WEBVTT - What Causes Inflation? 0:00:01.480 --> 0:00:04.280 Welcome to Stuff You Should Know, a production of I 0:00:04.360 --> 0:00:14.000 Heart Radio. Hey, and welcome to the podcast. I'm Josh Clark. 0:00:14.080 --> 0:00:18.160 There's Charles w. Chuck, Wayne Waynester, Wayne Train, what what, 0:00:18.880 --> 0:00:23.880 Wayne Bryant, And there's Jerry Jerome Roland over there, and 0:00:24.000 --> 0:00:28.960 this is Stuff you should Know. Yeah, kill me episode whatever, dude, 0:00:29.000 --> 0:00:31.440 this is fine. I was going to say that, I 0:00:31.520 --> 0:00:34.479 know it's again. We just did an economics episode. What 0:00:34.520 --> 0:00:37.559 was it. I don't know, but I think economics is 0:00:37.640 --> 0:00:40.240 literally right there. Besides, like chemistry and physics for me, 0:00:40.360 --> 0:00:43.680 now maybe worse because at least those are interesting to me. 0:00:44.040 --> 0:00:47.560 Chemistry and physics still make sense because they're really hard 0:00:47.640 --> 0:00:51.400 to understand. Economics doesn't make sense because it's b s 0:00:52.080 --> 0:00:55.400 and it's just that's key to understanding economics. I'm good here, 0:00:55.400 --> 0:00:57.080 I'll tell you where I'm gonna need help. I'm good, 0:00:57.080 --> 0:01:01.640 except for like were paragraphs right there where it says 0:01:01.760 --> 0:01:05.160 kill me, it really does, think kill me right there, 0:01:05.400 --> 0:01:09.360 and then right there where it says wake up listeners. Whatever, 0:01:10.200 --> 0:01:11.800 I'm good. I'm gonna need your help there the rest 0:01:11.800 --> 0:01:15.000 of it, this is a personal challenge to keep everyone interested. 0:01:16.160 --> 0:01:18.560 That's funny because on the John Your document. I have 0:01:18.640 --> 0:01:25.440 blah blah blah over there. Oh boy, are seeing how 0:01:25.440 --> 0:01:28.440 the sausage? That's like year one stuff. Dude, No, we've 0:01:28.520 --> 0:01:30.759 been doing that forever. I think we generally are into 0:01:30.760 --> 0:01:36.480 one another's topics. Yeah, it's not the topic, and I 0:01:36.520 --> 0:01:39.679 think economics is boring, is heck? I don't think he 0:01:39.760 --> 0:01:41.600 was what we'll talk about John here in the John 0:01:41.720 --> 0:01:43.880 Your episode. How about that? I was about to defend 0:01:43.959 --> 0:01:46.880 my position on well that have already been out. I 0:01:46.920 --> 0:01:49.200 don't know, man, we'll find out. I think people should 0:01:49.200 --> 0:01:52.720 play these back to back. So you should, especially the 0:01:52.720 --> 0:01:57.040 Cleft episode, because the listener mail from the Cleft episode 0:01:57.080 --> 0:01:59.880 really sets up some of the jokes in the night 0:02:00.040 --> 0:02:03.960 Trap episode that follows. So don't listen to those two. Well, 0:02:04.000 --> 0:02:06.600 those are too fun to listen to. I think listeners 0:02:06.640 --> 0:02:09.440 listen to these two back to back. It's like Thilman 0:02:09.520 --> 0:02:13.560 Louise territory right into the Grand Canyon. What does that mean? 0:02:14.120 --> 0:02:16.080 Have you never seen Tholm and Louise? I have, but 0:02:16.160 --> 0:02:18.240 I don't get how it applies to listening to these 0:02:18.280 --> 0:02:22.519 episodes out of order spoiler alert for Tholma and Louise. Everybody, 0:02:22.800 --> 0:02:26.000 Oh you already kind of in the Grand Canyon. They 0:02:26.160 --> 0:02:28.959 drive into the Grand Canon at the end, just straight 0:02:28.960 --> 0:02:31.480 off that cliff, And that's what would happened if they 0:02:31.520 --> 0:02:33.320 listen to both of these episodes back to back. Well, 0:02:33.320 --> 0:02:35.800 i'll tell you what. If you watch Thelma and Louise 0:02:36.960 --> 0:02:39.359 as their drive, it really is as they're Actually I've 0:02:39.360 --> 0:02:43.640 only seen the last ten minutes. Yeah, really, you're like, 0:02:43.680 --> 0:02:46.480 what was their problem? Yeah? Why they do that? It 0:02:46.560 --> 0:02:52.680 seems a little overreacting. Um the the if you listen 0:02:53.000 --> 0:02:55.400 really really closely, I mean, like, turn your volume up 0:02:55.520 --> 0:02:58.760 so loud that you can hear the fawse of the video, 0:02:58.919 --> 0:03:02.320 the grain of the video making it sound, you can hear. 0:03:02.400 --> 0:03:05.959 I can't remember who's Thelma? Oh why do you ask me? 0:03:05.960 --> 0:03:10.040 I always get these two confused. Right now, Gina Davis 0:03:09.800 --> 0:03:13.560 is Thelma? I thought she was Louise. Okay, Jerry's got it. 0:03:13.720 --> 0:03:17.040 Jerry so mad right now? So so it is Tholma 0:03:17.120 --> 0:03:22.920 is Gina Davis says, It says to Louise, well, we 0:03:22.960 --> 0:03:27.120 can thank John you're for this beautiful view on the 0:03:27.120 --> 0:03:29.840 way to our deaths because no one else cared about 0:03:29.880 --> 0:03:33.919 the natural environment. That's actually absolutely right. He's still alone, 0:03:34.120 --> 0:03:37.760 No one thought the way that he thought. So we're 0:03:37.760 --> 0:03:40.800 talking about inflation. Obviously that was the most fun part 0:03:40.800 --> 0:03:43.840 of this episode. But no, it's not. Chuck. I refused 0:03:43.840 --> 0:03:46.680 to believe that we're talking about inflation. And the reason 0:03:46.720 --> 0:03:48.680 that I picked this is because inflation is kind of 0:03:48.720 --> 0:03:53.280 a thing right now. There's a lot of fear until today, Yeah, 0:03:53.320 --> 0:03:56.160 I think until today, Um, when the fag came out 0:03:56.200 --> 0:03:59.800 and said, everybody, calm down, stop being dramatic, Joe's ruining 0:03:59.800 --> 0:04:02.120 the dry there's not going to be an inflation fear 0:04:02.280 --> 0:04:04.680 or there's not gonna be inflation. Stop your fears. And 0:04:04.720 --> 0:04:07.880 as a matter of fact, um, the fear stopped. Everybody 0:04:07.920 --> 0:04:10.120 stopped worrying about inflation because the fact came out and 0:04:10.120 --> 0:04:13.000 said something. Yes. And but the reason I picked this 0:04:13.320 --> 0:04:16.719 is because it's good to know what people are talking 0:04:16.760 --> 0:04:19.560 about when they're like, uh, we should be really worried 0:04:19.600 --> 0:04:21.760 about inflation right now. And all you have to do 0:04:21.800 --> 0:04:24.560 is understand a few basic things, and all of a sudden, 0:04:24.720 --> 0:04:28.560 you're in the convo, baby, sure, and we're going to 0:04:28.600 --> 0:04:31.080 explain those few basic things to everybody. And then the 0:04:31.120 --> 0:04:35.000 next time inflation starts to go crazy, you can say 0:04:35.040 --> 0:04:39.200 everybody just calmed down. Yeah, it's just cost push going on. Yeah. 0:04:39.279 --> 0:04:41.680 You you you'll be like, uh at every party you 0:04:41.720 --> 0:04:43.280 go to, you can talk about that, and you'll be 0:04:43.600 --> 0:04:48.800 the equivalent of Colleen Robinson. Who's that from what we 0:04:48.839 --> 0:04:52.880 do in the Shadows? Is that the Energy Empire? Oh yeah, yeah, 0:04:52.960 --> 0:04:55.120 he probably sits around and talks about inflation. Yeah. Yeah, 0:04:55.160 --> 0:04:57.760 you threw me off with the Colleen. Well that's how Yeah, 0:04:57.800 --> 0:05:01.719 I understand now no spoiler alert. We're watching that again 0:05:01.720 --> 0:05:04.719 a little bit, just because what we've been watching is 0:05:04.839 --> 0:05:06.839 and just finishes I'll be Gone in the Dark, the 0:05:06.880 --> 0:05:10.880 great documentary about the Golden State Killer and Michelle McNamara's 0:05:11.120 --> 0:05:15.160 research and dog in Pursuits. I'll be Gone in the Dark. 0:05:15.480 --> 0:05:19.000 Is it Netflix? No, it's hbom X, but it's it's great, 0:05:19.080 --> 0:05:22.120 but it's so heavy. We will then cleanse the palette 0:05:22.160 --> 0:05:25.719 with reruns of what we do in the Shadows, very smart, 0:05:25.760 --> 0:05:27.480 the Great Palate Cleanser, which is what I'm gonna do 0:05:27.560 --> 0:05:32.120 right after we record this. Okay, have you done stalling now? Yeah. 0:05:32.440 --> 0:05:35.640 So one of the things that really kind of gets 0:05:36.400 --> 0:05:39.800 people about inflation is the idea that like, if you 0:05:39.880 --> 0:05:42.760 go back to the sixties. Yeah, the good old days 0:05:42.880 --> 0:05:44.520 you could buy like a brand new car for like 0:05:44.600 --> 0:05:48.520 three grand, brand new car, and that's when they made 0:05:48.560 --> 0:05:52.279 them big and shiny. Yeah, you want to and very unsafe. 0:05:52.279 --> 0:05:54.440 Do you want a house? All right, give me, I 0:05:54.480 --> 0:05:57.400 don't know, it's yours. And that's a nice house to 0:05:57.760 --> 0:06:00.200 very nice house. Like a ticket to a movie cost 0:06:00.279 --> 0:06:02.280 a dollar. Now, if you pay a dollar to see 0:06:02.279 --> 0:06:04.560 a movie, you have to see something terrible like Hidalgo 0:06:04.720 --> 0:06:07.679 or national Security or something that's like a dollar movie. 0:06:07.680 --> 0:06:10.960 Today this is like good movies. Yeah, the dollar movies 0:06:11.000 --> 0:06:14.640 were a penny, right, Yeah, basically, so, um, all of 0:06:14.640 --> 0:06:16.599 this sounds like it makes it sound like the good 0:06:16.600 --> 0:06:20.480 old days were just this cheap, idyllic paradise. But that's 0:06:20.520 --> 0:06:24.640 just not the case because of inflation, where you can't 0:06:24.680 --> 0:06:30.279 really compare today's you know, cars, or today's houses, or 0:06:30.320 --> 0:06:36.520 today's movie ticket prices without using an adjustment for inflation. Yeah, 0:06:36.560 --> 0:06:40.280 because I think in nineteen sixty seven, if you were like, 0:06:40.480 --> 0:06:42.560 if you made a lot of money, you made about 0:06:42.640 --> 0:06:45.520 nineteen thousand dollars a year. That was a lot of money. Yeah, 0:06:45.600 --> 0:06:49.760 sixty of American households earned less than eight thousand three 0:06:50.160 --> 0:06:54.800 dollars a year. Uh, and so yeah, I mean they 0:06:54.800 --> 0:06:57.080 have all these inflation calculators is one of our favorite 0:06:57.080 --> 0:06:59.960 things to do. Let's go look at inflation calculators online. 0:07:00.200 --> 0:07:03.040 West Egg. Yeah. West Egg is when I use mostly, 0:07:03.440 --> 0:07:04.920 but there are a couple more because I think one 0:07:04.920 --> 0:07:08.239 of them sometimes doesn't go back far enough. But honestly, 0:07:08.240 --> 0:07:10.120 when it goes back too far, it's just a little 0:07:10.120 --> 0:07:13.680 bit of like, I don't know, this seems about right right, Well, 0:07:13.680 --> 0:07:15.960 that was the thing. Do you remember when when I 0:07:15.960 --> 0:07:18.520 can't remember, we were talking about but it wasn't too 0:07:18.520 --> 0:07:21.320 long ago, and I was saying, like, I don't think 0:07:21.360 --> 0:07:24.440 this fully captures that this adjustment for inflation. I think 0:07:24.520 --> 0:07:27.880 things were cheaper where things were more expensive. And that's 0:07:27.920 --> 0:07:32.040 the point of of like tracking inflation is to say, actually, yes, 0:07:32.080 --> 0:07:35.960 things were more expensive back then. Things do actually get 0:07:36.040 --> 0:07:40.520 cheaper over time because technology becomes more less novel and stuff. 0:07:40.920 --> 0:07:43.480 So for example, like a TV, like if you wanted 0:07:43.480 --> 0:07:45.200 to buy a new color TV when it came out 0:07:45.200 --> 0:07:48.840 in the sixties, Um, you paid probably about a thousand 0:07:48.840 --> 0:07:53.080 dollars for that for that TV, right, that's a crazy price. 0:07:53.120 --> 0:07:56.240 Back then, it was an enormous price. Like you would pay. 0:07:56.320 --> 0:07:58.720 That would mean then in today's dollars that you would 0:07:58.760 --> 0:08:02.080 pay something like ten ring in for a new TV. Yeah, 0:08:02.200 --> 0:08:04.640 and TVs when they first started coming out with the 0:08:04.680 --> 0:08:09.559 new flat screens were really expensive. And then, like you said, 0:08:09.600 --> 0:08:11.760 that technology gets better and they get cheaper and cheaper 0:08:11.760 --> 0:08:14.160 and cheaper. Where now you can get a I mean 0:08:14.160 --> 0:08:15.600 it depends on what kind of flat screen, but you 0:08:15.600 --> 0:08:18.720 can get a good flat screen for five bucks. Tops 0:08:20.160 --> 0:08:22.440 in a decent one for five bucks. I mean you 0:08:22.480 --> 0:08:24.160 walk into cost because they just give you one for 0:08:24.240 --> 0:08:28.000 walking in, and it's huge. They're huge, they're much better, 0:08:28.160 --> 0:08:31.880 They're enormous, they're lighter, they look better, and they're cheaper. 0:08:31.920 --> 0:08:34.680 I think like a TV today, like the sixties TV 0:08:34.800 --> 0:08:38.120 is about twenty of that how much it would cost 0:08:38.200 --> 0:08:42.720 the person buying that color TV. So all of this 0:08:42.840 --> 0:08:45.719 kind of goes to say like prices may go up 0:08:45.760 --> 0:08:49.000 over time, but they actually relatively might actually be going 0:08:49.080 --> 0:08:52.480 down too, or they could just be going up. Thankfully, 0:08:52.480 --> 0:08:54.760 there are people who track this kind of stuff because 0:08:55.040 --> 0:08:57.240 when you look at inflation, when you look at the 0:08:57.880 --> 0:09:01.640 cost of price, the eyes of prices over time, that's 0:09:01.640 --> 0:09:04.960 what inflation is. One way to put it. Yeah, overall prices, 0:09:05.040 --> 0:09:07.720 goods and services. It's not just like, oh, gases a 0:09:07.720 --> 0:09:10.920 lot for the next three months because the summertime. That's 0:09:10.920 --> 0:09:14.560 not inflation, right, right, It's more like Hubba bubba costs 0:09:14.600 --> 0:09:17.520 way more today than it did when we were kids. Sure, 0:09:17.679 --> 0:09:20.680 that's a good example of inflation, but it's a general 0:09:20.840 --> 0:09:23.520 rise in prices. And if you track this stuff, you 0:09:23.559 --> 0:09:27.439 can actually track allegedly the health of your economy and 0:09:27.520 --> 0:09:31.559 make allegedly good decisions on how to juice that economy 0:09:31.760 --> 0:09:35.200 to keep it going at a steady, controllable rate, but 0:09:35.360 --> 0:09:39.480 ever upward, right, which is what the FED does. Uh? 0:09:39.520 --> 0:09:41.800 Did we do one on the Fed or we just 0:09:41.880 --> 0:09:44.760 danced around them a lot? I don't remember. I know 0:09:44.840 --> 0:09:47.439 we've done one on currency, how much money there is 0:09:47.480 --> 0:09:50.360 in the world. We do one on stag inflation, which 0:09:50.360 --> 0:09:53.720 will mention in a few I thought it was groundbreaking. 0:09:53.760 --> 0:09:56.120 We did a whole Remember when all the rage was 0:09:56.160 --> 0:09:59.120 those uh super stuff guides, Yeah, the super Stuff guide, 0:09:59.240 --> 0:10:01.920 the audiobooks. We do one on economics. Remember that guy 0:10:01.960 --> 0:10:06.240 who was like chicken. He kept using chicken as an example. Really, yeah, 0:10:06.240 --> 0:10:09.680 he was great. And then yeah, there it was a 0:10:09.679 --> 0:10:12.440 good It was a good listen if you ask me, Okay, 0:10:13.280 --> 0:10:16.720 I'm glad those didn't become a thing though why I 0:10:16.720 --> 0:10:18.640 don't know. It's a lot of work for Jerry and us. 0:10:18.679 --> 0:10:21.720 And Jerry loved it, No she didn't. She keeps asking 0:10:21.720 --> 0:10:25.160 when we're gonna bring those back. So there are a 0:10:25.160 --> 0:10:28.760 couple of There are a couple of ways to look 0:10:28.800 --> 0:10:30.640 at this. And it's funny, how like when you look 0:10:30.679 --> 0:10:33.400 at most of this stuff, economists don't all agree. There's 0:10:33.440 --> 0:10:36.920 a lot of chicken in the eggs stuff going on. Yeah, 0:10:36.920 --> 0:10:40.160 exactly where it's like you're just saying the same thing 0:10:40.160 --> 0:10:43.280 in a different way. It's still the same thing. And ye, 0:10:43.480 --> 0:10:45.319 And this is sort of the first example which is 0:10:45.360 --> 0:10:48.480 all maddening, isn't it. It is because some people say, 0:10:48.960 --> 0:10:51.360 you know what, in a free market, in an open market, 0:10:51.520 --> 0:10:55.280 it's just supplying to man like it always has been. Uh, 0:10:55.320 --> 0:10:58.840 if the product has is greater in supply, it's gonna 0:10:58.840 --> 0:11:01.920 go up in price. Uh. If it's greater than demand, 0:11:02.000 --> 0:11:04.640 and prices are going to go down. And it's really 0:11:04.679 --> 0:11:07.000 just as simple as that for these products and for 0:11:07.120 --> 0:11:11.360 money and cash. And some people say, well, no, that's 0:11:11.360 --> 0:11:14.480 not true at all. Uh. Inflation is the thing that 0:11:14.559 --> 0:11:18.559 happens first. And you don't increase the supply of money 0:11:18.600 --> 0:11:21.240 beyond demand because some people say, oh, well, the Fed 0:11:21.320 --> 0:11:23.800 just increases the supply of money, right, and they did 0:11:23.800 --> 0:11:26.240 it too much, and now prices are going up because 0:11:26.520 --> 0:11:29.120 another way to put it is not just that prices rise, 0:11:29.160 --> 0:11:32.200 but that inflation actually is a decrease in the buying 0:11:32.240 --> 0:11:35.600 power of the dollar. Yeah, which is again, I know, 0:11:35.720 --> 0:11:38.559 the exact same way to say this the other one 0:11:38.880 --> 0:11:41.880 I know, but it's like the nuance of nitpicky. It 0:11:41.960 --> 0:11:45.360 really is very nipicky. But we're talking macroeconomics for like, 0:11:45.440 --> 0:11:49.800 you know, the money of three million people, and like 0:11:49.840 --> 0:11:52.640 how it kind of moves and interact. So like if 0:11:52.679 --> 0:11:54.679 you could figure this out, if you could just kind 0:11:54.679 --> 0:11:57.360 of crack the code, I mean, but you can't. You 0:11:57.400 --> 0:11:59.319 can do anything they haven't been able to so far. 0:11:59.360 --> 0:12:01.920 And inflation a really good example of that, because nobody 0:12:01.960 --> 0:12:04.719 can agree on exactly like you're saying, what causes it. 0:12:05.120 --> 0:12:07.240 So one way to look at it is is that 0:12:07.280 --> 0:12:10.680 you can split explanations in a couple of ways. Is 0:12:10.720 --> 0:12:13.640 it based on a change in the demand or the 0:12:13.679 --> 0:12:17.360 cost of goods or services or the products or is 0:12:17.400 --> 0:12:20.000 it because of money? So the first one is that 0:12:20.080 --> 0:12:23.480 money thing where there's too much money on the market, right, 0:12:23.559 --> 0:12:26.280 which just if you don't get into economics, that just 0:12:26.320 --> 0:12:28.640 sounds like a mind numbing thing to even think about, 0:12:28.840 --> 0:12:31.840 but it's it's really simple to understand. Money is just 0:12:31.880 --> 0:12:34.720 like anything else. If there's a lot of money, there's 0:12:34.760 --> 0:12:38.040 a big supply, that means anybody has it who cares, 0:12:38.320 --> 0:12:41.680 which means that there's um less value to it. Yeah, 0:12:41.679 --> 0:12:45.040 and that's not just cash in circulation, it's cash and credit. 0:12:45.120 --> 0:12:48.240 It's like everything we think of is kind of like 0:12:48.400 --> 0:12:51.080 buying power, I guess. Yeah. And another way to look 0:12:51.120 --> 0:12:52.880 at it is if there's a lot of money on 0:12:52.920 --> 0:12:55.480 the market, that means the average person has more money 0:12:55.480 --> 0:12:58.640 than usual. That means that they can buy more stuff 0:12:58.679 --> 0:13:02.040 than usual. That means that more people are requesting, trying 0:13:02.040 --> 0:13:05.880 to buy demand, right, more goods than they usually are. 0:13:05.960 --> 0:13:10.520 So if demand is increasing, that means there's like more 0:13:10.679 --> 0:13:13.560 That means prices will rise, which means it costs more 0:13:13.600 --> 0:13:16.240 money to buy those things. And a good way to 0:13:16.280 --> 0:13:18.920 put it is that there's um lots of money chasing 0:13:19.080 --> 0:13:23.000 fewer goods. Yeah, that's how that's how that one's explained. 0:13:23.160 --> 0:13:26.920 That's one explanation for inflation. There's too much money, which 0:13:26.960 --> 0:13:29.800 causes prices to rise because there's more people trying to 0:13:29.840 --> 0:13:33.720 buy those goods than usual. That's right. And the I 0:13:33.760 --> 0:13:38.120 think one example here, Professor John T. Harvey at TCU, 0:13:38.640 --> 0:13:40.920 He's who I was talking about earlier. He's like, no, 0:13:41.040 --> 0:13:45.280 that's not really true. He says inflation happens first, and 0:13:45.320 --> 0:13:48.400 that they don't increase the supply of money beyond demand 0:13:48.760 --> 0:13:52.880 because that you wouldn't need you need more money because 0:13:53.000 --> 0:13:55.440 prices are going up. So then that brings more money 0:13:55.440 --> 0:13:58.480 in the market. Right, that's right. Growth accompanies the inflation, 0:13:58.600 --> 0:14:02.439 it doesn't cause it. Yeah. So again this is all 0:14:02.520 --> 0:14:04.800 these economists are saying, no, there's too much money, and 0:14:04.840 --> 0:14:07.320 this guy is saying, no, the prices are rising, which 0:14:07.360 --> 0:14:10.240 brings more money into existence. And in the meantime, everyone 0:14:10.280 --> 0:14:11.839 else in the room is like, I gotta go to 0:14:11.880 --> 0:14:13.680 the bathroom, I gotta go take a call, I gotta 0:14:13.720 --> 0:14:17.839 go finger foods. Yeah, and we say it every time. 0:14:17.880 --> 0:14:20.680 But the fact that you have liberal economists and conservative 0:14:20.680 --> 0:14:23.720 economists that right there is that reveals it all. It's 0:14:23.760 --> 0:14:27.160 all made up. It's all who do let's take a 0:14:27.200 --> 0:14:30.080 break on who do you That's nice little cliffhanger. That 0:14:30.160 --> 0:14:32.400 was my signal, and we'll come back and talk about 0:14:32.440 --> 0:14:35.880 two other theories that are kind of the same thing 0:14:36.640 --> 0:15:06.000 right after this. So Chuck is want to say, you're 0:15:06.040 --> 0:15:08.760 doing great, Well, that's because I haven't gotten to those 0:15:08.800 --> 0:15:12.800 paragraphs yet. It's gonna be just easy, okay, okay. So 0:15:13.080 --> 0:15:17.320 there are another couple of theories. Again, economists are gonna 0:15:17.840 --> 0:15:20.560 agree and disagree about these two theories. They are the 0:15:20.640 --> 0:15:25.600 cost push theory and the demand pull theory. It's even 0:15:25.680 --> 0:15:28.600 right there in the title push and pull. Essentially, it's 0:15:28.680 --> 0:15:31.760 the same action going on, but one is choosing to 0:15:31.760 --> 0:15:33.520 look at one side and one's choosing to look at 0:15:33.520 --> 0:15:37.360 the other. So cost push means that it's the increase 0:15:37.440 --> 0:15:40.920 of uh, the cost of like labor or the cost 0:15:40.960 --> 0:15:45.440 of raw materials. Uh. Basically anything that's gonna end up 0:15:45.440 --> 0:15:48.160 getting like a loaf of bread on a shelf, including 0:15:48.160 --> 0:15:51.200 like the fuel for the trucking and packaging and all 0:15:51.240 --> 0:15:54.800 that stuff. That that is what is going to push 0:15:54.920 --> 0:15:58.360 up in prices. That that is the driver of inflation, 0:15:58.640 --> 0:16:02.200 which makes a lot of sense. Like there was apparently 0:16:02.600 --> 0:16:04.040 right now, I don't know if it's still going on, 0:16:04.120 --> 0:16:07.160 but it definitely was the spring. There's a shortage in 0:16:07.360 --> 0:16:12.000 wood in lumber still happening, okay, because of at least 0:16:12.000 --> 0:16:15.800 in part, the wildfires that California suffered last year were 0:16:15.880 --> 0:16:21.040 so devastating that it actually affected the national supply of lumber. Yeah, 0:16:21.040 --> 0:16:25.800 and I also read that the lumber people decreased production 0:16:25.920 --> 0:16:29.360 overall because they thought because of the pandemic, they thought 0:16:29.360 --> 0:16:31.200 there was going to be a big lull. They didn't 0:16:31.200 --> 0:16:34.080 want all this extra inventory on their hands. It turned 0:16:34.080 --> 0:16:36.400 out everyone was like, no, I want to build stuff now, 0:16:37.200 --> 0:16:40.280 and they dis miscalculated. So it's not a good time 0:16:40.320 --> 0:16:43.720 to build a pavilion at your family camp. Let's just 0:16:43.720 --> 0:16:47.000 say that, right, or to try to increase the housing stock. Right. 0:16:47.080 --> 0:16:51.120 So that means then that lumber going up in price 0:16:51.360 --> 0:16:55.360 makes building a new house that much more expensive. So 0:16:55.440 --> 0:16:59.280 the house, the finished product, has become more expensive because 0:16:59.480 --> 0:17:03.040 of the input that raw material lumber. That's a really 0:17:03.040 --> 0:17:06.639 good example of cost push theory of why prices are 0:17:06.720 --> 0:17:11.400 rising because of something downstream in the production process. Yeah, 0:17:11.480 --> 0:17:14.520 but there's a key little factor here. All of this 0:17:14.600 --> 0:17:18.360 is true, Uh, when companies are running already at full 0:17:18.400 --> 0:17:21.480 production capacity. So that's a really key element there. It 0:17:21.560 --> 0:17:27.520 can't be a company that's um like behind or whatever. 0:17:27.680 --> 0:17:30.119 It's like it's a company that's just humming along basically, 0:17:30.760 --> 0:17:33.120 and then something happens in the supply chain, let's say, 0:17:33.640 --> 0:17:35.760 big increase in fuel or lumber cost or any kind 0:17:35.760 --> 0:17:38.639 of raw material. I think did Dave help us with this? 0:17:38.640 --> 0:17:42.920 This is a Dave How Stuff Works article? Okay, yeah, wow, 0:17:43.200 --> 0:17:46.200 I know, hats off. We found another one. But he's 0:17:46.240 --> 0:17:48.359 as bread as the example. At the cost of wheat 0:17:48.480 --> 0:17:51.560 goes up, the cost of flower is obviously going to 0:17:51.640 --> 0:17:53.960 go up, and the cost of bread is eventually going 0:17:54.040 --> 0:17:57.760 to go up under the uh the CP theory, and 0:17:57.840 --> 0:18:00.320 so people like you and I end up paying more 0:18:00.480 --> 0:18:03.280 for a new house, or more for a loaf of bread, 0:18:03.800 --> 0:18:07.520 more for whatever, because something somewhere that was a component 0:18:07.560 --> 0:18:12.359 in that caused this rise in prices, that would cause 0:18:12.480 --> 0:18:16.040 that would that's the cost push example of theory of 0:18:16.040 --> 0:18:20.520 of inflation, the kind of opposite of that. But I 0:18:20.560 --> 0:18:24.280 don't even know the right word. They say, no, no, no, 0:18:24.320 --> 0:18:27.800 it's not the raw materials that um cause the increase 0:18:27.840 --> 0:18:31.920 in prices. It's actually the demand for that finished product 0:18:32.160 --> 0:18:35.480 that that that causes the increase in prices, and so 0:18:36.400 --> 0:18:40.120 housing right now actually is a really good example of 0:18:40.160 --> 0:18:44.560 both cost push and demand pull at the same time. Yes, 0:18:44.640 --> 0:18:47.760 it's crazy, and it's also demonstrating like, okay, we have 0:18:47.800 --> 0:18:50.200 no idea what's going on, or at the very least, 0:18:50.200 --> 0:18:53.080 that these things don't exist in isolation, and that is 0:18:53.119 --> 0:18:56.199 that people like you're saying there the pandemic, We're like, no, 0:18:56.400 --> 0:18:57.760 we want to move. I don't want to live in 0:18:57.800 --> 0:18:59.400 the city anymore. I want to live as far away 0:18:59.400 --> 0:19:02.200 from other people as possible, but but only as close 0:19:02.240 --> 0:19:04.359 as instat cart will deliver. That's as close as I 0:19:04.359 --> 0:19:09.720 want to live to the web van. Sure, yeah, um 0:19:09.920 --> 0:19:14.000 so uh it was totally unpredicted. But the upshot of 0:19:14.000 --> 0:19:16.600 it is that there is a lot of people trying 0:19:16.640 --> 0:19:18.879 to buy houses right now and the housing markets just 0:19:18.920 --> 0:19:23.320 gone through the roof, and so that's caused housing prices 0:19:23.400 --> 0:19:26.640 to increase, and it's caused like all of the other 0:19:26.680 --> 0:19:32.879 components of the housing market to increase as well. So downstream, 0:19:32.960 --> 0:19:37.119 that demand for houses caused every bit of housing to 0:19:37.400 --> 0:19:41.440 increase as a as a result. Yeah, and the example 0:19:41.560 --> 0:19:43.880 Dave to stick with the bread as well. Because it's 0:19:43.920 --> 0:19:46.359 a I think it's slightly easier to understand than the 0:19:46.400 --> 0:19:49.239 housing market because it's so weirdly affected by a lot 0:19:49.280 --> 0:19:52.679 of things. Right now, is that if the cost of 0:19:53.240 --> 0:19:56.439 or if a lot of people want bread, the baker 0:19:56.480 --> 0:20:00.760 doesn't immediately raise the prices because of that demand, um 0:20:00.840 --> 0:20:03.120 until they run out of the flower. Then they got 0:20:03.119 --> 0:20:04.800 to go back and buy more wheat, and the wheat 0:20:04.800 --> 0:20:06.760 farmer might say, well, now it's a little more expensive. Yeah, 0:20:06.760 --> 0:20:09.480 there's a lot of bakers who are have everybody wants 0:20:09.520 --> 0:20:11.920 my wheat right now, and so that's when the cost 0:20:12.040 --> 0:20:16.520 is eventually pulled and uh and then increased I guess 0:20:16.520 --> 0:20:19.000 for the consumer. Right So it looks like if you're 0:20:19.040 --> 0:20:22.080 just looking at it, like oh this this wheat price, 0:20:22.240 --> 0:20:26.400 this raw material rose in in cost and that caused 0:20:26.520 --> 0:20:29.119 bread to rise, and people are like, no, no, that 0:20:29.280 --> 0:20:31.639 that's an illusion. It was actually this demand for bread 0:20:31.680 --> 0:20:34.679 that increased that caused the wheat to rise. And again 0:20:34.880 --> 0:20:39.680 it sounds so similar to cost push demand pull does 0:20:39.920 --> 0:20:42.200 that it doesn't even matter, but it really does matter. 0:20:42.280 --> 0:20:44.720 It does matter because and this part is the key here. 0:20:44.760 --> 0:20:47.720 If you're at home and you're just like stop talking, 0:20:49.240 --> 0:20:50.600 this is what kind of drove at home for me, 0:20:50.680 --> 0:20:53.320 the difference in those two it might seem like just 0:20:53.400 --> 0:20:56.280 words and nitpicky, but it's really not because in one 0:20:56.280 --> 0:20:59.280 scenario and demand pull, you've got an economy that's really 0:20:59.320 --> 0:21:01.680 humming and people like I want to buy all that stuff. Yeah, 0:21:01.720 --> 0:21:03.280 it means a lot of people have a lot of 0:21:03.320 --> 0:21:06.400 money that that they want to spend and that yes, 0:21:06.480 --> 0:21:10.280 that means like you have a healthy economy, right then, right, 0:21:10.359 --> 0:21:14.560 and under cost push, it's more like hey, uh, people 0:21:14.600 --> 0:21:16.520 feel like they have to do this repair on their 0:21:16.560 --> 0:21:19.200 house and I'm sorry, it's just a lot more expensive. 0:21:19.440 --> 0:21:22.000 It's not like oh I need this new thing. It's 0:21:22.040 --> 0:21:23.520 like I have to pay for this thing and it's 0:21:23.520 --> 0:21:26.600 a lot more expensive because of the raw materials or whatever. 0:21:27.080 --> 0:21:30.160 The labor has gone up, right, And and yeah, it's 0:21:30.280 --> 0:21:34.160 much worse because that means, like you said, the company 0:21:34.280 --> 0:21:37.359 is humming along at max capacity, and all of a sudden, 0:21:37.359 --> 0:21:40.800 it's like we don't have wheat anymore, and we aren't 0:21:40.800 --> 0:21:42.560 gonna be able to satisfy demand because we don't have 0:21:42.560 --> 0:21:45.760 this basic component. It means that there's something broken in 0:21:45.880 --> 0:21:51.880 your supply chain or the mechanisms of production and that's 0:21:51.920 --> 0:21:54.320 not a good place to be in. So it's very 0:21:54.320 --> 0:21:57.679 healthy economy or everybody has money increasing demand or demand 0:21:57.680 --> 0:22:01.639 increases because you can't supply the basic parts to to 0:22:02.080 --> 0:22:05.919 create those goods. Right, Okay, I know the beginning of 0:22:05.920 --> 0:22:09.320 this part, so I'll take it, and then I have 0:22:09.359 --> 0:22:12.080 a cot set up in the next room. I'm just 0:22:12.080 --> 0:22:15.560 gonna go. I feel like you're setting me up for failure. Now, 0:22:15.640 --> 0:22:17.920 you'll do fine because there's no math. Well, there is 0:22:18.000 --> 0:22:20.639 math involved, but you'll still do fine. Where is their 0:22:20.720 --> 0:22:24.000 math involved? Uh? In this part the annual rate of 0:22:24.040 --> 0:22:29.520