« The Weeds

Are corporations winning at inflation?

2022-01-21

Jerusalem Demsas and Dylan Matthews talk with Joey Politano (@JosephPolitano), economics blogger and self-described "mid-tier take-haver," to go over one big question on people’s minds right now: are corporations profiting off of inflation? 

References:

Joey’s blog post about rising corporate prices and inflation

Sen. Elizabeth Warren on rising corporate profit margins

Paul Krugman’s newsletter from this week

Binyamin Appelbaum on the meatpacking industry

The White House’s statement on meat companies taking advantage of market power 

The letter from President Joe Biden to FTC chair Lina Khan

Could strategic price controls help fight inflation?” in the Guardian

Rethinking Inflation Policy: A toolkit for economic recovery by JW Mason and Lauren Melodia

Hosts:

Jerusalem Demsas (@jerusalemdemsas), policy reporter, Vox

Dylan Matthews (@dylanmatt), senior correspondent, Vox

Credits:

Sofi LaLonde, producer and engineer

Libby Nelson, editorial adviser

Amber Hall, deputy editorial director of talk podcasts

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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is advertiser content. Facebook leads the industry in stopping bad actors online. That's because they have invested thirteen billion dollars and teams and technology to enhance safety over the last five years. It's working. In just the past few months they ve taken down one. Seven billion fake accounts to stop ban actors from doing harm, but we're to reduce harmful and illicit content under platforms, is never done more about how their helping people connect, ensure safely and about the F b dot com, flash safety hello and welcome to another observe the weeds on the VOX media, podcast network, I'm Jerusalem densest a policy reporter here at VOX in Sudan.
And our very own Dylan Matthews aid and special gas Joe. You call it on him either joey- is a brand new takes game, but has and has an impossible to pronounce sub stack where he talks mostly about macro economic policy. Joy. How do we putting pronounces? It's a pretty tough It's a pretty our eyes, see idea, but I was informed that you cannot see this k in the land and yeah so rational take, however, and economics writer, I should no not that everything I say here is my personal views and not that of my employer, so heavy problems. I please dear me angrily on twitter and dont, send emails please dm him your rude thoughts. He does appreciate them. So today our talk a little bit about inflation, Juilliard a blog posts, it really popular about answering the question of whether inflation can be blamed on rising corporate profits. Spoiler alert Jovi does not think so, but before we get into all of that,
It's just level set here. Latest inflation numbers from December show that the consumer price index or the c p I increases percent year over a year, and course he be I which excludes food and energy prices up five point: five percent year rear joy key to talk to us about. What's what's going on with inflation, Here I can you, give us some sense of what these numbers mean: yeah, so he muttered the consumer price index up more than seven percent, which is highest level in decades and the personal consumption expenses price index, which is the present x, the Federal Reserve tar it's so more comprehensive measures of distillation is running higher than five percent, also its high someone decades. So it's a remarkable turned from the past. The Avery had very low inflation and below the two percent target the fellows are set for itself. What's especially, about about this inflation is how narrow it was. I recently becoming broader Pacific
the trimmed mean he supply the personal consumption. Spanish is present, so you say Everything that increase the most everything mighty Christmas with lock it off it just look at stuff in the middle. That's only about two point: eight percent, core inflation, which is just less food energy, is up. You know pretty significantly as because, but usually considered core good to me and behaving like food and energy. So great example is actually motor vehicles about two percent of the ten percent increase is due purely to cars, especially use automobiles, which are up almost fifty percent price services related carbon deals, and things like that, in another percentage is just pure energy, so that's oil, gas, piped gas. Anything you can imagine doing dealing with power, which tends to be very volatile, but jumped up extremely high and twenty and we ve seen remarked, worship with durable goods last sick.
Two years this service is relative to durable. Does that increasing meaning? You know the price of appliances. Cars are getting cheaper, but the price of services are increasing the supreme normal economic phenomenon, as things become more productive you, except act appliances, fridges, cheaper, but is only a certain number of haircuts. A barber can do per hour. That number doesn't really go up. Overtime deserves has become more expensive. This is the first time in more than half a century, we ve seen a big jump in durable goods price, relative deserves. So there is a lot of inflation becoming more broadbased right now, still narrowly focused on a few sectors because we are spending a lot more money on goods and a lot less money on services and supply chains for those goods are very stressed,
What one thing I wonder about numbers in and you do labor statistics and you were messed in the stuff, so so you seem like the right person to ask when inflation is so concentrated. Nephew goods are these men. Capturing people, switching away from them that that substitution seems like a hard problem when your measuring inflation- and it seems like one thing- that's probably happening right Now- is fewer people want to buy used cars than they used to cuz use. Is really really expensive and people might expect the price to go down. What are we seeing matter? Is this just sort of like spiral, eight rather than think calming itself down in that fashion and the US? Like semi statistical question, the consumer price index doesn't care about substitution, so a normal life. Therapy. If the price of something goes up by something it
Give you a similar level of upwards of the price of coffee goes up the end by more tea. Instead, cigarette doesn't count for that. Pcbs tries to account for the love of substitution. You are seeing real consumption of motor vehicles down. Part of that is just purely. The fact that there is a shortage of motor vehicles is about three point. Seven million fewer motor vehicles in the United States in there would be if production had continued as it was prevented, but yeah you dont, you don't catch that fully in Serbia. I bet you do capture it fairly. Well, in the press of the subjects ventures, price index is also a chain sepia. I This is the weeds. You you're, contractually obligate. Listening thought that price index is there between wherein the weeds guy absolutely be. I excludes a lot of stuff that isn't basin discretionary income, so Pcbs covers on our health care and health insurance and cigarette covers more causing things that you would spend the catechism. Your bank account verses
spending in the economy, which pcb I traced to cover, and so for that reason you get. Hence IRAN over the hotter, also because of those methodological differences like is not accounted for substitution and some differently weightings and learn more tat, some about airplane tickets and efforts even to evil deeds. Yeah, and one thing that you mentioned a sort of this idea of of of what's happening with supply chains. If you like the common story, that's been told about book inflation and also directions to difficult people to get their things and times just act like oh like for some reason our ports are overloaded or you know, there's something going wrong with shipping or something like that. I think the quintessential moment the pandemic was that ship that was stuck in now. There is a great metaphor, but actually there not be a great metaphor, because the problem is not really right that, like there's something wrong with the port something like has broken down in a normally functioning system there, but that aggregate demand just up a lot more than we would expect like people are just demanding a lot more goods than has been in the past. Is that some in that
you're noticing to Joey, yet so too into be really careful about the wording. Here I wouldn't say: aggregate demand is too high. If you look at my total spending, since sort of twenty twenty? It's about one trillion dollars less than you would expect, but if you look at spending on goods that are very dramatically so maybe not broad aggregate demand, but specifically people in other stuck at home or they need additional things at home that the only got at the office and thereby a lot more goods by more growth. He's going outlast those the initial shock of the pending. Now its consumption is shifted in a lot of ways, so people actually going to Russia about as much andor eating more food at home and that puts instructions patents. Most of it is as you right it's like increase consumption of a lot of goods, lot of electronics, lot of Aids is not a furniture there's. A few key ones were actually about the same level of consumption were less consumption, so gasoline
at the same level of consumption is prepared. Eric would expect of motor vehicle a lot worse, as I mentioned, the motor vehicles, patients were absolutely torched by Ellie Pandemic were way we behind a production there, but it is true, most of the fingers. In very large price increases, and you also see significant quantity increases. It yeah that clarification. So now, what's tripped over to corporate profits on show, a lot of people are pointing got. There are logical them off its during the pandemic, among public trade accompanies then in the same period in TWAIN, nineteen before the pandemic and twenty twenty one, I've enclosed one hundred of arbitrary companies are their profit margins, go up at least percent relative between ninety, according to the Wall Street Journal, so is a very Pino. I guess like pretty logical story here, that threes, why price there Wake up is that companies are taking it away. Of this moment to raise prices and to take on more profit out of any. We see this in terms of by backs and things like that, as well as we can. We just lay out what the best case is here for this story
to step back. There are some signals that, like aggregate profit margins are increasing. So if you look at the data from the Bureau economic Analysis, you see profit margins hovered between ten and twelve percent for basically last decade and then very recently, shut up to between twelve and fourteen percent, If you look at publicly trading companies, a lot of them are reporting increase profit margins, especially in the United States. The problem is its not wait enough evidence. You gonna like back up three steps here. It's not explicitly for that total corporation
Margins are up so the data from the Bureau economic analysis does adjustments for capital consumption, which is depreciation, and they do adjustments for inventory evaluation, the idea being that if you make something in twenty nineteen, they sell it and twenty twenty and the price goes up in between eighteen to twenty years. That's not actually profit, that's closer to capital gains, so they try to account for that. The problem is we ve had a massive shrinkage of inventories from us all manufacturers, since adjustments are very difficult and even in the best of times, here. You know. Profits are very volatile measure and keep in mind that those who profit from domestically listed companies- I just told you like a lot of the price increases- are good and America imports lot alot of goods and keep in mind that the companies you seeing in. What's? U turn other publicly traded
very large successful companies in the United States. They lean closer towards tech companies that have done very well in the pandemic, and large companies in general tend to do very well during the crisis, because their able to better explained pharmacist scale and their bit better to equal access funding, so not immediately obvious that there is an aggregate shift were then it's not just contained in very large companies, and in specific we talked about energy and cars as the big ones, driving inflation right now, those like the biggest idiosyncratic price increases for producer our net, making a little bit more money per corner than they were in TWAIN nineteen, but there absolutely got smashed like all twenty twenty, when oil prices were way down and companies in the motor vehicle industry are making less money than they were in to those nineteen, because they're getting actually wrecked by allowing despite initial somebody, automakers are making marginally more money but as a whole and not making
as much money. So as not to you, the obvious that that connection, I just want you to make clear Joey what wired automakers able to exploit the supply. Shoes and and raise prices on cars in and make more profit. What's yours, in prices go up, but the problem for the the automakers is basically at the start of the pandemic, mostly mark armies, especially the american ones. Basically, counselor production, you had several months whether nothing was happening. They laid off plenty of workers and the kids a lot of the orders in critical for this discussion was cancelled, orders of semi conductors other chips for electronics and then, when the man came, rolling back, unexpected keep in mind that these are companies that are still scarred from two thousand and eight a thought as soon as the economy going to take that they are going to be destroyed. So it man comes running back. They weren't expecting it now they're trying to reorder semiconductors and their way at the back of the line and they're paying more.
And so there productions were idled or they were running below what they were prepared. Next electoral motor vehicle assemblies in the United States have been hovering, nine million a month when only the right time, eleven million one that doesn't sound like a lot, but that adds up that's monthly. So as to a very big gap, and the price for some of their inputs, your guy up to even the their able to raise prices new, compress wrapped around twelve percent on thereat, their absorbing a lot of hits to their input costs also. We problem attire a lot of what, the assumption that corporate profits it actually charged across the board here, but it does seem like There is, you know, you know, even you kind of conceded here that there is for the biggest companies. Corporates have been increased They are. There other reasons to believe that those numbers aren't right or or or anything wrong with this disaster that might be revised later so
Yea data is initially based on financial statements and make its revised with tax return data. The data for two years in twenty one, we'll get revised with tax return stuff further into town. Try to its possible. Yet it will get revise down but in general It is not wise to look at the aggregate corporate profit margins and try to extrapolate almost anything from that. So to them tat. We had very high for profit margins relative to recent history, and I was the very low inflation and we ve. Periods like an eighteen. Seventy were profit margin for tanking and I was very, very high inflation. So this really isn't that a correlation, even if you look abroad Copies in the European Union are doing very poorly inflation. The European Union is very high, in Japan or doing relatively well depends experience in deflation The Crowley's and really isn't and what you, the amazing, Japan,
Billy that experience toleration even in these times uniform way, business too? It is extraordinary, so the place where you know. Think all of us are aware is that there are some anti competitive practices it happen amongst me, packing industry than national com. A council is put on some blog posts on this issue. First, in September, they pointed out that meat was the biggest contributor to the rising cost of grow trees, but in December they point out at that time had continued, and that quote. Gross profits have collectively increase by more than a hundred and twenty percent since, before the pandemic and their net income had searched by five hundred percent. They also recently announced over a billion dollars in new dividends and stock by backs on top of the more than three billion dollars they pay out to shareholders since a pandemic began. Importantly, any see points out that their profit margins have skyrocketed. Gross margins are up fifty percent,
and net margins are up over three hundred percent when we know that there are no there's, a lot of anticompetitive. Behaviour has been this industry to something that, like a brochure, Dylan and Future perfect, have written about Benyamin Apple bomb at the New York Times written about before covered yo. My general sense is like you know, these companies corporations have been monopolistic or all the goblet stick. That is for a significant amount of time. So it s not crazy to me of that kind of how the market power to be messing with prices here into competitively, but will you don't seem to bite at? I would say I do by the idea that the nose, specifically you have an optical demand and that's going to have different effects depending on the market structure within different industries, and, as you mentioned, market Russia within me, packing industries very heavily concentrated its functionally oligopoly estate. And that has resulted in increased prices. There are some larger trends in the background. So, like the? U N food are possible. Organization cease globally
prices of sixteen percent. There is pre large outbreaks of Africans, swine flu in China that from years back, there still not recovered from and production in South America has been really bad, but Even accounted for everything under the sun is pretty indisputable, that the meat packers are paid their margins and taking advantage of the situation. The thing is that doesnt led want one to headline inflation. So me is the biggest impact on groceries but groceries. A small part of the consumer price index and even smaller part of the prison subjects managers president. So you know I mentioned to you that a car prices are fifty percent. That, overall, doesn't even moved the needle more than two percent for the consumer.
Price index. Even if you saying me presses for twelve percent that doesn't move the needle that much for inflation. That doesn't mean it's not really important to tackle concentration in the pantry, particularly because concentration needs day of user workers, more they're, paying them less than market rates. Are there are abusing their monopoly power over labour like their market power within the ME packing labour market and there probably reducing Eric capacity in the meat packing industry, see you ve seen over the last decade, even though more meat consumption happens with greater economic growth, making something the ices is up, and I have that much partially because me, packing capacity, has just so stop growing. So we serve waters,
things about the current economy that aren't consistent with a story of corporate profits driving in increasing inflation. What data would you see if that was what was happening? Is it possible server describe the situation where that could be the case and how? How is it from the world right now. What you would have to see would be a pre, significant change in market structure across a lot of industries, so very big rise in mergers and acquisitions alongside a rise in prices, and you would likely have to see very low wage for how do you know and industry is becoming more concentrated, your second labour power and if you push wages, downward he profits up. The one thing I would say you should always keep in mind is the micro macro difference
if you imagined a country in which every industry is run by horrible monopoly, is perfect control over everything. That is probably a country in which the economy is not growing almost at all, and if nominal growth is low to match. That you'd I could get any inflation, even if everything's a monopoly like you a lot of time. The anti competitive practices manifest is lower growth, They don't necessarily manifestos higher long run. Price increases. Another good good example of a distinction between like market structure and concentration is like the housing market, where we agree as a country of market structure for housing really socks you it's impossible to build in most big cities is extremely difficult to come to a good, long term. Mental agreements, the even getting a mortgage, is increasingly difficult.
But there's literally millions of housing provides for a small. You can go, buy your own house, Deacon, small mom and pop landlords exist, and does it mean that prices in real terms for housing are gonna go down just because a d, not concentrated market? That's really good point out, so I took the politics of this because one of the things that seems clear to me is that you know we ve gotta make a distinction between, like. Obviously, there are anti competitive practices happening that are important to address from the government. Verses is actually the solution to the conflict, problem, but we top of the parties before most recently deal, and I we were talking about gas inflation last year. It's a blue, big political problem that people are obviously extremely concerned about inflation, in particular inflation around energy prices in gas and there's not a tonne that the federal government can do, but in particular out hunted. The executive branch can do about it. Catherine Ramp L, whose aim I washed imposed, calmness, tweet it out and navigate or pool,
showing that I squeezing consumers for profit slash. Corporate greed is the most convincing explanation for rising coffins for by forty four point: margin convinced pull respondents on that. That was a good villain to find in this entire saga. Catherine Rambo pointed out this pool, and I think that it is probably pretty explanatory Europe means not just dislike. Biden, also sent a letter to Lena Khan. The big anti trust enforcer asking heard, based to look into whether or not corporate profits were the reason that inflation was going so high. So how much of this do, we think, is just kind of like politics, verses people, taking advantage of the current situation, You take on the meat industry, or do they actually believe that this is going to affect inflation, thought I'm not totally sure about the past
six of it I know it like you said. I think it pulls a lot better than most other explanations for inflation. I think part of the difficulty right now is that the bulk of the price increases are in goods and services of people by constantly people your fill up their tank every day that other versus or every week they notice those price changes much more than they'll notice, your changes in healthcare expenses or rent, especially there, one, we have, you know they're not grant, observing their owners of people all the time. You know if you know what our critical look like this you, too much reserve of London. Well, he just owned. Ever well listener of one. One comment, but I think It is true that there is like a lack of competition in the United States especially over the last ten to fifteen years.
This is sort of a moment we can save we're gonna take the political energy that is upset at rising prices, which is really driven by like a reallocation of demand ever gonna directed more productively breaking up companies that are oligopoly several monopolistic and take advantage of their workers into their consumers. I think that's a net good, even if it did, even if it's not perfectly true, you Know- and Mercosur is very, very important and thinking about changes in Mercosur is important, if you want to understand the real economy, so oil is actually a really interesting one, obviously about half of the boil up, isn't captured by OPEC and solutions Really I mean that's it. That's literally a cartel is learn today, bearing pretend, but there's no
the binding legislation could do, except in a batter them politically, and try to pull some lovers in international politics to try to get the name of it. But, for example, U S shop but which is really the marginal producer of oil globally has been really weak recovering from the recession and they have not responded to increase in prices. Partially because they are dealing with a lot alot of risk, no one on the current him out oil prices tank fifteen. And that's the kind of rest it's very hard to plant around. There is another, very those very bad. You do. You will present think again, and so there hesitant to fully investing in new rigs and whatnot, But it is also true that there is a lot of consolidation in the oil industry and doesn't twenty one prices, but we down and a lot of that consolidation resulted in impositions from the top for political capital discipline, which is
firstly, a buzzword for we're going to invest less his work really worried about prices going back down and we think that we haven't made enough money to justify investing more and that's you know if you worry about the energy markets getting more and more concentrated to the point, they become reality play. That's like a serious problem. I mean the main reason we care about. Monopolies, obviously, is because their ability to raise prices and harm people at you know what, when it comes to really important goods and services, so I think it's one of those weird things Obviously, if you're someone who is really concerned about monopolistic anticompetitive behind you're in the market in general. It makes sense to seize on a moment like this, where you know people are really feeling the pain of rising prices really quickly. And that's being realised politically. When you look at poles, we look at people's perverting the president or Democratic party right now, a lot of what they're talking about is you know inflation. Note, there's a hold up.
About why that is potentially a steward media coverage or whatever, but it is the case that happening right now, so you see a lot of like condescension towards people like those with war. Nor talking that kind of thing. I think there are a lot of good reason too. I think I've found myself agreeing with a lot of what you're saying joyed. This poem driving inflation, but I do wonder if people are just not seeing the larger picture here for her, which is just that like this is just an opportunity to take on some of these large corporations, which I think is. As you know, this is a point that Paul crewman me in his calm today. Were he basically says like stopped going about this? he says he won't do any harm it will get in the way of the big stuff, which is mostly outside of binds control any case at worst, illustration. Officials will be using inflation as excuse to do things. They should be doing in any case and they might even have a marginal and pattern inflation itself, so this is what happens to me, but I will say this. I think it's bad too like why I don't know what happened
you don't have a bright future policies as in Greece, as a great, like journalist MT. I think it's like lie using a video but having serious every eye Edna having just like, like, let's be like moral about this or whatever, but just like. If you really inculcate certain ideas that you know to be false in the population about economics like that can come back to life by you in other ways like this is obviously being used by a lot of people to call for other, more drastic policies and types of price controls on the economy and, like I don't really think that's gonna happen for a bunch different political reasons, but my point is that it seems kind of irrational fears like cash observer politics, and you hear every one saying that the reason why prices are going up is because companies are are pushing them up, despite the fact that their labour inputs in their cost of production have not gone up, then you're just gonna become completely cynical about the entire process. Instead of like you like hey, no, it's really complicated like prices.
Up in the? Maybe people really get it and that's not really gonna work. But I think there are a lot of unintended consequences that come about from inculcating ideas that are just everyone knows to be incorrect, so that's I mean I get when's point I get what war and everyone else is doing, but I do think that there are some unintended side effects in this kind of political behaviour. Yeah I do I worry about that long run like so part of. I think that the turn in the Republican Party against international trade was derived from like accumulation of rhetoric that met short term political needs, but actually it's like a long term like that boss and the things I also worry about is that, like in four, were hyper focused on price as like the end result of, and I believe, you're gonna kind of miss the forest for the trees, even if you just focus on consumer welfare as the the only bad output of monopoly.
Because you're going to look at industries where prices are increasing rather than issues for price or stay. The same are decreasing and you're not going to focus as much as necessary on industries where workers are being taken. The age, not the consumers so for one example in recent news of you guys always but Microsoft and talks to buy Activision Blizzard, which is just particular nesting, doll of mergers, acquisitions. You had blizzard get picked up by Activision Microsoft, but seldom act which, as the and now they're trying to buy activists blizzard between one company, is going to own everything from her. Oh to fall out to over watch and beyond to and he cried Katy cries. I forgot that they own team to yeah they own king and all the fun games. Yeah, it's crazy and we like the gaming
industry is very concentrated, and I think that that doesn't that certain benefits is higher prices. It manifests is really abusive practices towards workers in the gaming industry, admission blizzard being the absolute worst offender where Yet there is ongoing sexual assault, allegations horribly, horribly toxic environment towards anyone who, was not a high level employee there and like us, if you're, focusing on ok gas prices are gonna have gone up, and There were about that you're gonna miss this really important, sorry about concentration, in an industry where prices have been going down for decades, ogier and a quick breaking. We come back, we can talk about What may be can be done about inflation, this is advertiser content. Facebook safety teams protect billions of people each month.
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In my eyes, and I find that some inflation. What's that song, you only got five minutes now: Ok, we're coming about inflation, so you know just starting from the very top here, like there's, really good Rosebud Institute report that I read that kind of level set a lot about. You know. What exactly are we trying to solve for when prices go up in a lot of times when prices go up? Obviously, like you just what kind of what to let markets work if it doesn't make a large contribution to the pocket book of especially low income folks, then the point is we should let business is come into the market and produce that good and then prices will come back down that price increase, as is, can be signal that you know, there's profit be made there, but that means that, like more people want something and I'm someone should come, provide it rather than kind of having any kind of government intervention. There is some of that that happened with used cars last year, where a bunch of
started selling their cars. All of a sudden on the market on once the prices are going up in prices, begin normalized, that's not happening any more so because the views of all the issues that Joey's explain, but what? What are some other things that we can actually do, though, is that a lot of stuff tat? We talking about is not areas where there is not a lot of concern here. That areas where they see no groceries or gas is really hit. The pocketbooks of people who can afford it yeah, so on our honour. First up, I'm a very, very big advocate for nominal income, targeting from the Federal Reserve basically mean that, instead of targeting inflation as far as are currently does they tried at two percent long run inflation, the personal consumption expenditures price index and said they would pick a rate of. Labour income to grow, and without would mean is it ok? If labour income is growing four percent per year, hypothetically inflation going very year your year, but it can't get absolutely off the rails and also can't get into a situation,
like dependence, and right now is expected shortly, where they have zero inflation and also Euro nominal wage growth, which has a knock on effect, means they are very very little. Real income grow very little real GDP growth, metric everything so far has been basically a success. Nominal incomes are about where you expect on a free panda, if told it never happened.
Spending is a little bit ahead of the prepared every train, but not by that much and gross labour income, which is you take all the compensation to all employees in the United States is a little bit off friend, but it's probably gonna be within one percent of trend when we get data next month. The alternate side of that is like the real side of it, and this is like the really difficult thing so I mentioned before. This is pre massive reallocation of demand. People buying a lot more trouble good and not going outside as much, and I think if you want, I, like the single biggest thing, you can do tat innovation right now. It's just get more people vaccinate give more people helping, because the more they covered is able to disrupt the economy in the world
we'll be in countries like Japan, which is constrained. The real impact of the virus, much better than the United States, have seen less inflation and even in Europe, like I mention efficient, fairly high in European Union right now, but a lot of that is driven purely by energy. If you look at core inflation Europe, it's a lot, it is. Nice is right tribute a lot of that better vaccination and better covered protection in those places compared to the United States. There is one flip side. The words like the fact that we have had robust nominal income growth. The fact we haven't had robust demand and the European Union and Japan have not has been like a pretty serious boon to our economy, where we're going to exit the pandemic, probably better in a better place than those countries, because we had a lot of fiscal spending. A lot of monetary stimulus that those please
I did not like real consumption is up in their eyes. It it's down in the european union- and this is especially especially critical in the U S, because we did not have a job retention scheme Very many high income countries had job protection schemes where there are essentially protecting people in their current employment. The united did not have it so we had a mass of drop in employment when covert hit. And we're still recovery. Now, the solely about a percentage point off the pre b levels. So, like one story of what's happening now that I've heard from a few places is that there are a lot of private sector actors over learn the lesson of the last recession. So when who does naked, there's a really big drop in output, the United States and then a very, very slow recovery, and so
another big negative shock to to GDP happened in twenty twenty Eightth whale companies. Car companies assume something like that was gonna happen again until cancel all these orders and then, when we didn't adopt the policies we adopt Two thousand eight, when we did much more massive monetary and fiscal stimulus they weren't ready, and so that's our hearing, the inflationary get now how much do you buy that stories that sort of trying to turn exculpate them? the biomass stringent, too much urge that a decent mental model of what's happening now. I think this that's a really important aspect that what is currently going on I mentioned: companies, but that's exactly true the executives in a lot of car companies, like remembering what happened in two thousand and twenty strategy right, these, because it took a decade for the car industry to fully recover oil is a little bit different word like oil output in the United States was fairly robust, post two thousand, because it is the shell and tracking boots, but it is true that almost all private companies sort of
were there when two thousand eight happen, and they saw how bad it was and when the pandemic first hit. The initial expectations like this could be justified, probably even more and so we talk a lot about in like the economy. We talk a lot about credibility on inflation, where you know you have two major inflation. Ever gets so high these it keeps getting high and hire people than expected to stay. I look. Your credibility is a two way street and for a reserve has a dual mandate: to protect employment and keep inflation down. A part of protecting employment is making sure that people don't expect the economy to collapse and nobody to respond in order to make sure that people know that people are Congress and the reserve are going to put the necessary ammunition and the necessary stimulus to keep the economy on track. If something that happens,
all this has been focused on what the FED can do, which mean honestly lot of this is only something FED can do, but what I did see the Rosa Institutes just is they may point, that, following the financial crisis, the feds started buying a bunch of mortgage backed securities, and they did this to sustain mortgage lending because there was a housing crash that precipitated a lot of the great recessions worse effects and face just doing this with green investments as well. Now, how much do you think I would actually help the american consumer when it comes to the prices at the pump and other energy costs, so I would be fairly sceptical. I think people sometimes confused the reserves bonbon programmes as directly equivalent to direct stimulus in that sector. Vicki buying worries, Rex Committee is not the same thing as investing in new homes and infrastructure and its really second or third order effect that happens on construction homes in the same way, if you had the Federal Reserve set of Green
Zander its or like a green on buying programme, it would definitely have some positive effects, increase lending to renewable energy sectors, but now Have ever used a fact that an equivalent push for real investment would have. I think you you have to either have the federal government organise like real consumption and investment towards real energy, or you have to make investment in dirty fuels for lack of a better term, much less profitable to force companies invest in and real stuff. You see a lot of this with like Environmental, social and governance, investing where the actual effects are tied, a mixed. It definitely has some positive impact, but it's a lot of effort for not as much pay off as you want, and it also would likely have to be something where Congress would have to give the Federal Reserve Authority to do that.
So covers is giving the Belarus only Authority be there. I was sure hope the Congress is doing something other than that asking. This would be proud. Is it that you do not speak for your employer in a way which I feel it is especially important when I asked you about like what policy measures taken like my big dumping now and I dont know the answer is: should we be trying to suppress aggregate demand right now and, like I've identified, is like a monetary dove most, my wife. I thought the Federal Reserve didn't do enough to to prop up the economy after two thousand aid, I spent much of the twenty tonnes urging them to do more for employment and Now we have the first sustained inflation of my lifetime and that's the thing in the tool kit that they have to deal with. That is seen rates to lower aggregate demand so that people by Le Staff in prices rise less quickly is your sense that that's still the best option we have or
are there things short of that we could be doing so that we have like a higher demand. People have more stuff more abundant economy without having to go down that road. Its very hard. After more than a decade of watching I mean it was to stay because there's not enough normal spending to come in and sailing or actually does not too much. I don't think that's right now, like I said, nominal incomes are basically where you want them now spending is a little ahead of where you want it, and that's it remained through in the future. I think what people are seen from this tightening its is really different than even in two thousand and eighteen, where are you actually do have very robust nominal income growth? I think people forget that
I can only control the nominal, and you know so you you have to do a little bit of work on the real and part of the problem. Is you know, we're at seventy nine percent employment, oblation ratio for private workers, the? U S should really be like a five percent. That would be worth a pan like Portugal, not exactly the fastest growing economies the world. But those are like work Kerbal high income countries with land. I so there's there's room to grow, but a lot of that would require in the short term, getting more people back to new. It's safe to go to work places which is not in the reserve in the long term, that requires better childcare and better health care provision for particularly low income people's lives easier to work, you're not tied to a terrible job because of healthcare. That's us on new forms of control, so I think part of it is being honest about this
areas that the fat has influence and areas where they dont and I'm not worried by the way people are now deflation psyche were like this, the hawkish turn farmers can like raise interest rates dramatically and I think you are going to see like a one percent interest rate raised over the last year. That's what traders are pricing and that's what people on all these markets really close to your pricing in, but I don't see a situation in which the federals are seven said. Like ok, actually agreed minutes, I right now we're gonna clamp down dramatically they're, just trying to keep on that nominal trend. That's what they're looking at that's what they care about and that's what's most important to keep in mind. Ok. Well, this is doubly are weeds east episode that we ve done and why less? So? Congratulations to everyone for sticking around for that, but that's all for us today Thank you to join politician for joining us are produced, is so feeble land Libby Nelson is our editorial adviser. Amber hall is the deputy editorial director for talk podcast
and I'm your hosts Jerusalem densest. We back in your feeds, Tuesday. The weeds is part of the VOX media, podcast network This is advertiser content, Facebook has invested third billion dollars and teams and technology to enhance safety over the last five years in the past few months. Late Can down one point: seven billion fake accounts learn more their ongoing work at about dot, F, B, DOT, slash safety.
Transcript generated on 2022-02-01.