Setting the record straight on inflation (with Mike Konczal)
Oct 3, 2023
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Economist Mike Konczal from the Roosevelt Institute sets the record straight on inflation, explaining the causes behind the recent decline in prices. The podcast explores the impact of inflation on American families, controversies surrounding the target inflation rate, and the role of the Federal Reserve. It also discusses stock buybacks, low productivity, hopes for economic recovery, and the need for fiscal policy in controlling the economy.
Higher prices in the economy are a result of global supply chain shock, not inflation.
The decline in inflation is primarily driven by supply side expansion and normalization of supply chains.
Deep dives
The Impact of Supply Chain Shock on Inflation
The podcast episode discusses how higher prices in the economy are a result of a global supply chain shock rather than inflation. The speaker argues that the distance between income and necessary spending is narrow for most American families, which makes higher prices a significant challenge. The conversation highlights the misconceptions around inflation and criticizes the policy prescriptions that advocate for throwing workers out of jobs as a solution. It emphasizes that the supply side expansion and the normalization of supply chains are the primary drivers of the decline in inflation.
Challenges Faced by Individuals and Families
The conversation focuses on the impact of higher prices on American families and individuals. It illustrates how higher expenses can put the majority of people underwater, as their spending closely matches their income. The lack of savings and financial cushion for most families exacerbates the challenges of increased prices. The discussion also highlights the disconnect between policy makers and the real-world implications of inflation for the average person.
Revisiting the Phillips Curve and Inflation Myths
The episode delves into the Phillips Curve, which describes the relationship between inflation and unemployment. It emphasizes how the traditional understanding of the Phillips Curve and the trade-off between inflation and unemployment is outdated. The conversation showcases how the current decline in inflation contradicts the predictions based on old models. It challenges the notion that reducing unemployment is the only way to combat inflation and argues for a more nuanced approach.
Potential Solutions and Policy Recommendations
The podcast explores potential policy solutions to address inflation and its impact. It suggests progressive tax policies and strategic control of prices in sectors prone to profiteering and inefficiencies, such as healthcare. The conversation also highlights the importance of robust investment in housing and addressing housing insecurity. The guest advocates for a more comprehensive policy agenda that considers tax policy, cost control, and investment as levers to mitigate inflation and promote a stronger economy for all.
There have been a lot of bad takes on inflation out there in the media, from wild speculation about its causes to absurd predictions about when and how the wave of price increases would finally come to an end. But now just about everyone agrees that after two years of rising prices, inflation has finally slowed down. And while there’s still a long way to go, the situation is dramatically better now than it was even six months ago. Mike Konczal from the Roosevelt Institute recently did some research into the disinflation we’ve been seeing, and he returns to the show to tell us what’s really bringing prices back down to earth.
Mike Konczal is director of Macroeconomic Analysis at the Roosevelt Institute, where he focuses on full employment, inequality, and the role of public power in a democracy.