>> AND NOW PARIS WE GO BACK TO
YOU.
>> AND IT'S NOT JUST RIDESHARE
THAT IS MORE EXPENSIVE YOU MAY
HAVE NOTICED THE DOLLAR IS NOT
BUYING AS MUCH OF A LOT OF
THINGS.
THE BUREAU OF LABOR STATISTICS
SAYS THE LEVEL OF INFLATION IS
5.4%.
WELL ABOVE ANALYSTS ESTIMATES
AND THE FEDERAL RESERVES TARGET
OF 2%.
SOME OF THAT IS DRIVEN BY
TEMPORARY FACTORS RELATED TO THE
PANDEMIC SUCH AS A45% RISE IN
USED CAR PRICES.
BUT OTHER FACTORS MAY NOT BE SO
TEMPORARY.
WHAT DO THESE INFLATIONARY
PRESSURES MEAN FOR THE ECONOMY
AND YOUR WALLET GOING FORWARD?
JOINING US TO HELP US UNPACK
THIS, ARE EDWARD STUART, AMERIT
TUS PROFESSOR AT NORTHEASTERN
UNIVERSITY.
AND LUIGI ZINGALES, AND RACHEL
GRESZLER FROM THE HERITAGE
FOUNDATION.
WELCOME ALL OF YOU TO "CHICAGO
TONIGHT".
>> GOOD EVENING, PARIS.
>> LET'S GO THROUGH SOME OF THE
COSTS.
INFLATION UP 5.4%.
GAS UP 45% OVER THE LAST YEAR.
USED CARS 45% AS WELL.
10% IN THE LAST MONTH ALONE.
DINING OUT 4.2%.
FOOD 2.4%.
EDWARD STUART WHAT ARE THE
CULPRITS HERE?
>> I THINK ONE OF THE PHRASES I
USE TO EXPLAIN THIS THIS IS
BOUNCE BACK INFLATION.
AS YOU'VE SAID NOT ONLY ARE USED
CARS PRICES ARE UP AIRLINE FARES
ARE UP 24.6%.
HOTEL PRICES ARE UP.
THESE WERE SECTORS OF THE
ECONOMY WHERE THERE WAS
DEFLATION DURING THE PANDEMIC
AND NOW WITH THE VACCINATION
EFFORT SEMI SUCCESSFUL IN PEOPLE
WITH SOME MONEY IN THEIR POCKETS
BECAUSE OF STIMULUS AND SAVINGS
DURING THE PANDEMIC DEMAND IS
GOING FASTER THAN SUPPLY AND YOU
ARE GETTING WHAT I THINK IS
GOING TO BE TEMPORARY INFLATION.
>> AND SO YOU ARE SAYING
TEMPORARY INFLATION ECONOMISTS
AT THE FED SAID TEMPORARY
INFLATION.
LUIGI ZINGALES HOW LONG IS
TEMPORARY?
AND DO YOU BELIEVE THAT?
>> SO THERE IS A TEMPORARY
COMPONENT BUT THIS QUICK
CALCULATION IF PRICES WOULD NOT
RISE FROM NOW TO THE END OF THE
YEAR WE WOULD BE AT 3.6%.
IF PRICES RISE AT THE SAME LEVEL
FOR THE REST OF THE YEAR, WE ARE
DOUBLING TO 7.3%.
WE'RE WAY ABOVE ANYTHING THAT
ANYBODY EXPECTED AT THE
BEGINNING OF THE YEAR AND
ANYBODY AT THE FED EXPECTED EVEN
ANTICIPATE IN THIS.
I THINK THAT THERE IS A CONCERN
AND THE CONCERN IS NOT AS LARGE
TO SAY WE SHOULD ACT NOW BUT I
AM AFRAID OF THE FACT THAT THE
FED DOES NOT SEEM TO BE AFRAID.
IN FACT, I WOULD SAY THAT THE
ONLY THING TO FEAR IS THE LACK
OF FEAR ITSELF.
>> THE LACK OF FEAR FROM THE
FED.
YOU DON'T THINK THE FED IS
TAKING IT SERIOUSLY AND THEY ARE
NOT GOING TO TAKE ACTION.
RACHEL GRESZLER, AT WHAT POINT
DO YOU THINK THE FED DOES HAVE
TO STEP IN HERE AND ATTACK THE
INFLATIONARY PRESSURES OR
GOVERNMENT POLICY WHEN SHOULD
THEY STEP IN?
>> I THINK THAT GOVERNMENT
POLICY SHOULD HAVE STEPPED OUT
OF THE WAY QUITE A WHILE AGO
BECAUSE I THINK THAT THERE'S
THIS ARTIFICIAL BOUNCE BACK
COMPONENT ALSO AND THAT HAS BEEN
SPURRED ON BY THREE ROUNDS OF
STIMULUS CHECKS.
SUPER SIZED UNEMPLOYMENT
BENEFITS NOW AVAILABLE A
YEAR-AND-A-HALF AFTER THE
PANDEMIC BEGAN SO IT IS NO
WONDER WHEN YOU HAVE THE FEDERAL
GOVERNMENT SIMULTANEOUSLY
INCREASING DEMAND BY PUMPING
THIS MONEY INTO THE ECONOMY AND
RESTRICTING THE SUPPLY OF
AVAILABLE WORKERS TO MEET THAT
DEMAND BY OFFERING THESE SUPER
SIZED UNEMPLOYMENT INSURANCE
BENEFITS IT IS NOT ROCKET
SCIENCE TO SEE HOW THAT IS
WEIGHING ON CRISIS.
AND THAT COULD CONTINUE BEYOND
JUST THE SHORT-TERM IF WE SEE
THE POLICIES GO BEYOND THE
PANDEMIC.
AND WE'RE ALREADY TALKING ABOUT
$3-6 TRILLION IN INFRASTRUCTURE
PROJECTS.
EMPLOYERS ARE HAVING TO COMPETE
TO GET THE WORKERS THEY DON'T
NEED A JOBS PACKAGE CREATING
MILLIONS MORE JOBS WHEN WE HAVE
A RECORD-HIGH NUMBER OF JOBS OUT
THERE.
>> AND THE HOSPITALITY INDUSTRY
AND THE RESTAURANT INDUSTRY
PEOPLE CANNOT FIND WORKERS.
IT'S A WEIRD SITUATION WHERE
THERE ARE PRESSURES AND MANY,
MANY JOBS OPEN THAT ARE NOT
BEING FILLED.
WHAT IS GOING TO CHANGE THAT
SITUATION?
>> WELL, WHAT IS GOING TO CHANGE
IT IS BASIC ECONOMIC SUPPLY AND
DEMAND.
WAGES ARE MUCH TOO LOW.
EMPLOYERS HAVE BEEN USED TO
GETTING EMPLOYEES AT ROCK BOTTOM
PRICES AND NOT PAYING BENEFITS
AND HAVING IRREGULAR SCHEDULES.
AND FORTUNATELY IT'S BEING
SHIFTED AT LEAST IN PART TO THE
LABOR SUPPLY SIDE TO WORKERS AND
THEY HAVE A LITTLE BIT MORE
BARGAINING POWER NOW.
AND WHAT IS GOING TO HAVE TO
HAPPEN IS THAT EMPLOYERS WILL
HAVE TO START PAYING FAIR WAGES
AND TREATING EMPLOYEES LIKE
HUMAN BEINGS WHICH THEY HAVE NOT
DONE ESPECIALLY IN LEISURE AND
HOSPITALITY FOR A LONGTIME.
I THINK THIS LABOR SHORTAGE IS A
GOOD THING.
>> SO, ED, YOU ARE SAYING THE
WAGES ARE THE PROBLEM.
RACHEL YOU ARE SAYING THE
EXTENDED UNEMPLOYMENT BENEFITS,
LUIGI ZINGALES, WHERE DO YOU
FALL ON THIS?
WHY ARE IS THERE SUCH A LABOR
SHORTAGE?
IS IT ALL THE ABOVE?
>> I THINK IT'S ALL THE ABOVE.
THERE IS NO DOUBT THAT
UNEMPLOYMENT BENEFITS ALLOW
PEOPLE TO LOOK HARDER FOR THE
BEST JOB THEY TAKE LONGER TO GO
BACK TO THE WORKFORCE.
IT'S ALSO TRUE THERE IS A LOT OF
DISRUPTION BECAUSE A LOT OF
SCHOOLS ARE NOT IN FULL SWING.
SO CHILDCARE IS A HUGE ISSUE.
A LOT OF PEOPLE CANNOT PROVIDE
THAT FULL AMOUNT OF LABOR THEY
WANT BECAUSE THEY HAVE TO STAY
HOME WITH THE KIDS.
AND I THINK THAT WHAT THAT IS
SAYING IT IS TRUE THIS HELPS
RAISING WAGES BUT IF THE WAGE
LAST STAND INFLATION AT THE END
OF THE DAY, WORKERS ARE NOT
BETTER OFF.
IN THE LAST COUPLE OF MONTHS
WE'VE SEEN HIGH INCREASE IN
PRICES AND NOT PEOPLE INCREASING
WAGES.
>> THAT IS THE POINT.
WE ALL WOULD LIKE TO SEE RISING
WAGES ESPECIALLY AT THE LOWER
END FOR THE INDIVIDUALS TO HAVE
THAT UPWARD MOBILITY AND A
CHANCE TO CLIMB THAT LADDER OF
OPPORTUNITY BUT YOU HAVE TO SEE
THE OTHER SIDE AND THE REALITY
IS THAT HIGHER WAGES LEADS TO
HIGHER PRICES LIKE THE COST OF
CHILDCARE.
THAT IS WEIGHING ON THE
RECOVERY, HIGHER WAGES FOR
CHILDCARE WORKERS HIGHER COSTS
FOR CHILDCARE FOR FAMILIES AND I
DID AN ESTIMATE OF THE $15
MINIMUM WAGE AND THAT INCREASE
IN CHILDCARE COSTS BY 21%.
WE ARE TALKING ABOUT $3,000 MORE
FOR AN AVERAGE FAMILY WITH TWO
KIDS.
THERE ARE BOTH SIDES OF THE
EQUATION GOING FORWARD.
>> AND RACHEL GRESZLER YOU
ELUDED TO THIS IN THE LAST YEAR
ABOUT $5 TRILLION IN GOVERNMENT
STIMULUS SPENDING TO KIND OF
PROP THE ECONOMY UP.
WHAT HAPPENS WHEN THAT STARTS TO
PETER OUT AND THE ECONOMY HAS TO
SURGE FORWARD ON ITS OWN?
>> RIGHT.
SO TALKING ABOUT OVER $40,000
PER HOUSEHOLD THAT HAS BEEN
SPENT OVER THIS PAST YEAR BUT
THAT IS ALL DEFICIT FINANCE
SPENDING THAT HAS TO COME OUT OF
SOMEWHERE IN THE FUTURE.
WHILE NOW THE FEDERAL GOVERNMENT
IS HELPING TO STIMULATE THE
ECONOMY IT WILL HAVE TO PAIR
THAT BACK GOING FORWARD AND WE
HAVE THE FACTOR OF HIGHER
INFLATION THAT COULD LEAD TO
HIGHER INTEREST RATES AND THEN
THE FEDERAL RESERVE INCREASING
INTEREST RATES, BRINGING THE
HIGHER COST ON THE DEFICIT AND
YOU GET A DOWNWARD SPIRAL THERE
ARE RISKS OUT THERE.
>> LUIGI ZINGALES YOU ARE AFRAID
THAT THE FED IS JUST NOT GOING
TO ACT.
AT WHAT POINT DO YOU THINK THE
FED HAS TO START THINKING ABOUT
ACTING?
>> SO I THINK THAT THE NEXT FEW
MONTHS WILL BE CRUCIAL BECAUSE I
THINK THERE IS A LOT OF TRUTH IN
WHAT ED SAID THAT THERE ARE
TEMPORARY ELEMENTS IN THIS RISE.
BUT IF WE SEE THAT THIS IS
CONTINUING FOR A COUPLE OF
MONTHS LONGER, AND IF WE SEE
THIS IS EMBEDDED IN THE
EXPECTATION OF ECONOMIC
OPERATORS, I THINK THAT THE FEDS
SHOULD INTERVENE.
MY FEAR IS I DON'T SEE THE FED
SO ATTENTIVE OF THIS THEY SEEM
TO BE RELAXED.
THEY MOVED TO A TARGET OF 2%
OVER A LONG PERIOD OF TIME AND
BECAUSE WE UNDERSHOT INFLATION
FOR A WHILE THERE'S PLENTY OF
ROOM TO OVERSHOOT INFLATION FOR
A WHILE.
I SEE A DEMAND FOR INFLATION
BECAUSE IT WOULD REDUCE THE DEBT
OF STUDENTS AND REDUCE THE
GOVERNMENT DEBT IN REAL TERMS.
I SEE A LOT OF PRESSURE FOR
INFLATION TO GO AROUND TO BE
CONTAINED.
>> SOME OF THE UPSIDES OF THE
CURRENT INFLATION SITUATION.