1 00:00:10,720 --> 00:00:15,240 Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast. 2 00:00:15,320 --> 00:00:20,400 Speaker 1: I'm Joe Wisenthal and I'm Tracy Halloway. So, Tracy, uh, 3 00:00:20,720 --> 00:00:24,880 Speaker 1: I think we recorded an episode on the recent CPI day, 4 00:00:25,280 --> 00:00:28,639 Speaker 1: But regardless of when it was, I think there is 5 00:00:28,680 --> 00:00:32,000 Speaker 1: this view now that although I don't know like whether 6 00:00:32,000 --> 00:00:35,839 Speaker 1: it's like team persistent or team transitory, or whether teams 7 00:00:35,880 --> 00:00:38,280 Speaker 1: are the right way to be thinking about this, that 8 00:00:38,720 --> 00:00:42,040 Speaker 1: the sort of elevated inflation that we've seen for various 9 00:00:42,080 --> 00:00:46,600 Speaker 1: reasons logistics, commodities, etcetera, it doesn't seem to be going 10 00:00:46,640 --> 00:00:51,240 Speaker 1: away anytime soon. Yeah. We actually spoke about this on 11 00:00:51,600 --> 00:00:53,720 Speaker 1: an All Bots episode. It was with one of the 12 00:00:53,760 --> 00:00:56,200 Speaker 1: FED governors. I think it might have been Caplan, but 13 00:00:56,480 --> 00:01:00,320 Speaker 1: um we asked whether or not transitory was like a 14 00:01:00,360 --> 00:01:03,320 Speaker 1: good way to describe it, or whether they regretted choosing 15 00:01:03,360 --> 00:01:06,640 Speaker 1: that word, and I think, like, you know, fast forward 16 00:01:06,640 --> 00:01:09,119 Speaker 1: a few weeks, it's very very clear that the FED 17 00:01:09,240 --> 00:01:13,760 Speaker 1: probably um regrets using the term transitory and probably would 18 00:01:13,760 --> 00:01:16,880 Speaker 1: have benefited from using something like um, you know, I 19 00:01:16,920 --> 00:01:21,640 Speaker 1: guess broad based inflation versus narrow inflation something like that. Yeah, 20 00:01:21,760 --> 00:01:26,199 Speaker 1: or just maybe like pandemic related inflation, like something super pedestrian, 21 00:01:26,480 --> 00:01:28,720 Speaker 1: because I do think like we were in this situation 22 00:01:28,800 --> 00:01:32,119 Speaker 1: where people have taken transitory to mean like, oh, it's 23 00:01:32,120 --> 00:01:34,440 Speaker 1: gonna be like this very brief spike, like we have 24 00:01:34,480 --> 00:01:36,399 Speaker 1: two months up and then we quickly go down. And 25 00:01:36,480 --> 00:01:40,080 Speaker 1: that hasn't happened yet. That being said, we are still 26 00:01:40,120 --> 00:01:43,160 Speaker 1: in the mix of just like this very weird, tumultuous 27 00:01:43,200 --> 00:01:46,679 Speaker 1: time for the global economy. We talked about it recently 28 00:01:46,720 --> 00:01:49,200 Speaker 1: with Jeff Curry, and just like all the different things 29 00:01:49,200 --> 00:01:53,640 Speaker 1: going Chinese energy rationing and Indian call shortages and weather 30 00:01:53,680 --> 00:01:56,560 Speaker 1: patterns and all kinds of stuff, and so there's just 31 00:01:56,600 --> 00:02:01,080 Speaker 1: a bunch happening, and I think like the question is, well, 32 00:02:01,080 --> 00:02:04,760 Speaker 1: will this normalize? Well, when the pandemic is over and 33 00:02:04,800 --> 00:02:08,600 Speaker 1: policy normalizes, will we have an inflationary environment that more 34 00:02:08,720 --> 00:02:13,760 Speaker 1: or less resembles the pre crisis environment or are we 35 00:02:13,800 --> 00:02:18,760 Speaker 1: going to be at some like new elevated inflationary regime. Yeah, 36 00:02:18,880 --> 00:02:22,600 Speaker 1: I mean with the surge and energy prices, the analogy 37 00:02:22,680 --> 00:02:25,919 Speaker 1: that everyone is reaching for right now is the nineties seventies, right, 38 00:02:26,120 --> 00:02:30,200 Speaker 1: the idea of double digit inflation and slower economic growth. 39 00:02:30,240 --> 00:02:33,519 Speaker 1: So the sort of double punch of stagflation, although I 40 00:02:33,560 --> 00:02:35,280 Speaker 1: gotta say I feel like a lot of people are 41 00:02:35,360 --> 00:02:39,280 Speaker 1: just using stagflation as like a synonym for inflation now, um, 42 00:02:40,040 --> 00:02:43,200 Speaker 1: when they are two very different things. But you're definitely 43 00:02:43,240 --> 00:02:46,079 Speaker 1: seeing more people talking about that, yeah, you know. And 44 00:02:46,160 --> 00:02:48,640 Speaker 1: obviously job creation in the US has been a little 45 00:02:48,639 --> 00:02:51,040 Speaker 1: bit slower than perhaps we would have hoped in the spring, 46 00:02:51,240 --> 00:02:54,240 Speaker 1: so that but on the other hand, like retail sales, 47 00:02:54,480 --> 00:02:58,640 Speaker 1: the consumer seems to be absolutely booming. So the stag 48 00:02:58,680 --> 00:03:01,119 Speaker 1: part of the stag inflation is a little bit hard 49 00:03:01,160 --> 00:03:03,839 Speaker 1: to see at the moment. But you brought up the seventies, 50 00:03:04,200 --> 00:03:07,360 Speaker 1: and I think that's really important because obviously that is 51 00:03:07,480 --> 00:03:10,760 Speaker 1: the decade that people reach for when they look for analogs. 52 00:03:10,880 --> 00:03:13,320 Speaker 1: And not only was it the last time that I 53 00:03:13,360 --> 00:03:17,080 Speaker 1: think the US really had uh sort of sustained elevated inflation, 54 00:03:17,680 --> 00:03:21,160 Speaker 1: but a lot of our policy makers, central bank governors 55 00:03:21,200 --> 00:03:24,720 Speaker 1: and you know, sort of grandees at university is sort 56 00:03:24,760 --> 00:03:27,760 Speaker 1: of like made their chops in the seventies or eighties, 57 00:03:27,880 --> 00:03:29,760 Speaker 1: And so I think it looms very large for how 58 00:03:29,800 --> 00:03:32,560 Speaker 1: they may say the economy now and how they may 59 00:03:32,639 --> 00:03:36,520 Speaker 1: view the proper policy response. So understanding what actually happened yeah, 60 00:03:36,560 --> 00:03:40,640 Speaker 1: and we had that episode with Ulrika Malmondi and she 61 00:03:40,760 --> 00:03:46,240 Speaker 1: was talking about inflation expectations and how how much individual 62 00:03:46,280 --> 00:03:49,800 Speaker 1: experience has actually mattered to perceptions of inflation, and of 63 00:03:49,840 --> 00:03:53,280 Speaker 1: course she did that great paper all about how if 64 00:03:53,320 --> 00:03:56,960 Speaker 1: you look at the age of f OMC members, you 65 00:03:57,000 --> 00:04:01,480 Speaker 1: can basically figure out how they're going to vote on 66 00:04:01,640 --> 00:04:05,280 Speaker 1: interest rates just based on their age and you know 67 00:04:05,440 --> 00:04:09,040 Speaker 1: their own personal experience of inflation. Right. Well, I think 68 00:04:09,080 --> 00:04:11,480 Speaker 1: both of us missed the seventies by a little bit, 69 00:04:12,200 --> 00:04:15,280 Speaker 1: and I think, you know, we talked about the seventies, 70 00:04:15,880 --> 00:04:18,520 Speaker 1: but like what happened in the seventies strikes me as 71 00:04:18,640 --> 00:04:21,640 Speaker 1: then therefore an important question, and then you can think about, like, well, 72 00:04:21,680 --> 00:04:24,440 Speaker 1: can we have these conditions today. So I'm very excited 73 00:04:24,560 --> 00:04:27,000 Speaker 1: about the guest because he has a new report out. 74 00:04:27,480 --> 00:04:31,039 Speaker 1: It's titled Inflation in the twenty one Century, taking down 75 00:04:31,160 --> 00:04:34,839 Speaker 1: the inflationary straw man of the nineteen seventies. We'd be 76 00:04:34,880 --> 00:04:37,680 Speaker 1: speaking with Daniel Alpert. He's a senior fellow at Cornell, 77 00:04:37,839 --> 00:04:40,640 Speaker 1: an adjunct professor at the law school, and he has 78 00:04:40,680 --> 00:04:45,680 Speaker 1: a managing partner at the investment banking firm Westwood Capital. Daniel, 79 00:04:45,800 --> 00:04:49,280 Speaker 1: thank you, so much for coming on, nod lots, thanks 80 00:04:49,279 --> 00:04:52,840 Speaker 1: for having me on. So what prompted you to write this? 81 00:04:53,000 --> 00:04:56,479 Speaker 1: I mean sort of looking at now versus then, what 82 00:04:56,560 --> 00:04:59,880 Speaker 1: really happened in the sies. Well, I think the prime 83 00:05:00,000 --> 00:05:02,080 Speaker 1: anything is coming out of the pandemic. You know, it 84 00:05:02,200 --> 00:05:04,559 Speaker 1: causes you to reflect on what's happened over the last 85 00:05:05,120 --> 00:05:08,200 Speaker 1: twelve years since the global financial crisis, and what you 86 00:05:08,200 --> 00:05:10,400 Speaker 1: know we did right and what we did wrong, and 87 00:05:10,400 --> 00:05:13,599 Speaker 1: what opportunities are ahead of us now that we've demonstrated 88 00:05:13,640 --> 00:05:16,000 Speaker 1: the capacity of the government to step in and do 89 00:05:16,160 --> 00:05:19,800 Speaker 1: things that at the time you know then and certainly 90 00:05:20,000 --> 00:05:21,920 Speaker 1: you know really all right right up to the pandemic. 91 00:05:21,960 --> 00:05:25,560 Speaker 1: We're considered anathema by many people. And given the fact 92 00:05:25,600 --> 00:05:28,680 Speaker 1: that we have a domestic policy agenda that's being put 93 00:05:28,720 --> 00:05:33,960 Speaker 1: forward by the administration and many people in Congress, it's 94 00:05:33,960 --> 00:05:38,400 Speaker 1: worth examining what the real inflationary risks are today, And 95 00:05:38,480 --> 00:05:41,800 Speaker 1: by default you have to go back to looking at 96 00:05:41,839 --> 00:05:46,040 Speaker 1: what those people who exhibit significant concerns over high inflation 97 00:05:46,440 --> 00:05:49,160 Speaker 1: are saying with regard to parallels to the nineteen seventies. 98 00:05:49,160 --> 00:05:52,600 Speaker 1: So the report is far more than just examining the seventies. 99 00:05:52,640 --> 00:05:55,839 Speaker 1: That it actually examines the economy today. But the period 100 00:05:55,839 --> 00:05:59,320 Speaker 1: of the seventies is fascinating because you know, I think 101 00:05:59,320 --> 00:06:02,440 Speaker 1: you correctly pointed out a couple of things. One very 102 00:06:02,480 --> 00:06:05,680 Speaker 1: few people remembered. I happen to remember it because unfortunately 103 00:06:05,720 --> 00:06:09,600 Speaker 1: I'm old enough. But the the this is fifty years 104 00:06:09,600 --> 00:06:12,440 Speaker 1: of debate going on over what caused it and is 105 00:06:12,480 --> 00:06:15,800 Speaker 1: still unresolved. I mean, the profession, the economics profession, has 106 00:06:15,839 --> 00:06:19,239 Speaker 1: no consensus on what caused this very very odd double 107 00:06:19,320 --> 00:06:21,960 Speaker 1: spike in inflation during the nineteen seventies, and I hope 108 00:06:21,960 --> 00:06:24,320 Speaker 1: we can get into that a little bit today. You 109 00:06:24,320 --> 00:06:26,200 Speaker 1: know that that I think is is very important. The 110 00:06:26,200 --> 00:06:30,479 Speaker 1: second thing is you mentioned um stagflation. Well, you know, 111 00:06:30,720 --> 00:06:32,960 Speaker 1: we pretty much have gotten to the point prior to 112 00:06:32,960 --> 00:06:35,400 Speaker 1: the pandemic where you know, there was a there was 113 00:06:35,440 --> 00:06:38,680 Speaker 1: a assumption that the economy was in a form of 114 00:06:38,720 --> 00:06:43,000 Speaker 1: stagnation lirry summer secular stagnation for example, and so the 115 00:06:43,080 --> 00:06:47,480 Speaker 1: idea that you might have that situation accompanied by inflation 116 00:06:47,640 --> 00:06:50,360 Speaker 1: naturally leads everybody to say the word stagflation. Now, I 117 00:06:50,400 --> 00:06:54,440 Speaker 1: think it's completely ridiculous after the research that I've done. Um. 118 00:06:54,520 --> 00:06:57,440 Speaker 1: But having said that, I understand where they're coming from. 119 00:06:57,839 --> 00:07:01,599 Speaker 1: A fairly low growth economy with price inflation, which you know, 120 00:07:01,920 --> 00:07:04,880 Speaker 1: back in the seventies people thought. Before the seventies, people 121 00:07:04,880 --> 00:07:07,840 Speaker 1: thought was an impossibility, and now people are thinking, oh 122 00:07:07,839 --> 00:07:10,360 Speaker 1: my god, that could happen again. But I think the 123 00:07:10,480 --> 00:07:14,360 Speaker 1: important thing here is that the seventies were unique. They 124 00:07:14,360 --> 00:07:17,680 Speaker 1: were sweet generous in terms of the situations that occurred 125 00:07:17,800 --> 00:07:21,800 Speaker 1: during that period, and more importantly, prior to that period, 126 00:07:21,880 --> 00:07:23,760 Speaker 1: or at least just as importantly prior to that crea 127 00:07:23,880 --> 00:07:26,520 Speaker 1: I'd love to talk to you guys about it, right, well, 128 00:07:26,560 --> 00:07:28,800 Speaker 1: why don't we go ahead and get into it? So 129 00:07:29,000 --> 00:07:32,320 Speaker 1: you know, I know a little bit about the nineteen 130 00:07:32,360 --> 00:07:36,320 Speaker 1: seventies inflationary experience. I mean very very little. Mostly I 131 00:07:36,360 --> 00:07:39,440 Speaker 1: know that there was double digit inflation and there was 132 00:07:39,480 --> 00:07:43,600 Speaker 1: a big energy crisis, and people have talked about it for, 133 00:07:44,040 --> 00:07:47,440 Speaker 1: you know, every decade since then. It feels like, so, 134 00:07:47,560 --> 00:07:49,800 Speaker 1: why why don't you go ahead and why don't you 135 00:07:49,800 --> 00:07:53,320 Speaker 1: go ahead and walk us through what exactly happened and 136 00:07:53,520 --> 00:07:56,920 Speaker 1: the different theories around what happened, because as you pointed out, 137 00:07:57,000 --> 00:07:59,880 Speaker 1: there isn't really a consensus about what drove the price 138 00:08:00,000 --> 00:08:05,480 Speaker 1: increases of that time. So they're basically three main theories, 139 00:08:05,600 --> 00:08:08,200 Speaker 1: and then we'll talk about some other things that I'd 140 00:08:08,200 --> 00:08:11,720 Speaker 1: like to introduce that that really accompanied this debate. They 141 00:08:11,760 --> 00:08:15,480 Speaker 1: are somewhat overlapping, but they each have their own economic 142 00:08:15,760 --> 00:08:18,480 Speaker 1: theory and political bent to them. The first one is 143 00:08:19,040 --> 00:08:23,200 Speaker 1: that the government in UH spent enormous amounts of money 144 00:08:23,280 --> 00:08:26,920 Speaker 1: during the Great Society Program of the nineteen seventies UH 145 00:08:26,960 --> 00:08:31,120 Speaker 1: and incurred significant federal deficits during that period. Obviously, the 146 00:08:31,160 --> 00:08:36,040 Speaker 1: Vietnam War increased that as well, um and coupled with 147 00:08:36,120 --> 00:08:42,440 Speaker 1: a period of Fed accommodative monetary policy from one that 148 00:08:42,600 --> 00:08:45,600 Speaker 1: somehow all of this money flowing into the economy. This 149 00:08:45,720 --> 00:08:49,080 Speaker 1: was basically Freedman in his in his theory, you know, 150 00:08:49,240 --> 00:08:51,760 Speaker 1: was what ignited this inflation. So that's sort of the 151 00:08:51,880 --> 00:08:55,760 Speaker 1: monitorist view, I guess you could say. The second is 152 00:08:55,800 --> 00:08:57,720 Speaker 1: the one thing I think that you know, it's probably 153 00:08:57,760 --> 00:09:00,240 Speaker 1: most compelling, is that we had what was called the 154 00:09:00,360 --> 00:09:03,360 Speaker 1: Nixon Shock of nineteen seventy one and then in nineteen 155 00:09:03,400 --> 00:09:07,000 Speaker 1: seventy three where Nixon by Fiat and that's why we 156 00:09:07,080 --> 00:09:11,480 Speaker 1: call it the fiat currency system ended the dollars convertibility 157 00:09:11,559 --> 00:09:15,440 Speaker 1: into gold, and then ultimately in ninety three ended the 158 00:09:15,520 --> 00:09:18,840 Speaker 1: ninety four Bretton Wood system, meaning that all other currencies 159 00:09:18,840 --> 00:09:20,839 Speaker 1: that were packed to the dollar were no longer pegged 160 00:09:20,840 --> 00:09:24,720 Speaker 1: to the dollar, and everybody's currency floated freely. And then 161 00:09:24,760 --> 00:09:29,000 Speaker 1: you have this complicating factor of the oil price shocks. 162 00:09:29,040 --> 00:09:33,040 Speaker 1: There were two of them that followed one after the other, UH, 163 00:09:33,080 --> 00:09:36,680 Speaker 1: and those rippled through the economy obviously adversely, because when 164 00:09:36,720 --> 00:09:39,600 Speaker 1: you increase the price of oil by the percentage that 165 00:09:39,679 --> 00:09:42,720 Speaker 1: it rose, which was far more than anything you see today, 166 00:09:43,040 --> 00:09:46,880 Speaker 1: you know, you you UH create create pressures on the 167 00:09:47,000 --> 00:09:51,240 Speaker 1: entire economy, and that obviously caused inflation as well. Each 168 00:09:51,280 --> 00:09:54,360 Speaker 1: of these, however, were somewhat disconnected. Um. You know that 169 00:09:54,520 --> 00:09:57,839 Speaker 1: the oil price shocks have direct connections, for example, to 170 00:09:58,559 --> 00:10:01,800 Speaker 1: the Nixon shock, right because Nixon Chuck ended up devaluing 171 00:10:01,800 --> 00:10:05,280 Speaker 1: the dollar. Well, oil is denominated in dollars, so clearly 172 00:10:05,920 --> 00:10:08,800 Speaker 1: the oil producers in the Middle East wanted to know, 173 00:10:08,880 --> 00:10:13,320 Speaker 1: maintain their purchasing power and so increase prices to offset 174 00:10:13,360 --> 00:10:16,440 Speaker 1: that devaluation. On top of that, you had you know, 175 00:10:17,040 --> 00:10:20,560 Speaker 1: two massive Mid East wars in Israel, one in sixty 176 00:10:20,600 --> 00:10:23,640 Speaker 1: seven and the other one in seventy three. UH. And 177 00:10:23,640 --> 00:10:26,720 Speaker 1: and so there was political and geo strategic problems that 178 00:10:26,760 --> 00:10:30,280 Speaker 1: were going on with regard to the oil supply. So 179 00:10:31,240 --> 00:10:34,280 Speaker 1: it's not a simple story, but when you step back 180 00:10:34,400 --> 00:10:37,120 Speaker 1: fifty years later and look at it, you start to 181 00:10:37,200 --> 00:10:40,439 Speaker 1: understand a little bit at least about its uniqueness. Well, 182 00:10:40,679 --> 00:10:42,720 Speaker 1: the one thing that I think we can discard as 183 00:10:42,720 --> 00:10:46,880 Speaker 1: an explanation at this point is the whole monitorist deficit argument, 184 00:10:47,040 --> 00:10:52,720 Speaker 1: because what happened obviously since is that the government has 185 00:10:52,760 --> 00:10:56,120 Speaker 1: been occurring incurring massive deficits, and we've had this incredibly 186 00:10:56,160 --> 00:11:00,600 Speaker 1: low inflation. So it's very hard to look at government deficits. 187 00:11:00,840 --> 00:11:04,200 Speaker 1: So basically been in like you know, the term forever 188 00:11:04,280 --> 00:11:07,440 Speaker 1: war gets bandied about, but we've been in some sort 189 00:11:07,480 --> 00:11:12,240 Speaker 1: of like NonStop foreign engagements for seemingly decades and that 190 00:11:12,360 --> 00:11:16,280 Speaker 1: hasn't contributed to inflation. Of examples, sure, sure, and that 191 00:11:16,440 --> 00:11:19,920 Speaker 1: and you know that whether the spending is military or 192 00:11:19,920 --> 00:11:22,559 Speaker 1: whether the spending is domestic, I don't think it really matters, 193 00:11:22,600 --> 00:11:24,880 Speaker 1: but you know, there's certainly a lot of spending. And 194 00:11:24,920 --> 00:11:27,040 Speaker 1: the second thing I think that you know, really sort 195 00:11:27,080 --> 00:11:29,640 Speaker 1: of trash is that argument at the end is when 196 00:11:29,679 --> 00:11:35,559 Speaker 1: Friedman was writing, certainly prior to you know, the whole 197 00:11:35,600 --> 00:11:39,840 Speaker 1: notion of quantity, theory of money was based on one variable, 198 00:11:39,880 --> 00:11:42,359 Speaker 1: which is the velocity of that money through the economy 199 00:11:42,440 --> 00:11:46,240 Speaker 1: being relatively stable and really from the you know, both 200 00:11:46,320 --> 00:11:49,160 Speaker 1: throughout the post war period until the nineteen seventies it 201 00:11:49,280 --> 00:11:53,880 Speaker 1: was stable, and then suddenly velocity started to tumble beginning 202 00:11:54,320 --> 00:11:57,920 Speaker 1: in the mid such that you know, the velocity of 203 00:11:58,040 --> 00:12:01,400 Speaker 1: money was was over two times, the voss of them 204 00:12:01,440 --> 00:12:05,959 Speaker 1: two was over two times in uh in today it's 205 00:12:05,960 --> 00:12:09,600 Speaker 1: about one point one or one point two. That proved 206 00:12:09,600 --> 00:12:13,600 Speaker 1: to be a very non non staple variable. And then 207 00:12:13,600 --> 00:12:16,000 Speaker 1: of course that allows you to increase the money supply 208 00:12:16,080 --> 00:12:17,719 Speaker 1: to whatever you want it to be because money is 209 00:12:17,760 --> 00:12:20,800 Speaker 1: not moving through the economy as quickly as the economy 210 00:12:20,840 --> 00:12:24,360 Speaker 1: becomes sluggish. Obviously, during the pandemic period, you know, the 211 00:12:24,360 --> 00:12:28,160 Speaker 1: the velocity of money dropped like a stone. So this 212 00:12:28,160 --> 00:12:31,680 Speaker 1: this whole issue of money quantity really kind of guys 213 00:12:31,679 --> 00:12:34,000 Speaker 1: shown it to the side. And then you have the 214 00:12:34,080 --> 00:12:35,920 Speaker 1: Nixon shocked Nicks and shock. As I say, it's more 215 00:12:35,960 --> 00:12:39,160 Speaker 1: compelling because suddenly you devalue the dollar, and it affects 216 00:12:39,160 --> 00:12:42,440 Speaker 1: things like oil, it affects things like imports, well imports 217 00:12:42,440 --> 00:12:44,920 Speaker 1: were not as big a factor today. They're a huge 218 00:12:44,920 --> 00:12:48,480 Speaker 1: factor then. Rather they're a huge factor today, But they 219 00:12:48,520 --> 00:12:51,720 Speaker 1: did impact the one thing that we were importing by, 220 00:12:51,880 --> 00:12:55,480 Speaker 1: you know, in huge quantities, but which was oil. I 221 00:12:55,480 --> 00:12:57,680 Speaker 1: mean oil was I know, this is hard to believe, 222 00:12:57,760 --> 00:13:00,280 Speaker 1: you know, four dollars of barrel right before work with 223 00:13:00,280 --> 00:13:02,400 Speaker 1: this all started three and a half four dollars a barrel, 224 00:13:02,880 --> 00:13:06,480 Speaker 1: and it's spiked up in the mid nineteen seventies, nine 225 00:13:06,640 --> 00:13:10,040 Speaker 1: seventy three to ten dollars a barrel. Well, that that's 226 00:13:10,040 --> 00:13:14,240 Speaker 1: a fairly large percentage increase, right And by the time 227 00:13:14,320 --> 00:13:16,840 Speaker 1: we hit nineteen eighty, it was forty dollars a barrel. 228 00:13:16,880 --> 00:13:19,280 Speaker 1: So just you know, you get the you get the 229 00:13:19,480 --> 00:13:23,400 Speaker 1: people looking at at oil on an inflation adjusted basis 230 00:13:24,040 --> 00:13:26,959 Speaker 1: at what is it this morning, eighty two bucks West 231 00:13:27,000 --> 00:13:31,319 Speaker 1: Texas um. You know, you're you can draw any comparisons 232 00:13:31,320 --> 00:13:50,440 Speaker 1: you like. It's nothing like what you saw seventies. You know, 233 00:13:50,679 --> 00:13:54,240 Speaker 1: as you say, there are multiple theories and there's certainly 234 00:13:54,280 --> 00:13:56,920 Speaker 1: no consensus. It was kind of a unique time. We 235 00:13:56,960 --> 00:14:00,400 Speaker 1: have to get further into some of the the factors 236 00:14:00,400 --> 00:14:02,760 Speaker 1: that made it unique or different than the current environment. 237 00:14:03,160 --> 00:14:06,720 Speaker 1: One deep lesson that central bankers have seemed to have 238 00:14:06,760 --> 00:14:10,640 Speaker 1: taken away from that period was this the importance of 239 00:14:10,679 --> 00:14:14,520 Speaker 1: credibility and inflation expectations. And there is this story that 240 00:14:14,640 --> 00:14:18,280 Speaker 1: the central bankers tell themselves, which kind of positioned themselves, 241 00:14:18,360 --> 00:14:22,080 Speaker 1: in my view, is like the heroes of history, where 242 00:14:22,240 --> 00:14:28,080 Speaker 1: Paul Volker stepped up crushed inflation by raising rates dramatically, 243 00:14:28,200 --> 00:14:31,560 Speaker 1: and then ever since then we've never experienced the nineteen 244 00:14:31,640 --> 00:14:36,160 Speaker 1: seventies again, in part or maybe even significant part, because 245 00:14:36,240 --> 00:14:40,840 Speaker 1: central bankers have committed themselves so seriously to fighting inflation 246 00:14:40,960 --> 00:14:44,640 Speaker 1: at its very first sign. And because we've all been 247 00:14:44,680 --> 00:14:47,800 Speaker 1: now convinced that central bankers are so committed to fighting inflation, 248 00:14:48,040 --> 00:14:50,520 Speaker 1: we don't think it's possible that we'll get inflation, and 249 00:14:50,520 --> 00:14:53,960 Speaker 1: that we don't get inflation, and there's this virtuous cycle. 250 00:14:54,600 --> 00:14:57,880 Speaker 1: And I'm curious, when you look at in your study 251 00:14:57,920 --> 00:15:01,760 Speaker 1: of the nineteen seventies, do you see evidence or counter 252 00:15:01,880 --> 00:15:03,760 Speaker 1: evidence to this idea of like the sort of like 253 00:15:03,960 --> 00:15:10,000 Speaker 1: the expectations channel for surgery surgery price levels throughout the decade. 254 00:15:11,080 --> 00:15:12,960 Speaker 1: So you know, it's funny you can look at it 255 00:15:13,000 --> 00:15:17,000 Speaker 1: that way. Uh, And I certainly think what what Paul 256 00:15:17,040 --> 00:15:20,000 Speaker 1: Volker did was was heroic because of the political flak 257 00:15:20,120 --> 00:15:23,600 Speaker 1: that he took in doing so, and he clearly shut 258 00:15:23,640 --> 00:15:29,200 Speaker 1: down the trend of higher inflation. Once that, once inflation 259 00:15:29,480 --> 00:15:33,840 Speaker 1: of prices and services caught up to wage growth, we 260 00:15:33,840 --> 00:15:37,240 Speaker 1: were off to the races in thees. Rather, that was 261 00:15:37,280 --> 00:15:41,320 Speaker 1: the actual story of the of the expansion from the 262 00:15:41,360 --> 00:15:45,000 Speaker 1: eighties to present day, was that we eliminated this drag 263 00:15:45,080 --> 00:15:48,280 Speaker 1: on the economy, and that took a ferocious amount of 264 00:15:48,360 --> 00:15:51,200 Speaker 1: activity on the part of Vulgar and the FED to 265 00:15:51,360 --> 00:15:54,280 Speaker 1: staunch that that situation. But what he did is effectively 266 00:15:54,280 --> 00:15:57,760 Speaker 1: shut down the economy, and that was fairly painful. So 267 00:15:57,880 --> 00:16:01,800 Speaker 1: the idea that you know, this was UH expectations signaling 268 00:16:02,080 --> 00:16:05,880 Speaker 1: was a little bit of a of a reverse history. 269 00:16:06,040 --> 00:16:09,000 Speaker 1: It was not expectations UH signaling. He just went and 270 00:16:09,040 --> 00:16:12,200 Speaker 1: did it and hyped up rates to the point where 271 00:16:12,200 --> 00:16:14,920 Speaker 1: basically he cut off this pigot, you know. So that 272 00:16:14,920 --> 00:16:18,280 Speaker 1: that I think is not an expectations issue. The problem 273 00:16:18,280 --> 00:16:21,920 Speaker 1: I think that we've had really is that we've gone 274 00:16:22,040 --> 00:16:24,800 Speaker 1: through most of the post war, post World War two 275 00:16:24,880 --> 00:16:29,360 Speaker 1: period with two assumptions. One prior to the nineteen seventies 276 00:16:29,360 --> 00:16:32,440 Speaker 1: said inflation was something that happened a little bit, you know, 277 00:16:32,440 --> 00:16:35,200 Speaker 1: it would go up from you know, two to three 278 00:16:35,240 --> 00:16:38,040 Speaker 1: to four percent back down with recessions, and that was 279 00:16:38,080 --> 00:16:42,200 Speaker 1: sort of bad to the period since the nineteen seventies 280 00:16:42,280 --> 00:16:44,320 Speaker 1: or after the nineteen seventies, where we've suddenly, you know, 281 00:16:44,400 --> 00:16:46,800 Speaker 1: we've been carrying this boogeyman on our back that somehow 282 00:16:46,880 --> 00:16:50,160 Speaker 1: says at some point we could end up with hyper inflation, 283 00:16:50,560 --> 00:16:54,240 Speaker 1: this sort of Weimar Republic German fear of inflation. And 284 00:16:54,320 --> 00:16:57,000 Speaker 1: yet that is not when you map out that entire 285 00:16:57,080 --> 00:17:00,240 Speaker 1: period of time. This is an exception, not some thing 286 00:17:00,360 --> 00:17:03,520 Speaker 1: that is a natural state. So I I think I 287 00:17:03,600 --> 00:17:06,600 Speaker 1: agree with guys like Jeremy Rudd, who wrote an incredible 288 00:17:06,640 --> 00:17:09,760 Speaker 1: paper for the FED a couple of weeks ago on 289 00:17:09,960 --> 00:17:12,920 Speaker 1: expectations there. I think I think there's not as much 290 00:17:12,960 --> 00:17:16,520 Speaker 1: to it as people think. People are looking at prices. 291 00:17:16,560 --> 00:17:18,760 Speaker 1: You know, there was an interesting comment made to me 292 00:17:19,600 --> 00:17:23,760 Speaker 1: by somebody talking to a regional central bank president last week, 293 00:17:24,440 --> 00:17:29,800 Speaker 1: and he said that he's been talking to his his 294 00:17:30,160 --> 00:17:33,280 Speaker 1: folks in the district about, you know, what they think 295 00:17:33,320 --> 00:17:35,000 Speaker 1: they're going to be able to do with prices in 296 00:17:35,080 --> 00:17:40,040 Speaker 1: two and basically the feedback he's getting is yeah, sure, 297 00:17:40,040 --> 00:17:42,119 Speaker 1: we hike prices this year and it's great to be 298 00:17:42,160 --> 00:17:44,640 Speaker 1: able to make money. We have absolutely no confidence we're 299 00:17:44,640 --> 00:17:47,520 Speaker 1: going to be able to sustain those prices in two 300 00:17:48,000 --> 00:17:50,320 Speaker 1: And that's very telling, right, So no wonder what the 301 00:17:50,359 --> 00:17:54,439 Speaker 1: expectations signaling is. The reality is that the businessmen know 302 00:17:54,560 --> 00:17:57,959 Speaker 1: that they don't want to sacrifice unit volume, you know, 303 00:17:58,040 --> 00:18:00,639 Speaker 1: to to obtain high unit price, and they don't want 304 00:18:00,640 --> 00:18:03,080 Speaker 1: to sacrifice capacity. And so you know, at the end 305 00:18:03,119 --> 00:18:05,560 Speaker 1: of the day, that's a very highly competitive economy with 306 00:18:06,160 --> 00:18:11,879 Speaker 1: enormous skew in household incomes to top top ten percent 307 00:18:11,960 --> 00:18:14,600 Speaker 1: or whatever you want how everyone put it. And so 308 00:18:14,640 --> 00:18:17,760 Speaker 1: in order to be able to grab agg demand, you 309 00:18:17,800 --> 00:18:20,600 Speaker 1: really do need to calibrate your prices to those that 310 00:18:20,640 --> 00:18:25,040 Speaker 1: they can afford. But the really telling thing, and I 311 00:18:25,040 --> 00:18:26,879 Speaker 1: don't mean change the subject, but I think it's important 312 00:18:26,920 --> 00:18:29,639 Speaker 1: to point out the really telling thing about the nineteen 313 00:18:29,680 --> 00:18:33,200 Speaker 1: seventies is what preceded it, because what happened in the 314 00:18:33,320 --> 00:18:36,800 Speaker 1: nineteen sixties is as worthy of looking at as what 315 00:18:36,880 --> 00:18:39,040 Speaker 1: happened in the nineteen seventies. What happened in the nineteen 316 00:18:39,119 --> 00:18:44,879 Speaker 1: sixties is that wages growth, household income growth, exceeded the 317 00:18:44,960 --> 00:18:48,439 Speaker 1: growth in prices for most of the time, right. It 318 00:18:48,440 --> 00:18:51,880 Speaker 1: actually happened in three swings of five year periods each 319 00:18:52,480 --> 00:18:55,240 Speaker 1: um going back to the nineteen fifties. The reason for 320 00:18:55,440 --> 00:18:57,600 Speaker 1: that is that you don't know whether or not it's 321 00:18:57,840 --> 00:19:00,639 Speaker 1: union contracts that were renegotiated or whatever it was. But 322 00:19:01,280 --> 00:19:04,119 Speaker 1: you had these, you know, enormously long periods which are 323 00:19:04,280 --> 00:19:07,760 Speaker 1: very would never really happened very much since then of 324 00:19:08,000 --> 00:19:12,639 Speaker 1: huge growth in incomes exceeding growth and prices. When you 325 00:19:12,680 --> 00:19:15,879 Speaker 1: look at that from a wealth standpoint, you overlay wealth 326 00:19:15,920 --> 00:19:18,199 Speaker 1: growth rather, you know, and look at the condition of 327 00:19:18,240 --> 00:19:22,560 Speaker 1: households going into the nineteen seventies, you see this huge 328 00:19:22,600 --> 00:19:26,040 Speaker 1: wealth peak. American households made a lot of money and 329 00:19:26,080 --> 00:19:29,720 Speaker 1: went into the nineteen seventies rich, with most of their 330 00:19:29,760 --> 00:19:34,280 Speaker 1: capacity either being domestic, which was subject to exports too. 331 00:19:34,480 --> 00:19:37,560 Speaker 1: That we exported a lot of stuff without access to 332 00:19:37,640 --> 00:19:41,119 Speaker 1: capacity from abroad. Only about ten center or so of 333 00:19:41,160 --> 00:19:44,879 Speaker 1: our consumption was importance, and so you know, we we 334 00:19:45,000 --> 00:19:49,359 Speaker 1: effectively started to consume at a voracious pace after many 335 00:19:49,440 --> 00:19:53,800 Speaker 1: years of being rather parsimonious. UM. At that same time, 336 00:19:54,280 --> 00:19:58,520 Speaker 1: the baby boomb shows up and enters their prime consumption years. 337 00:19:58,560 --> 00:20:00,600 Speaker 1: So you have to look at this not just from 338 00:20:00,600 --> 00:20:04,240 Speaker 1: the standpoint of these unique historical situations that I spoke 339 00:20:04,280 --> 00:20:08,440 Speaker 1: about before, but about the demographics of the era, about 340 00:20:08,480 --> 00:20:11,480 Speaker 1: the wealth of households during that era, things that just 341 00:20:11,720 --> 00:20:15,880 Speaker 1: aren't existing today. So this is exactly what I want 342 00:20:15,920 --> 00:20:19,600 Speaker 1: to ask you about exactly what happened with wages in 343 00:20:19,640 --> 00:20:22,800 Speaker 1: the nineteen seventies, because I think that informs the way 344 00:20:22,840 --> 00:20:25,520 Speaker 1: a lot of people feel about inflation, whether it's good 345 00:20:25,600 --> 00:20:30,280 Speaker 1: or bad. So obviously, if your wages are rising um 346 00:20:30,320 --> 00:20:34,480 Speaker 1: as much or maybe even more an inflation, you might 347 00:20:34,520 --> 00:20:36,560 Speaker 1: not feel that bad about it. But if you think 348 00:20:36,560 --> 00:20:39,840 Speaker 1: that you're purchasing power is being eaten into because your 349 00:20:39,840 --> 00:20:43,240 Speaker 1: wages aren't increasing as fast, then you're probably really going 350 00:20:43,280 --> 00:20:46,080 Speaker 1: to hate the idea of inflation. So can you give 351 00:20:46,119 --> 00:20:48,280 Speaker 1: us a little bit more color on wages in the 352 00:20:48,320 --> 00:20:51,879 Speaker 1: nineteen seventies? And then two to your latter point, do 353 00:20:51,960 --> 00:20:55,240 Speaker 1: you think the conditions that allowed wages to increase in 354 00:20:55,240 --> 00:21:02,680 Speaker 1: the nineteen seventies are in place um today? So clearly 355 00:21:03,320 --> 00:21:08,200 Speaker 1: prices for goods and services rose much higher than wages 356 00:21:08,240 --> 00:21:11,600 Speaker 1: did during the nineteen seventies. All of the gains that 357 00:21:11,760 --> 00:21:16,400 Speaker 1: were obtained by labor in the nineteen sixties, which were significant. 358 00:21:16,800 --> 00:21:20,119 Speaker 1: We're effectively wiped out by nineteen seventy nine because of 359 00:21:20,119 --> 00:21:23,440 Speaker 1: the high level of price growth UM. So that that 360 00:21:23,640 --> 00:21:26,200 Speaker 1: was the pain. And typically, you know, when you look 361 00:21:26,240 --> 00:21:29,679 Speaker 1: at that period, you see about an eighteen month lag. 362 00:21:30,400 --> 00:21:32,359 Speaker 1: It's not that wages didn't grow at all. Of course, 363 00:21:32,400 --> 00:21:34,520 Speaker 1: they grew, and they grew at at a at a 364 00:21:34,600 --> 00:21:37,800 Speaker 1: higher percentage than they had any other time because of 365 00:21:38,320 --> 00:21:43,600 Speaker 1: price and services UH growth, but they were growing less 366 00:21:43,760 --> 00:21:46,280 Speaker 1: and they were more importantly growing with about an eighteen 367 00:21:46,320 --> 00:21:49,400 Speaker 1: month lag. So that's where the pain of that error 368 00:21:49,400 --> 00:21:52,560 Speaker 1: comes from. Right, you have goods and services prices growing, 369 00:21:52,680 --> 00:21:56,400 Speaker 1: wages catching up eighteen months later. It's constant pain going 370 00:21:56,520 --> 00:21:58,480 Speaker 1: on year and year, year after year, which is why 371 00:21:58,480 --> 00:22:02,320 Speaker 1: the Vulcan intervention was so important because he stopped that pain. 372 00:22:02,480 --> 00:22:05,239 Speaker 1: Right every eighteen months later everything caught up and we 373 00:22:05,240 --> 00:22:08,560 Speaker 1: were off. We were off to the races. So that that, 374 00:22:08,640 --> 00:22:11,600 Speaker 1: I think is what people remember when they remember the 375 00:22:11,640 --> 00:22:14,560 Speaker 1: agony of that period. But again they don't remember what 376 00:22:14,680 --> 00:22:18,360 Speaker 1: happened in the decade prior where the opposite was occurring, 377 00:22:18,440 --> 00:22:21,840 Speaker 1: where wages UH and and incomes were actually growing faster 378 00:22:21,960 --> 00:22:25,360 Speaker 1: than prices, which is where that feeling of prosperity came 379 00:22:25,400 --> 00:22:29,760 Speaker 1: from in the fifties and sixties. Today, obviously we don't 380 00:22:29,800 --> 00:22:34,840 Speaker 1: have that. The present state of transmission from GDP growth 381 00:22:34,920 --> 00:22:38,760 Speaker 1: to household income growth is so lacking in force that 382 00:22:38,920 --> 00:22:43,920 Speaker 1: even this you know, massive pandemic era support of household 383 00:22:43,960 --> 00:22:48,600 Speaker 1: incomes where we replaced all lost incomes in and then 384 00:22:48,680 --> 00:22:51,920 Speaker 1: added a full fifteen percent to the nearly recovered household 385 00:22:51,960 --> 00:22:54,520 Speaker 1: incomes in the first months eight months of this year, 386 00:22:55,040 --> 00:22:57,280 Speaker 1: it's going to prove unable to ignite all but a 387 00:22:57,359 --> 00:23:00,639 Speaker 1: temporary surge in demand. Right, that's the let me, I 388 00:23:00,680 --> 00:23:02,840 Speaker 1: want to I want to stop me there, because I mean, 389 00:23:02,840 --> 00:23:06,399 Speaker 1: I think this is really like one of the key 390 00:23:06,520 --> 00:23:11,920 Speaker 1: questions and post grade financial crisis inequality. There's this huge 391 00:23:11,960 --> 00:23:14,520 Speaker 1: thing people talked about. This is like, Okay, there's a 392 00:23:14,520 --> 00:23:17,080 Speaker 1: lot of household wealth, there's a lot of bunch of 393 00:23:17,080 --> 00:23:20,040 Speaker 1: people making money, but by and large, the middle classes 394 00:23:20,080 --> 00:23:22,760 Speaker 1: don't have it. It's skewed. The upper classes don't have 395 00:23:22,840 --> 00:23:26,280 Speaker 1: his high marginal propensity to consume. So even with all 396 00:23:26,320 --> 00:23:30,680 Speaker 1: this money, so get don't get the demand today We've 397 00:23:30,720 --> 00:23:33,800 Speaker 1: seen this big you you mentioned Okay, maybe income growth 398 00:23:34,000 --> 00:23:36,240 Speaker 1: has it won't be sustained. But we have this huge 399 00:23:36,240 --> 00:23:39,000 Speaker 1: housing boom. There's a lot of people feel like they're 400 00:23:39,000 --> 00:23:41,159 Speaker 1: sitting on a lot of wealth related to their housing. 401 00:23:41,560 --> 00:23:46,120 Speaker 1: They've had an incredible rally in the stock market. We 402 00:23:46,320 --> 00:23:48,840 Speaker 1: have had some of the fastest wage growth that we've 403 00:23:48,960 --> 00:23:51,800 Speaker 1: had in a long time, particularly at the low end. 404 00:23:52,240 --> 00:23:54,600 Speaker 1: This sort of the gap between the first quartile and 405 00:23:54,640 --> 00:23:57,680 Speaker 1: the fourth quartile is the largest ever because like five 406 00:23:57,760 --> 00:24:00,480 Speaker 1: point six at the lower end. And and you know, 407 00:24:00,560 --> 00:24:04,080 Speaker 1: it's funny you mentioned the baby boomers. You have millennials 408 00:24:04,080 --> 00:24:09,320 Speaker 1: probably entering their biggest consumption years, and the baby boomers, 409 00:24:09,400 --> 00:24:12,280 Speaker 1: who uh you know now they're on star security, just 410 00:24:12,320 --> 00:24:15,760 Speaker 1: got their biggest cola increase ever. And so you know, 411 00:24:15,800 --> 00:24:18,840 Speaker 1: people used to talk about union wages auto, you know, 412 00:24:18,920 --> 00:24:21,800 Speaker 1: marching and locks up with colat well, and now they're 413 00:24:21,800 --> 00:24:24,080 Speaker 1: on soar security and they just got like a five 414 00:24:24,119 --> 00:24:27,920 Speaker 1: point nine percent increase. Why shouldn't I look at all 415 00:24:27,960 --> 00:24:31,080 Speaker 1: of these factors coming together and say, wait a second, 416 00:24:31,400 --> 00:24:34,760 Speaker 1: that doesn't sound so different Maybe too slightly different degree, 417 00:24:35,040 --> 00:24:37,960 Speaker 1: but that doesn't sound so different to what you just 418 00:24:38,040 --> 00:24:41,520 Speaker 1: described about the well. Not to pour water on it. 419 00:24:41,520 --> 00:24:47,760 Speaker 1: It is um. Baby boomers controlled nearly twenty of the 420 00:24:47,840 --> 00:24:51,359 Speaker 1: nation's wealth by the time they turned thirty. Today they 421 00:24:51,440 --> 00:24:55,360 Speaker 1: control about fift of the nation's wealth. That's me, right, 422 00:24:55,520 --> 00:24:59,800 Speaker 1: that's people my age. At thirty, gen xers controlled just 423 00:25:00,160 --> 00:25:05,120 Speaker 1: under six percent of wealth, and today millennials barely control 424 00:25:05,720 --> 00:25:08,439 Speaker 1: four percent. My son is a millennial turned thirty this 425 00:25:08,560 --> 00:25:12,160 Speaker 1: year and his generation controls barely four percent. That's four 426 00:25:12,200 --> 00:25:16,399 Speaker 1: percent versus gen Z doesn't even rate to mention it. 427 00:25:17,280 --> 00:25:21,600 Speaker 1: So you know this, this is a very different situation 428 00:25:21,640 --> 00:25:25,080 Speaker 1: than occurred in the nineteen seventies. The wealth is much 429 00:25:25,119 --> 00:25:27,760 Speaker 1: more like if you want to create an analogy, is 430 00:25:27,840 --> 00:25:30,800 Speaker 1: much more like Japan, right, where all the old people 431 00:25:30,840 --> 00:25:33,320 Speaker 1: have it and the young people have it. Now we 432 00:25:33,400 --> 00:25:38,160 Speaker 1: might see some internet inter generational wealth transfer, although there's 433 00:25:38,200 --> 00:25:40,320 Speaker 1: many papers and there's a lot of literature out on 434 00:25:40,359 --> 00:25:44,800 Speaker 1: that that runs out that money relative to the extended 435 00:25:44,840 --> 00:25:47,080 Speaker 1: ages that people are living today and says, you know, 436 00:25:47,119 --> 00:25:48,600 Speaker 1: there's not gonna be a lot of that left over 437 00:25:48,640 --> 00:25:51,440 Speaker 1: except at the very very top. Um, So you're gonna 438 00:25:51,440 --> 00:25:54,600 Speaker 1: have a lot of sort of plutocratic families, uh, and 439 00:25:54,960 --> 00:25:58,520 Speaker 1: not a lot of generational wealth transfer among the lower classes. 440 00:25:58,560 --> 00:26:01,640 Speaker 1: So yeah, that that that is not I mean, the 441 00:26:01,760 --> 00:26:04,760 Speaker 1: answer is no, I don't. I don't see that as 442 00:26:04,800 --> 00:26:08,960 Speaker 1: being company. So, you know, you talked about the monetarist 443 00:26:09,040 --> 00:26:12,720 Speaker 1: interpretation of the nineteen seventies, and of course, um, you know, 444 00:26:13,440 --> 00:26:15,960 Speaker 1: the most famous quote related to that has to be 445 00:26:16,080 --> 00:26:19,760 Speaker 1: Milton Milton Friedman talking about how inflation is always an 446 00:26:19,760 --> 00:26:24,480 Speaker 1: everywhere monetary phenomenon. I guess that has lent itself to 447 00:26:24,720 --> 00:26:28,879 Speaker 1: a characterization of inflation as too much money chasing too 448 00:26:29,000 --> 00:26:32,560 Speaker 1: few goods, and so there's always this emphasis where it 449 00:26:32,600 --> 00:26:34,919 Speaker 1: feels like there's always this emphasis on the idea of 450 00:26:34,960 --> 00:26:38,760 Speaker 1: too much money. So central banks should be focused on 451 00:26:38,840 --> 00:26:42,320 Speaker 1: somehow altering the supply of money, but it feels like 452 00:26:42,359 --> 00:26:45,840 Speaker 1: there's never that much focus on the too few goods 453 00:26:45,920 --> 00:26:50,160 Speaker 1: aspect of the equation. So I guess I'm curious, how 454 00:26:50,160 --> 00:26:53,840 Speaker 1: would you apply that framework to our current situation and 455 00:26:53,920 --> 00:26:57,600 Speaker 1: what can central banks or the government actually due to 456 00:26:58,119 --> 00:27:02,879 Speaker 1: boost supply. I'll get to supply in a second, but 457 00:27:02,960 --> 00:27:05,760 Speaker 1: I do want to correct or at least redirect on 458 00:27:05,840 --> 00:27:09,639 Speaker 1: the issue of money. What Freeman was talking about was 459 00:27:09,720 --> 00:27:12,600 Speaker 1: the quantity of money, right, the amount of money out there. 460 00:27:12,680 --> 00:27:17,560 Speaker 1: He was measuring monetary aggregates. The mistake he made is 461 00:27:17,600 --> 00:27:21,600 Speaker 1: assuming that transmission of money into the economy was relatively uniform. 462 00:27:21,720 --> 00:27:24,960 Speaker 1: That's where the whole velocity issue came from. That I 463 00:27:25,000 --> 00:27:28,600 Speaker 1: spoke of earlier now and and and he was living 464 00:27:28,680 --> 00:27:31,680 Speaker 1: during an arrow where a much flatter society, Right, Jenny, 465 00:27:31,680 --> 00:27:36,520 Speaker 1: coefficients were far lower. The the issue of money quantity 466 00:27:36,760 --> 00:27:40,040 Speaker 1: forms of monetarism, I think we're long ago discredited, right, 467 00:27:40,119 --> 00:27:43,440 Speaker 1: So there's you know, counting the amount of we used 468 00:27:43,480 --> 00:27:46,159 Speaker 1: to look at him M one money supply is a 469 00:27:46,200 --> 00:27:50,000 Speaker 1: big indicator in business economics. Somebody looks at that anymore. 470 00:27:50,400 --> 00:27:53,240 Speaker 1: We don't even publish him three anymore. At the federal 471 00:27:53,240 --> 00:27:56,800 Speaker 1: reserve level, the the issue is um you know, the 472 00:27:56,920 --> 00:28:00,119 Speaker 1: quantity of money part of Freeman, I think is on 473 00:28:00,800 --> 00:28:04,080 Speaker 1: by the wayside. The problem is that the transmission of 474 00:28:04,160 --> 00:28:08,280 Speaker 1: money has really really changed substantially, and a lot of 475 00:28:08,280 --> 00:28:11,480 Speaker 1: that has to do with the issues of income polarization. 476 00:28:12,320 --> 00:28:17,240 Speaker 1: Obviously wealth polarization, but income polarization primarily getting money into 477 00:28:17,320 --> 00:28:19,919 Speaker 1: the hands of people who will actually consume with it, 478 00:28:19,960 --> 00:28:24,400 Speaker 1: which is where you get inflation from. Right. So the problem, 479 00:28:24,560 --> 00:28:27,240 Speaker 1: I think at the political level, and to some extent 480 00:28:27,280 --> 00:28:30,920 Speaker 1: at the academic level. As you said, some residual aspect 481 00:28:30,960 --> 00:28:33,760 Speaker 1: of people confusing the two. And I don't mean sometimes 482 00:28:33,760 --> 00:28:37,360 Speaker 1: it's deliberate because it serves their their other agendas. But 483 00:28:37,720 --> 00:28:39,320 Speaker 1: you know, at the end of the day, it's not 484 00:28:39,400 --> 00:28:42,400 Speaker 1: about money. It's about getting the money into the hands 485 00:28:42,400 --> 00:28:47,120 Speaker 1: of people who will spend it, usually traditionally through wage 486 00:28:47,120 --> 00:28:51,440 Speaker 1: income or through you know, total income, including government transfers. 487 00:28:52,000 --> 00:28:56,000 Speaker 1: But you know it, unfortunately during the course of the 488 00:28:56,040 --> 00:29:00,160 Speaker 1: past thirty years, for years, has been progressively getting it 489 00:29:00,240 --> 00:29:03,960 Speaker 1: to them through borrowing. Right, You've created this enormous consumer 490 00:29:04,000 --> 00:29:08,960 Speaker 1: lending apparatus, which has its own enormous downside. So you 491 00:29:09,000 --> 00:29:11,720 Speaker 1: know that that is really the issue when it comes 492 00:29:11,760 --> 00:29:15,080 Speaker 1: to the monitorist argument, is it kind of falls apart 493 00:29:15,120 --> 00:29:17,640 Speaker 1: at that point when you start to say, all right, 494 00:29:17,680 --> 00:29:20,080 Speaker 1: this is just about money chasing too few guys as 495 00:29:20,120 --> 00:29:24,000 Speaker 1: far as the supply side is concerned. What you asked about, Um, yeah, 496 00:29:24,040 --> 00:29:27,280 Speaker 1: that's that's really really important, and I think that where 497 00:29:27,320 --> 00:29:30,240 Speaker 1: that breaks down. I wrote a book in two thousand 498 00:29:30,280 --> 00:29:34,720 Speaker 1: thirteen called The Age of Oversupply, which is really about 499 00:29:34,920 --> 00:29:38,400 Speaker 1: the the issue of having this exogenous source of oversupply 500 00:29:38,520 --> 00:29:42,320 Speaker 1: and we're all looking at China today on a regular basis, 501 00:29:42,960 --> 00:29:46,160 Speaker 1: but it's the whole world, not just China. And we 502 00:29:46,240 --> 00:29:49,040 Speaker 1: all look at at capacity in the US and we 503 00:29:49,120 --> 00:29:53,520 Speaker 1: see capacity utilization very very low on an historical basis. 504 00:29:53,560 --> 00:29:57,720 Speaker 1: Here the supply chain logistical problems that's given rise to this, 505 00:29:57,960 --> 00:30:02,040 Speaker 1: you know, reopening shortages, uh, and therefore the price inflation 506 00:30:02,200 --> 00:30:06,520 Speaker 1: associated with it. It shouldn't be mistaken for sustainable demand 507 00:30:06,600 --> 00:30:10,200 Speaker 1: pull inflation, and the supply push variety of inflation I 508 00:30:10,240 --> 00:30:13,640 Speaker 1: think is very very unlikely. We we have enormous capacity. 509 00:30:13,680 --> 00:30:15,120 Speaker 1: One of the one of the things I did in 510 00:30:15,120 --> 00:30:18,920 Speaker 1: the paper to sort of illustrate the excess global capacity. 511 00:30:19,280 --> 00:30:22,000 Speaker 1: I spent a lot of time on US labor as well, 512 00:30:22,040 --> 00:30:24,800 Speaker 1: but in US passy, but certainly on the on the 513 00:30:24,800 --> 00:30:28,200 Speaker 1: other side, think about this as a thought exercise. You 514 00:30:28,320 --> 00:30:32,240 Speaker 1: have this enormous increase in the price of shipping goods 515 00:30:32,320 --> 00:30:35,440 Speaker 1: because initially ships were in the wrong position, you had 516 00:30:35,840 --> 00:30:38,000 Speaker 1: crews in the wrong place, you have all sort of things, 517 00:30:38,040 --> 00:30:40,200 Speaker 1: and now you have this huge backlog and and the 518 00:30:40,200 --> 00:30:43,600 Speaker 1: cost is dropping. I will say it's dropped significantly over 519 00:30:43,600 --> 00:30:45,960 Speaker 1: the last few weeks, but you know, at one point 520 00:30:45,960 --> 00:30:48,560 Speaker 1: it was five or six times when it was pre pandemic. 521 00:30:48,680 --> 00:30:51,680 Speaker 1: So on a on an average container load, which is 522 00:30:51,680 --> 00:30:56,080 Speaker 1: about two fifty dollars of goods, you saw the cost 523 00:30:56,160 --> 00:31:00,240 Speaker 1: of shipping UH goods increased by three point six, three 524 00:31:00,280 --> 00:31:04,160 Speaker 1: point seven something like that. At the same time, during 525 00:31:04,160 --> 00:31:07,120 Speaker 1: the pandemic, the dollar got a lot weaker. Now it's 526 00:31:07,120 --> 00:31:10,600 Speaker 1: gained some strength in recent weeks, but during the pandemic period, 527 00:31:10,640 --> 00:31:13,360 Speaker 1: the dollar got significantly weaker. If you put all those 528 00:31:13,400 --> 00:31:17,720 Speaker 1: things together, prices should have gone up by of imports 529 00:31:17,720 --> 00:31:19,640 Speaker 1: should have gone up by like, you know, eight to ten. 530 00:31:20,600 --> 00:31:24,320 Speaker 1: That didn't happen. So that meant that someone somewhere was 531 00:31:24,400 --> 00:31:28,760 Speaker 1: eating this price increase. And that's someone somewhere is obviously 532 00:31:28,800 --> 00:31:31,640 Speaker 1: the factories outside the United States that we're producing goods 533 00:31:31,960 --> 00:31:35,600 Speaker 1: in order to maintain or or grow in this case, 534 00:31:35,640 --> 00:31:39,240 Speaker 1: not just maintain production on a unit basis. That's a 535 00:31:39,280 --> 00:31:42,000 Speaker 1: really incredible thought when you think about it, Right, you 536 00:31:42,000 --> 00:31:44,920 Speaker 1: have all of this excess capacity, and they were willing 537 00:31:44,960 --> 00:31:47,720 Speaker 1: to ship, you know, whatever they could net on a 538 00:31:47,760 --> 00:31:51,120 Speaker 1: marginal basis because they could produce it, and why not 539 00:31:51,200 --> 00:31:53,760 Speaker 1: taking the income? You know that that I think is 540 00:31:53,800 --> 00:31:55,560 Speaker 1: something that people really it's gonna take a while to 541 00:31:55,560 --> 00:31:59,240 Speaker 1: study because it's very very recent, but that really jumped 542 00:31:59,280 --> 00:32:01,760 Speaker 1: out of me, and that says nothing about where we 543 00:32:01,760 --> 00:32:04,840 Speaker 1: were pre pandemic in terms of the quality of the 544 00:32:04,960 --> 00:32:08,520 Speaker 1: jobs that we were having our people working, which was 545 00:32:08,640 --> 00:32:13,880 Speaker 1: very much skewed to low wage, lower our surface positions. Yeah, 546 00:32:14,000 --> 00:32:16,240 Speaker 1: something I don't know. It's kind of like that. There's 547 00:32:16,280 --> 00:32:18,880 Speaker 1: something in how you describe that, and it's something I've 548 00:32:18,880 --> 00:32:21,240 Speaker 1: thought about and kind of a crude analogy. It's almost 549 00:32:21,280 --> 00:32:24,360 Speaker 1: like there's like potential and kinetic energy. So it's like 550 00:32:24,400 --> 00:32:28,040 Speaker 1: we might still have this like stock of overcapacity or 551 00:32:28,120 --> 00:32:31,360 Speaker 1: stock of capacity that is not fully maxed out. But 552 00:32:31,480 --> 00:32:35,320 Speaker 1: somehow in the actual the kinetic part, the getting getting 553 00:32:35,360 --> 00:32:38,520 Speaker 1: the goods through the system seems to be where it, 554 00:32:38,720 --> 00:32:41,000 Speaker 1: you know, it's breaking down and maybe at some point 555 00:32:41,000 --> 00:32:46,120 Speaker 1: it hopefully it finds equilibrium. You started this conversation by 556 00:32:46,200 --> 00:32:50,440 Speaker 1: talking about this. We did something unusual during the pandemic, 557 00:32:50,640 --> 00:32:53,680 Speaker 1: which was we replaced people's lost income. We spent a 558 00:32:53,760 --> 00:32:57,760 Speaker 1: lot of money, and we essentially took what could have 559 00:32:57,800 --> 00:33:01,080 Speaker 1: been a massive recession that lasted a long time ago, 560 00:33:01,320 --> 00:33:04,840 Speaker 1: a potential depression, and the and and the actual recession 561 00:33:04,920 --> 00:33:06,680 Speaker 1: ended up being about one and a half months I 562 00:33:06,680 --> 00:33:08,920 Speaker 1: think we were like quickly back to growth because we 563 00:33:09,040 --> 00:33:11,960 Speaker 1: spent so much. But that does raise the question, you know, 564 00:33:12,040 --> 00:33:14,840 Speaker 1: we do have a FED. The FED actually seems a 565 00:33:14,880 --> 00:33:17,520 Speaker 1: little bit more devish than other global central banks. They 566 00:33:17,640 --> 00:33:20,000 Speaker 1: announced this new framework. We'll see if they have the 567 00:33:20,080 --> 00:33:22,400 Speaker 1: degree to which they hue to it. We have an 568 00:33:22,400 --> 00:33:26,520 Speaker 1: administration that at least right now is trying to engage 569 00:33:26,520 --> 00:33:31,560 Speaker 1: in serious investing. Like could the politics change? Like could we? 570 00:33:31,760 --> 00:33:33,720 Speaker 1: I mean, this seems to be sort of like a 571 00:33:33,800 --> 00:33:35,960 Speaker 1: cord of the question. It's like, Okay, we had these 572 00:33:35,960 --> 00:33:40,600 Speaker 1: like forty years of a politics or political economy in 573 00:33:40,640 --> 00:33:44,000 Speaker 1: which wealth and wage income and income in general was 574 00:33:44,040 --> 00:33:46,800 Speaker 1: like very like skewed or very polarized, to use your word. 575 00:33:47,320 --> 00:33:49,840 Speaker 1: Could that Could we be on the cusp of a change, 576 00:33:49,840 --> 00:33:52,120 Speaker 1: because we've certainly had some events in the last year 577 00:33:52,760 --> 00:33:56,200 Speaker 1: that might suggest as such. Well, I certainly hope not, 578 00:33:56,480 --> 00:33:58,920 Speaker 1: but I will say that there are some things going 579 00:33:58,960 --> 00:34:03,160 Speaker 1: on that are you know, fairly interesting. That again kind 580 00:34:03,160 --> 00:34:07,400 Speaker 1: of like the seventies, are exogenous to the larger economic 581 00:34:07,480 --> 00:34:11,600 Speaker 1: question and really pertain to unique circumstances. For example, the 582 00:34:11,719 --> 00:34:15,600 Speaker 1: UK is under greater pressure of inflation simply because of 583 00:34:15,640 --> 00:34:19,360 Speaker 1: the Brexit issue, right, they have created their own problems 584 00:34:19,480 --> 00:34:23,200 Speaker 1: in that regard, in large part by design. They wanted 585 00:34:23,239 --> 00:34:26,520 Speaker 1: to reflate their economy and reflate wage levels by cutting 586 00:34:26,560 --> 00:34:30,600 Speaker 1: themselves off from European market supply of labor and goods. 587 00:34:30,640 --> 00:34:33,080 Speaker 1: So you know that is going to come back. And 588 00:34:33,080 --> 00:34:36,320 Speaker 1: and uh and and whip saw after the pandemic. Pandemic 589 00:34:36,360 --> 00:34:39,960 Speaker 1: effectively masked that effect. So as demand increases, they're going 590 00:34:40,000 --> 00:34:42,440 Speaker 1: to they're going to face that again. Having nothing to 591 00:34:42,480 --> 00:34:45,680 Speaker 1: do with the larger question. The whole issue with with 592 00:34:45,760 --> 00:34:50,520 Speaker 1: OPEC and their reaction, especially ope exclusion with Russia, you know, 593 00:34:50,560 --> 00:34:54,759 Speaker 1: again creates the oil issue that we're seeing right now. 594 00:34:55,080 --> 00:34:58,280 Speaker 1: I don't think anyone believes we have an oil supply issue. 595 00:34:58,280 --> 00:35:00,719 Speaker 1: I mean in the U s alone, we have so 596 00:35:00,760 --> 00:35:02,400 Speaker 1: many wells that were shut down. If you look at 597 00:35:02,400 --> 00:35:05,080 Speaker 1: the rig counts building now that prices have gone into 598 00:35:05,160 --> 00:35:07,560 Speaker 1: the eighties, you know it's massive. So you're gonna have 599 00:35:07,600 --> 00:35:11,239 Speaker 1: a flood of oil a few months down the line. Um, 600 00:35:11,280 --> 00:35:14,320 Speaker 1: there's no there's no capacity shortage of oil. This is 601 00:35:14,360 --> 00:35:16,600 Speaker 1: a question of turning on the wells again. And in 602 00:35:16,680 --> 00:35:19,480 Speaker 1: the in the case of Europe, resolving some of the 603 00:35:19,520 --> 00:35:22,040 Speaker 1: issues with OPEC. Once the price gets high enough, you 604 00:35:22,520 --> 00:35:25,520 Speaker 1: can you can trust me, OPEC will say to the Russians, Okay, 605 00:35:25,520 --> 00:35:28,319 Speaker 1: that's enough and uh and they're gonna they're gonna take 606 00:35:28,360 --> 00:35:30,920 Speaker 1: you make hay while the sunshines in terms of taking 607 00:35:30,960 --> 00:35:33,879 Speaker 1: this higher price. But you know, one of the one 608 00:35:33,920 --> 00:35:36,719 Speaker 1: of the things that I think, you know, without complicating 609 00:35:36,719 --> 00:35:39,400 Speaker 1: the issue too much and taking it back to the US, 610 00:35:40,160 --> 00:35:43,359 Speaker 1: what we experienced as a result of this pandemic is 611 00:35:43,440 --> 00:35:45,759 Speaker 1: still you know, the story is not fully told. We're 612 00:35:45,960 --> 00:35:49,080 Speaker 1: kind of still in the middle innings. We saw this 613 00:35:49,200 --> 00:35:55,160 Speaker 1: huge injection uh into the economy, seven billion dollars in 614 00:35:55,280 --> 00:36:00,440 Speaker 1: Q one this year. Right, we increase, we increase personally 615 00:36:00,440 --> 00:36:04,959 Speaker 1: income by sevent in the three months of the first 616 00:36:05,040 --> 00:36:07,560 Speaker 1: personal Muslin this year compared to the three months immediately 617 00:36:07,640 --> 00:36:11,680 Speaker 1: preceding lockdown. And that's incredible. Right, for the first eight 618 00:36:11,680 --> 00:36:15,560 Speaker 1: months of this year, we increase personal income with government transfers. 619 00:36:15,880 --> 00:36:20,080 Speaker 1: All of these supplied bottlenecks, you know, we're made worst. 620 00:36:20,080 --> 00:36:24,680 Speaker 1: They were obviously pandemic related. You first had shutdowns in 621 00:36:24,800 --> 00:36:27,799 Speaker 1: China and other manufacturers. And keep in mind that when 622 00:36:27,800 --> 00:36:30,880 Speaker 1: you take out food and energy imports now are about 623 00:36:31,000 --> 00:36:36,080 Speaker 1: fort of our total total consumption. Right, so you put it, 624 00:36:36,080 --> 00:36:39,719 Speaker 1: put aside the trade balance and capital count deficit and 625 00:36:39,760 --> 00:36:43,440 Speaker 1: all the other stuff. Just look at imports, non patroleum, 626 00:36:43,520 --> 00:36:47,800 Speaker 1: non food imports, and you're talking about what we consume. 627 00:36:47,840 --> 00:36:51,160 Speaker 1: It's just a huge amount. So so when you when 628 00:36:51,160 --> 00:36:53,120 Speaker 1: you look at it that way and you say, okay, 629 00:36:53,160 --> 00:36:55,399 Speaker 1: you shut down the factories in China, and I am 630 00:36:55,520 --> 00:36:58,880 Speaker 1: using China as a proxy, it's everywhere and uh, and 631 00:36:59,040 --> 00:37:01,520 Speaker 1: you you then have problems with shipping and getting the 632 00:37:01,520 --> 00:37:04,120 Speaker 1: goods here, and now we have problems with unloading them. 633 00:37:04,160 --> 00:37:07,959 Speaker 1: And actually, if you actually really look under the under 634 00:37:08,000 --> 00:37:10,840 Speaker 1: the hood and see where the problems are. Now, the 635 00:37:10,880 --> 00:37:14,879 Speaker 1: problems are literally moving what's been unloaded and stacked up 636 00:37:14,880 --> 00:37:18,560 Speaker 1: at the ports out of the ports and across the country. 637 00:37:18,920 --> 00:37:21,440 Speaker 1: People are saying, we have a truck or shortage. Well, 638 00:37:21,840 --> 00:37:24,480 Speaker 1: we don't really have a trucker shortage. We have a 639 00:37:24,560 --> 00:37:29,720 Speaker 1: system that was able to see surges in deliveries during 640 00:37:29,800 --> 00:37:33,799 Speaker 1: September and October relating to the Christmas season that's when 641 00:37:34,160 --> 00:37:37,400 Speaker 1: shipping peaks in this country. But now you have the 642 00:37:37,440 --> 00:37:41,680 Speaker 1: perfect storm. You have that crashing in to this pandemic 643 00:37:41,719 --> 00:37:45,279 Speaker 1: reopening demand. Right, So you now have have just so 644 00:37:45,360 --> 00:37:49,920 Speaker 1: exceeded the capacity of the system to actually absorb that 645 00:37:50,000 --> 00:37:52,719 Speaker 1: flow that of course you're going to end up with 646 00:37:52,760 --> 00:37:56,359 Speaker 1: these bottlenecks and they will clear. Uh. And and when 647 00:37:56,400 --> 00:37:58,719 Speaker 1: that happens will be in the later earnings and we'll 648 00:37:58,760 --> 00:38:01,520 Speaker 1: be able to earnings and we'll really be able to 649 00:38:01,520 --> 00:38:04,640 Speaker 1: to write the story. But as far it's it's way 650 00:38:04,680 --> 00:38:07,560 Speaker 1: too early to look at this period with all of 651 00:38:07,560 --> 00:38:12,000 Speaker 1: these unique circumstances and write a story about it, you know, 652 00:38:12,400 --> 00:38:15,560 Speaker 1: other than to say, you know, when you were at 653 00:38:15,600 --> 00:38:17,600 Speaker 1: the top of this where you talked about the use 654 00:38:17,640 --> 00:38:20,960 Speaker 1: of the word transitory, you know, first defined transitory. Are 655 00:38:20,960 --> 00:38:23,440 Speaker 1: you talking about months or or you know, a year. 656 00:38:41,520 --> 00:38:45,759 Speaker 1: So we've done a bunch of supply shortage episodes at 657 00:38:45,760 --> 00:38:47,960 Speaker 1: this point, so we've talked at length about them. But 658 00:38:48,000 --> 00:38:50,680 Speaker 1: I wanted to sort of get back to inflation. And 659 00:38:50,719 --> 00:38:54,520 Speaker 1: I have a slightly I have a slightly weird question. Um, 660 00:38:54,560 --> 00:38:56,759 Speaker 1: actually a two part question, and the first half it 661 00:38:56,840 --> 00:39:00,880 Speaker 1: is weird. But why are we why are we aiming 662 00:39:01,000 --> 00:39:05,319 Speaker 1: or why is the FED aiming for two inflation? Anyway? 663 00:39:05,360 --> 00:39:09,200 Speaker 1: Like why is that a desirable outcome for the economy 664 00:39:09,280 --> 00:39:13,359 Speaker 1: and for society when it seems like everyone is up 665 00:39:13,400 --> 00:39:17,080 Speaker 1: in arms at the moment about the mirror possibility of 666 00:39:17,120 --> 00:39:21,920 Speaker 1: inflation going you know, slightly above two, Whereas you know, 667 00:39:22,239 --> 00:39:26,600 Speaker 1: back after the financial crisis, when we had um deflation, 668 00:39:26,800 --> 00:39:29,839 Speaker 1: it felt like people weren't necessarily as angry or as 669 00:39:29,880 --> 00:39:33,120 Speaker 1: focused on this topic. And then, secondly, how do you 670 00:39:33,160 --> 00:39:38,400 Speaker 1: actually change the public narrative around inflation, Like how do 671 00:39:38,440 --> 00:39:42,480 Speaker 1: you get people to start thinking about whether or not 672 00:39:42,560 --> 00:39:44,879 Speaker 1: this is a good phenomenon or whether or not it's 673 00:39:44,920 --> 00:39:51,399 Speaker 1: something that might be desirable from a total economy standpoint. Well, 674 00:39:51,520 --> 00:39:55,120 Speaker 1: that that's a good question. I think the two percent target, 675 00:39:55,160 --> 00:39:58,440 Speaker 1: which is now not a lot two percent target, right, 676 00:39:58,480 --> 00:40:02,000 Speaker 1: we have the new of formula of two percent over 677 00:40:02,040 --> 00:40:04,960 Speaker 1: time length long period of time, and that you know 678 00:40:05,040 --> 00:40:08,360 Speaker 1: that that's interesting that this is basically what the Fed 679 00:40:08,440 --> 00:40:11,960 Speaker 1: has thought for decades they needed to hand the financial 680 00:40:12,040 --> 00:40:15,240 Speaker 1: sector and the corporate sector as a way of ensuring 681 00:40:15,239 --> 00:40:19,680 Speaker 1: them from an expectation standpoint of stability, right, because that 682 00:40:19,960 --> 00:40:23,479 Speaker 1: enables you to see investment. But here's the tricky part. 683 00:40:24,239 --> 00:40:27,000 Speaker 1: What have what has happened during that period? Have we 684 00:40:27,120 --> 00:40:30,840 Speaker 1: seen a surgeon investment because people were comforted with the 685 00:40:30,960 --> 00:40:35,360 Speaker 1: stable you know, investment target and a fairly low investment target. Dancers. No, 686 00:40:35,520 --> 00:40:40,640 Speaker 1: we've seen investment declimb massively. So clearly, either expectations aren't 687 00:40:40,680 --> 00:40:44,879 Speaker 1: a big deal, or we really shouldn't be focused on 688 00:40:45,520 --> 00:40:48,200 Speaker 1: the two percent target. Maybe we should be focused on 689 00:40:48,280 --> 00:40:53,120 Speaker 1: something else. So the Fed made some corrections in their assumptions, 690 00:40:53,239 --> 00:40:56,600 Speaker 1: and maybe that's enough for maybe it's not. But my 691 00:40:56,719 --> 00:40:58,840 Speaker 1: look is a little bit different. My take is that 692 00:40:58,880 --> 00:41:02,160 Speaker 1: the U s economy did at one time and does 693 00:41:02,239 --> 00:41:06,320 Speaker 1: best when it's run hot enough such that household incomes 694 00:41:06,400 --> 00:41:10,680 Speaker 1: rise at a sustainable pace that's slightly in excess of 695 00:41:10,760 --> 00:41:14,440 Speaker 1: prices for goods and services. That's when Americans feel best, right, 696 00:41:15,040 --> 00:41:18,719 Speaker 1: and and that that's that's what really is a definition 697 00:41:18,760 --> 00:41:21,399 Speaker 1: of the improvement in the standard of living. If you're 698 00:41:21,800 --> 00:41:24,680 Speaker 1: making if you're getting a little bit more wealthier each year, 699 00:41:24,760 --> 00:41:26,200 Speaker 1: you don't want it to get out of hand because 700 00:41:26,239 --> 00:41:28,799 Speaker 1: you don't want to create any kind of spiral up 701 00:41:28,920 --> 00:41:32,000 Speaker 1: or down. Right, But certainly it's better to have a 702 00:41:32,040 --> 00:41:38,120 Speaker 1: situation where you're you're creating actual incomes, not not consumption. 703 00:41:38,160 --> 00:41:41,200 Speaker 1: People focus on consumption. They say, oh, retail sales are great, 704 00:41:41,719 --> 00:41:45,040 Speaker 1: consumption is great. It's not about consumption. It's about incomes 705 00:41:45,160 --> 00:41:48,279 Speaker 1: because you know, if you force people to borrow in 706 00:41:48,360 --> 00:41:51,399 Speaker 1: order to maintain their standard of living, you're eventually going 707 00:41:51,440 --> 00:41:55,040 Speaker 1: to have a collapse. So that's really where the issue is, 708 00:41:55,080 --> 00:41:57,560 Speaker 1: and I think the FED needs to really start thinking 709 00:41:57,560 --> 00:42:01,080 Speaker 1: about that. We saw that condition for the last time 710 00:42:01,320 --> 00:42:05,320 Speaker 1: in arguably the nineteen nineties, and served for an extended 711 00:42:05,360 --> 00:42:08,520 Speaker 1: period of time the nineteen sixties. It's in a it's 712 00:42:08,560 --> 00:42:11,520 Speaker 1: a condition that is totally within our power to reproduce. 713 00:42:11,680 --> 00:42:16,040 Speaker 1: In my opinion, the look inflation adjusted median incomes in 714 00:42:16,080 --> 00:42:20,920 Speaker 1: the United States, by contrast, were flat or down from 715 00:42:22,440 --> 00:42:27,400 Speaker 1: thousand sixteen, and in the aggregate from they're only up 716 00:42:27,440 --> 00:42:32,000 Speaker 1: three tenths of one Brandon, I mean, this is not great. 717 00:42:32,880 --> 00:42:35,760 Speaker 1: And and so what we've been doing, whether it's because 718 00:42:35,760 --> 00:42:40,359 Speaker 1: of inflation targeting or all of the fiscal handwringing that's 719 00:42:40,360 --> 00:42:43,719 Speaker 1: been going on, it hasn't been working. You know, one 720 00:42:43,760 --> 00:42:47,960 Speaker 1: of the we frequently have guests, and you know, I 721 00:42:47,960 --> 00:42:51,440 Speaker 1: think Paul McCulley wrote the intro to your new paper, 722 00:42:51,640 --> 00:42:54,320 Speaker 1: but we frequently have guessed in the school of thought 723 00:42:54,400 --> 00:42:58,239 Speaker 1: that you know, basically, over the last several decades, the 724 00:42:58,320 --> 00:43:01,360 Speaker 1: ft has tapped the brakes every time it looks like 725 00:43:01,400 --> 00:43:03,560 Speaker 1: things are going to get vaguely hot. And so you 726 00:43:03,600 --> 00:43:06,400 Speaker 1: mentioned that this sort of like the ideal economy is 727 00:43:06,480 --> 00:43:09,080 Speaker 1: one where it's just like we're just persistently running this 728 00:43:09,160 --> 00:43:12,759 Speaker 1: sort of like high pressure, somewhat hot economy with the 729 00:43:12,800 --> 00:43:15,359 Speaker 1: wages outpacing price growth a little bit, and we seem 730 00:43:15,440 --> 00:43:18,560 Speaker 1: to have this sort of like policy regime in which 731 00:43:18,840 --> 00:43:20,680 Speaker 1: we don't even let it get there. It's like just 732 00:43:20,760 --> 00:43:23,719 Speaker 1: the whiff of just the mention of warmth seems to 733 00:43:23,760 --> 00:43:26,399 Speaker 1: be enough, and policy say have a slightly different view, 734 00:43:26,880 --> 00:43:30,279 Speaker 1: and pre crisis even you know, things were not bad. 735 00:43:30,360 --> 00:43:32,239 Speaker 1: Pre crisis things are it seemed pretty good, and even 736 00:43:32,280 --> 00:43:35,239 Speaker 1: he was like, yeah, this isn't really hot. Though, what 737 00:43:35,360 --> 00:43:38,600 Speaker 1: should the FED be doing such that we can and 738 00:43:38,640 --> 00:43:40,480 Speaker 1: how much is it the Feder? Maybe it should have 739 00:43:40,560 --> 00:43:42,960 Speaker 1: been more physical on the phisical side to get back 740 00:43:43,000 --> 00:43:45,560 Speaker 1: to some of those sixties or nineties conditions so that 741 00:43:45,600 --> 00:43:48,960 Speaker 1: we just have some decent years in a row of 742 00:43:49,800 --> 00:43:52,560 Speaker 1: income growth outpacing prices. I don't think you know, like 743 00:43:52,640 --> 00:43:55,719 Speaker 1: the answer to my question, because at the end of 744 00:43:55,760 --> 00:43:58,880 Speaker 1: the day, the FED is out of tools, right. The 745 00:43:59,040 --> 00:44:02,120 Speaker 1: FED has tried for uh, you know the better part 746 00:44:02,160 --> 00:44:09,200 Speaker 1: of twelve years two use the monetary toolbox. They hiked 747 00:44:09,239 --> 00:44:12,799 Speaker 1: in what like when I mean? I mean this gets 748 00:44:12,840 --> 00:44:15,319 Speaker 1: to the question of like, okay, the fit maybe out 749 00:44:15,320 --> 00:44:21,080 Speaker 1: of tools. But again, like they the argument is in retrospect, 750 00:44:21,640 --> 00:44:25,000 Speaker 1: they hiked prematurely. That was arguably what jackson Hole last 751 00:44:25,080 --> 00:44:28,200 Speaker 1: year was about, was about correcting this impulse that they 752 00:44:28,239 --> 00:44:32,160 Speaker 1: have to hike before necessary, and that seemed to be 753 00:44:32,200 --> 00:44:35,400 Speaker 1: the case that there are the multiple rate hikes in 754 00:44:36,520 --> 00:44:39,800 Speaker 1: which in retrospect probably were not necessary. There seems to 755 00:44:39,880 --> 00:44:43,640 Speaker 1: be this this this thing that they do, and how 756 00:44:43,800 --> 00:44:47,600 Speaker 1: much could they improve outcomes if they just sat on 757 00:44:47,640 --> 00:44:50,920 Speaker 1: their hands longer, which seems to be a flexible average 758 00:44:50,920 --> 00:44:53,680 Speaker 1: inflation targeting is about Yeah, well I think that that's 759 00:44:53,840 --> 00:44:56,160 Speaker 1: that's precisely what they need to but it is it 760 00:44:56,600 --> 00:44:59,480 Speaker 1: looks at the end of the day, it runs counter 761 00:44:59,560 --> 00:45:04,040 Speaker 1: to one who is including myself, who is who is 762 00:45:04,080 --> 00:45:07,560 Speaker 1: schooled in in the importance of central banking, which is, 763 00:45:07,760 --> 00:45:11,800 Speaker 1: you know, running this at zero, at a zero policy 764 00:45:11,920 --> 00:45:15,760 Speaker 1: rate is effectively depriving not only the FED of tools, 765 00:45:15,800 --> 00:45:19,160 Speaker 1: but also savers of any sort of return. And one 766 00:45:19,200 --> 00:45:21,239 Speaker 1: of the one of the difficulties and all of this, 767 00:45:21,400 --> 00:45:23,399 Speaker 1: and not to get too wonky on you, is that, 768 00:45:23,719 --> 00:45:27,719 Speaker 1: you know, the classical economic expression of saving equal investment, 769 00:45:27,760 --> 00:45:31,480 Speaker 1: which is what drives all economic policy making right, is 770 00:45:31,520 --> 00:45:34,680 Speaker 1: to say, wow, we've got all this huge pool of savings, 771 00:45:34,680 --> 00:45:38,640 Speaker 1: so it will be used for investment. Is something that 772 00:45:38,760 --> 00:45:42,040 Speaker 1: Cain's realized a long time ago. Is uh, you know, 773 00:45:42,600 --> 00:45:45,319 Speaker 1: only only valid over the very long run, and we've 774 00:45:45,360 --> 00:45:49,200 Speaker 1: created that long run has now become forever as far 775 00:45:49,239 --> 00:45:51,800 Speaker 1: as I am concerned, and that that equation really needs 776 00:45:51,840 --> 00:45:56,120 Speaker 1: to be ignored from the standpoint of policy making, just 777 00:45:56,239 --> 00:46:00,360 Speaker 1: simply stuffing savings that then go out, you know, looking 778 00:46:00,440 --> 00:46:06,880 Speaker 1: for returns in secondary investment trading bitcoin or real estate 779 00:46:07,000 --> 00:46:09,000 Speaker 1: or you know, you name any of this stuff that 780 00:46:09,920 --> 00:46:14,080 Speaker 1: has grown in price to levels that are not justifiable 781 00:46:14,120 --> 00:46:17,160 Speaker 1: by the utility the asset that they're investing in. That 782 00:46:17,160 --> 00:46:20,799 Speaker 1: that creates such massive distortions in the economy. Uh, and 783 00:46:20,840 --> 00:46:23,720 Speaker 1: of course deprived savers of any kind of meaningful return. 784 00:46:24,360 --> 00:46:27,120 Speaker 1: So you know you've got you've got real complications there 785 00:46:27,120 --> 00:46:30,320 Speaker 1: if you keep looking for that money to be invested 786 00:46:30,520 --> 00:46:34,799 Speaker 1: in capacity increasing and job increasing production. And you know, 787 00:46:34,880 --> 00:46:38,080 Speaker 1: you stand around for for decades waiting for that to happen, 788 00:46:38,080 --> 00:46:39,920 Speaker 1: and it doesn't happen, You've got to ask yourself a 789 00:46:40,040 --> 00:46:43,480 Speaker 1: question why, and and the answer is that, you know, 790 00:46:43,480 --> 00:46:46,960 Speaker 1: when you have this massive exogenous pool of labor and 791 00:46:47,080 --> 00:46:51,080 Speaker 1: capital that is able to produce at a lower price, um, you, 792 00:46:51,600 --> 00:46:53,960 Speaker 1: the private sector is going to go after that. And 793 00:46:54,000 --> 00:46:56,560 Speaker 1: that's what it's done. Not to not to bring back 794 00:46:56,640 --> 00:46:59,320 Speaker 1: an old argument, but and it is an old argument 795 00:46:59,320 --> 00:47:02,160 Speaker 1: I've been arguing for a dozen years. You know, the 796 00:47:02,160 --> 00:47:04,600 Speaker 1: the only thing that we can do, given that we 797 00:47:04,640 --> 00:47:08,120 Speaker 1: still live within the borders of nation states and you know, 798 00:47:08,200 --> 00:47:11,400 Speaker 1: our individual nation states. You know, most Americans don't have 799 00:47:11,480 --> 00:47:13,719 Speaker 1: the legal or practical ability to pick up stakes and 800 00:47:13,800 --> 00:47:16,640 Speaker 1: work wherever else in the world may offer a better 801 00:47:16,719 --> 00:47:20,640 Speaker 1: crackic prosperity. The fact is that the only other agent 802 00:47:20,800 --> 00:47:22,880 Speaker 1: that's able to do that in our economy is the 803 00:47:22,880 --> 00:47:26,440 Speaker 1: fiscal agent of the collective agent of government. And so 804 00:47:26,480 --> 00:47:28,720 Speaker 1: that's what the FED is looking at me. Bernanky was 805 00:47:28,719 --> 00:47:31,800 Speaker 1: was unabashed, and mean, you know, the whole the whole 806 00:47:31,840 --> 00:47:35,080 Speaker 1: notion of saying to the fiscal agent, look, you gotta 807 00:47:35,160 --> 00:47:38,560 Speaker 1: you gotta go do something is critical. And that's why 808 00:47:38,680 --> 00:47:41,839 Speaker 1: what's in front of Congress right now and is absolutely 809 00:47:41,920 --> 00:47:45,400 Speaker 1: essential because that is what's going to enable if you 810 00:47:45,440 --> 00:47:49,120 Speaker 1: look at it from a holistic standpoint, the fiscal agent 811 00:47:49,520 --> 00:47:53,200 Speaker 1: will enable the FED to get off zero. And that's 812 00:47:53,280 --> 00:47:56,880 Speaker 1: probably the most direct way of putting it to everybody. 813 00:47:56,920 --> 00:48:00,000 Speaker 1: The fiscal agent, if they spend money, if the govern 814 00:48:00,080 --> 00:48:02,600 Speaker 1: it spends this money and injects it into the economy, 815 00:48:02,960 --> 00:48:06,320 Speaker 1: will enable the FED to get off zero and resume 816 00:48:07,360 --> 00:48:12,200 Speaker 1: refill its toolbox. So I just have one last question, Dan, 817 00:48:12,360 --> 00:48:14,680 Speaker 1: and this has been very helpful, but you know, the 818 00:48:14,719 --> 00:48:18,399 Speaker 1: way you set up the paper, and the paper isn't 819 00:48:18,440 --> 00:48:21,279 Speaker 1: just about the seventies, but comparing this to the seventies, 820 00:48:22,440 --> 00:48:24,480 Speaker 1: is that the only model? Though, like could we get 821 00:48:24,560 --> 00:48:28,959 Speaker 1: runaway inflation from some other things? So it's like, okay, 822 00:48:29,160 --> 00:48:32,120 Speaker 1: this economy, even with everything we've seen, it's still just 823 00:48:32,160 --> 00:48:35,840 Speaker 1: does not really resemble the seventies was still extreme incompilarity. 824 00:48:35,880 --> 00:48:38,279 Speaker 1: We still do not the millennials do not have much 825 00:48:38,400 --> 00:48:42,680 Speaker 1: economic buying power. There's still a lot of excess capacity, 826 00:48:42,760 --> 00:48:46,880 Speaker 1: both on the energy side and on the international manufacturing side, 827 00:48:47,160 --> 00:48:49,680 Speaker 1: once we sort out the supply chain issues. But is 828 00:48:49,680 --> 00:48:52,000 Speaker 1: that the only way. Don't forget that, don't forget the 829 00:48:52,040 --> 00:48:56,759 Speaker 1: domestic manufacturers. Could there be another model or is it like, 830 00:48:56,880 --> 00:49:00,480 Speaker 1: is it enough to shoot down the seventies and feel like, Okay, 831 00:49:00,600 --> 00:49:02,520 Speaker 1: we're not we don't have to worry, Like, is that 832 00:49:02,600 --> 00:49:05,799 Speaker 1: the only way to get sustained inflation? Well, I mean 833 00:49:06,160 --> 00:49:11,200 Speaker 1: war works, right, Um, but you know, God willing, that's 834 00:49:11,200 --> 00:49:13,879 Speaker 1: not where we're going. Uh. You know, there are other 835 00:49:13,920 --> 00:49:18,759 Speaker 1: ways of creating inflationary situations. Um, but the one that 836 00:49:18,960 --> 00:49:21,640 Speaker 1: is that is out there the sort of boogeyman that's 837 00:49:21,680 --> 00:49:25,800 Speaker 1: being waved around by even you know, even Senator Mansion, 838 00:49:25,840 --> 00:49:29,160 Speaker 1: who's supposed to be on the Democratic side. He's talking 839 00:49:29,200 --> 00:49:32,640 Speaker 1: about all of this spending because it involves money, you know, 840 00:49:32,680 --> 00:49:37,280 Speaker 1: resulting in in future inflation. And the irony, of course, 841 00:49:37,360 --> 00:49:41,440 Speaker 1: is that this very unique price fight that's occurring in 842 00:49:41,480 --> 00:49:44,520 Speaker 1: the post pandemic period, which I believe is in fact 843 00:49:44,560 --> 00:49:48,960 Speaker 1: going to prove quite transitory, is is giving him and others, 844 00:49:49,000 --> 00:49:52,160 Speaker 1: certainly on the Republican side, a great deal of ammunition. 845 00:49:52,640 --> 00:49:56,240 Speaker 1: And that's unfortunate because if you look at the volume 846 00:49:56,280 --> 00:49:59,799 Speaker 1: of spending involved both in the infrastructure bill and the 847 00:50:00,040 --> 00:50:03,200 Speaker 1: Reconciliation package, Um, it's really not a lot of money. 848 00:50:03,239 --> 00:50:06,000 Speaker 1: I mean, it's spread out over an incredibly long period 849 00:50:06,000 --> 00:50:09,280 Speaker 1: of time, and having that money flow into the economy 850 00:50:09,320 --> 00:50:12,239 Speaker 1: on a sustained basis over that period of time does 851 00:50:12,280 --> 00:50:17,160 Speaker 1: in fact create the ability to transmit it through incomes 852 00:50:17,680 --> 00:50:21,520 Speaker 1: to households that are more likely to spend it and 853 00:50:21,680 --> 00:50:25,760 Speaker 1: hopefully reflate not only their incomes, but reflate the economy 854 00:50:25,800 --> 00:50:29,040 Speaker 1: on a sustained basis and do what I said before 855 00:50:29,160 --> 00:50:31,319 Speaker 1: is the important thing, which is to run it hot 856 00:50:31,440 --> 00:50:34,920 Speaker 1: enough such that household incomes rise at a sustainable pace, 857 00:50:35,200 --> 00:50:38,080 Speaker 1: slightly in excess of the prices for goods and services. 858 00:50:38,760 --> 00:50:42,359 Speaker 1: Having said that, if we don't do that, I think 859 00:50:42,400 --> 00:50:46,560 Speaker 1: we're right back to the same secular stagnation, the same 860 00:50:46,680 --> 00:50:50,880 Speaker 1: oversupply conditions, the same underemployment of US labor that we 861 00:50:50,880 --> 00:50:54,720 Speaker 1: were at prior to the pandemic. All of these dislocations 862 00:50:54,760 --> 00:50:58,319 Speaker 1: that we're seeing right now, we'll pass through the system. 863 00:50:58,520 --> 00:51:00,840 Speaker 1: Just look at the one thing that's sort of glaring 864 00:51:01,040 --> 00:51:03,359 Speaker 1: right now is the number of people who have yet 865 00:51:03,400 --> 00:51:06,840 Speaker 1: to resume employment. Now you've got all sorts of people 866 00:51:06,880 --> 00:51:10,719 Speaker 1: out there, you know, giving reasons for it, viral concerns, 867 00:51:10,760 --> 00:51:13,680 Speaker 1: And until the schools reopened, everybody was saying Oh, it's 868 00:51:13,719 --> 00:51:16,640 Speaker 1: people will not able to send their kids back to school. Well, 869 00:51:16,640 --> 00:51:19,480 Speaker 1: they're all back to school and nothing's changed, so you 870 00:51:19,560 --> 00:51:23,440 Speaker 1: have you know, on September six, you had ten million 871 00:51:23,560 --> 00:51:27,040 Speaker 1: people receiving six hundred dollars a week in benefits. It's 872 00:51:27,040 --> 00:51:30,960 Speaker 1: a lot of money, and and they weren't working. Now 873 00:51:30,960 --> 00:51:35,000 Speaker 1: they're not receiving those benefits anymore, and slowly, as they 874 00:51:35,000 --> 00:51:38,640 Speaker 1: erode their savings and their other capacity, they will come 875 00:51:38,680 --> 00:51:43,359 Speaker 1: back to work. People expected it to occur overnight, that's ridiculous. 876 00:51:43,719 --> 00:51:46,080 Speaker 1: But they will be forced to find incomes. And when 877 00:51:46,080 --> 00:51:48,759 Speaker 1: they when they are forced to find incomes, they will 878 00:51:48,800 --> 00:51:51,080 Speaker 1: have to take up these jobs that are on off 879 00:51:51,120 --> 00:51:53,520 Speaker 1: for most of which are low wage, low our jobs. 880 00:51:54,360 --> 00:51:56,600 Speaker 1: Um and in my mind, my view, we will be 881 00:51:56,640 --> 00:52:00,000 Speaker 1: back to the same position we were before, with maybe 882 00:52:00,160 --> 00:52:04,759 Speaker 1: some increase in hourly wages, which is a good thing. 883 00:52:05,280 --> 00:52:08,239 Speaker 1: There was a podcast that was on on Bloomberg that 884 00:52:08,560 --> 00:52:12,000 Speaker 1: John Authors was was hosting, and he made a big 885 00:52:12,000 --> 00:52:16,319 Speaker 1: deal of the Atlanta Fed hourly wage tracker numbers that 886 00:52:16,360 --> 00:52:19,719 Speaker 1: came out right after that podcast, and I went on 887 00:52:19,800 --> 00:52:21,960 Speaker 1: to look at it and it was fascinating to me 888 00:52:22,000 --> 00:52:24,840 Speaker 1: because you know, the headline number showed this huge boost 889 00:52:24,840 --> 00:52:27,520 Speaker 1: in hourly wages. But when you actually look at the 890 00:52:27,520 --> 00:52:30,439 Speaker 1: system and go down into it, you find that all 891 00:52:30,480 --> 00:52:34,359 Speaker 1: of it was led by sixteen to twenty four year olds, 892 00:52:34,480 --> 00:52:37,520 Speaker 1: by people with low skills and people at the low 893 00:52:37,640 --> 00:52:40,200 Speaker 1: end of the wage scale. When you see sixteen and 894 00:52:40,480 --> 00:52:45,600 Speaker 1: the gap between the sixteen and twenty four and was astronomical. 895 00:52:46,080 --> 00:52:48,520 Speaker 1: And so when you look at something like that, you realize, 896 00:52:49,160 --> 00:52:51,000 Speaker 1: you know, Okay, so a bunch of kids called in 897 00:52:51,040 --> 00:52:54,840 Speaker 1: for summer jobs, right, had had an enormous wage spike. 898 00:52:54,920 --> 00:52:58,040 Speaker 1: Who that's great, right, But you know that's going to 899 00:52:58,160 --> 00:53:02,320 Speaker 1: fade immediately. And the problem is that we all get 900 00:53:02,360 --> 00:53:05,719 Speaker 1: caught up in the what I call the paralysis of aggregates. 901 00:53:06,200 --> 00:53:08,680 Speaker 1: But we all get caught up in these headlines looking 902 00:53:08,680 --> 00:53:11,160 Speaker 1: at the aggregate data, and nobody looks under the hood 903 00:53:11,160 --> 00:53:14,319 Speaker 1: to see what it was composed of. It's really important 904 00:53:14,600 --> 00:53:18,160 Speaker 1: in this period to look at the composition of this 905 00:53:18,239 --> 00:53:21,480 Speaker 1: aggregate data. It tells you a lot. And I think 906 00:53:21,520 --> 00:53:23,319 Speaker 1: if you really want to understand what's going to happen 907 00:53:23,360 --> 00:53:25,719 Speaker 1: over the next few months, that's where we're getting the 908 00:53:25,760 --> 00:53:29,960 Speaker 1: information from. Dan Alpert. Thank you so much for coming 909 00:53:30,000 --> 00:53:33,560 Speaker 1: out on odline. Oh, it's my pleasure, but to talk 910 00:53:33,600 --> 00:53:35,560 Speaker 1: to you guys. That was great, Dan, Thank you so much. 911 00:53:36,360 --> 00:53:52,719 Speaker 1: Thanks Dan. So something that I kept thinking about, um 912 00:53:53,040 --> 00:53:57,560 Speaker 1: actually during that episode was actually a comment that Jeff 913 00:53:57,600 --> 00:54:00,200 Speaker 1: Curry said on a recent episode where he point did 914 00:54:00,239 --> 00:54:03,360 Speaker 1: out because I was just reading back to the transcript 915 00:54:03,400 --> 00:54:07,600 Speaker 1: of that one, that every commodities boom that we've ever seen, 916 00:54:07,719 --> 00:54:11,160 Speaker 1: like every sort of like has been associated in some 917 00:54:11,320 --> 00:54:15,759 Speaker 1: level with a big sort of downward redistribution of wealth 918 00:54:15,800 --> 00:54:19,360 Speaker 1: and income. And so obviously, you know, Dan there was 919 00:54:19,360 --> 00:54:24,080 Speaker 1: talking about the sixties leading to the seventies, the pre 920 00:54:24,080 --> 00:54:29,920 Speaker 1: Great Financial Crisis boom associated with the huge expansion of 921 00:54:29,960 --> 00:54:33,680 Speaker 1: wealth of the sort of like Chinese middle class, and 922 00:54:33,760 --> 00:54:37,960 Speaker 1: so thinking about like Dan's point it um it dovetails 923 00:54:38,080 --> 00:54:40,319 Speaker 1: very nicely with it that the only real way to 924 00:54:40,400 --> 00:54:43,720 Speaker 1: like get a sort of sustained shift in a broader 925 00:54:43,760 --> 00:54:47,400 Speaker 1: inflationary regime, whether we're talking about commodities or elsewhere otherwise, 926 00:54:47,920 --> 00:54:51,400 Speaker 1: really would have to be something that like shifts buying 927 00:54:51,480 --> 00:54:55,000 Speaker 1: power meaningfully to the sort of lower and middle classes 928 00:54:55,040 --> 00:54:58,880 Speaker 1: on a sustained basis. Yeah, well, Jeff's thesis was like 929 00:54:59,000 --> 00:55:02,919 Speaker 1: very much focused on the idea of volumetric increase, which 930 00:55:02,960 --> 00:55:04,879 Speaker 1: is something that like you're only ever going to get 931 00:55:04,880 --> 00:55:09,040 Speaker 1: the scale if the purchasing is being done by like 932 00:55:09,160 --> 00:55:11,840 Speaker 1: as large a group as possible, and that's generally going 933 00:55:11,920 --> 00:55:14,759 Speaker 1: to be load to middle income um. The other thing 934 00:55:14,840 --> 00:55:18,440 Speaker 1: that that I was thinking about as Dan was talking was, 935 00:55:18,560 --> 00:55:24,200 Speaker 1: you know, his characterization of the monetary policy transmission mechanism. 936 00:55:24,239 --> 00:55:27,520 Speaker 1: And this is something that like kind of annoys me 937 00:55:27,600 --> 00:55:29,200 Speaker 1: and I see it a lot, but there seems to 938 00:55:29,239 --> 00:55:32,160 Speaker 1: be this you know, the people who are calling for 939 00:55:32,440 --> 00:55:35,640 Speaker 1: massive inflation and blaming it on the FED are the 940 00:55:35,680 --> 00:55:38,200 Speaker 1: same ones who are kind of saying that, like the 941 00:55:38,239 --> 00:55:41,680 Speaker 1: FED hasn't done much for many years, like the FED 942 00:55:41,719 --> 00:55:45,800 Speaker 1: has failed to improve the economy or boost economic growth. 943 00:55:45,800 --> 00:55:47,640 Speaker 1: But at the same time they argue that there's going 944 00:55:47,719 --> 00:55:50,719 Speaker 1: to be this massive inflationary spiral, which I don't know, 945 00:55:50,760 --> 00:55:53,279 Speaker 1: it just feels like you can't really have both no 946 00:55:54,000 --> 00:55:56,200 Speaker 1: totally agree. You know. The other thing that I thought 947 00:55:56,280 --> 00:55:59,640 Speaker 1: was super interesting is this his argument that there is 948 00:55:59,719 --> 00:56:02,279 Speaker 1: lots of spare capacity right now, and it's a little 949 00:56:02,280 --> 00:56:04,440 Speaker 1: bit different than some of the other arguments, which is 950 00:56:04,480 --> 00:56:07,359 Speaker 1: that you know, his like there's spare capacity of China 951 00:56:07,440 --> 00:56:11,320 Speaker 1: still according to him, there's a spare capacity in the US, 952 00:56:11,320 --> 00:56:14,640 Speaker 1: which is interesting and it does make me wonder, like, Okay, 953 00:56:14,719 --> 00:56:18,560 Speaker 1: if the logistics system ever like normalizes or finds a 954 00:56:18,560 --> 00:56:21,359 Speaker 1: way to like run smoothly at a sort of predictable pace, 955 00:56:21,680 --> 00:56:23,600 Speaker 1: are we going to get like this big like sort 956 00:56:23,600 --> 00:56:25,719 Speaker 1: of bust, which I guess is kind of what he's 957 00:56:25,760 --> 00:56:27,839 Speaker 1: predicting in some way, that we get this sort of 958 00:56:27,840 --> 00:56:31,799 Speaker 1: like quick resumption of the old the old trend. But 959 00:56:32,000 --> 00:56:33,839 Speaker 1: you know, we're like sort of if we sort of 960 00:56:33,880 --> 00:56:37,920 Speaker 1: have all these like al these dealers or like restocking inventory, etcetera, 961 00:56:37,960 --> 00:56:40,240 Speaker 1: and eventually are we going to get to this point 962 00:56:40,280 --> 00:56:43,279 Speaker 1: where actually there's plenty of spare capacity, we finally have 963 00:56:43,360 --> 00:56:45,600 Speaker 1: the system worked out to move it all. Are we 964 00:56:45,640 --> 00:56:48,320 Speaker 1: gonna you know, be right back there like two percent 965 00:56:48,640 --> 00:56:51,839 Speaker 1: inflation before? I know? It seems plausible? Yeah, it does. 966 00:56:51,960 --> 00:56:54,799 Speaker 1: And I mean this is also sort of the bull 967 00:56:54,840 --> 00:56:59,600 Speaker 1: width effect idea that we've been talking about supply chain episodes, um, 968 00:56:59,640 --> 00:57:02,439 Speaker 1: the you that you know, people will order a bunch 969 00:57:02,480 --> 00:57:05,640 Speaker 1: of stuff um to make up for supply shortages and 970 00:57:05,680 --> 00:57:09,040 Speaker 1: then they end up with too much inventory and prices 971 00:57:09,040 --> 00:57:12,040 Speaker 1: could collapse very very quickly. So yeah, it feels like 972 00:57:12,080 --> 00:57:15,239 Speaker 1: the risk is probably like volatility on either side of 973 00:57:15,400 --> 00:57:17,760 Speaker 1: the equation at the moment. No, I mean, I think 974 00:57:17,800 --> 00:57:20,800 Speaker 1: you're exactly right, like at some point, like you buy enough. Right. 975 00:57:20,880 --> 00:57:24,040 Speaker 1: So I saw a tweet this weekend where someone was like, oh, 976 00:57:24,040 --> 00:57:26,800 Speaker 1: I watched the bull whip effect happened right before my 977 00:57:26,880 --> 00:57:30,760 Speaker 1: eyes because I saw someone order a whole case of 978 00:57:30,880 --> 00:57:33,680 Speaker 1: New Zealand wine when they were told that there's not 979 00:57:33,760 --> 00:57:39,880 Speaker 1: much of it available Zealand. Well, exactly right. It's like, 980 00:57:39,920 --> 00:57:42,640 Speaker 1: but eventually you don't need to keep buying New Zealand wine, 981 00:57:42,680 --> 00:57:44,400 Speaker 1: so you're like, go to the wine store and you 982 00:57:44,480 --> 00:57:45,960 Speaker 1: buy a case, but then you're not going to be 983 00:57:46,320 --> 00:57:49,520 Speaker 1: buying a case for a long time and maybe ever again. 984 00:57:49,880 --> 00:57:52,280 Speaker 1: So I do think that, like, you know, it is 985 00:57:52,320 --> 00:57:55,080 Speaker 1: a very interesting possibility that like, okay, we really are 986 00:57:55,120 --> 00:57:58,520 Speaker 1: experiencing this effect, and there really is this capacity, maybe 987 00:57:58,560 --> 00:58:02,080 Speaker 1: we would get this sort of really unexpected or underappreciated 988 00:58:02,080 --> 00:58:05,920 Speaker 1: possibility of a sharp downward move again in prices, in 989 00:58:05,960 --> 00:58:09,440 Speaker 1: a resumption of the old trent to um. All right, 990 00:58:09,440 --> 00:58:12,720 Speaker 1: shall we leave with that. Let's leave it there. Okay. 991 00:58:12,960 --> 00:58:15,800 Speaker 1: This has been another episode of the All Thoughts podcast. 992 00:58:15,880 --> 00:58:18,440 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 993 00:58:18,440 --> 00:58:21,640 Speaker 1: Tracy Halloway. And I'm Joe wiesn Thal. You can follow 994 00:58:21,640 --> 00:58:25,160 Speaker 1: me on Twitter at The Stalwart. Follow our guests on Twitter. 995 00:58:25,400 --> 00:58:28,600 Speaker 1: Dan Elpert, managing partner of Westwood Capital. He is at 996 00:58:28,760 --> 00:58:33,920 Speaker 1: Daniel Albert. Follow our producer Laura Carlson. She's at Laura M. Carlson. 997 00:58:34,200 --> 00:58:38,240 Speaker 1: Followed the Bloomberg head of podcast Francesca Levie at Francesca Today. 998 00:58:38,720 --> 00:58:41,680 Speaker 1: And check out all of our podcasts at Bloomberg under 999 00:58:41,720 --> 00:59:01,200 Speaker 1: the handle at podcasts. Thanks for listening to