Nick Hanauer:

The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.

David Goldstein:

The last five decades of trickle-down economics haven’t worked. But what’s the alternative?

Nick Hanauer:

Middle-out economics is the answer.

David Goldstein:

Because the middle class is the source of growth, not its consequence.

Nick Hanauer:

That’s right.

Announcer:

This is Pitchfork Economics with Nick Hanauer. A podcast about how to build the economy from the middle out. Welcome to the show.

Nick Hanauer:

Well, Goldy, I know you know that if there’s anything that has me off over the last couple of three years in the academic/economic discourse, it has been about inflation. And I’ve just found this conversation…

David Goldstein:

For you been, it must’ve been really painful for you to go through all this inflation, Nick, do you look at prices?

Nick Hanauer:

No, ever. Ever!

David Goldstein:

No? When you…

Nick Hanauer:

But it doesn’t matter, it was still stupid and counterproductive and the narratives around what was causing it and what we should do about it, I just consistently felt like we missed the mark.

So that is why I am incredibly excited to have our friend political economist, Mark Blyth, back on the program to talk about his new book, Inflation: A Guide for Users and Losers, because this book, and Mark and his co-author, generally, have decomposed the problem of inflation, I think, in really thoughtful and nuanced ways, which you obviously have to.

It’s obviously a complicated problem, and being Larry Summers and saying, “okay, the way to handle this is to cause a giant recession and have seven or eight or 9% of the people unemployed for a few years to solve it.” It’s just criminally stupid.

David Goldstein:

To be fair to Larry. That’s about the level of detailed analysis you can fit into a tweet.

Nick Hanauer:

That’s true. But anyway…

David Goldstein:

And that’s what’s really important is how many Twitter followers you have.

Nick Hanauer:

I just think that this is a really important thing for people to understand, and sadly it’s not simple. There aren’t simple answers here, but I think that’s part of the point. So with that, I think we should go talk to Mark and see what he thinks.

Mark Blyth:

I’m Mark Blyth. I am a Professor and a Political Economist at Brown University in Providence, Rhode Island in the United States, and I’m the author of The Financial Times Best Books for the Summer 2025. Woo! There we go. Inflation: A Guide for Users and Losers.

Nick Hanauer:

I love it. Well, Mark, it’s great to have you here and it’s great to have somebody from the world of political economy and non-economics.

David Goldstein:

Share that joke with us that you were just… What did Lyndon Baines Johnson say?

Mark Blyth:

Lyndon Baines Johnson once famously said, if you took all the economists in Washington DC and laid them into end, they might reach a conclusion.

David Goldstein:

It’s so good!

So this is really fun for me, because I’m looking at my screen now, and on my left I have a self-loathing economist and on my right I have a self-loathing billionaire, and I’m just self-loathing about everything, so it’s going to be a real fun conversation.

Mark Blyth:

Let’s see if we can plumb new depths.

Nick Hanauer:

So you wrote a book about inflation.

Mark Blyth:

I did.

Nick Hanauer:

And, in spite of everything, I think it’s super timely, because having gone through this- the global supply chain shock, and the pandemic- no issue was more salient or important in the public discourse than the issue of inflation, which we were convinced the whole time the government of the United States of America mostly got wrong, that they mistook a wage/price spiral for a global supply chain shock.

And the Fed, in their infinite wisdom, applied the only tool that they have available, which is interest rates, in a dumb and unproductive way. And so your book seeks to decompose the elements of inflation, offer us a better path forward.

But if you could just lay out your general thesis and try to bring our listeners up to speed on what the issue really is about.

David Goldstein:

And let’s start with the definition what inflation is, because as I understand it, reading headlines, it’s solely the price of eggs.

Mark Blyth:

And you might think that, particularly if you live in the US. All right, so inflation, to quote Mrs. Thatcher, is a rise in the general level of all prices. It is not houses getting expensive, it is not stocks going up, it’s when all prices go up. Now why did we get interested in this?

Two reasons, me and my co-author Nick, the first one is the distributional impact. We’re always told that we all suffer from inflation. That’s simply not true.

David Goldstein:

That’s bullshit.

Mark Blyth:

But the thing is, most people don’t know that, so it’s worth pointing out that essentially this is a tax on consumption. And if you are in an income distribution where you’re at the wrong end of it, then you consume more of your income. So that directly hits you.

A very simple way to think about it is if you shop at Dollar General and you’ve got a serious inflation, your family’s going to hurt. If you’re shopping at Whole Foods, you actually are impervious to inflation. Because you’ve been paying 30% more for your groceries you should be for the past 10 years. So, with income comes, if you will, in inflation hedge.

The second thing we wanted to get into is precisely this thing about what the hell is this? Because we’ve got, the other great quote about inflation is from Milton Friedman. It’s, always and everywhere, a monetary phenomenon.

And the Fed used to have a poster, apparently, hanging around that said, “Shootings are, always and everywhere, a ballistic phenomena.” In other words, it’s involved, but it’s not necessarily causal.

What we wanted to do is to say, all right, given the stories that are emerging in 2021, there were four distinct inflation narratives about what was causing this, we wanted to essentially track that through, see how that played out, which ones the central banks went for, and so on and so forth, and also to just go back and look at the seventies, which seems to be the big playbook for inflation and why we raise interest rates, and go back and re-interrogate that and see if we actually really we’re getting the right lessons from that period. So that’s basically what the book tries to do.

Nick Hanauer:

Well, let’s start with the four narratives.

Mark Blyth:

Sure. All right, so narrative number one, Larry Summers comes out and says, “there’s been too much money spent by the federal government and we need to basically cause a recession by jacking up interest rates and there’ll be 5% unemployment for three years or 7%.” Whatever it was. He made it all up. Anyway, that’s a standard stock view, the government spent too much.

Easy way to think about this: how many countries suffered inflation between ’21 and ’24? 30. How many of them had Biden stimulus checks? One. You can’t do it that way.

So narrative number two, you mentioned wage price spirals, the labor market. Labor market’s super tight because of the conditions of the pandemic and people going home, and as we open that up, the economy supply constrained, so what will happen is people will ask for wage rises, and those wage rises will cause price rises, and wage rises will cause price rises, and then we end up as Venezuela.

Well, that’s simply not true because, the last time that happened, and it’s even dubious if it actually happened to the famous wage price spirals in the 1970s, the IMF went back and looked at it and went, “Actually these things hardly ever happen.” But they only work when you’ve got a relatively closed economy, with big unions that can actually effectively strike. And we haven’t had that for 30 years, so there’s no way you get that push from the labor market.

The third one was the one that’s associated with Paul Krugman, which was actually more right than the rest, which was the team transitory. Ultimately, these are just two big supply shocks that happened all at once. For Europe its energy, for America it’s basically global supply chains. When all of the shakes out in the supply side adjusts, this, too, will pass. And that’s pretty much what actually happened.

And the last one, particularly relevant in the European case was price gouging by corporations. And we can talk about eggs if you want, is the classic example of this. But the European Central Bank actually estimated for 2022, 40% of the inflation that was felt, was generated, came from corporations pushing up prices. So essentially in terms of…

Nick Hanauer:

And if I could just interject, it wasn’t that they just pushed up prices, they expanded their margins.

Mark Blyth:

They expanded the margins. Absolutely right.

Nick Hanauer:

So they became more profitable.

Mark Blyth:

Yes, absolutely.

Nick Hanauer:

So their inputs did increase, but they increased their margins more than the increases.

Mark Blyth:

That’s exactly right.

Nick Hanauer:

That were then passed on to consumers.

Mark Blyth:

Isabella Weber calls this Sellers Inflation, I like to call it, “Well, you would if you could, wouldn’t you?” Inflation, because the whole purpose of a firm is to make money, prices become unanchored. If you didn’t do that, you wouldn’t be doing your job. So of course you could expect firms to do this. So those were the four main narratives and basically we’re like, okay, so how does this play out?

And the take home is essentially narratives three and four were right, narratives one and two really weren’t, and that’s the playbook of the seventies. So then the really interesting question becomes why do these guys always go back to these stories about the labor market and the government spending too much money?

Nick Hanauer:

So why do they? Because it just seemed obvious to me that those things were not true.

Mark Blyth:

But here’s the standard story of the seventies that you might agree with, and then let’s play with it a little bit. So what happened in the seventies?

Well, Bretton Woods ended. There was inflation coming through the dollar channel. You were on these full-employment based economies that were relatively closed. You had unions, they were able to strike. You did get wages pushing up prices beyond productivity. Investment fell. You got stagflation and ultimately inflation’s a tax on profits, capital rebels, and you get the 1980s and where we go from there.

That story’s not wrong. Now let’s insert the central banks into this. What’s the lesson that’s learned? Politicians are, as they say, time inconsistent. So they will spend more money than they promise to, even if there’s an inflation, so you have to take the tools away from the kiddies, and that gives us independent central banks.

And we know this worked because Paul Volcker came along, jacked up interest rates to nearly 20%, and he crossed a huge recession. But by 1984 it was morning in America and everything’s fine. So that’s what we know to do Now, that’s the standard story everybody gets from the 1970s. What’s wrong with that story? It’s incomplete.

David Goldstein:

We’re missing the oil shock for while.

Nick Hanauer:

There was an oil shock.

Mark Blyth:

I’m getting to it, give me a second. Here’s an alternative story in the 1970s, and Alan Blinder has actually been writing this in a series of papers for 20 years.

So what happens is the first one is Vietnam Wars fall off the books and you effectively have 2% unemployment in 1968, massive labor market overstimulation. Then you incorporate women and minorities into the labor market the first time, and they’re actually as consumers, not just people who are going to push down wages, they actually consume more.

Then you got failed harvest. These were big events, because it triggers lots of global commodity shocks. The biggest one is the ’74 oil shock. You got ’79 oil shock. You got mad little things like the mortgage prices being put into the CPI in 1978. So there was another way of thinking about seventies is a whole series of supply shocks that all came. Each one of them went up, and then went down, but they all came together. Like London buses, they all came at once, and were these labor market dynamics there. But really what was going on is the whole ton of supply shocks.

And if you just waited, this is Alan Blinder’s argument, if you just waited, Paul didn’t need to shove up interest rates that much. It was already on its way out. Now if that’s the case, why do you then reach for interest rates every time?

Because ultimately these banks have got two tools, buy and sell assets, raise and lower the price of cash. That’s it.

Nick Hanauer:

That’s it. And they just feel like they have to do something.

Mark Blyth:

They got to do something, because in a sense, look, a little bit of sympathy here. Politicians for the past 30 years have been told they can’t do anything, they shouldn’t do anything, fiscal policy is bad, taxing and spending’s really bad. They’ve given it all to the central banks. It was all great when everyone was the great moderation and when it went to shit, we said, “Lads, save the system.” They’ve got two tools and they’ve been using them ever since.

Nick Hanauer:

That’s right. So I just want to make an amendment to your analysis that makes today different than the seventies and why I think the Krugman analysis is wrong in the sense that it’s transitory. The big difference between now and the seventies is corporate concentration.

Mark Blyth:

I think that’s true.

Nick Hanauer:

And that makes a huge difference when it comes to whether higher prices are transitory or not because higher prices are only transitory if there’s real competition.

Mark Blyth:

That’s right.

Nick Hanauer:

If there’s not real competition in markets, profit margins expand, and then they expand more, and they expand more, and they expand more, and that is the story of the American economy since the 1970s or sixties.

Corporate profits used to be 5% of GDP, now they’re 12% of GDP, there is nothing that will stop them from going to 15% of GDP, and wages, as a percent of GDP, have fallen by exactly that amount.

Mark Blyth:

Absolutely. I totally buy that.

The question is… This is the eggs thing. Why are Canadian eggs, because they had bird flu as well, $2 cheaper than American eggs? And it’s because you have hundreds of thousands of producers, but you have two buyers, and that’s exactly the market concentration.

Thomas Philippon did a great book on this a few years ago in basically the paradox of America and Europe. Europe has freer markets because of competition policy and a lack of concentration, because it’s lots of different small economies. But I don’t think that that’s wrong at all.

You see this with levels and the focus on levels. When prices go up, they don’t come down. That’s it. You go to a restaurant now and it’s not like, “Oh, it’s back to what it was in 2021.” No, absolutely not.

Nick Hanauer:

Absolutely not.

Mark Blyth:

Totally that. I buy that, Nick.

David Goldstein:

And in your book you make the argument that you don’t expect, well, we’re going to return to the low inflation we had over the past three decades or so.

Mark Blyth:

Because if you think about it, the standard story, if you extended it to the eighties and once we gave the central banks all that power, they credibly signaled their intentions to financial markets and labor market participants, and they revised down their expectations and everything was fine.

Alternatively, 500 million Chinese workers joined the global economy, the IT revolution met the container ship, technology changed, we became far less industrially dependent, much more service oriented, and you end up with a lower-inflation economy for 30 years as a one-time trick.

The central banks were just bystanders rather than active participants.

Nick Hanauer:

That’s a very interesting analysis. Can you just unpack that a little bit more, this 30-year, one-time trick? That went by fast, and that’s quite interesting.

Mark Blyth:

Paul Volcker jobs up interest rates at the same time they deregulate financial markets, and what that does is create a huge supply of expensive credit for a huge pent-up demand of credit that’s been there since the seventies, and basically the US financial sector and the London financial sector did the same, and they ran down that spread for the next 30 years. That’s what they did.

Now, how does inflation fit into this? Well, you’re no longer creating the type of hothouse economies where labor can create a wage price spiral or any of this stuff. Capital has been actively moving out, first to right-to-work states, and then to Mexico and China for the past 30 years. And when you do this and you basically integrate the Chinese economy, particularly after 2000, you are adding massive deflationary pressure to the whole global economy.

But it’s a bit like bank deregulation. Once you deregulate them, you can’t do it twice. This was like… Remember Liz Truss, the one who was the prime minister for five minutes?

Nick Hanauer:

For two weeks.

Mark Blyth:

Her whole thing was like, “We’re going to do Thatcherism again.” And everyone was like, “You can’t.”

Nick Hanauer:

No, she was going to run the Reagan-Thatcher playbook again!

Mark Blyth:

I know except, but once you’ve done the banks, you can’t do them again. And once you’ve done China…

Nick Hanauer:

Even the bankers knew that!

Mark Blyth:

I know, exactly. But once you do China, you can’t do China again. Now China is basically a middle-income country and basically wages are higher, they’re on the technological frontier of more stuff than we are, the world has shifted.

And maybe you’re going to get deflationary forces because China’s addicted to sending exports everywhere for various reasons, but that one-time trick from China, that’s not coming back.

Nick Hanauer:

That’s super interesting.

David Goldstein:

Well, we can always continue to cut taxes on billionaires, because we’re not at zero yet. So there’s plenty of there.

Mark Blyth:

I don’t even know why you need to do that because as Nick will tell us, nick doesn’t have any income. You simply pledge your assets for loans, and then you pay back the loan, so your real effective tax rate is the interest rate on the loan. Why do billionaires need tax cuts when they don’t have any income? That’s the bit I don’t understand.

David Goldstein:

Right, well, this is why we should tax the proceeds on those loans.

Nick Hanauer:

But we digress.

I thought one of the interesting points that you made was drawing distinction between good inflation and bad inflation, because moderate inflation is not a terrible thing for an economy, and in many ways it’s a good thing.

Mark Blyth:

Absolutely. Essentially bad inflation is the type whereby you end up as Argentina and extremist. And why does Malay succeed in putting together that coalition against anti-inflation?

If you’ve got 50% of Argentines under the poverty line, and you’ve got systematically strong inflation, you are just pummeling the bottom 50% of your population, they will do anything to get relief from this. That’s bad, that’s seriously bad.

Now, what is good inflation? You want to have some degree of nominal price movement. You want to have the ability to grow without it bumping up against supply constraints. That’s basically why they try and target 2%. Should it be 2%? Should it be 3%? It’s not an unreasonable way of thinking about things.

Although there’s another school that would say, “But when you do that, it’s too low. You’re putting a limit on growth.” This goes back to when Trump had his first spat with the Fed in 2017, and Trump was saying, “Tun the economy hot. Don’t you dare raise interest rates, you’re going to kill it.” And that time actually, the Fed didn’t do it, and then you got a real rise in real wages for the bottom 40%, which is one of the reasons that Trump remains popular and not Kamala.

Nick Hanauer:

Interesting. The other thing that you try to do is organize a policy response, and you note that Spain’s price controls worked, Hungary’s did not. But I think this all speaks to how this is a complicated problem that needs to be addressed in nuanced ways.

Mark Blyth:

That’s exactly it. It’s basically the cliche is the Swiss army penknife approach rather than the Bowie knife. So if you think about what central banks actually did this time around, all the stuff we’re talking about, they know this.

Huge part of the research for the book was reading the research output of the central banks. Notice, not one central bank actually raised their policy rate above the rate of inflation in their country. None of them pulled a Volcker. Everyone got close to the rate of inflation. And was it even close enough to have an effect?

Employment went up in the first year, rather than down. So that whole effect that it was meant to have didn’t happen. Essentially. They performed raising interest rates, and there was a whole bunch of other policies going on the side in lots of different countries, some of which could be called price controls, price floors, price ceilings, the German gas break, all sorts of stuff. Some of them worked, some of them, but it really is a whole of the Swiss Army penknife approach.

David Goldstein:

Was the fed conscious that it was merely being performative? Because it clearly did not achieve its proximate goal, which was to slow the economy and raise unemployment.

Mark Blyth:

But then again, they would respond is. “no, that’s not our goal. Our goal is to change the delta on inflation and make it point down the way, and we will raise rates to a point where we think it’s going to have that effect.”

Now, were they really doing that? Is that what actually happened, or was it just the supply shock eventually dissipated? They’re going to claim victory one way or another. It was all Goldilocks stuff, et cetera, and you can’t prove it, you can’t disprove it, so of course they’re going to talk their book. That’s basically it.

David Goldstein:

I’m just wondering, though. I know what they say publicly, and the Fed is famously famous for being very careful about what they say publicly, because deep down they think inflation is merely, “do you think there’s going to be inflation?” It’s an expectations game, but do you have an idea of what they actually understand internally about what they did and what happened? Did they learn any lessons?

Mark Blyth:

So we can’t go and ask them directly. So what we did instead, Nick and I in an academic paper, was to take all the central bank speeches from the big three banks, the ECB, the Fed, and the Bank of England, and we basically ran it through an LLM, through a large language model, and we got them to look for our inflation narratives. So basically, every time they talk about fiscal policy and inflation, every time they talk about price gouging and inflation.

What you see is there’s real differences amongst the central banks. The Europeans actually talk a lot about price gouging. The Fed actually doesn’t really talk about government spending, it looks at the labor market. The Brits who’d never spend any money, strangely spend their time looking at government spending.

But what you find overall is as you get through the COVID period, by the time you get to about 2023, they’re actually all willing to entertain different things, which either suggests confusion or an open mind. Make your mind up as to which one it is.

Nick Hanauer:

Can you speak to what the differences were between Spain and Hungary?

Mark Blyth:

Sure.

So basically what we were looking for is this notion that we never do price controls is. If you look at electricity markets, there’s price controls all over the place. If you think about the American healthcare system, it’s a giant free market with no prices, every price is negotiated between brokers. So the notion that we allow markets to work all the time is complete rubbish. And we looked at some of the more interesting examples of price control.

So what they did in Spain was they said, “All right, we know if we start saying the price of flour is x, there’ll be a shortage of flour and it won’t work. So if you want to protect consumers at the bottom 20% of the income distribution, they’re ones that tend to use public transport, how about we just make that free? And that frees up part of their budget, which will accommodate a little bit of wee expenditure that they’re going to get the hit with inflation.” That was a smart way of doing it.

The Italians looked at their banks and said, “Okay, so let me get this straight, ECB’s now got a policy rate of nearly 5%, and you’re still giving people half a percent on their savings accounts? In other words, you’re capturing the net interest margin? Right, so we’re going to tax you on that.” So they tax them for several billion on that one and then use that to redistribute.

Then they were were bad examples of this. Hungary basically said “You’ll set the price at the supermarket.” And the supermarket shelves emptied, exactly as Econ 101 would predict. And then in Scotland, they tried to freeze rents and secure tenancies for people who were renters, and the problem with that was they basically left out the Airbnb sector, and what that meant was that the people who are landlords immediately turned themselves into Airbnbs, and rents went up by a third as the supply collapsed.

So the take-home lesson on this is be careful what you’re doing with this stuff. Broad things like basically what the Spain was doing, actually, they’re not so complex, anything that’s technical and can be gamed will be gamed.

Nick Hanauer:

Right. Interesting.

So let’s get to more of what you would do if you been President of the United States

David Goldstein:

President or Fed Reserve Chair?

Nick Hanauer:

Who knows? I don’t know. If you had been in charge…

Mark Blyth:

If I was Emperor Blyth the First.

Nick Hanauer:

Yes.

David Goldstein:

Yes.

Nick Hanauer:

Emperor Blyth, if we rewind to 2019, 2020, what would you have done, in hindsight?

Mark Blyth:

In hindsight, I think the lesson of the book actually emerges out of the end of it. When you write it and you really realize the story you’ve got, which is central banks think about supply shocks as something that they see through, because as you pointed out, Goldy, they’ve got this expectations model of inflation. And one of the things we found out in the book is we went to try and find any evidence for this being true, whether it’s academic or survey based. And people definitely have expectations of how the price level’s going to go, but it’s things like, “Are you a Republican? When the Democrats are in power?”

They have price expectations based upon gasoline prices. Why? Because they pump gas twice a week and they look at the price and that’s their price index. The notion that anybody’s listening to central banks inflation forecast, even in the financial sector, is actually surprisingly hard to find.

So what I would do is to say, why are we looking through supply shocks? Why we not take them seriously and think about if these things are going to have an inflationary effect? And if they are, then you’ve got a couple of options. You can, as Isabella Weber suggests, have buffer stocks. We used to do that.

There used to be a global wheat buffer stock in case wheat prices failed, because you don’t want mass starvation. Problem with that stuff is it’s expensive, because you could have done something else with the money, and if you don’t use it, people get pissed off.

Nick Hanauer:

Yes.

Mark Blyth:

But there are other ways that…

Nick Hanauer:

You’re wasting money.

Mark Blyth:

You’re wasting money.

There are other things you can do as well. It’s like interest rates, yes, that are a powerful instrument, but we saw this time that essentially you’re not really willing to use the nuclear option on them, and it’s not even clear that that was the deciding element in pulling inflation back down. So if that’s the case, let’s actually have a good think about how a central bank might respond in other ways.

Maybe it could do it through credit policy, maybe it could do it through basically acting through different channels of liquidity rather than just interest rates, or maybe it’s something that you take out away from the central bank as the Spanish do, and you do basically more at a fiscal level in terms of…

What you really want to do with inflation is make sure that those people who are most affected, the bottom 40%, aren’t actually unnecessary scalped. Now they’re the people, for example, that already pay the most for their credit, they’re on payday loans, all the shitty credit products, and then when you raise interest rates, they get a double whammy.

Nick Hanauer:

Double whammy.

Mark Blyth:

And if you’re at the top end, like the three of us, I’ve got this house with a studio in it. This is an inflation hedge. I own stuff that are financial instruments. You push up interest rates, I make more money. Surely we can think about how we would distribute those windfall gains to cushion the inflationary shock at the bottom that would be good for society overall, and that goes beyond thinking about interest rates.

Nick Hanauer:

Again, one of the central challenges the American economy faces, whether you’re in an inflationary scenario or not, is corporate concentration, which increases prices, decreases wages, slows innovation. The rest of it. Unfortunately, that is a very hard problem to quickly solve.

Would you have intervened in the corporate greed?

Mark Blyth:

So it’s hard to do, because if you want to do it fairly, and you don’t want to screw it up in the process, you’d actually need to know what their input costs are.

Nick Hanauer:

Well, you could just watch their margin expansion. Who cares what their inputs are?

Mark Blyth:

Not necessarily.

Nick Hanauer:

If your after-tax profits went from 6% to 9%.

Mark Blyth:

But it could also be windfall. It could be because other factors have done this. There’s a [inaudible 00:27:35] part of us. All things remaining equal on that one, and it’s seldom isn’t. There’s also the question of how concentrated are some markets?

Some are obviously incredibly concentrated like General Mills, cereal markets, but the price of cereal didn’t go up as much as some other stuff. And things like the egg flu, chicken flu, whatever it is, bird flu, also added to these pressures and other places.

So this is why antitrust is really popular as an idea and hard to do, because back in the day when you do the Sherman Act, you just simply look at Morgan and go, “You’re toast, we’re going to take all this stuff from you. We’re going to shut it up.” You go to 1980, you take the bells, you just cut them up. We do different things, dead easy.

It’s not clear what you do with Google. It’s not clear what you do with Insta. So when you’ve got a very different type of economy, this is why Lena Kahn was really interesting. She really tried to do this stuff, but it just wasn’t obvious what you did in some of these cases. And it’s obvious in other ones, but I’ll give you an example on this you’re going to love.

So America’s got the high egg prices. One of the two main companies that has pool chicken and eggs of course is Purdue. Pop quiz: who was Trump’s Agriculture Secretary in the first administration? Sonny Perdue. There you go. It writes itself.

David Goldstein:

Well, so that leaves you with, I don’t want to use the term price controls, but when you have something like Google, if you regulate it like a utility. We regulate utilities.

Mark Blyth:

Well, totally. That’s an honest way of thinking about it. What we did was… One of the reasons it’s so hard to get electricity systems decarbonized is because we privatize natural monopolies that should be in the public domain. And if they were in the public domain, you could just say, “Right, lads, next capital expenditure around, you’re just doing green shit.” And they’d be like, “Okay, boss, we’re done.”

Whereas if they’ve got to reply to shareholders, they’re like, “Well, the IOR on this is actually really. We’re better off doing gas. We’re going to continue doing it.” So these are fixable problems, we know how to fix them, it’s just the political will to try and tackle it.

David Goldstein:

And I’m connecting my computer’s being powered by a hundred percent carbon-neutral electricity from city-owned, municipally-owned Seattle City Light.

Mark Blyth:

Like I say, it can be done.

David Goldstein:

Also relatively inexpensive, not the cheapest. It’s cheaper to burn coal when you’ve got a plant near a coal mine.

Mark Blyth:

Well, thank God for that Executive Order restoring America’s beautiful coal industry. I love using the adjective “beautiful” in front of the word “coal industry” is a violation of English that no one’s ever done before.

David Goldstein:

So while we’re on the subject of energy, I’ve been thinking a lot about the future, and you mentioned in the book that one, and it’s pretty obvious, one of the most volatile components of the inflation index is energy, because oil prices fluctuate wildly depending on who…

Nick Hanauer:

Another solvable problem, by the way.

David Goldstein:

Depending on who we’re bombing, and at what time, and how the markets react to that. As the economy electrifies and we presume it will electrify, despite what Trump does. It’s just going to do that over time. 20 years out, electricity prices are far less volatile. Will that mean there will be less volatility in inflation if most of our energy is coming from an electric grid that is less volatile?

Mark Blyth:

It depends, if we piss it all away, any AI data centers that we don’t need, there’s an entirely different thing on that one. But hold that constant for a minute.

Electricity is probably about 60% of energy consumption even you make it a hundred percent green. If you still want to fly, you still want fertilizer, you still want plastic feedstock, there’s still going to be a role for carbon. We’re never getting off of that, and that just has to be addressed.

The really interesting one, though, for inflation going forward is climate change. Think about what happens in terms of big, big rainstorms, then you get drying, then you get another rainstorm, then you’re washing off topsoil. There’s lots of changes in agriculture, there’s lots of changes in food webs, entire bio-ecosystems, all of that is basically coming into question as we warm. Potsdam Institute and climate change research already done some numbers on this, they already think and can show statistically that climate change effects are pushing into food inflation.

And if you have a highly unequal society whereby that skew means that a very large number of people are going to suffer inflationary pressures, and you know that there’s inflationary pressures coming through, and then you spend 20% of your GDP building data centers for an AI God that can’t be built, that’s a very inefficient use of resources.

David Goldstein:

But look at all the money homeowners are saving on homeowners’ insurance now that nobody can afford to pay for it, because once you don’t have homeowners insurance that’s a big expense right out of your budget.

Mark Blyth:

But it also means that mortgages can’t be written, because ultimately you need insurance on the mortgage, and that’s going to contract your home building sector, and that is not good news for employment. So we’ll see.

But these are the types of nonlinear effects. You’re absolutely right to focus on insurance, that’s a super important one. We’re already seeing the prices of that going up. So again, remember, let’s go back to where we started. So it’s a rise in the general level of all prices. What are the types of things that would make all prices rise? How about the entire planet getting hot? That’s the one you’ve got to think about.

David Goldstein:

Wow. But Nordhaus says it’s just like a few points off a future GDP, so we don’t need to worry about it.

Mark Blyth:

Well, that’s good because and one of his collaborators said, “We can all just work inside like the Saudis do.” So we’re in good hands, lads. We’re in good hands.

Nick Hanauer:

Oh, my gosh. Well, final question. Why do you do this work?

Mark Blyth:

Because every day I think about opening up a nice lunch cafe and just doing breakfast, and lunch, and shutting it down so I don’t have to think about all this stuff.

I think about all this stuff and write about all this stuff because it’s important, and I think that particularly now as we have exactly an economy where 12.5% of GDP is corporate profits, and we’re all meant to think that’s a great thing that the more I can do to educate normal people, I don’t write for academics in books. I write for normal people about how I think about the world. And if people find that useful in helping them sort through the bullshit, then I’ve done my bit. And that’s why anybody should do this stuff.

Nick Hanauer:

That’s great. Well, as always, it’s a pleasure to have you on.

Mark Blyth:

Always good to see you guys. Always great to chat. Let’s not leave it a year next time.

David Goldstein:

Well, you need to write more books.

Mark Blyth:

I suppose that’s the case.

Nick Hanauer:

Or just think a great, annoying thought, and we’ll have you on.

Mark Blyth:

Sounds good. I think I can do that.

David Goldstein:

Got to be careful. This is… you add too much diversity to economic thinking and Trump’s going to shut down Brown University.

Mark Blyth:

True. I think that’s meant to be on the menu anyway. Hopefully he’s distracted enough now that that’s not happening.

David Goldstein:

Oh, I regret, Nick. I meant to ask Mark this question. The subtitle of the book, the book is Inflation: A Guide for Users and Losers, but that’s actually not entirely the frame he uses in the book, he talks about users, losers, and winners, that there are winners from inflation, too.

It’s part of the story that nobody likes to talk about. If you have a loan at a fixed rate, and you get this bout of inflation, you are a winner.

Nick Hanauer:

Big time. If you hold large amounts of debt…

David Goldstein:

At fixed rates.

Nick Hanauer:

At fixed rates.

David Goldstein:

Remember, at fixed rates. Not credit card debt. No, because those interest rates go up.

Nick Hanauer:

But if you have a thirty-year mortgage? You are golden.

David Goldstein:

If you had a thirty-year mortgage at 3% and inflation hit 9%, you’re coming out ahead.

Nick Hanauer:

Absolutely.

David Goldstein:

When we talk about how complicated this issue is, Nick, it’s not just how do we properly measure inflation? Is it headline inflation? Is it core inflation? Does that represent what inflation really is? It’s not just a question of how we respond to it. Do we do it with monetary policy? Do we do it with fiscal policy? Do we do it with investment?

A lot of people derided the name the Inflation Reduction Act, because it was mostly just a series of investments. But in fact, we were investing in creating supply, and it was a supply-chain shock. One of the reasons why used cars went up 40% in the midst of the pandemic was that there was a shortage of new cars.

Mark Blyth:

New cars.

David Goldstein:

Because there were a shortage of semiconductors, which were used in the new cars, so we couldn’t actually finish manufacturing those new cars. So therefore, people were forced into the used car. It’s not like used cars suddenly became more expensive to make, the price was driven up because of all these things going down the supply chain. So when you bring some of the semiconductor manufacturing back home, you are creating a little bit of protection against these supply-chain shocks in the future.

So it’s complicated there. Do you do price controls? Do you regulate, antitrust? All these various things that you can use to address inflation. It’s complicated whether inflation is good or bad in general, do we want 2%? Do we want 3%? What’s the proper rate?

But It’s also really complicated in terms of who it affects. And as he points out, it affects poor people more because they spend all of their money. People in the bottom half of the distribution are going to spend everything, so all their prices are going up. So whereas somebody like you isn’t really affected at all, and me, thanks to you, not as much because you pay me decent. So I wasn’t really worried about making ends meet, though a decade earlier I would’ve been.

That gets to like everything, and we talk about a lot. Inflation is a distributional issue. It redistributes in the economy, and the question is from whom, to whom, over what period of time, and how do we respond to that? And that’s something which Larry Summers didn’t want to talk about in his tweets.

Nick Hanauer:

Fun conversation. Interesting subject.

David Goldstein:

Again, if you want to read more from Mark, theres a link in the show notes to his book, Inflation: A Guide for Users and Losers.

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