. The other thing that really
Speaker 1: stood out to me was, I mean, what we're talking
Speaker 1: about is basically the need potentially for more interventionist government
Speaker 1: in the economy in one way or another, whether it's
Speaker 1: you know, trying to smooth out some of those production cycles,
Speaker 1: trying to smooth out big price spikes. And I feel
Speaker 1: like that's always going to be controversial.
Speaker 2: Particularly political.
Speaker 1: It's always going to be political, particularly in the US,
Speaker 1: but it is you know that said, we have seen
Speaker 1: some inklings of it with for instance, the Strategic Petroleum Reserve.
Speaker 3: Yeah, And I think this is really the key, like
Speaker 3: to my my takeaway from all this is people look
Speaker 3: at this green inflation story whatever, and they're like, yeah,
Speaker 3: but inflation is still really high, right, and so we
Speaker 3: got to do something about it. And I think isabeut
Speaker 3: this point, like it's important by looking at different dimensions
Speaker 3: and not just saying, oh, it's because of wages or
Speaker 3: not just because of like rates or money supply, it
Speaker 3: allows us like the sort of like mental space to
Speaker 3: open up, and some of them like we may not
Speaker 3: have the tools, Like we may not have the tools
Speaker 3: right now to like stabilize keep grand prices stable. We
Speaker 3: don't have the sort of equivalent, but like thinking about like,
Speaker 3: is rate hikes really going to be the best way?
Speaker 2: Here?
Speaker 3: Is the cost in terms of like general welfare and
Speaker 3: employment worth it? If this is really not what the
Speaker 3: story is about, I think it's still like very useful.
Speaker 3: From that perspective, it is like, Okay, how good are
Speaker 3: these tools? And if we're going to use a blunt tool,
Speaker 3: like right, how much damage you're we're gonna do?
Speaker 2: Yeah with this mediocre tool.
Speaker 1: Well, again, going back to the investment point, if the
Speaker 1: issue is a bottleneck in production, then maybe maybe you
Speaker 1: don't want to raise the cost of investment and production.
Speaker 3: You want to raise the cost of a real estate
Speaker 3: developer at a time when rent is one of the
Speaker 3: highest things like that.
Speaker 1: You know what, Joe, I've decided I'm going to base
Speaker 1: my entire personality going forward on campaigning for a strategic
Speaker 1: pork reserve in the US.
Speaker 2: But it's hard, it's hard to I guess even that,
Speaker 2: But yeah, I support that.
Speaker 1: Bringing home the bacon. That's my mind. Shall we leave
Speaker 1: it there, Let's leave it there, all right? This has
Speaker 1: been another episode of the Odd Thoughts podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy.
Speaker 3: Alloway, and I'm Joe Wisenthal. You can follow me on
Speaker 3: Twitter at the Stalwart. Follow our guest Isabella Weber on
Speaker 3: Twitter at Isabella M.
Speaker 2: Weber.
Speaker 3: Follow our producers Kerman Rodriguez at Kerman Armant and Dashall
Speaker 3: Bennett at Dashbot. And for more odd Lots content, go
Speaker 3: to Bloomberg dot com slash odd Lots, where we have
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