Ones and Tooze Who Wins and Who Loses With Inflation
Apr 22, 2022
Inflation's grip on the U.S. economy is affecting households, adding an extra $5,200 annually for essentials. The podcast dives into historical inflation crises, revealing how past policies, like the Volcker shock, shaped today's economic landscape. They also explore the unique challenges of current inflation compared to the 1970s, focusing on labor market dynamics and the rise of organized labor. Sri Lanka's default on foreign debt serves as a stark warning, indicating potential ripples that could impact other developing economies still recovering from Covid-19.
AI Snips
Chapters
Transcript
Episode notes
The Price Puzzle
- Raising interest rates makes credit more expensive, reducing demand and hopefully lowering inflation.
- However, the "price puzzle" shows that rising rates sometimes correlate with rising inflation, not falling inflation.
The Volcker Shock
- Paul Volcker's 1979 decision to raise interest rates to 20% crashed the American economy.
- Inflation did eventually decrease from 15% in March 1982 to below 3% by 1983.
Falling Real Wages
- Real wages have fallen because wage increases haven't kept up with inflation.
- If inflation calms down, but prices don't decrease, the lost real income won't be recovered.