For most of last year economists and pundits engaged in a long, circular debate about why inflation was spiking around the world, and who was to blame for those skyrocketing prices. Economic experts at the Roosevelt Institute (including past guest Joseph Stiglitz) have finally revealed the root causes of global inflation in a new report. Stiglitz’s co-author, Ira Regmi, shares what they’ve learned.
Ira Regmi is the Program Manager for the Macroeconomic Analysis program at the Roosevelt Institute. They support the team’s work on fiscal and monetary policy, unemployment, and growth to ensure an economy that works for all.
Twitter: @Regmi_Ira
The Causes of and Responses to Today’s Inflation https://rooseveltinstitute.org/publications/the-causes-of-and-responses-to-todays-inflation
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
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Nick’s twitter: @NickHanauer
Nick Hanauer:
Today we’re going to talk to an economist who’s going to take us through the best and latest data on what’s generating, what I would claim is not inflation is actually higher prices.
Ira Regmi:
So I think you’re right in trying to draw a distinction between what price increases are, what a wage price spiral is, what inflation is. And some people might be like, “Hey, these are semantics.” But the semantics are really.
Nick Hanauer:
No.
Ira Regmi:
Important here.
Nick Hanauer:
Yeah. They’re super important.
Ira Regmi:
Exactly.
Speaker 3:
From the home offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics with Nick Hanauer. The best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures. Well Nick, if there’s one thing that you and I have in common is that we’re never so happy as when we’re proven right.
Nick Hanauer:
So true. Today is a bit of a moment of vindication, isn’t it?
David Goldstein:
Absolutely. I don’t want to inflate the audience’s expectations too much, but today we’ll be talking about inflation and what’s really causing the high level of inflation in this pre, post pandemic world.
Nick Hanauer:
Yeah. Goldstein, you couldn’t be more correct of course, in speaking about how correct we’ve been because today we’re going to talk to an economist who’s going to take us through the best and latest data on what’s generating, what I would claim is not inflation is actually higher prices due to the global supply shock that was created by the pandemic. And this is the argument that we’ve been making, I’ve been making for a long time, is that if you know anything about global supply chains and I grew up managing them, they are incredibly fragile by design, right? They’re just.
David Goldstein:
Yeah.
Nick Hanauer:
Yeah. I mean, if you’re trying to make them capital efficient and profitable, they are incredibly fragile and it takes very little to disrupt them in ways that makes prices skyrocket. And the world had never seen a disruption, well, not since World War ii, I suppose.
That was a big disruption. But certainly the world has not seen a similar disruption to the global supply chain, to the pandemic. And when everybody decided for six months or a year or whatever it was to shut everything down, getting her started back up was going to be very, very complicated and expensive. It’s…
David Goldstein:
And it’s still going on.
Nick Hanauer:
And it still is. And it still is.
David Goldstein:
Right. Right.
Nick Hanauer:
But the profound mistake that policymakers made and our political leaders made was not being able to distinguish between inflation, which I would claim is a wage price spiral generated by mostly the psychology of anticipating that spiral versus higher prices is a consequence of a global supply shock. Because they are different. And if you don’t distinguish between them, you will do the wrong things from a policy point of view.
David Goldstein:
Right.
Nick Hanauer:
You just will.
David Goldstein:
Classically, we are always fighting the last war. And the last time we had sustained high inflation was in the 1970s and early 1980s. And that’s when the Federal Reserve brought on a major recession by jacking up interest rates to record levels. And now we see the Federal Reserve looking at, “Oh, what do we do when there’s inflation? We jack up interest rates.” But this economy is not that economy.
Nick Hanauer:
That’s right.
David Goldstein:
As we’ll learn from our guest.
Nick Hanauer:
That’s right. Ira Regmi is the program manager for Macroeconomic Analysis at the Roosevelt Institute who recently co-authored a report on inflation with Joe Stiglitz, the Nobel Prize winning economist. And it should be a fascinating conversation.
Ira Regmi:
My name is Ira Regmi and I’m the program manager for the Macroeconomic Analysis team at the Roosevelt Institute. I recently had a paper out co-written with Joseph Stiglitz, which is, it’s been a work in progress for months and it’s a bird’s eye view on the current status of inflation. It’s called, The Causes of and Responses to Today’s Inflation. So you can find that on our website and be happy if you can check it out.
Nick Hanauer:
We are incredibly happy to have you join us today on the podcast to share your new report on inflation. But if we’re being honest with ourselves, that’s because your incredibly thoughtful report ratifies what we’ve been saying about inflation for a long time, which is that mostly it’s a supply shock created by the pandemic. But we’d love for you to take our listeners through the kind of research you did and where you did it and what the conclusions were.
Ira Regmi:
The idea about with this paper was to try and make this the one-stop place for all the arguments that a lot of our peers and other friends have been making across the board about inflation and looking back. And now that we have some data we had, we’ve even had some revised data and looking at all of that to sort of understand what caused the inflation right now. And we did this research at the Roosevelt Institute along with Joseph Stiglitz and support from Columbia University.
And the conclusion that we came up with was that A, this is definitely not an inflation driven by aggregate demand. There’s too much money chasing too few goods, argument didn’t really stand. And secondly that there are lots of pressures on the supply side coming from the shock of a global pandemic and decades of neoliberalism.
There were plenty of issues on the supply side that pointed to supply driven causes of today’s inflation. And additionally then we’ve seen the rise of corporate profit. And that also suggested to other supply side issues. And finally that this is also not coming from the labor market. This is not a result of some sort of wage price spiral and there is a need to curb the growth that we’ve seen in the labor market that honestly has been super essential and long overdue. So that is the gist of the paper.
David Goldstein:
And it’s not a problem that’s simply confined to the United States. Right? It’s that inflation is a global phenomenon right now.
Ira Regmi:
Oh yes, yes. Inflation is definitely a global phenomenon right now. And yeah, we also talk about how this could, the current trajectory that the Federal Reserve is headed towards of really aggressive interest rate hikes.
We also delve a little bit into what the global consequences can be in fact. And given that this is a global problem, we’re not really going to be able to solve it through domestic US rate hikes. And to a certain extent, there’s worries that that might actually make things worse right now.
Nick Hanauer:
Yeah, absolutely. So couple of questions. First, it seems unambiguously true that a big driver of higher prices was just greater corporate profit margins, that the disruptions created market power for big corporations and that led to an expansion of margins which translated into higher prices. Some folks have tried to analyze the size of the role of that. Did you guys take a look at that?
Ira Regmi:
So the thing about coming up with a particular size of the impact.
Nick Hanauer:
Yeah.
Ira Regmi:
There’s a couple of things there. We would probably be able to do that a little better in say, a couple of years. But right now, given the data we have and given how difficult it is to parse out what really is coming from demand and what really is coming from supply and where does corporate profit fall into all of this.
Because there are cascading effects across all of these issues that we’re talking about. Right? These don’t operate in silos. And if you see a lot of the research that’s coming out and they try to parse out where inflation is coming from, there will be a huge section called ambiguous or could be either. And that’s really where…
Nick Hanauer:
Yeah.
Ira Regmi:
The meat of the matter lies. And we would be, definitely be able to look at that better in a couple of years. But we did find plenty of evidence that aggregate markups have been increasing extremely sharply during the pandemic and there has been increased market concentration. And then obviously we’ve seen increase in profit margins and just profit overall.
Beyond that, we also have our friends at groundwork who’ve done some incredible research. We’ve heard from the mouth of the same people that the inflation has actually been extremely profitable. So we tried to put all of that together and looked at data coming from on aggregate markups and market concentration.
And I think that is also what explains a little bit of the difference that people have been pointing towards in terms of, “Hey, look, maybe core inflation is not that high in Europe as it is in the United States.” And there are a number of other things that are different among between the United States and Europe. And one of them is market concentration.
Over the past 10 years we’ve seen a dramatic reversal where European markets have become way more competitive, but domestic US markets have become increasingly concentrated and that makes it extremely likely that A, these companies have been able to increase prices more than costs. And because of what we call downward rigidities, there’s also been a tendency where despite costs coming down, we haven’t seen companies actually reduce these prices.
Nick Hanauer:
Right.
Ira Regmi:
And in addition, given what increased market concentration and market power has given these companies is that it’s given them the power to sort of sacrifice. Because the theory is that if a market is competitive, you’d be able to, if you increase prices too far, you would lose customers today and there is in the future, and there would be some sort of a trade-off there.
But with increased market power, that doesn’t really quite exist anymore. So it’s like economic theory is actually pretty much in line with and suggests that given high levels of market concentration and increased market power, what we should be expecting is that these firms have a lot of pricing power and that is driving a lot of the prices.
Nick Hanauer:
Yeah. So let me just say that one of the things that has frustrated me enormously throughout this whole, I don’t know what you call it, episode, process, whatever, is the fact that we mistook a phenomenon of higher prices that were generated by a global supply chain shock for the completely separate and different phenomenon of inflation, which is a wage price spiral that is mostly psychological in effect in its source.
Because we actually don’t really have inflation today. We have higher prices that came from the world’s major enterprises shutting down for six months or a year and then trying to start up again. And that’s just super hard to do. And I think that when we didn’t distinguish between those two things, we lost the narrative battle.
David Goldstein:
Is Nick correct in making this distinction between inflation and higher prices or is it just that he and I are so old that we remember the stagflation of the 1970s, which was a very different economy and was a very different phenomena and we’re locked into thinking of inflation that way?
Ira Regmi:
Absolutely. It’s something that is so inherent to a debate about what essentially is an aggregate number, right? What does inflation really mean? It’s a generalized increased in prices, which in given how over the years sectors and industries have really evolved.
And even when we really started talking about inflation, it’s really difficult to talk about generalized prices when, especially in times of supply shocks, when they come from really specific sectors, from really specific instances and manifest very differently across different industries. So I think you’re right in trying to draw a distinction between what price increases are, what a wage price spiral is, what inflation is. And some people might be like, “Hey, these are semantics.” But the semantics are really.
Nick Hanauer:
No.
Ira Regmi:
Important here.
Nick Hanauer:
Yeah. They’re super important.
Ira Regmi:
Exactly.
Nick Hanauer:
They’re everything. Yeah.
Ira Regmi:
Exactly. And it’s super important to, I wouldn’t necessarily want to be like, this is inflation and this is not, but this is not a generalized increase of prices that we’re seeing right now. We’re seeing sector specific activities. And these things cascade into demand, which what may look like it’s a demand side increase in prices is really a supply side disruption that has.
Nick Hanauer:
Yeah.
Ira Regmi:
Changed the pattern of demand. One thing we mentioned in our report is the housing market. It’s hard to imagine that during the pandemic people suddenly just there was a huge demand for increase for housing. Right? That did not happen. What happened was the structure of housing demand changed because of a supply shock. And that’s a very different phenomena than an increase in aggregate demand. So yeah, I think y’all are absolutely correct and that is really the debate. We do not want to be arguing about a generalized price increase that we are not seeing right now.
Nick Hanauer:
The semantics matter so much because the semantics inform our intuitions about economic cause and effect and those intuitions translate into policy that affects lives and the economy, and but which brings us to what the Fed is doing with interest.
David Goldstein:
Aha.
Nick Hanauer:
And to be clear, if you’re the Fed, in life, if you’re a hammer, everything looks like a nail. And if you’re the Fed, every problem looks like it can be solved with an interest rate adjustment. Right? Because that’s all they can do.
Ira Regmi:
That’s all they can do.
Nick Hanauer:
Yeah. That’s all they can do. Right? So.
David Goldstein:
Well, there’s quantitative easing, but you know?
Nick Hanauer:
But yeah.
Ira Regmi:
Yeah. Yeah.
Nick Hanauer:
But basically all those folks can do is raise or lower interest rates. And so in an environment where prices are going up, they think that their job is to raise interest rates. And I think that your report makes a quite a good argument that zero interest rates probably isn’t healthy. Right? That probably doesn’t make any sense.
And that we’ve had interest rates that were sort of probably unnaturally low for a while. So raising them somewhat makes, that probably does make sense so that at some point you may need to lower them that will have an effect. But just jamming them up so high that you create a global recession, so tens of millions of people lose their jobs, so prices go down again is just idiotic.
Ira Regmi:
Yeah. I mean, even when, if you look back into the history of Fed, I think what we often forget is that the Federal Reserve has a dual mandate and while you are supposed to be keeping inflation in check, you’re supposed to be also care, you’re supposed to care about unemployment as well. And I think that just sort of gets forgotten and often becomes just this assumed trade off.
J. Powell has himself said that high unemployment is just going to be an unfortunate cost of curbing inflation right now. And there’s several problems there. Given one, this is not an indiscriminate amorphous group of people that’s really going to be affected by high interest rates than the resulting slowdown from that. We don’t even need a recession.
You could have a small short slowdown and that is going to have a large and disproportionate impact on black and brown people, trans people. And this is sort of emblematic of how structural racism and white supremacy is embedded into our economic systems and we just tend to accept them as quote unquote “Collateral damage.”
And so that is one thing that we really deeply need to consider and think about when we’re using tools that necessarily are implying the use of this trade off. And in addition, these macroeconomic relationships that were established, I guess in the past, they’re not as stable as they probably were back then. The relationship, forgive me for uttering it up, but the Phillips curve is…
Nick Hanauer:
Yeah.
Ira Regmi:
It’s not really the relationship between an output gap and the prices in inflation and unemployment aren’t that stable anymore if they were at one point.
Nick Hanauer:
Yeah.
Ira Regmi:
So basing this on something that is really not economics is not. The laws of economics don’t work like the laws of physics. We’re probably more flexible with the laws of physics than some of our economists are.
Nick Hanauer:
Yeah.
Ira Regmi:
With laws of economics. And I think we need to really reconsider that given the level of precision and…
Nick Hanauer:
I just love. I have to interrupt because I think the statement you made about the laws of economics is so important and frankly, is so central to the purpose of this podcast, which is to get people to recognize that what we were taught is that the laws of economics are exactly like physics, that when wages go up, jobs go down is sold as something [inaudible 00:20:28] force equals mass times acceleration.
David Goldstein:
Yeah.
Nick Hanauer:
Which when in fact.
David Goldstein:
It’s right there in.
Nick Hanauer:
Yeah.
David Goldstein:
It’s right there in Mankiw’s principles of economics.
Nick Hanauer:
Exactly.
Ira Regmi:
Yeah.
Nick Hanauer:
When in fact it’s a social law that’s much more like bedtime is 9:00 PM. When people say, “When wages rise, the number of jobs will fall,” it sounds like they’re stating some sort of fact embedded in nature when in fact they’re basic. It’s an intimidation tactic masquerading as economics. The inflation fight we’re in, the fight over higher prices is so much that and it is being actualized so much in terms of power and this fight is really a fight over power and privileges and who should get what.
David Goldstein:
Yeah. Yeah. I want to expand on that a little bit with a question for Ira. This idea, this physics like assertion that when one thing goes up, another goes down, must come down, the Fed keeps raising interest rates and employment continues to be strong, we’re not seeing unemployment rise. Is it possible that the Fed has very little impact on the economy right now that interest rates are not actually doing what they claim they’re intended to do? Where’s this recession?
Ira Regmi:
Sure. I mean, hopefully there is no recession. But absolutely. I mean, it seems like the channels that the Fed assumes interest rates work through aren’t exactly working the same way as they were in the past and that actually shouldn’t be surprising for economists at all given the level of financial innovation, the rise of various kinds of financial tools that have come into play and various other ways of how people utilize and deal with in the economy.
It shouldn’t be surprising that the same channels that the Fed has been using in the past aren’t probably as strong anymore. But the one thing to consider definitely in this case is that these relationships might not, it’s not that if increasing interest rates isn’t working in the same way as we expected it to, it doesn’t mean that decreasing interest rates won’t because these are.
Nick Hanauer:
Right.
Ira Regmi:
These operate to very different channels. And I think it’s not surprising to me at least, and it shouldn’t be to others, that these channels are probably not as strong and as robust anymore and anyway they have been operating with a really long lag even in the past.
Nick Hanauer:
Yeah.
Ira Regmi:
And that is another thing that we need to be very, very cautious about because we might not see a slowdown right now, but given the lags of monetary policy, we might be seeing it in the distant future and that makes things even more dangerous.
Nick Hanauer:
That’s right.
David Goldstein:
Right. The Fed famously was unable to hit its inflation target on the upside for more than a decade and it kept interest rates low out of fear of secular stagnation. I’m wondering Ira, I assume that Powell and the other Fed board members that they’re smart and they’re not just assuming the economy’s going to behave like it did in the early eighties when Paul Volcker hiked interest rates.
I’m wondering if they’re simply taking advantage of this economy and this climate to normalize interest rates, which is something they’ve been wanting to do for more than a decade so that they’re in a position sometime in the future to be able to cut them again if they feel they need to.
Ira Regmi:
You’re playing with fire in that case. And specifically you’re playing with fire with the costs being born by a very specific group of people. And if there are other ways that the Fed can deal with what might be distortions that have come about due to low interest rates over a long period of time.
And that probably involves broader conversations about the role of the Federal Reserve itself and what it means for the Federal Reserve, what exactly the role in macroeconomic policy should be and not some… if what you’re saying is correct that this roundabout way to keep yourself relevant is probably at the cost of marginalized folks probably shouldn’t be what an institution should be doing. I’m not saying they’re doing it, but if that’s what it is.
David Goldstein:
Yeah.
Ira Regmi:
It’s a really dangerous game. We should not be playing that.
David Goldstein:
I’m not saying they’re not saying they’re doing it, but I’m not saying they’re not doing it. I suspect that there’s a psychology to this, there’s a psychology to the Fed.
Nick Hanauer:
Yeah. I think one of the reasons, my intuition is that one of the reasons that there isn’t the sort of same relationship that there used to be between interest rates and demand and so on and so forth, is that we have in a sense decapitalized the economy, right? Because in the industrial economy, things were highly capital intensive and people used a lot of borrowed money to build factories to make things go and so on and so forth.
But there’s so much of the economy today that is so much more capital efficient. Right? Like Microsoft, just pick a giant enterprise employing a lot of people. When you move from an industrial economy to an information economy, capital is just a much smaller lever than it once was. And this is why those relationships I think are more tenuous than they once were.
Ira Regmi:
Yeah, I think it’s also various forms of securitizations and shifts between sources of financing for residential.
Nick Hanauer:
Right.
Ira Regmi:
Investment and the varying levels of strength of wealth effects are also definitely I think responsible for how those channels behave now.
Nick Hanauer:
Let’s get to what we should do. What’s your recommendation? What should we be doing?
Ira Regmi:
Well, for one, pause.
David Goldstein:
We’re not doing.
Ira Regmi:
Yeah. Sometimes the solution is probably to just pause.
Nick Hanauer:
Don’t do anything.
Ira Regmi:
Yeah. If you don’t know what to do, don’t do it. That’s a personal thing that I stand by and I think that’s number one. But number two, more importantly, we do have a problem at hand and we need to be cognizant of the fact that this problem does need to be solved, that our supply chains are not resilient at this point and these supply shocks unfortunately are probably not going to be, it happened once and it’s never going to happen again.
Climate change is a very real thing and it’s a very real supply shock. And we’re going to see a lot more of these. So we should be working on making our supply chains more resilient. We should be working on increasing investment. We should be working on strengthening our labor market.
We should actually be having conversations about how is it that we can sustain levels of wage growths if our laws of economics are just fundamentally based on we just cannot sustain a hot economy or a tight labor market. It seems like there needs to be something done about that. So I think that those are the things that we should be focused on.
And by we, I mean one of the problems here also is that the Federal Reserve doesn’t actually have the tools to look at all of this. So we need to be able to take a measured monetary response but also understand that there’s plenty of room for other policies to solve the problem that we’re facing right now. And honestly for that, we need, the number one thing we need right now is for the Fed to just pause and stop.
David Goldstein:
Is it possible that the Fed’s actions are actually counter production if their goal is to reign in inflation and it’s a supply chain crisis, a fragile supply chain and supply chain shocks, that raising interest rates will reduce investments in addressing the supply chain crisis, thus prolonging this inflationary cycle?
Ira Regmi:
Absolutely. I mean, interest rates are one channel, one thing that we know and which it is their intention. Raising interest rates are going to make investments more expensive and therefore are going to disincentivize investments. And what we need right now, what has happened and what has actually led to a situation where our supply chains were just not resilient enough and were not able to withstand the supply shock of this scale was a stagnancy in investments. And that is definitely one of the direct outcomes of increased interest rates. So that there is a high risk of that this is counterproductive and we actually end up making the problem much worse.
Nick Hanauer:
Yeah. For by way of example, if you have a housing affordability crisis, raising interest rates so nobody can afford to build any new housing, will not bring housing costs down.
David Goldstein:
You think? You think, Nick?
Nick Hanauer:
Probably won’t work. Not going to work out.
David Goldstein:
Maybe if there’s a housing inflation, we might want to build more housing, make it.
Ira Regmi:
Exactly. I mean, I think there’s something really dark about the argument where we are about really, we’re talking about food and housing here and we’re saying there’s too much demand for housing, therefore let’s curb demand.
Nick Hanauer:
Yeah.
Ira Regmi:
There’s something really dark about that.
Nick Hanauer:
Yeah.
Ira Regmi:
And I think that needs a lot of thinking.
Nick Hanauer:
So.
Ira Regmi:
And that’s not going to work.
Nick Hanauer:
That’s right. So one final question, Ira, why do you do this work?
Ira Regmi:
Well, I guess I do this work in the words of somebody needs to be able to, people on the left, on the progressive side need to be able to speak this language and have this kind of little bit of a specialized knowledge so that we can tell people that these aren’t laws of physics and they don’t operate in the same way.
And we can talk about actual living people and the costs that come with it. So I do this work so that I want to be able to speak the language that our opponents use against us and this is the best way to do it that I found. Yeah. And then in the words of a show that I really liked that I recently watched, it’s like, “I am condemned to use the tools of my enemy.” And that’s what I think this is.
David Goldstein:
Oh, you’re…
Nick Hanauer:
What show is that?
Ira Regmi:
Andor.
Nick Hanauer:
Andor. Oh yeah. Yeah. Yeah.
David Goldstein:
Yeah. I haven’t seen it yet, but.
Nick Hanauer:
Great show.
Ira Regmi:
Oh yeah.
Nick Hanauer:
Oh my God, I love it. Yeah, it’s so good.
David Goldstein:
You’re a fellow traveler.
Nick Hanauer:
So good.
David Goldstein:
This is what drives us here.
Nick Hanauer:
Yeah.
David Goldstein:
We are always trying to take the tools of the enemy and use them against them. Nothing as powerful as a counter narrative to just grab their language and co-opt it and use it to our advantage.
Ira Regmi:
Yeah. I mean, it comes with its own benefits for me because I get to live a comfortable, cushy life.
Nick Hanauer:
Right.
Ira Regmi:
Instead of being out there and doing organization work. But I’d like to hope and believe that the work that I’m putting out can actually be used by people who are also doing very important work out there.
Nick Hanauer:
Yeah. Cool. Well, thank you so much for being with us and say hi to Joe and.
Ira Regmi:
Of course.
Nick Hanauer:
Hopefully you’ll be on the podcast again with us.
Ira Regmi:
Awesome. Thank you so much. This was really nice.
Nick Hanauer:
So Goldstein, when you’re right, you’re right.
David Goldstein:
Yeah. But trust Nick, let’s be honest, is most of the time the thing that comes to mind about what’s so wrong with the way we’re approaching this right now is, here’s an analogy. Let’s say there is some sort of bird avian flu pandemic and we are forced to call our poultry flock. So the chicken industry needs to destroy hundreds of millions of birds.
So there’s suddenly a shortage of chicken. How do we address that? Do we somehow invest in making the chicken industry more resilient or do we slash the wages of workers at Kentucky Fried Chicken.
Nick Hanauer:
Yeah.
David Goldstein:
What is the cause of the inflation there?
Nick Hanauer:
Yeah. Yeah.
David Goldstein:
Is it that fast food workers at Chick-fil-A and Kentucky Fried Chicken are making too much money? Or is there a shortage of chicken?
Nick Hanauer:
Yeah, exactly. And again, the difference between the words, right? Inflation versus higher prices as a consequence of global supply shocks is just so consequential because it completely informs the kind of policies you will enact to address the issue. Because on the one hand, if you really believe it’s inflation, then higher wages are the problem. And if you believe that it’s the supply shock, then higher wages are the answer. It couldn’t be more different.
David Goldstein:
And you actually want lower interest rates because you want to invest.
Nick Hanauer:
Yes.
David Goldstein:
In expanding the supply chain and making it more resilient.
Nick Hanauer:
Exactly.
David Goldstein:
We want to bring. The way you fix the auto industry so you don’t have a shortage of cars due to a shortage of chips. I don’t know, maybe build chips here. And they’re doing that. It takes years. You need to invest in that. But we should have chip manufacturing back in the United States. We should be manufacturing masks and testing equipment, cotton swabs in the United States.
Nick Hanauer:
Yeah.
David Goldstein:
So we don’t have shortages of basic supplies like that. These are the things you do to fix this global supply chain. I’m not saying we don’t have trade anymore, that we don’t have a global economy. I’m just saying that we need to make our domestic economy a little more resilient so that we can handle these inevitable black swan events when they happen.
Nick Hanauer:
That’s right.
David Goldstein:
We don’t know what’s going to happen and we don’t know when it’s going to happen, we just know that it will happen.
Nick Hanauer:
That’s right. That’s right.
David Goldstein:
And we need to be better prepared for that by having a more resilient economy.
Nick Hanauer:
Yep. Absolutely.
David Goldstein:
And one final comment about the Federal Reserve. I understand that they have limited tools and as you said, when all you have is a hammer, everything looks like a nail. But that hammer is the Federal Reserve and it shouldn’t be, the Federal Reserve itself shouldn’t be our only tool.
It used to be that we had an activist federal government and we had activist state governments who understood that it was their, not just responsibility but their obligation to use their fiscal powers during an economic crisis to address what’s wrong with the economy. And part of what’s happened during the neoliberal era is that we have denied that there is a role for government to address these issues. And so we’ve left it up to the Federal Reserve, that all they have is monetary policy. And fiscal policy is something that is too intrusive.
Nick Hanauer:
Yeah.
David Goldstein:
And controversial and…
Nick Hanauer:
Communism.
David Goldstein:
That’s right. And so the criticism that we’ve seen from the right is that this inflation is a cause, it was caused by the federal government spending too much money, by sending checks to people who are out of work and starving, or by making the types of large investments that we’re seeing with the Inflation reduction Act.
But in fact, what we see is that the Federal Reserve is relatively toothless right now. They were toothless to address secular stagnation following the Great Recession. They appear to be toothless now in terms of how to address inflation in response to the COVID pandemic and the supply cha chain shocks it introduced. And what we need is more action from the federal government, more spending, a more active role. We need to bring back that other tool so that sometimes there’s nails.
Nick Hanauer:
Yeah. Well, and the Biden administration has done it, haven’t they?
David Goldstein:
That’s right. And we need to support that and we need to support the Biden administration’s efforts and their narrative in this regard because it turns out that it’s, there aren’t just nails out there, there are also screws and bolts and rivets and all types of other things. And we need to use all the tools available.
Nick Hanauer:
Yeah. So folks, anyway, this recent report co-authored by our new friend, Ira, is really fascinating and we urge you to take a look at it and it is in the show notes. Just click through.
Speaker 3:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works. And peek behind the podcast scenes on Instagram at Pitchfork Economics. As always, from our team at Civic Ventures, thanks for listening. See you next week.