Inflation Is Up—Temporary Bedfellow or Long-term Partner? | Off the Clock

The work week maybe over, but this economy, it never
takes time off.
I'm justin Morpher's and this.
Is off the Clock unwinding the week's news. We're I'm
joined by my favorite economics journalist, Stacy Vanix Smith to
talk about the week that was.
It's very good to be back, Justin. Thank you for
having me. I am a columnist at Bloomberg Business Week
and the co host of their podcast Everybody's Business.
So you've been paying attention, and today we're gonna pick
through the headlines and we're here to tell you what
you should actually be concerned about, what you can safely ignore,
and maybe we'll see if we can find some silver
linings in there too. So we got three big stories
to talk about today, Stacy, Yes, so.
Justin, everyone's been talking about SpaceX, but you and I
are pureists. We only have eyes for larger important economic
topics like inflation. Is this just the passing through, crashing
on your couch for a couple of nights kind of
inflation that we're experiencing right now, or is this the
sticking around suddenly strangely getting mail sent to your apartment
kind of infletion?
That's the big question, Stacy, enough about your personal life,
let's make sure about the economy. I love that that
was a real life So look, we're going to move
from the highs of inflation to talking about a big
new report on the Social Security Trust Fund, and before
you start yawning at home, we're going to hit the
important points that you really need to know.
Also exciting news. The World Cup kicked off this Thursday.
And I saw what you did there?
Yeah? Did you see what I did? There? A lot
of economics involved, right.
Justin, so much economics, and we're going to dig into
the economics of the World Cup. And the World Cup
is a metaphor for what's happening to our economy.
Ready to get into it?
I am ready? Okay, justin, are we really not going
to talk about SpaceX?
I mean, yeah, let's let's really not do it.
Okay, Okay, we won't talk about SpaceX.
Who cares? It doesn't affect my life? You know what does? What?
Okay? Well, justin speaking of the grocery store, if SpaceX
is like the jalapeno poppers of the week's economic news,
I have only been thinking of spinach aka inflation. We
got a lot of inflation news I have. I'm really
happy to have you here because I have some big
questions about this. Just to explain a little bit, consumer
Price Index came out this week. That is the CPI,
aka the big inflation report that comes out every month.
Well, I've I've had so many acronyms. You've got a
CPI and a I K A oh right.
That is bad writing.
It's bad writing, feel okay?
Uh So? Yes, the CPI, the Consumer Price Index, it
tracks prices all across the economy, and it came in
kind of hot, four point two percent, which means prices
across the economy on average arising at a rate of
about four point two percent. And the rate that we
like to see that economists like to see is two percent.
So it's a lot higher. So that's not great news.
What did seem to be better news, and where I'm
really excited to start off here, is that core inflation
came in at two point nine percent, a lot lower.
So core inflation is inflation, but you take out gas
prices and food prices, it tends to be more volatile.
So economists like yourself always like core inflation to sort
of see if the fund how the fundamentals are moving.
That seemed like good news to me. But justin what
did you see in.
All this might a'm mari.
So inflation at the headline level of full point two
percent of that high full percent eight, people are feeling it,
and they're feeling every So the first thing is what's
happened to people's paychecks? Reallyd to that, so real wages
when we compare what's happened to wages, and wages have
risen about three and a half percent. Well, prices have
risen about four percent over the past year.
The difference between those is the rate.
Of change how much you can buy with your paypacket,
and prices are growing faster than wages. As they have
over the past year, what you can buy with your
paypacket goes down.
We call that real wages.
I actually calculated since Inauguration Day, at first wages were
growing faster than prices. Now prices have caught up. So
in fact, between inauguration day and today, real wages are
literally unchanged, and they've now been falling for six months, and.
So I think people are going to be feeling that
quite a bit. Now.
The job of an economist is to say, don't worry
about that. A lot of it's transitory.
I kind of hope.
It's transitory me too, of course, I hope it's transfering. Well,
that's what I wanted to ask about with the core inflation, because,
of course the thing everybody always says, and I feel this.
I used to get angry when I learned about the
concept of core inflation. I actually got angry because I
was like, you're taking out food and gas, like those
are the things I can't get out of buying, which
is true. But in this case, you know, we all
know what is causing that. The straight up hoorror moves
being closed. It's affecting fertilizer shipments and oil shipments, so
it's restricting the supply and raising the price. So the
good news would seem to be, you know, that is
a temporary knock on wood event. So if and when
the strait reopens, things will normalize, prices will come back down,
and if we're not seeing it so much in the
rest of the economy, that seems like really good news.
Absolutely.
So look, the reason we look at core is the
reason you said, which is often you know, there's a
drought somewhere or some crazy thing happening in the Middle
East that we don't control, and you want to sort
of look through that, you know, what's the underlying inflationary
impulse or the psychology of people deeply worried about it.
That pretty much makes sense. Now. The thing is, in
this case, we know there's been a very sharp.
Increase in the price of energy. Think about that as
a pebble you throw into a punk. The first thing
that happens is the price of Brent crude oil and
West Texas Intermediate, which are.
Just fantastic flavors.
Next time you're at the ice cream shop, get yourself
some West Texas Intermediate. And then those are ingredients that
go into gasoline. So the price of gas has gone up.
It also then goes into jet fuel. We're already seeing
airfares go up. It also goes into diesel, which is
a big input into agriculture. That's what a lot of
the tractors use, it's what a lot of transportation uses.
And so before you know it's almost everything you buy
touches or as affected by oil.
And so really the big question.
Right now is how big are these second and third
round ripples going to be? Is the price of Barbie
dolls going to spike because Barbie's made of plastic, and
past plastics made of petrochemicals, and petrochemicals, the petro bit
means something to do with oil. So are we going
to start seeing it at the toy store? Are we're
going to see it at the grocery shop? Are we're
going to see it in wage demands?
And so on?
And it's just too early to be particularly optimistic about
what we've seen so far. So right now I'm mostly
just holding my.
Breath the thing that the FED is very worried about.
So there's a story. Let me, Stacy. Can we do
three levels of analysis here?
Yes?
If this will Goldie locks level spinach, three level spinach,
that's great.
It's the spinach dip. I mean, I've had a five before.
It's sports season, it's dip season.
It is dip season. I declare it.
It's efficiently started. Walk us through the dip.
Okay.
So look, if you want a thin, watery dip that
doesn't have much flavor, you just do what most economics journalists,
not Stacey Manic Smith do, which, as you say, if
inflation's high, the FED has to raise rates. Now that's
right half the time. That's why there is a little
bit of spinach in this dip, just not that much,
because that's the right instinctive. We're talking about what economists
call a demand schock. A demand tchock is there's too
much demand. Too many people want to buy more stuff
than there is, and so therefore prices go up.
So what you got to do is pull demand back.
And so the simplest reaction, if you're a rookie journalist
who's never seen a textbook, is any time inflation's high,
you say, oh, fed's going to raise interest rates.
But if you want the next layer.
What would you call a slightly more sophisticated spinach dip?
Here Stacey, I'm not sure.
I mean then we're getting into like seven the seven
layer dip arena.
Oh yeah, I do like a seven layer yeah, I
mean there's there's the spinach is always a delicious layer,
but there's like the beans and the sour cream and
the taco seasoning.
I did an inflation indicator of seven layer dips, so
I know a lot about seven layer dip. I don't
want to get audio serious journalism.
I just didn't get on with the economics.
But can I just pause because Americans may not understand
just how extraordinary that country is.
That's one of my favorite things about the country.
Hey, we measure foods. The quality of foods is how
many things are on it? So like a four cheese pizza, Like,
I don't know where I come from. In Australia, we
just have one cheese on our pizza at a time. Actually,
so to the Italian.
Okay, now justin I need to stop you because isn't
this the land of the bloomin Onion?
Like? Which is no, no, No.
Isn't Outback Steakhouse is not originally Australian. It's like Americans.
Has nothing to do, We're Australia.
No.
In fact, there was a wonderful review of we are
going to get back to Economics. There's a wonderful review
of the op it's owned by Americans, and Americans who
don't understand Australia at all. If they did, they'd have
good coffee or good beer. There was a wonderful review
in the New York Times. I have never been able
to find it again, but they said, you know, this restaurant,
the Upback Steakhouse, does not understand Australia. Because they have
a dessert called the Chocolate Thunder down Under. And if
you understood the Australian obsession with the scatological, you simply
could not name it.
Assert the Chocolate Thunder down Under.
That seems problematic anywhere. But anyway, I deeply apologize for
connecting out Back Steakhouse to your great country.
Look, now, appropriation is the word of the day.
Let's move on to the second, the second dip. Right, So,
if you're a journalist who's actually gone to school, or
if you're someone who's got who's you know some of
them have gone. Why am I making fun of journalists?
I like journalists. Okay, if you want to.
Go, I deserve it. Could you know I I there
are my people, I love them, and you know we
can take it.
If folks at home want to know what I talk
about when I teach instructory, you can. We talk about
there being the possibility of both demand shocks too many
people wanting to buy more stuff than we have, and
supply shocks. Supply shocks make the cost of doing business
higher and they force prices up. So the thing is,
what's happening in the straight uphor is a supply shock
it's harder to get oil. Oil is an input. Therefore
the cost of doing business rises. So the thing about
a supply shock is the price of oil goes up,
even if it.
Never comes down again.
That Remember, inflation is the rate of change of prices,
so the price can go from low to high. That
will cause a temporary blip in inflation. I said the
word temporary. And then if it stays high forever, then
inflation is just going to go back to normal. So
you just watch and wait and the inflation will disappear.
High prices won't, but inflation will disappear. So that's why
economists sometimes say the advice in the central banking.
Textbook would be to look through a supply.
Shock, which means basically ignore or discount the supply shock.
And so that is what then says, well, maybe the
FED doesn't need to be super responsive to what happened
with hot inflation this week. What it needs to be
instead is patient. And I actually think that too often
we forget our textbook, and so we should think about
being patient, which means high inflation doesn't.
Necessarily mean high in strates. Now, do you want to
come to.
Graduate school and go to third level level spinach dib. Yes, Okay,
this is what happens if you take a higher level
course in money and banking. One of the things we
think of as being a critical determinant of inflation is
inflation expectations.
So is this the view that.
The belief that inflation might occur is enough that people
are worried their costs are going to rise that they
raise their prices. And so the belief that inflation might
occur creates the reality that inflation occurs, so it can
be a self fulfilling prophecy. And so if inflation expectorations
cause more inflation, then the fed's most important thing to
do is try and cut get people's inflation expectations down.
What's happened, right, and that's why we have a two
percent inflation target. It's the Fed's job to walk around
and yell to everyone, Hey, inflation is going to be
two percent. You've got to believe me. I'm serious, And
then everyone else's job is to believe them, and then
we get the virtuous cycle of believing prices won't rise much,
so we don't raise our prices much. The problem for
the FED is we've had high inflation now well, above
the two percent target for five years. That's long enough
where people are thinking, I don't know. You keep saying
inflation is going to be two percent, but mate, I'm
not sure I believe you. And if that's the case,
then the FED has to go back and re earn
that credibility and say, hey, I mean it, I am
going to crush this economy. If that's what I've got
to do to bring inflation back to normal, you should
believe me. So look, that was a long side in
the monetary economics. Let me try and bring it back
to where we are right now. What the That's what's
really happened is we were looking at a few right
cuts this year, interest rates coming down. It now looks
likely that next move in rights will be up. And
that's as a result of this hot inflation report. And
how many more rises we get and how severe they'llbey
that is what we're we're waiting on tender hooks to
figure out.
This is making me think of we talked many times
during the transitory inflation moments back in like twenty two,
and there was a lot of talk back then about
the supply chains. This was the idea that you know,
there was like supply chains were all kinked up all
over the world, and as a result of that, store
shelves were empty in a lot of places. Prices got
pushed up. And the idea was when supply chains normalize,
prices will come back down to normal and inflation will
will peter out. That did not happen. And one thing
that occurred to me about this and that moment I
wanted to run this by you. It seems like the
thing that triggers the inflation can be different from the
thing that sustains it, Like the trigger can go away,
but that doesn't necessarily mean the inflation will go away.
So even if let's say next week, the strait of
Hormon's reopens, like you say, all of a sudden, we're
that doesn't necessarily mean that prices and inflation will start
to drop. And I feel like it's an important distinction
to make too, because you know, if your coffee like
jumped up to seven bucks and stays at seven bucks.
That's if it stays at seven bucks, then inflation hasn't risen,
but you're still paying seven bucks for your coffee. But
inflation can kind of take off for because, like you said,
consumer expectations like it can sort of latch on in
this way when even after the trigger, the thing that
triggered it goes away. Is that right?
Yeah?
And actually, what you've just done, you've you've invented your
Halloween costume.
It sounds like you can get dressed. Is Kevin Walsh
is worst? Not me?
Yeah, Kevin's worst nightmare is the oil shock causes inflation
to rise and in turn inflation expectations.
We just got some new data, by the way, from
the University of Michigan.
Inflation expectations have risen and if they stay then that
could cause inflation to persist for quite some time. Now, Stacy,
I could talk inflation all day. In fact, I might
go home and I might do it myself tonight. Just
have a bit of a chat with the kids, force
them to talk inflation. But there's even more issues that
are hitting this week, and a big one that I
think it affects more of the next generation up older. No,
we're going to relentlessly not talk to that at all,
and we're doing in a marvelous job. It's social security.
It's the thing that keeps old people out of poverty.
And you might have said there was news earlier this
week that the Trustees. So there's a bunch of nerds
whose job is to put together complicated report that says, hey,
do we still have enough money to keep Social Security going?
They now expect the Social Security Trust Fund. And there's
a lot of moving pats here, So let's make sure
if people understand all of them. They now expect the
Social Security Trust Fund to become insolvent by the end
of twenty thirty two.
Let's unpack there. Where do you want to start?
So let's talk. Let's just talk about the program itself. Now,
social Security it is like the biggest expense the government has.
It is huge. It is also really popular because, and
I think partially because everybody gets it. But that's also
part of why it's so expensive. I remember someone saying
to me years ago, Warren Buffett doesn't need social Security,
but social Security needs Warren Buffett. It's it's become a
political because everybody gets it, no matter how wealthy they are.
But that also makes it really expensive.
Yeah, right, The problem in some sense isn't that it's expensive.
We can do expensive things if we save up money
for it.
Okay, So I'm going to give so I agree with
everything you said, and now I'm going to give an
economists description of what the structural problem is.
So a lot of us think.
The way social security works is I send the government
a check, or my employer sends them a check, and
then they put it in a safe and it sits
in the safe until I'm old, and then they pull
it out of the safe and they give it to me,
or if it's a very sophisticated government, they put it
in the bank and it grows interest and they give
it back to me. That's not how it works at all.
So there's no such thing as your money and their system.
What happened was when it was set up, and this
is in some sense the original sin.
They just started it.
Where young people would pay in and old people would
start getting money. Both happened on pretty much on the
same day.
This is in the thirties, is that right?
Yeah? Yeah, it was a Roosevelt. Roosevelt how do you
even say American words?
Yes, Roosevelt is how I see it.
But I could be wrong, and I stumble so often
over the things you learned in elementary school, because I
didn't go to elementary school.
Here.
Okay, so young people are paying money in, and that's
great because now the government can at the same truck
time write checks to old people. So there's no big
bag of money there at all. There's just money coming
in and money coming out. Now, in an economy where
there's lots of young people, there's lots of money coming in,
and if there's not many old people, there's not much
money going out. And as a result, actually you might
build up a little bit of a bank balance in
the middle if there's lots of old people and not
many young people, and that's where we were. Then what
happened is, remember we had lots of young people, they
got older and they became the old people. Now we're
in a world with lots of old people and not
very many young people. Well, so therefore there's not much
money coming in, but there's a lot of people a
lot of checks going out, which means whatever bank balance
metaphorical bank balance the social security had built up, and
that's what we call the Social stee Security Trust Fund.
How much they got ahead when there was more young
people than old people. Now there's more old people than
young people, we're running down that balance. And so when
we talk about the fund becoming insolvent. It just means
that in twenty thirty two we will have run that
balance down to zero. Now realize, if I think about
being bankrupt, I think about having no money. But that's
not right, because there's still going to be young people
and they're still going to be sending checks in. But
because there's fewer young people and old people and there's
no money in the bank to run down, that's going
to mean there's less money to pay out of.
The old people.
And so what that lets us do is I want
to puncture one of the important myths. People say, if
Social Security goes bust, it won't be there for you.
They say that to my.
Kids or older people are worried that they've retired and
there'll be nothing there.
That's not right.
What we're talking about is the amount that goes out
will have if Congress does nothing.
There's a big gift there. So we'll come back to that.
If if Congress does nothing, the amount that goes out
will have to be equal to the amount that comes in.
And that basically means.
What we'll have to do is cut every Social Security
check to be twenty two percent lower. That's a big
cush yes, but it's still seventy eight percent coming out.
So look, what you just say is right.
That's a very very serious issue, and we'll talk about
the seriousness.
But the one thing I don't want to do is
overblow it.
If you're looking forward to your retirement, realize all this
talk of social security and soolvency is important to force
politicians to act, but you're still going to get sent
something now. Having said that, there's a lot of old
people who barely get by on their social security.
And I don't want to cut it by twenty two percent.
So justin a couple things here. One of the proposals
there are a lot of proposals about how to deal
with this. One of the proposals that I've heard is
you could cut the amount of money going to wealthier people,
so it could be a little bit less. But those
are the people who've paid the most into social security,
but they may not need it.
Right, it's let me just reflect something back. It's a
it's a very unusual system. So let me reflect on
being Australian for a moment, because I came to think about.
All, you guys have a super annuity well done. In
addition to the bloomin onion.
We do not have a bloomin onion, but you have
more cheeses on your pizzas. So look, when I was
young in Australia, we used to do something just called
the old age Pension, and it was basically, if you're old,
we know you can't work, we don't want you to
go hungry. The government's going to mail you a couple
hundred bucks every week. And over time we realized we
don't want to send a couple hundred bucks to rich people,
so we did.
More what we call means testing, just sending it to
people who need it.
So that's a fairly standard sort of a system around
the world that you have a government system which is
basically about looking after.
Old, poor people.
We think of it as being part of the welfare
state power of how we help those who might otherwise
be left behind. So social security is not that right.
And the other thing social security is not is we
have something called superannuation, which is Americans are sort of
told and it's sort of a promise. You're sending in
your check and it's going into your Social Security account
and you'll be able to pull your money out. But
in reality you don't have a bank account there that
you own. What you have is a piece of legislation
that says we hope to pay you this much in
the future, but it's not actually your money. It's the
federal government's money. This is why this is seen as
a part of fiscal policy. And so the way we
sell social Security to Americans if say you pay in
and you get out, and we try and create this
very strong connection between what you put in and what
you get out, and that gives it political sustainability because
you say.
Well, if I put in, I get it out, it's
not about that terrible stuff like redistribution.
But in fact it's not a private system, which is
what superannuation is. So we're in this funny world where
we can't decide if what we're doing is a little
bit about redistribution and a little bit about stuff you
actually own. It's a uniquely American political compromise.
Is there actually a possibility that Social Security would be
cut or not go out? And I only say this
because I started in journalism. It has been a minute,
it's been more than fifteen years, and I've been doing
stories about how Social Security is about to run out
of money. That entire time. It sort it feels a
little bit like the debt ceiling fights, like a little
bit like here we go again. Of course this can't
isn't going to fail. And I know if you keep
walking super close to the edge all the time, one
time you may stumble. But are you actually worried about
this at this moment? Actually think there's a chance that
this wouldn't get funded because the thing about older people
is they vote a lot.
Right, I'm terrified.
I think that this speaks to a level of dysfunction
that's far greater than the dead ceiling and the other
examples you're thinking about. And the why is exactly the
story you told. Ever since I arrived in the United States,
which is probably around the same time as a young
Stacey became a journalist, economists have been saying this is
going to happen in the future. So first thing I'm
want to say recognize is good job economists.
You were right.
I'm not always going to say that, But when it
comes to stuff that's basically driven by demographics, demographics are
really really easy to predict, right, Because you become a
year older every year. It's very easy to predict this
and so that.
Where in an era where we have not many.
Young people and a whole lot of old people. We
knew that was coming. Thirty years ago Bill Clinton ran
on save Social Security put ready first. That's how long
we knew this moment was coming for Clinton ran on it.
Bush, George W.
Bush ran on reforming Social Security. Someone somewhere along the
line was going to put social Security in a lock box?
Was that Gore?
Yes, I remember the lock box. I think it was Gore.
Okay, you know what's happened is we've had thirty years
of a slow motion disaster and literally nothing got past.
Now we're six years away and we're not even talking
about it anymore. Remember, if nothing happens, checks are going
to go out, but they're going to go out at
seventy eight cents on the dollar.
So do I.
Feel enormous confidence that what has been called the third
rail on American politics is all of a sudden going
to be something that Democrats and Republicans get together to fix,
because it will require that given the filibuster.
I've seen Washington the last.
Couple of years, and I think that if you think
political function describes America, you're probably not paying attention. So look,
for thirty years in a row, we've failed at this
and we only have six left. And this is complicated
and there's no easy way out, and it comes back
to the point that you made, Stacy. The amounts of
money involved are staggering, so you can't there's no pretending
you can cut waste, fraud, and abuse. I mean, the
world's first trillionaire tried that and discovered that he was wrong.
We are going to talk about SpaceX.
No, we're not under no conditions.
What we're doing just testing defense.
You are what we're doing.
I want to take a moment on why you're right
to not talk about SpaceX. Nothing matters more for the
actual living standards of the folks we're talking to who
are listening and watching us right now than getting Social
Security right. There will be a billion column inches about
there's an IPO today. I think SpaceX they're calling it.
Who can like that? Right?
If we can't get people to say we need a
long term plan for ways in which people can look
after themselves when.
They're older, yeah, we have to have an adult conversation
about that.
And honestly, I sound like the most boring bloke in
the world right now, I wish we could have an
O conversation about social security.
I want to blow my own brains out. I sound so.
Boring right now, But the thing I want people to
realize is I'm prepared to bore you because it's so important.
This is the Spinach episode and I am here for it.
Here's the thing that I also feel like is in there,
and I wanted to ask you about this. It seems
like I spoke with Jessica Ridal, who's an economist who
looks into this. She's with brook Ins now and she
said she's I guess she's super worried about the budget,
budget debt. This is her thing. And when I spoke
to her about it, she's like, everybody is all obsessed
about the budget and the debt until they get into power.
And she said, there's There's the problem is like, there's
no party that wants to save money anymore. It used
to be that the Republicans were sort of whatever fiscally
conservative or that was the you know, a chunk of
the Republican Party. It used to be that, you know,
Democrats would promote like raising taxes in order to fund things,
and now nobody wants to raise taxes and nobody wants
to cut spending, and it just seems like there's no
political will to change this at all.
Right, so let me violently disagree with Jessica and then
violently agree. Okay, just a wonderful and a terrific policy won't.
So here's the violent disagreement. Jessica is also a recovering Republican,
and so when she says, no one.
Has this as much of this country, justice.
Absolutely, I don't.
Lots of platypus listeners.
Absolutely absolutely. I just look. All I want to do
is talk about facts.
And when Jessica says there's never been a constituency around
the budget deficit, I feel duty bound to remind her
that Clinton balanced the budget, Yes he did, and that
Obama did a huge amount of budget repair, and George W.
Bush blew it out, Reagan blew it out, and Trump
blew it out. The Democrat I've not described in this
narrative so far is Biden, who I think sort of
was the first sign that Democrats might just be content
to look the other way.
So there was.
A COVID shark, which I feel like in Trump won
and for Biden, I don't know I feel like that
was a very extraordinary circumstance, and so.
Let's just leave that as hard to figure out. But
it's not hard to figure out. Reagan blew out the budget.
Bush blew out the budget. Trump blew out the budget.
There's no argument that Clinton did repair, and very little
argument Obama.
Did a lot of budget repair.
Look, the first thing I want to notice that reverses
the story that Jessica's parents would have grown up with,
which there was always this image that Republicans were the
party of fiscal responsibility. But I do want to acknowledge
the point that I think Biden looked the other way.
But let's not argue about Biden. What I want to
do now, I'm going to turn to violently agreeing with Jessica,
who's saying there's no constituency here. So what happened in
the last fifty years of American politics. Here's a very
simple story. Reagan either believed tax cuts would pay for themselves,
or that's taking the literal interpretation, turns out they don't.
Or he said I want to starve the beast. I
want the government to be small. The best way to
do that is if there's no money, they can't spend money,
so he cut taxes.
Now, George W. Bush did the same thing.
At this point, we knew that tax cuts don't pay
for themselves. He went all in on tax cuts again,
and Trump did the same.
So what's going on here?
I think now it's a more political thing, which is,
there's only so much money. If I the more I
spend a bit, they're less there's left for the next
bloke the other side.
And so Bush, George W.
Bush spent a lot of money, there's less left for Obama,
and Trump is spending a whole lot of money, and
therefore there'll be less left for whoever the next president is.
If that's the game they're playing, Now, what I want
to do is imagine a Democratic political strategist calls me
and says, justin what should the Democratic Party do after
it next wins the presidency? Yeah, Well, if the answer
is if we repair the budget, they're going to blow
it all on the stuff for their guys, then I
can't good conscience tell a Democrat.
To be fiscally.
Responsible because all they're doing is essentially taking money and
blowing it on, leaving it for the next president to
blow on.
Republican priorities, and so this is Jess because.
Point once you get into this place, we're now both
trying to spend all the money so the other guys
can't get hold of it.
And this is the tragedy of the Commons.
It is in fact very much budget. Yes, yeah, the Commons.
Here is our fiscal situation, and both sides are blowing it.
They're overgrazing their sheep and they're destroying the Commons for
all of us. So that's why let me just wrap
this up. The point I think that comes out of
that is the only way forward is a bipartisan deal,
which sounds very very two thousand, but I don't see
any way other way out of that.
It does seem like it has to be bipartisan. You know.
The tragedy that comments, how do you solve that?
You get the very sheep farmers together and you say,
can we just all agree to let the grass grow
for a while?
Speaking of grass? That was a smooth transition.
Oh my gosh, this is this is like, you know, yeah,
this is.
Poetry speaking of grass. Let's get onto the World Cup.
First of all, how exciting. There's a genuinely, profoundly global
event happening, and the world is glued on it. And
I think that in itself is a metaphor for at
the very least, how I like to think about the
global economy. We have a shared humanity, a shared moment,
and we get better football when we play against other
teams soccer.
That's what I said, football. Okay, So.
Really interesting fact that my friend Florian Eatert noticed so FIFA,
the International Football Association, which is incredibly not at all
corrupt and has a long history of fantastic judgment. Wait,
where was the last World Cup held, Stacey Qatar? Okay,
the one before that?
Russia? I believe it is Russia.
Okay, great, So really believe in freedom. I love that
about them, and they believe.
In long been criticized for all kinds of things.
They believe in peace too. I think they just started
a peace prize, didn't they.
They did, Yes, they. I think the first ever fore
You for Peace prize was given to our president recently
is that.
For starting the Iran war.
This was pre that.
Oh great, okay, back when we were in favor of it. Okay, great. So, look,
FIFA has marvelous judgment and it should never be questioned.
In fact, let me say it the other way. If
I'm a conservative and I want to talk about multi
international organizations being corrupt and pointless and unable to organize
anything remotely, well all I do is spend my all
days pointing at FIFA. The flip side of this is
football is a beautiful game, so not even FIFA can
destroy football.
They've tried so.
Every now and then there's a big concert tour and
how I went to see Taylor Swift and there's this
they always over they always sell out, And then there's
a million thin pieces written by economists who say, well,
the problem is the scalpers are getting rich here. How
do we prevent the scalpers getting rich? What we need
is a more complicated pricing mechanism. And if you're an
economist who works on that sort of area, you get
paid thousands of dollars to consult and come up with new,
more marvelous ways of allocating tickets. And so FIFA tried
that with dynamic pricing, where the price today is not
the same as the price yesterday. It's unbelievably opaque. And
here's the funny thing. By the way, they sort of
act a lot like the sort of organization that would
think Katara and Russia are great places to do business.
My friend Florine either. It was on seat Gek.
Florian's an economist at Boston University, and he noticed seat
geek is one of these places you can resell your tickets.
Yes, and look for tickets for things that are technically
sold out, like tail of Swift concerts and soccer dams.
Yeah. Absolutely. In fact, I've still got my Taylor Swift
bracelet right here. It says our.
Song I'm going to pop that back on nice. What
would our song be, Stacy. No, I'm going to stay
on topic while you think about it. So what he
noticed on seat geek, you know, you'd think, well, maybe
some family couldn't make the trip or couldn't get a visa,
so maybe there'll be four seats in a row.
What he discovered was whole blocks of.
Seats were being offered. It's literally impossible for a member
of the public to buy a block of seats to
resell them on seat Like.
You could only buy the seats if you bought them
in book, like thirty seats at a time.
No, No, I didn't mean to say that, but you know,
when you click on the stadium view and it shows
you what seats are available.
The blue dots.
Yeah, the blue dots were all next to each other.
It couldn't be a coincidence that everyone who's just sitting
in Bay thirty eight is just.
Like, oh, I can't make the game this week. I'll
have to go to seat geek. Oh.
Right, So this means that there are scalpers or bots
buying a big swaths of tickets and then putting them
up for sale.
Worse than that, FIFA.
Oh, these are tickets that never hit the market.
So FIFA is over.
Here on one website saying we want to democratize this.
Everyone can get access, come and buy seats. There are
mere two thousand dollars a pop.
It's telling you.
Around, that's all it's doing, But it's actually secretly selling
seats on SeatGeek.
Suggestin. Yeah, this is definitely not an admirable practice, but
it seems economically pretty smart.
This always gets difficult, Yeah, because let me tell you
something else.
I look, okay, I'm going to concede in the abstract.
Are you at war inside of yourself?
Right? Yeah?
This is why this is such a difficult issue, because
it's so funny. Fans are always like, it's outrageous, tickets
should go to the biggest fan.
She's a lot of economics here.
And the tickets all sell out, and then the scalpis
make a bunch of money, and then the economists like, oh,
that's not an optimal making this, because what happens is
scalpus realize they can make a lot of money by
lining up early or programming bots and all the grubby
things scalpers.
Do, and so they then resell the tickets.
They do resell them to fans, right, who's buying from
the scalpers fans?
So at some level the fans are getting in the stadium, and.
The biggest fans are willing to pay the most ostensibly,
And so then this is classic, isn't this elastic demand?
Where it's like the ones who really want to go
see Taylor Swift, they will make the sacrifice and pay
a lot, whereas the ones who are like, that'd be
nice to go aren't going to pay the higher prices,
and so they go away. This seems like the free
market making beautiful music.
Well not quite so.
When I teach economics, I call this the Kim Kardashian problem.
I'm atriatt yes.
So look, the idea is, if the intensity of our fandom,
if you love Taylor Swift twice as much as I
do and we have the same incomes, you might be
willing to pay three hundred dollars for a ticket, and
I'm only willing to pay one hundred and fifty. And
so therefore, if the ticket is priced below three hundred
and above one hundred and fifty or go to you
instead of me, therefore it goes to the superfan, and
that's good.
Right.
So there this is the idea that price is a
signal of your willingness to pay, and your willingness to
pay is related to how much you love Taylor Swift.
Right, here's the problem.
Your willingess to pay for a Tailor Swift concert, or
for World Cup tickets what we're talking about today, maybe
a lot higher, not because in fact we know.
It's like this.
You're willing is to pay a lot more for a
World Cup ticket, maybe a lot higher.
Not because you love football, but because you're rich.
And so if we allow fee for to charge very
very high prices, you're going to get the ticket because
you like football, but because you're rich, and I the
true fan, I'm going to miss out. And so the
problem here is that someone's willingness to pay is a
function both of how much they love the event how
much joy they get from it. We can use words
like utility here if you want, and their ability to pay.
And the thing is, when we use prices to allocate,
that means partly we're allocating on how much people love it,
and partly we're allocating on just how rich they happen
to be. And so very high prices, if we all
had the same incomes, very high prices would be a
great way of making sure only the super fans got
in the stadium. In reality, very high prices are making
sure that rich folks get in and poor folks are
left out.
And in fact, you can see this directly watching the
World Cup right now.
If you look at a lot of the seats right
on the halfway line, those are the seats brought by corporates,
and the corporates are inside having a lovely glass of
wine and a cannot pay, and they don't care about
football at all, And honestly, that makes me kind of sad. Now,
this version of the problem, I call it the Kim
Kardashian problem, because the way I tell the story is
often Kim Kardashian will outbid you for things, not because
she's more passionate about the world, but because she's rich.
That's why it's called the Kim Kardashian problem. This problem
with the world, it's not just a problem about the
World Cup. It's actually a problem fundamental to capitalism.
Right.
We use prices to decide who gets what, and when
economists talk about prices as being magical, it's because they
because the ticket goes to the super fan, not the wannabe.
But yeah, too often that's not what happens in reality.
So I'm going to get so much hate from the
plata pi, but I'm just going to go here. Yeah,
I feel like in the case of concerts or games,
this isn't not the worst thing, Like it is a
soccer game. I'm gonna get so much hate mail, but
I'm just gonna keep going. You know, there's not like
harm done. Everybody can still see the game. They can
see it at their local bar, they can watch it
on TV. It's still seeable. FIFA is not harming anybody.
Is this like the most admirable practice. No, is it
kind of sad that the biggest fans don't get to go.
It's a little sad, But I don't put like this
isn't food, this isn't healthcare. This feels like a discretionary
activity that's fun to go to. But if you don't
have whatever it is that, I think it's like thousands
and tens of thousands of dollars to sit on the
fifty yard line and instead you go in and watch
it down the street at the bar like that seems okay.
I just want to stay you sugny. First of all,
I love how American you are. Soccer does not have
a fifty yard line.
The rest of the world doesn't even talking yards. It
has a halfway line.
The rest of the world. Oh okay, And then who.
Pairs who gets to see a soccer game? This is football?
Okay? Sorry, but you know it's not.
Do you know who you sound like right now? And
I just want to know someone else made this exact
argument this week who they were talking about a different sport.
They were talking about the Knicks.
Yeah, do you know what your nuts?
No, our president.
Said, it's not a big deal that other people can't
get in that it costs ten thousand dollars to get
a ticket because you can see it on TV. And
that's all just the same. Okay, I am going to make.
You a halfway me me at the fifty yard line.
Yes, oh wow, that hurt.
The halfway line. Really, that's what you guys call it.
It's in the middle.
Okay, okay, yes, anyway, tell me.
I'm going to accept this is not food. Although I
do want to point out to you lots of people
give up food in order to afford their World Cup ticket,
so to them it is actually is important. But what
I really want you to do. Look, I don't really
want to riff on the world. I don't want to
rip on Kim Kardashian, Taylor Swift or the World Cup.
I wanted to point out a deep tension in how
we talk about markets. You said, oh, it doesn't matter
who does or doesn't get in. That's the whole game.
To an economist, that's all of economics. Economics is the
world has scarce resources.
How do we get the most out of them? And
so when you said you don't care who gets into
the stadium, you.
Tore my heart out. That's my life's work. That's what
my tribe does.
And what if it's like affording an emerald tiara? And
it's like, well, what if the person who really once
the emerald tiara is not earning enough to buy the
emerald tiara? Like there are just that's not I mean
food and healthcare. That seems like it's in a different
category to me, and that does seem like a ripping
your heart out issue. But this is different than that.
I mean, Okay, I don't see, and I get so
much trouble with the economics profession for the following, Well.
All the sports fans are going to come after me,
so I'm like super canceled.
We've got two ways of allocating World Cup tickets. One
is you're going to run an auction where every ticket
goes to the highest bidder, and you'll be sitting there
next to Richie rich and that's fine. None of them
know what the rules are and they'll be wondering where
the fifty yard line is the problem there is.
A lot of assumptions about.
Okay, there are a few in there.
There are a few, But just to point out, economists
often talk about prices as being efficient. They're efficient because
they allocate according to those who are willing to pay
the most dollars for a ticket. Partly that's because they're
more passionate, but partly it's because they're rich.
Here's a different approach.
We could make all World Cup tickets forty dollars, but
there has to be a line, and so you have
to camp out like it was a duke basketball game. Now,
think about who's going to camp out. Definitely the super fans.
And so then I want to ask you which of
these two mechanisms makes the world a better place. Now Here,
I'm going to give you your counter argument.
Oh, it's totally clear.
If we have people camp out, the people who love
the game the most are going to get in. The
counter argument, of course, is they've had to camp out
for three days, and that's a waste of life.
It's a way you can't afford to do that.
We all have three days in our lives.
Yeah, but if you're like living pcheck to pcheck, you
might not be able to take time off work.
Absolutely sure, yeah. Sure.
To be clear, what we've just described is using queueing
as an allocation mechanism rather than prices. And we often
talk about queuing as being a very bad allocation mechanism,
and it's mostly is because you're wasting your life in line.
I was just pointing out that's not always in everywhere true.
I mean, you are wasting your time in line. But
on the flip side, we're letting the right people into
the stadium. So who knew the World Cup was actually
a metaphor for systems of organized and so that, by
the way, is why you're willing to allocate healthcare with
a different system. We allocate healthcare largely by I know
it's not officially called queing. You've got to call your
insurance company and yell at them for hours at a time,
and if you yell at them long enough then you're
allowed to get the operation. So that's a lot more
like queueing up to get into the World Cup. Now,
we don't like it because no one likes to spend
their life on the phone yelling at their insurance company.
Can I offer a counter example, yeah, mate. So here
in New York, Shakespeare in the Park has very cheap tickets. Yeah,
you cannot pay more. I think it's like fifty bucks
for a ticket. And the US actors that come in
and it is spectacular and you have to get in
line and wait. There's a lottery system, but then there's
also they release a certain amount of tickets stay up
and you have to get in line and wait and
guess what has happened? Oh, what your economists brain to this?
Like what has happened?
A lot of first dates where they bring a lot
of sharden I and have no interest in the bard.
No, there are people who will wait in line for you.
There are task rabbits or like people hire people to
stand in line with them and outsource that. So yes,
even the sacred line, even the beautiful law of the line,
can sometimes get capital capitalismed Stacy.
That seems like the perfect place to end this, because
I would like to think where the sort of high
falutant show that gets at least one Shakespeare reference and
leaves all of us feeling a little smarter.
So this has been off the clock.
This is the Economics podcast in which we slow down,
review the week that was, and try to sort out
what really mattered.
Now we're going to.
Take two weeks off because Stacy and I are both traveling,
but we're going to be back in time for the
fourth of July. And you've got to bet there's going
to be economic fireworks. See what I just did there
roundabout then, So in the meantime, let me just say
this is to show that only works if.
We find an audience. So if you've enjoyed it, what
I want you to do.
Is find a mate and say, hey, why don't you
take a look at off the clock platypus economics is
making me a little smarter, it's helping me navigate the
world a little better, and hopefully it makes you feel
better about the week ahead. And so this week Stacey
and I am going to keep watching the economics news,
will report back and in the meantime, stay curious.