Inflation is back.
The past year has seen more than a 5% jump in the Consumer Price Index.
The price of food, of gas, cars, lumber are all up. But what is inflation, and do economists really know how it works?
“Right now we've got black swans flocking," Diane Swonk says. "We've got a lot of things happening at once that are extraordinary events that are affecting the entire global economy.”
Today, On Point: A nuanced look at inflation. What exactly is it, and what causes it?
Diane Swonk, chief economist and managing director with the consulting firm Grant Thornton. Specialist on the economics of the labor market. Advisor to the Federal Reserve Board and its regional banks. (@DianeSwonk)
Laura Tyson, scholar of economics and public policy. Distinguished professor at the University of California, Berkeley's Haas School of Business. Chair of the Council of Economic Advisers and director of the National Economic Council during the Clinton administration. (@LauraDTyson)
Rebecca Spang, professor of history at Indiana University.
Transcript: Historian Rebecca Spang on the history of inflation
How do we know what inflation is, and how can we measure it? Rebecca Spang says the history of inflation goes back all the way to the World War I era:
Dockworkers and other people went on strike, saying, We cannot afford to live based on our wages because prices are rising. Their employers said, Prices aren't rising. You can do just fine.
The idea was for the government to come in and measure the level of inflation, to adjudicate between the claims of the workers that they could not live on their wages, and the claims of the employers that, Yeah, we're paying you plenty. So ever since then, the Consumer Price Index has been measured on a monthly basis.
Probably the most famous episode of inflation is the dramatic increase in prices that occurs in Weimar, Germany, the German Republic. Germany, after defeat in World War I, basically was between a rock and a hard place. In terms of paying off indemnities, dealing with social welfare demands from workers movements, and with a pretty intransigent group of employers.
So, they calculated that it would be possible to survive through a period of rapid inflation, which got carried away. So, you've probably seen the photos of people pushing wheelbarrows of money to buy groceries. People are using it as fire starters. They're using it to wallpaper their rooms. That kind of hyper-inflation, the fear that there will be five more zeroes stuck onto the price of everything, is the nightmare scenario with inflation that the public imagery circulates around.
In the 1970s, the OPEC oil shock led to a sudden dramatic increase in the price of crude oil, which immediately translated to the price of gasoline at the pump.
There were gasoline shortages. Schools started later so that they used less electricity. Everything seemed to be transformed by this in 1973, 1974.
In the aftermath of the Vietnam War and Watergate, the pressing issue, as American politicians claimed a return to normalcy, was the situation for ordinary Americans. Could ordinary Americans get ahead in the United States? Inflation became the issue of the day for politicians, from Ford to Carter to Reagan.
I think the rhetoric of inflation is being used very savvily to political ends. The bogeyman of inflation, the idea that inflation is always and everywhere bad, and somehow always and everywhere the president's fault. This may perhaps be the legacy of the 1970s.
What is happening right now is that the rhetoric of inflation is being used very strategically for very specific political ends in an attempt to bring down the Biden presidency. And inflation has been such a bogey in American political discourse for the past 50 years that there is a possibility that this might actually prove effective.
From The Reading List
Washington Post: "What scaremongering about inflation gets wrong" — "Inflation. We all know it when we see it. Prices rise, gas stations have lines. Graphs point upward. Eyebrows lift. Eyeballs roll."
This program aired on October 26, 2021.