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Brian Lehrer: Brian Lehrer on WNYC, and we'll end the show today by getting into some news about inflation, roughly defined as the rise in the general level of prices. Obviously, we're concerned about inflation because let's say somebody makes $50,000 a year, and suddenly everything costs twice as much as it did a year ago, that would be massive inflation, then their paycheck is worth less. While we're at it, we'll try our best to demystify the concept of inflation and the politics around it.

Prior to the pandemic, rates of inflation in the US were relatively low and steady. Now, amid an economic downturn and plans for additional White House spending on pandemic relief, the fed is forecasting a slight increase in inflation in the short term. A story in The New York Times yesterday began this way, "Even before President Biden took office, [inaudible 00:01:04] his closest aides were focused on a question that risk derailing his economic agenda. Would his plans for a $1.9 trillion economic rescue package and additional government spending overheat the economy and fuel runaway inflation?"

Joining me now to make it make sense is Emily Stewart, senior business and politics reporter at Vox. One of her recent pieces in Vox is How Much To Worry And Not Worry About Inflation: Nine Questions About Inflation You Were Too Afraid To Ask. We will also touch on the death today of Ponzi schemer, Bernard Madoff. Good morning, Emily, and welcome to WNYC.

Emily Stewart: Thanks for having me.

Brian: Listeners, her articles called nine questions about inflation you are too afraid to ask. You don't have to be afraid to ask her any questions about inflation here. (646) 435-7280. We have whole generations now, if I may start with a little recent history. Whole generations now who have grown up never experiencing inflation as a problem in their lives for most ordinary goods, while their parents or grandparents were freaked out by inflation in the 1970s. Why was it bad and where did it go?

Emily: I think an important thing to start out here, to quote one of the economists I spoke with through this story, J.W. Mason at John Jay College, is the 1970s are not the only thing that have ever happened and they are not the only thing that have happened recently. Obviously the older generations will remember the 1970s when the United States saw stagflation, which basically was a bunch of inflation and some really slow growth, high unemployment. This is not an economic situation that we want to see.

There were other things happening then as well. Skyrocketing oil prices, we had the President [unintelligible 00:03:04] Nixon and the convertability of the dollar and gold, so things are not the same now. I think now what has happened, as you also said, is we do have generations who have not seen inflation, but part of the reason, or maybe part of the big question that economists are not sure the answer to, is why we haven't seen inflation. After the great recession, after 2008, the sense was always sort of, at some point the economy would start to heat back up, but we know

that's not quite what happened.

If anything, the recovery was really slow and really stagnant. Right now it seems like the question is okay, yet again, and still it seems like inflation is on the horizon. But do we really know the inflation story entirely anymore? Do the laws of economics work the way that we maybe thought?

Brian: To harken back to the 2008 financial crisis again, that mortgage crash that led to the great recession overall. Republicans, if you remember, argued that President Obama's stimulus plan was so big, it would cause inflation, while most economists were more worried about deflation, the downward spiral of prices and profits, leading to more layoffs, potentially ravaging American finances through deflation, and then the inflation never happened. We have a recent history I think, and maybe you'll agree or not. I think we have a recent history of conservatives crying wolf on inflation fears.

Emily: Yes, it definitely seems that way. When you hear the Biden administration talk now, and many Democrats, and many economists, what they'll say is that in 2008, 2009, in the aftermath of that crisis, the government didn't do enough to stimulate the economy. Democrats thought that they would get multiple bites at the apple in terms of legislation and then they did not. Right now when you look at all of the stimulus that the federal government has done to try to support the economy, whether that be the CARES Act back in March, or the $900 billion stimulus package in December, or this most recent stimulus package, is to try and really go big here and push back on this idea that we really need to be careful about doing too much.

We're in the middle of a crisis, and what economists will tell you is that the real risk here is doing too little, and we saw that risk really bear out in the great recession, after the great recession. It feels a little bit like sometimes Jay Powell, the chair of the federal reserve, and Janet Yellen are saying like let's see if there's inflation. To a certain extent not bring it on, but maybe it wouldn't be bad to see it because we don't know where it's been.

Brian: There was some inflation measured in March that has economists talking and to some degree worrying. What happened last month?

Emily: Sure. In March the consumer price index, which measures a basket of consumer spending, was up 2.6% year over year, so from last March. When you take out food and energy out of the equation, it was up about 1.6%. It is a little bit of an increase from February where inflation was up 1.7% year over year, so the economy is getting warm, but it's not overheating necessarily. I do think one important thing to mention here as well, that a lot of economists had flagged before these numbers came out, is that last year when the pandemic hit, we saw some deflation.

So sometimes these numbers year over year are going to look a little bit bigger because prices went down last year. We all remember March, April of last year, nobody was traveling, nobody was going out to eat, and so the numbers might look a tidbit distorted and especially with gas prices. One stat that I saw earlier today is that  

gas prices look like they're up 22% year over year, but again, we remember what was going on last year, we were in the middle of a crisis. So I think as these numbers continue to come out month after month, it's important to, yes, keep an eye on what's going on, but not necessarily panic until there's reason to.

Brian: In other words, the accurate way to measure inflation right now wouldn't be against 2020 on many items, when the prices of things went down because people were staying home and there wasn't much demand. It would really be against 2019, the last "normal time" for the economy, right?

Emily: Yes, or at least to keep an eye on that trendline and understanding that we are under where we thought the trend would be, I think is probably a good way to think about it. Also to keep in mind that the federal reserve has said inflation has been below their 2% target for years at this point, so they want it to reach on average 2%. What that might mean is that it is a little bit above 2% for a sustained period of time, which is what they're trying to target right now.

Brian: Maria, in Brooklyn, you're on WNYC. Hi Maria.

Maria: Hi. Wow. This is so exciting. I love your show. Really excited to be able to ask the question.

Brian: [unintelligible 00:08:29]

Maria: My question is, are home prices directly related to inflation, because I had been looking at single family homes in Westchester, particularly in Tarrytown to Peekskill a year ago, and they were in the $300,000s and now I'm ready with a down payment, but they have astronomically increased to around even $600,000 in Tarrytown. I don't know if that's related to inflation or people leaving the city and do we expect those home prices to go back down at any point?

Brian: Maria, thank you very much. All right, can you be a home prices pundit?

Emily: Like in everything, we see inflation in certain parts of the economy and not, right? So we can talk about asset prices inflation, like the stock market. To be clear the stock market is not in the consumer price index. What's really happened with home ownership, at least the limited reporting I've done on this and my understanding, is that it's really a question of supply and demand right now. A lot of people have tried to move out of New York city.

A lot of people are looking for homes. The housing market is very hot right now. There are different reasons for that, and that is part of the inflation picture. When we talk about inflation a lot of the time, I think a better way to think about it is what happens when you go to the grocery store or when you buy new clothing or when you buy a car, things like that. It's a broader picture, but certainly the housing market right now is pretty hot.

Brian: It's got this particular pressure of people moving out of the city. The housing inflation for apartment purchases, presumably in Manhattan is much less than it is in  

Westchester, the example that she gave, and yet you wonder if certain measures of inflation are just missing. When we say there's been low inflation for decades, housing costs and college tuition have gone wild in recent decades. Housing, depending on where you live to be sure, but still overall and in ways that make people say those prices are "outpacing inflation". My question is do housing and college costs not count as inflation in the magical realism of economics?

Emily: They count and they don't and I think my maybe a little bit unrelated answer to this is at some point who cares what technically counts as inflation, because if you were trying to pay for college and it costs triple what it did however many years ago, that's problematic no matter what. Sometimes, the conversation about inflation is, we want to look at how everybody's day to day spending is changing and going up, but there are also pockets of the economy that we want to look at more specifically, that would require some more specific answers. Whether we're talking about the price of college, it's really some policy responses that have nothing to do with the federal reserve, it would really be what we would need. In housing, sometimes we just need to build more housing. Those are policy fixes that are separate from whatever the federal reserve is going to do or not going to do with interest rates to try and control inflation, or whatever Janet Yellen is saying or Jay Powell, day to day.

Brian: Let's spend our last couple of minutes on Bernie Madoff who died today. It's being reported. The creator of what's described as the biggest Ponzi scheme in history that entrapped some prominent people and others who trusted him with their life savings to invest. He was keeping a lot of the money and showing them fake returns. Madoff got busted right at the peak of the 2008, 2009 financial crisis and got sentenced to 150 years in prison. He died in prison and people started talking about, he wasn't just a bad apple, he was also emblematic of bigger problems in the legal economy. How much do you see the Madoff legacy that way?

Emily: To me, there are a couple of ways to think about it. I do think that just on a personal level, it seems very painful. Thousands of people who lost their, some of them, their livelihoods, who really thought that their lives were set, that they had their nest eggs, and they did not. I do think to a certain extent the question consistently is what happened with the Securities and Exchange Commission? What happened with regulators that this was allowed to happen? I don't know that we still have answers on that.

I sort of think, especially looking at what's happening in the markets today, that to be honest, it seems pretty frothy. It seems like there are a lot of bubbles, whether it's Gamestop or [unintelligible 00:13:10] or NFTs, or what just happened with that one hedge fund [unintelligible 00:13:14] that apparently had a lot of investments with a lot of banks that were [unintelligible 00:13:19] lot of margin that no one really knew about.

From today's perspective, it certainly feels like you have to worry, could something like this happen again? Are regulators really looking as hard as they could be at what's going on? What are the risks and is something like this lurking in the background? Right now, we're seeing the new head of the SEC be confirmed by the Senate, Gary Gensler. That's going to be a task for him and he does seem to be

quite a strong regulator, but it definitely does feel, especially in a moment where there are a lot of questions on what's going on in the market. It does feel very overheated, that you have to worry if there's something like this in the background that we're not seeing again, which is always a question.

Brian: Well, in 2010 I think it was, I went as Bernie Madoff on Halloween and people said to me, "Now that's scary." There we leave it with Emily Stewart, senior business and politics reporter at Vox. One of her recent pieces on Vox is How Much To Worry And Not Worry About Inflation: Nine Questions About Inflation You Were Too Afraid To Ask. Emily, thanks for all the information, we appreciate it.

Emily: Thanks for having me.

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