Gas Up, Stocks Down: How to Weather Today’s Economy

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The price of goods like gasoline and food is up sharply amid the highest inflation since the 1970s, and a stock market slump may be impacting your investment portfolio. What should you do as you watch the pump tick up and your 401(k) tick down? Andy sits down with two money experts, the Washington Post’s Michelle Singletary and President Obama’s Economic Advisor Betsey Stevenson, to better understand what’s going on in our economy right now and how to weather this storm.

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Andy Slavitt, Betsey Stevenson, Michelle Singletary

Andy Slavitt  00:18

Welcome to IN THE BUBBLE. I’m Andy Slavitt. It’s Friday, June 3, welcome to our Friday conversation. I’m really looking forward to bringing you this conversation. It is excellent. We are here to help you out of crisis. And right now, I’d say, between the price to fill up your take inflation being at a 40 year high, the stock market jerking you around. Let’s all not freak out. But let’s get educated. Let’s get informed. And to do that we have handpicked; I think two phenomenal experts. Here with us today we have Michelle Singletary, who writes the personal finance column, the color of money for the Washington Post. Great to have you here, Michelle.

Michelle Singletary  01:02

Oh, thank you for having me.

Andy Slavitt  01:04

It’s a delight. And Betsey Stevenson, who is Professor of Public Policy and Economics at some place called the University of is it pronounced Michigan?

Betsey Stevenson  01:12

I think it’s pronounced Go Blue!

Andy Slavitt  01:16

That’s it. Go Blue. Well, Michelle, if you have a favorite team that you want to push a promote against Michigan, you can feel free to do that.

Michelle Singletary  01:23

I would only say the Terps.

Andy Slavitt  01:25

Oh, also now in the big 10. Yeah. Okay. So fantastic to have you both here. Betsy, tell us what’s going on in the world today that’s affecting the economy. What are the big kind of global macro trends that are at brew?

Betsey Stevenson  01:42

Well, Andy, that’s a big place to start. So I think, you know, we could start even smaller, because I think the thing that is bugging every single American every single day, is when they go to put gas in their car. And they’re seeing that, you know, not only is this number higher than they’ve seen in a long time, but you just stand there and you pump the gas out, and you can literally see the dollars flying out of your pocket to fill your car and know what’s causing these high prices for gas. That is some geopolitical factors, right? We know that that’s going on.

Andy Slavitt  02:19

So what’s happening, what’s driving the price of gas and up and everything relies on gas that gets transported, it’s spilling over what’s causing some of this?

Betsey Stevenson  02:29

Okay, so you know, this is a basic economic model of supply and demand. So if supply goes down, what tends to happen is the price goes up. If demand goes up, what tends to happen is the price goes up. So what we’ve seen happen over the course of the year is both of those things, we’ve seen supply going down because of what’s happening with Putin, invading Ukraine and causing, you know, a contraction in supply of oil. And then we’ve also seen people trying to get back to normal, what’s his constant increase in demand for energy, for fuel, for gas, and that has also pushed prices up. And that’s put us in a particularly bad situation, I think it’s actually worth if you want to think about how these dynamics work is to remember back in the deep, dark days of the pandemic, when none of us wanted to leave our house? People got stuck holding gas futures, that they had to pay people to take away from them, because like the gas was coming due, and they were supposed to pick it up. And they were like, ah, nobody wants to buy this, what are we going to do? I mean, we saw, you know, a negative price. So we had this problem where supply way exceeded demand. So we had, you know, an economy adjusting to that trying to cut back production, so that they had the right supply to meet the lower demand. And then demand came back. And it came back at a time with a lot of global problems. And so this has been a double whammy that has really pushed energy prices up.

Andy Slavitt  04:03

So let’s hold those thoughts of supply and demand. because demand is the kind of thing that we’re sort of used to seeing in the Federal Reserve as used to be able to react to it and control. And we were already starting to see some inflation coming out of the pandemic. And then we started hearing about supply chains. And then the war in Ukraine happened. And as you said, it became a double whammy. But regardless of how as we get back to those two mechanisms, Michelle, at the end of the day, Betsey’s exactly right. It’s how does it How does it feel to us as consumers as families and as people just trying to get by? How are people experiencing this inflation?

Michelle Singletary  04:50

Well, you know, I really think in the US, there really is two different groups of consumers. There are those who are doing fine. They don’t like that there. are paying more, but they’re fine, they can put food on the table, they can keep their roof over their heads, they’re still putting money in their retirement accounts. It hurts in the sense of psychologically, right? They’re not going to go under. And we hear a lot from them. But really, the complaints is I’d rather not be spending this much. I’d rather be using this for my vacation, some other things, but it’s not really changing their lifestyle, they’re still eating out, they’re still doing the extra stuff. And then there’s the part of the America that is still suffering from the pandemic, that they lost their jobs, maybe they got a job back, but they’re still catching up with two years of, you know, chaos, financial chaos, where they were already living on the edge. And now that we have an increase in inflation, everything costs them more. I mean, if you go to the store, and you only have $50, and you used to get $50 worth of food, now you can only get $40, then you’ve got to cut back, maybe you skip a meal, or your kids skip a meal, or the lunch bag that you send him to school with has less food in it. And we know that inflation rents are going up, so it’s costing you more to re-up for that lease. So that’s the part of America that is suffering. And there’s not much anybody really can do. Because in order for the Fed to control inflation, they’ve got to increase the interest rates when they increase interest rates, that other soft costs is more money, and it trickles down to these people who are already living on the edge. And so I think when I try to talk about it, I try to keep those two groups of people in mind and target my comments appropriately. Because I’m in that first group that I hate it, but it’s not going to really impact my life. But I do know and work with people who it is impacting. And for them, all I can do is help them figure out ways to manage it, for example, housing, that’s the biggest part of anybody’s budget. So if you don’t have to move, and you can stay where you are, stay where you are, especially if you’re going to have to move and pay more if you’re coming out of college, and you can go home and live with your parents because your first job isn’t gonna really pay that much. Go home and live with your parents keep those extra roommates, double up if you’re single parent, find another single parent and you guys go in together for a place to keep that cost down, which is the biggest part of your budget,

Andy Slavitt  07:16

You make a really impactful point here, which is during the pandemic, the difference between people who got paid a salary. And people who got paid by the hour meant the all the difference between I have to show up for work, I have to face people, even in the face of this pandemic, where I might get sick, if I get sick, I probably don’t have the kind of benefits where I wouldn’t get paid to stay home and get better. And then you had a number of people who could do their jobs on Zoom, who got paid a salary. And as you say, yes, there are hassles that may have to deal with their kids at home. When they’re not at school, they may have to juggle more things, and no one loves it. But their lives were much less at risk. They suffered much fewer health consequences. I think what I hear you saying is in this problem yet again, it is hitting people in the same very split way.

Betsey Stevenson  08:12

So Andy, can I jump in though, and let’s talk a little bit about who’s really getting hurt and who isn’t. So I agree with Michelle, that we can think about people as in who can tolerate higher prices and who can’t. But it’s actually also the case that some people have already benefited and some people have actually gotten hurt. And that’s one way in which economists think about the problem of inflation is that it’s it redistributes a lot. So let’s think about where these higher prices mean, somebody’s getting more money, right? That money’s not disappearing, it’s going to somebody. And so let’s think about someone who has say a homeowner, maybe you are a homeowner, you bought your house five years ago, you refinanced when rates were low. You’re sitting on shirts, measuring it as the implicit rent of your house has gone up, you could rent it out for more money than you could have five years ago, you’re also going to be able to sell it when you want to for more, when you’re ready to sell it. This is your asset that’s just gotten higher in value that’s not really hurting you. In fact, that’s helping you you’re better prepared for retirement now, because your primary home is worth a lot more money. And what you’re paying in monthly payments is actually even less in inflation adjusted terms because you locked in this low interest rate, what I was gonna say is maybe you also change jobs and change the people who are getting raises right now, the big raises are going to people who change jobs. So people who are taken advantage of all the new opportunities out there, who are flexible enough to be able to move jobs, we’re seeing big raises for them so maybe your wages have actually kept up with inflation. Maybe you also already started you know, you’re old enough that you’re maybe in your 50s, and you’ve been retired, you’ve been saving for retirement. And you’ve just watched easy money from the Fed cause your 401K, your retirement savings to balloon over the last five years. I mean, sure, you’ve had some stock market problems in the last six months. But you know, going back to 2017-2018, who would have thought your retirement portfolio would have grown by as much as it’s currently grown by, so you’ve got these people who are literally financially better off today than they would have been in under a different economic circumstances. And not only is inflation, you know, something that they can live with, it’s actually been the cause of why their house is now worth more, why they’re able to earn more. So they’re the ones benefiting from inflation.

Andy Slavitt  10:51

We can also say that, and Michelle, you may view some of those feel like ways that people they may be theoretically, eventually better off. But they may not feel at the moment, you know, they can look at their stock market balance, and it’s down, and maybe there house value is up but they don’t know it, and they certainly could take advantage of it.

Michelle Singletary  11:08

Yeah, I think there’s a disconnect. And unfortunately, those are the folks who go to the polls, those are the folks who a lot of the politicians represent and listen to. And so when they go to fill up their big car, and it used to cost them 20, or $30. And now it’s costing you know, $60 and $80. You know, they’re like, oh, you know, the sky is falling, or even right now the market is down, you know, the S&P has sort of dipped his toe into the bear territory. But as Betsy said, my […] yeah, sometimes 17-18, you’re having an enormous returns, and no, we have the highest percentage, you know, record breaking 401k millionaires. Now, as a part of this percentage of the population of people who have retirement plans, it’s still fairly small, yet, it’s still growing. So we people have millionaires from their retirement plan. And so yeah, your portfolio might be down 12%, you know, 20%, depending on how you’ve invested it, but you had racked up a lot of money over the last years. And so it’s all relative. And I think the focus needs to stay on how to help those people who didn’t benefit, or are not benefiting from inflation.

Andy Slavitt  12:25

Yeah. And it sounds like that’s where Betsy is gonna go next, but just to say that even the winners don’t necessarily feel like winners. Right?

Betsey Stevenson  12:33

And that’s what I was gonna say, economists call it point to something that they call nominal wage illusion, or, you know, there’s just basically this problem, which is, you see all your gains. And you think that’s got nothing to do with inflation, like I would have gotten that anyhow. But now I’ve got this stupid inflation, which means I have to pay higher prices for things. So there’s this disconnect between the benefits that people get from inflation, and the cost they face due to inflation. And that may means that winners don’t see themselves as winners and losers are definitely losers. You know, I’d like to point out that […] did a survey asking people, you know, is inflation a very big problem, and more than half of people said, yes, in 2013. This is when economists were telling the Fed, that they needed to let inflation run a little hotter so we could get people back to work faster. And the American public, more than half of the American public was saying inflation is a really big problem. Do you know why they were saying inflation is a very big problem, because they saw gas prices ticking up inflation overall wasn’t a problem. But they were standing there at the palms watching gas prices go up, and they wanted to see inflation get down in this isn’t a period where we had been wringing our hands about the possibility of deflation. I mean, deflation is terrible, even though it sounds great. Yeah, prices are falling everywhere. It actually can tank the economy.

Andy Slavitt  13:59

Yep. But focusing on the people I know you’re gonna speak to it. Betsy, the group that Michelle identified the other people who pay rent, and that rents gonna go up people who are on fixed incomes, to people in that category, I assume, are the people that you would say, I have a really much tougher time in inflationary periods.

Betsey Stevenson  14:22

Absolutely. But when we think about rent, it actually becomes easier to understand how inflation redistributes because there’s a landlord on the other end that’s getting that higher rent. So the problem is that not all rents are going up, because some landlords, they’re not paying enough attention to what’s happened in their community or maybe morally they feel a little bit achy about raising rents on somebody so much when they know that maybe that family can’t afford it. So you’ll have some landlords who just won’t do it, or don’t know how to do it. And then you have other landlords who are like, you know, hey, it’s what the markets gonna bear and they jack rents up which displaces people, which is very, very hard particularly people with children, children thrive under stability, learning that your family has to pack up and move because they can’t afford the rent anymore, is really problematic. And that’s, it’s very uneven right now who’s paying much higher rents. It’s not everybody, but it’s people signing new leases, as brand new tenants who are really getting hammered.

Andy Slavitt  15:57

Well rents matter because it’s people’s highest expense, but actually think there’s a better example of a place where we’re going to be facing trouble. And it’s an area which I know a little bit about, and that’s healthcare costs. And the reason is, rent, you’re basically with fixed asset to maintain the building doesn’t cost the landlord necessarily a whole lot more, healthcare costs are 80%, labor put aside prescription drugs for a second, which are always going up the rest of its 80% labor. And we know that nurses and doctors already we were facing shortages are leaving in record numbers in the winter that are staying are demanding to be paid a whole lot more. A lot of this is from the pandemic, but it’s from other factors as well. And, you know, that translates into the cost of hospitals, and physicians, that’s going to translate into cost of insurance. Because the insurance companies have to pay the hospitals. And you know, health care, again, to your point, Michelle is something that for people who have okay insurance, or people who have great insurance, versus people have no insurance can be an incredible burden.

Michelle Singletary  17:04

Yeah, yeah. And so what you’ll have happen is if you’ve got a younger population who feels they’re healthy, so they don’t get health insurance, because, you know, they only have so much money. And that because they’re healthy, they think, okay, I can cut that. I mean, I just talked to a relative in our 30s. And I, you know, she is a independent contractor. So you have health care, she’s like, oh, no, I can’t afford health care. And I’m thinking, oh, if something happened that contained you, or what you’ll find is that people, even with health care, but because of co-pays, and things like that may decide not to get treatment. And so once you start to blame, you know, taking care of yourself going into the doctors and things like that, then if there is a health crisis, by the time they find it, it’s further along, it’s further along with cancers further along with diabetes, all those things that then increase the costs, which, you know, this is a whole other conversation about how we deal with healthcare in the US. I mean, we shouldn’t have health care tied to people’s jobs. It’s as simple as that. Because you just can’t handle that. You know, I mean, the people who can least afford it having tied to their job are the ones that is going to end up paying more of their percentage of their salary towards health care. I’m okay. My husband’s okay. He was for the federal government. But there’s a whole bunch of people who are not okay. And so yeah, I think that is the next big shoe that is going to drop, particularly as we go into how are people surviving COVID, we know so little about long COVID, what kind of repercussions and you know, health, you know, lung capacity, all those kinds of things that we’re going to start seeing once pridefully the cases start to go, you know, reasonable numbers, now, we’re gonna see what’s going to happen interest or how people are going to be living with the repercussions from COVID. And so, you know, I’m very, very concerned about, you know, housing and healthcare the […], for people’s budget. And that’s what we’re going to be facing. I mean, I know, we’re sort of an inflation crisis mode right now. But there’s so many other things that we need to be dealing with, that we’re not that is going to that bill is going to come due in a couple of years, and it’s going to be a shock to our economy.

Betsey Stevenson  19:14

Andy, can I just add and just a couple points of clarification in one is that we don’t really have much inflation in healthcare right now. We haven’t seen it so far. And I think that’s a really important place to start. Because, you know, people think of inflation as all prices are going up. It is a generalized rise on prices on average, but there can be huge differences across goods and services in terms of what’s going up in our the inflation that we have faced so far has been largely driven by inflation in goods, stuff that people buy, and an energy and housing Now that sounds like a big share of people’s budgets, but where it’s been muted has been in services, like health care. Now I share your concern that what happened See, if we don’t see a recovery in labor supply. The place where we have not added jobs back as fast is in all sorts of caregiving jobs. If you look at employment and nursing and residential facilities, it’s continued to fall, it hasn’t even plateaued, let alone turn around. When you look at childcare services, it has started to recover. But we’re still 10% down. You know, I think the question is, as consumers return to health care, will we see upward pressure on prices.

Andy Slavitt  20:34

When you say upward pressure on prices, people returning, I just want to clarify your point earlier about supply and demand is really an interesting one here, because even if demand doesn’t spike up in health care, the concern is that the supply shortages that we’re talking about are not just at the gas pumps. But the insidious nature of inflation makes it such that those supply shortages start to spill over into other places. And when the supply shortages spill over to labor, it’s one of the things that makes inflation so hard to deal with, because it just keeps spilling different places.

Betsey Stevenson  21:09

Well, that’s okay, tell you what that is just put it in words, what we mean by that, that’s what we call a wage price spiral. And what happens there is that’s when people are saying, hey, the prices for all the stuff I’m buying are going up, and they start negotiating with their employer. So it’s like if all the hospital employees say, you know, with 8%, inflation, you better be given me a 6% raise this year. And then the hospital says I better raise prices by 6%. And then the next year, people say prices are up again 6%, you better give me another 6% raise. That’s the thing we fear, there’s no evidence so far, we’ve seen that in the data. I just want to be clear about that. Because we haven’t seen that take off.

Andy Slavitt  21:45

Good to know, Michelle, you’re gonna say?

Michelle Singletary  21:48

No, I think sometimes when we talk about these numbers, whether they’re going up and down, we sort of lose the idea that for example, we talked about wages going up, but especially for service workers, people in lower income type jobs that were paid so little, that even though wages are going up, it’s like you’re still trying to catch up. It’s like you run in a marathon. And it’s like, oh, you know, they shorten the marathon, but you will still run it. You’re still out of breath? Because you know, you Yeah, okay, so you’re getting $10 when you were getting seven, but now it cost you $4 more at the grocery store. And so the wages have been so far behind about what they should have been that even though that they’re increasing, it’s still not enough. And you have the other flip side of the major expenses, you know, housing or transportation, you know, used car prices are up, new car prices are up. And now it’s going to cost you more to get that loan, to get that car.

Andy Slavitt  22:48

Yep. If you’re living in the margins, then you’re absolutely right, the theory that your wages will catch up, even if they did catch up. And even if they could perfectly account for things lose people in limbo, it reminds me of the argument around trade, where so many for so long have said, look, trade is good for us. And that balance is going to bring everybody’s prices down, ensure people will be displaced as manufacturing moves overseas. But let’s not worry about the small groups will find solutions for them for the good of the whole. Well, the reality is that you’re talking about large numbers of people that are displaced, that there are no strategies for. And so I think it’s important that to balance these personal effects in the conversation.

Betsey Stevenson  23:37

Andy, this is a lot about how it isn’t really about inflation. These are the bigger structural problems in the economy. Inflation is about prices going up, and wages going up everything going up. It’s like if we woke up tomorrow, and there was an extra zero on our on our salary and an extra zero on every price that we paid, everything would the same. Yeah, that’d be fine. What we’re really talking about here is things like wage inequality. Why on earth is the top 1% continuing to get a larger and larger share of what we produce? Why is it that we don’t offer a living wage for people at the bottom? Why is healthcare so messed up in the United States that you can’t pay a reasonable fee for service for what you get? Why is it that people can’t afford insurance? Why is it that we’re a rich country, and we don’t solve the problem of making sure everybody has equal access to health care? Those are big problems, and they got nothing to do with inflation.

Michelle Singletary  24:35

Right. And it’s like we had the pandemic rip that band aid off and we saw it that Ross sore because so many of us in our economy those the top earners and those who are doing really well, were very happy to have that band aid on they didn’t have to look at that sore. And the pandemic said, let me show you this. And it’s quite sad. I mean, when we talk about manufacturing, that has been a problem forever, you took away an industry across the US where people could make a decent living for their family, they could buy their home, they could send your kids maybe not to Harvard, but they could send them to the State College. And because in this US, we are obsessed with cheap prices, we want everything cheap, not realizing that somebody in the end is going to pay for that. So we don’t want to pay we want to pay $2 for a shirt when it really ought to cost us $10. And maybe it means you don’t get five shirts, you only get three shirts, but we want 10 shirts for $2. But because we can buy it from overseas, instead of having it American workers making that shirt, I’m okay with paying $10 of it means that somebody is going to be able to work and put a roof over their head. And I don’t have to have to have 10 shirts, I don’t have to have a luxury car. I just need a car to get me from here to there. And I think that’s what we have to learn from this pandemic, we need more manufacturing jobs, jobs so people can make a living wage. And it may mean that we have to pay a little bit more. And you know, maybe we don’t buy these cars that are big gas guzzlers. Right, you know, we all have to put some pound in this to make it right. And unfortunately, in the US, we are such a selfish country. I mean, you go overseas, and it’s not a big thing for multi-generational families who live in the same house but not in the US. Everybody got to have their own house, that kid turned 18 to 21, oh, you got to get out on your own. Or, you know, God forbid, you get married and you come home live with your parents or you know, with your kids in their house, or somehow you’re financially reckless, when you know, we if especially if you live in a high cost area, it’s not sustainable. And every time I tell people, I land on housing, I say stay home, my 27 year old daughter is living home and we are thrilled because she’s not out there paying two or $3,000 a month in rent, and she’s saving in her retirement account. And she’s saving to buy her car with cash, my 24 son lives with us and he has autism. And he can take his time to find a career path because we’re not like you got to be on your own. And you know, it’s okay that my sister when she got divorced, came to live with us with her two kids. I was okay with that. But we’re not okay with that in the US because everybody got to have everything to show that they’re successful. And because of that, that’s the world we’re in the mess that we’re in right now.

Michelle Singletary  24:44

So Michelle, that was for both of you just said I would have been yelling amen. If it wouldn’t be rudely interrupting you. But let’s talk about some of those calls that have caused the society to devalue all those things you just said. And I think about is it. People talking about free markets? Is it people talking about freedom is that people talking about, you know, people have to fend for themselves? Like what is the mentality that we’ve learned, or that we operate under that causes that displacement? And those things to become normal? Because all those things you said, I could picture it both political parties saying, we want the dignity of work, we want to see people be able to fend for themselves. We want a country that can sustain itself. That’s not dependent on foreign countries, yet still, we pursue policies that make us where they are. And maybe I start with you, Betsy, what are those philosophies that cause us to head in that direction?

Betsey Stevenson  28:39

So you know, I think that there is a sense of individualism combined with a deep misunderstanding of what a free market is all about. So I believe in my heart in markets, but in market competition, I want to see really competitive markets. And I want to see everybody playing by fixed set of rules that respects the society, the rules as a society we agree on. That is a very pro-market position. But it doesn’t mean everybody do what you want, you know, who cares about the next guy. And that, you know, what we see in the US is often a lot of corruption, cronyism, companies who are lobbying Congress to get bills that help make sure they keep their competitors out. That’s the opposite of being interested in a market economy. And then there’s this sense of individualism, which somehow it’s a cop out, if we had, you know, higher minimum wages. Let’s take a country like Australia, they don’t just have a higher minimum wage than we do. They have what’s called prevailing wage laws. There’s a minimum wage per occupation. You can’t hire some personal trainer at 10 bucks an hour, no prevailing wage might be 40. They also have overtime and double time on weekends. I don’t tip somebody when I get a coffee in Australia on a Sunday because that person is probably making $50 bucks an hour, and I feel pretty good about buying my coffee from the person making $50 an hour. And you know what my coffee still only cost $4. So paying people high wages isn’t going to lead to crazy high prices. It’s just about what’s fair in society. But I want to turn to something give you an example of how we mess up markets, let’s turn to the disaster with baby formulas. I cannot believe that anybody would accept in the United States of America, that we would have such dirty factories that we would kill, kill babies with formula, a mother in the United States should know that she can go to the store and buy made in the USA formula and not kill her own child with it. And thank God, they shut that factory down, given the contamination, we have a peanut butter executive sentenced to 28 years in jail because he knew he was sending out peanut butter that was going to kill people. And he kept doing it. Why? Because he thought he could get away with it. Because in the US, we mistakenly believe that free markets mean, like, oh, it’s up to me to like, go out there and test that the formula is not going to kill my baby, or that the peanut butter doesn’t have salmonella. No, that’s not what free markets are about, let’s have a set of rules about health and safety standards, that we have real government regulators in force, and find people to the point of driving them out of business when they fail to meet those regulations. We’re one of the only rich countries in the world that has this problem. And I think it holds us back, I think we’d be more productive, I think we would increase the size of the pie. If we had a set of rules that meant that people played fairly.

Andy Slavitt  31:37

So you’re saying free markets can even have rules. In other words, you can have an amendment which says people have the right to bear arms, you can put restrictions and regulations along that right and still have that right. And it doesn’t breach the Constitution, people’s ability to have guns are Smith and Wesson is ability to actually be held accountable.

Michelle Singletary  31:58

I mean, but look at the baby farmer issue. One of the reasons why that’s such a problem is because we had one manufacturer producing most of the formula how that’s not competitive. It’s not competitive. So as they shut down, we got to get  a formula from Germany. It’s insane.

Andy Slavitt  32:15

So this is your point, Michelle, about how we want it so cheap that we’re willing to let it go. And rather than say, hey, we might want to have a strategy, which has some resiliency,

Betsey Stevenson  32:23

But Andy, that’s not cheap. Like no competition does not make things cheap. No economists will tell you no competition pushes prices up.

Michelle Singletary  32:31

And I mean, just, you know, to Betsey’s point about, you know, policy and lobbying and so forth. You know, when we have situations where that executive might be sending out tainted, whatever part of that isn’t just that he wants to make more money, there’s pressure on him to keep that stock price up and up and going at a certain level. And so you make these decisions, because God forbid, you don’t make the some, you know, earnings target, which would then make other people rich. And really, it’s only about half of the American population, because only about half is actually in the market anyway, because they don’t have retirement plan connected to their job. So it’s sort of a vicious cycle. And, and so the people who are making the decisions, we’ve got, you know, in terms of the Congress itself, the legislators, we got legislators probably first time, and when they actually I shouldn’t say the first time in history, because there was a time where they were like rich land holders, but you know, they don’t know what it’s like to us to truly suffer. They don’t know what it’s like to miss a meal. You know, they don’t have that history. And so when they’re making these laws, they’re not thinking about the little person, the person who’s just getting by, and that’s the problem when we have an election system where you’ve got to spend millions and millions of dollars to get elected. So you don’t have the community organizer. And you’re saying, wait, this is not going to be good for everybody. You got rich people who don’t know what it’s like to open up to perpetuate it and not have any food in there. I know what that’s like, that’s, you need people like that making the laws.

Betsey Stevenson  34:14

To your point, Michelle, on the sort of bifurcation. Let’s think about Starbucks. I mean, Starbucks, the shareholders have seen the value of their shares quadruple, and what’s gone to workers, nothing, they’re fighting the union tooth and nail because there, they are terrified that quadrupling. The stock price, we got to keep doing that. We got to keep giving big returns to our shareholders, the people who pony up the cash and sit at home and wait to see what happens. But the people who show up every day, unlock that door, wipe down the counters, heat up the machines and start making me my coffee. Who cares about them? I mean, that’s the division in the US that we have to get over. I want to care about the person opening the door, I want them to be a stakeholder a real stakeholder.

Andy Slavitt  35:04

I think what you’re both saying, is the reason we don’t have prevailing wage or even high minimum wages, is because for the people who are the shareholder class, enough is never Enough.

Michelle Singletary  35:19

Enough isn’t never enough. Enough is never enough. That’s exactly right. I’m from Baltimore. So my legs can get a little salty. So I had to pull myself back for a moment. When people say things like, people need to put themselves up by the bootstraps, I want to just slap them. Because how you can’t do that. It’s not, you know, without falling. And I mean, think about when the pandemic hit, and there were people who wanted to unemployment insurance benefits, while we were still in the middle of this huge crisis, oh, we don’t want those people sitting at home, not when you go to work. Clearly, you have never actually worked in a community with people who are unemployed. For the most part. People want to work. They want to be productive. Now, do you have outliners who gain the system? Sure you do. But we have them at every level. Oh, my gosh, how much corruption do we have in corporate America? So you can’t make policy based on the outlines. So we had state governors saying, let’s cut people off from unemployment in the height of the pandemic, on the theory, they didn’t want to work. I was on a program and a businessman; we were talking about unemployment. And he sent me an email. And he said, Would you not know what you’re talking about? I can’t, my workers, I wanted them to come back to work. And they didn’t want to work because they were earning unemployment. I said, Okay, so then I started asking him questions I said, so you know, why? Why do you think that they didn’t want to come back to work. And so he’s well, I don’t know. But one of them said, you know, she couldn’t take a kid to daycare, because daycare was still closed.

Betsey Stevenson  36:59

You’re like, well, that sounds like a problem.

Michelle Singletary  37:00

That kind of sounds like that she was, it wasn’t that she didn’t want to come to work, she couldn’t come to work, because she couldn’t have daycare for her child. So you as a business person are out there. And you know, at these media events, saying that people don’t want to come back to work because they aren’t in unemployment, but you’re not telling the full story, or their front facing employees, they are out there with people who still don’t want to get vaccinated, they’ve got a kid at home who can’t get vaccinated, so they don’t want to come home come to work and risk their lives and the lives of their child, that is not a person who doesn’t not want to work. That’s a person who is actually thinking about their family, you will see that’s how we tell half the tale. And then we make policies based on half the tail. And so rather than having making sure people are financially secure, so that when jobs come back, they are back there even and not trying to catch up. See, that’s what I’m saying. So that’s a person who says because I’m the owner, I can come in, and maybe I got the money to hire someone to come to my house, or I got a wife who’s staying at home. So I can do this. Why can’t they? And that’s how we make policy in this country. That’s how we, you know, don’t look out for people who need a little help. People don’t want a hand out. They want a hand up.

Andy Slavitt  38:19

Yeah, there’s this mythology that people don’t want to work and actually find that that mythology is spread in order to essentially reduce the safety net.

Betsey Stevenson  38:30

You know, there is a fundamental issue when they’re saying, you know, well, do people want to come back to work? I mean, we were paying people, $8-$9 an hour. I mean, it’s not that people don’t want to work. But gosh, it feels like you’re bailing out the ocean with a teaspoon at eight bucks an hour. I mean, it’s just a wage so far below what you can afford to live off of. I just think it’s a really disingenuous argument. And I think to Michelle’s earlier point, that it’s just too many people who’ve never experienced unemployment. I mean, my dad was unemployed for my sort of last two years of high school. And I mean, that feeling of seeing how humiliated Your dad is and how hard he’s trying, I mean, it sticks with you and people who’ve experienced that they would never say something like, oh, people just don’t want to work.

Andy Slavitt  39:24

I want to talk about some of the tools we have both as a government and as individuals in the current situation. And maybe Betsy, you give us a little bit of a quick primer on the Fed and what the Fed does in these types of situations, what they’re balancing between what Chairman Powell, has to think about what it gets directly react to.

Betsey Stevenson  40:15

The Feds got one real thing it can do, the Fed tries to reduce demand, because inflation is ultimately about the meeting of demand and supply, we’ve only got so many cars, used cars out there to sell. You know, if, if the prices go up, some people will decide they don’t need that second car, they didn’t need a car after all, and they’ll put their car up for sale. So we might see the quantity supplied go up a little bit as prices go up. And prices are going up. Because we see a shift in demand, a lot of people had some extra savings from COVID, and they want to buy a car now. And we’re stuck with supply not being able to respond to the way it normally does by, you know, run in factories on doubled time, or manufacturing more. So what we see is an increase in prices. So what does the Fed want to do? It wants to reduce the demand, it wants you to want a car less, it wants you to want a house less, that’s the only thing it can do is try to cool demand. And it does that by raising interest rates, something Michelle was alluding to. So it’s kind of like a bait and switch like, yeah, we’re gonna reduce the prices of houses by making the interest, you would have to pay to buy a house so high, that the price of the house with a mortgage is actually even higher. So it’s not really changing people’s real experiences. It’s just changing. You know how you feel about consuming today versus putting your money in a bank and saving it for tomorrow. If interest rates are really high, it’s a bad time to borrow, it’s a good time to save. And that’s what the Fed banks on is that people will borrow less, save more if they raise rates.

Andy Slavitt  41:55

So what happens in an inflationary climate that’s at least in large part driven by the supply side? Is the Fed able to be effective in that kind of climate?

Betsey Stevenson  42:07

Well, it can’t change the supply stuff, all it can do is reduce demand. And so this is how I look, I described the Fed, it’s like, it’s the Feds tools to fight inflation in this environment is like giving Tylenol for fever, it’s going to bring the fever down, but it’s not going to cure the underlying disease, right? If you give Tylenol, when you have COVID, you might feel a little bit better, but you still got COVID, right? And that’s what’s gonna happen here, we’re still going to have inadequate supply, I’m probably still going to be waiting for a dishwasher I’ve been waiting for a year because of supply chain problems, you know, we’ve, we’re still going to not have as many cars coming in. Because we’ve got these computer chip problems, it’s not going to solve the supply problem, it might push more workers back into the labor force. So it might help a little bit with that nurse shortage you’re worried about, it might help a little bit with labor shortages, it certainly will get us all to say, hey, there’s not as much stuff for us to purchase out there. So we better you know, cooler heals a little bit.

Andy Slavitt  43:05

Do you worry about a little bit of the worst of both worlds where you could cool the economy, reduce growth rate, possibly increase unemployment, you get because the supply shortages, particularly in gas, but also in other areas, that you could do that and still not have much of an impact on inflation?

Betsey Stevenson  43:24

Oh, no, I think that they can have an impact on inflation. What I worry about is that they move too fast. You know, there’s a bunch of people out there saying, you know, the Fed needs to raise rates by three percentage points and the Feds like a, we’re gonna do this, you know, a half point or a quarter point, they need to go slow and steady, because they are looking for the Goldilocks moment where it’s just not too hot, not too cold. They need the Goldilocks economy. And they got to do that, just like you would heat porridge up a little bit at a time. Taste the porridge. Is it getting warmer yet? Is it cool enough? They gotta go slowly, in order to make sure that they bring demand down enough to reduce inflation, but not enough to spark that recession that you’re talking about.

Andy Slavitt  44:14

Got it. Michelle, I want to ask you a similar question. Not of the Fed. But of us. You’ve been writing about personal finance for 25 years. You’ve seen markets come and go. And, you know, as you said, some folks in this kind of climate have very little cushion, very little safety net, and others, maybe more so but also are a little bit scared. Because they see their 401K values go down, they see the cost of daily goods going up. They may or may not be able to take that road trip they want to take and I think it’d be easier if I asked him maybe about a couple of different types of people that to talk through because you do such a good job is getting into people’s circumstances a bit to take the take the 50 year old person who is basically been okay. But their income is going to remain fixed, they may be heading towards retirement. But they may also have to put kids into college. They may have kids who they’ve got to worry about, as you said, who may have dreams of living in their own place. But they’re seeing the costs go up of things, what I know you interact with people like that all the time, what kind of thoughts do you have for people in that sort of situation?

Michelle Singletary  45:37

So you know, I write a column, sort of macro and micro. And so you got to do both. And so when you are an individual, while we’re talking about these lofty issues, and hopefully, things will happen, the Federal get it right, but in the individual level, you have to worry about what’s in your house. So if you have that 50 year old, let’s say you got a kid going off to college in a year or two, but you haven’t really saved much at all, and you’re still probably behind in your retirement, then you got to make different decisions, you’ve got to be better. In any economy, but particularly the one we have, now, you’ve got to be a better financial decision maker, you got to take your feelings off the table, and you got to take your entitlement off the table. So that kid may not be able to go to the school that they want to go to, because you can’t afford it. And so you tell you a baby, baby apply to any college you want. But if you don’t get enough money, free money, with whatever little I saved, then you can’t go to that brand name school, you can’t go out of state, you might even have to go to community college, which is not a failure to get the basic courses either way, and then transfer to the university, you may not be able to move into that bigger house, everybody don’t need their own bedroom, the girls can stay in the same room with themselves, the dog don’t need so much space, go to the park, you know, you have to say that to yourself. And maybe you can’t take that family vacation every year, you do it every other year. You […] do that car. I just had a church members send me emails asking me, you know, should I buy a house? You know, the housing prices are going up, and it just keeps going up. And so my thing is, okay, let’s not worry about that. Can you actually afford a house? It’s sort of the example of people say to me, I buy cars for cash, I save up, we keep our cars forever, we buy cars for cash. And they say, well, what if that was a 0%? Interest? Why would you use that money, I said, because that 0% interest means nothing, if I lose my job, I still gotta make a car payment. But if I pay cash for my car, and then spend those 4-10 years saving, and I lose my job, first, I don’t have a loan. And second, I’ve got some savings to help carry me through. And so that’s how I approach people, I try to get them to look at your own individual life, and do what you can afford. If your kid is coming out of college. And they’ve got a boatload of debt and you got a boatload of parent loans, and they’re living in the same area, they’re gonna come home, and they’re going to spend almost all of their paycheck paying off that debt, you’re not going to try to rent if you don’t have to. And in two or three years, they will get rid of that college debt. And then they can launch and stay launched. And so that’s sort of how I approach these things today, take the entitlement off the table, and don’t make decisions based on your feelings. Like right now. It was like, oh, the stock market. You know, panic, I scream, I’m not happy. But I’m not going to make a decision based on what’s happening right now. Because I know I’m not going to need that money for a couple of years, until I retire. So I’m okay. And even if it stays down, I have made more money than I ever thought I’d make in my life. And I can live on that money because I don’t carry any debt. I’m going to pay off my house, I had no student met my husband, I did not borrow a single dollar to send our kids to school, they did not borrow, because we told them you could not were positioned.

Andy Slavitt  48:59

I want to close with this concept. Because what you’re saying is, you know, don’t be emotional. You can’t have everything really face up to the facts, have the conversation difficult. But I also want to say this, you know, as much as watching a TV commercial would lead you to believe that we get all of our joy. By buying new things, we get all of our joy from consuming that new car going on that trip, doing that thing. There is a certain amount of joy in just being in control of your life and being able to set your own course there’s a certain amount of just comfort we all get from feeling like things are in control that you are actually able to a large extent to influence what your life looks like because you’re not spending money on things you don’t have. You’re not always trying to look for a new thrill, a new thing. But you know, Michelle, you talk about having your daughter at home with you for a few more years. Like As a parent, my wife and I are sitting here green with envy, if you said, Would you rather have a new car, or have your son home with you for a few more years, it’s not even a close call. It’s not even a close contest. And so I think the points I would love for you both to reflect on as we close this, first of all, actually, are their joys in this life besides money. And also that that sense that you both give us as an economist and as a personal finance expert, that being in control of your own financial situation, whatever it is, knowing that you can meet your basic needs, and then from there, make your own choices. What pleasure, what utility, what pleasure comes in that and maybe that’s a you can start in Michelle finish. And you I’ll give you both the last word.

Betsey Stevenson  50:46

Great. Well, thank you, you know, it is the case that more money does make us happier, but it does. So at a decreasing rate. You know, it takes a little you know, if we’ve already got a lot of money, getting a few more dollars, it’s going to make us that much more happy. But there’s something there are things besides money. And one thing you mentioned is control. One of the reasons people like getting more money is they feel like they have more control when they have more money. If you can get the control, though, without the extra income, that control will also bring you more happiness, greater subjective well-being and I’ve actually been telling employers lately, look, you’re having a hard time recruiting people you want to recruit, but you don’t want to pay wages that are sky high, that make sure that you’re giving them control over their schedule, you’re giving them a sense of their career pathways, what they’re going to be able to work their way up to, because people need a progress narrative. And the more control they feel they have over their lives, the happier they’re going to be. So that’s one aspect of happiness, it is true that getting that control and control over your own financial life and feeling like things aren’t spinning out of control will make you happier. The other thing is, I think it’s actually quite useful to remember that there’s a big difference in what we spend our money on in terms of how much happiness we get. There’s a huge literature that shows that we get a lot more happiness from experiences than from stuff. So we talked about buying new cars, the new car is not going to make you as happy as actually getting some time with your family on a vacation and making sure that that vacation gives you that time with your family. It doesn’t need to be spend all the money on big splashy things, but actually have that time together do that memorable thing that’s going to give you the biggest bang for your buck in terms of well-being and how you spend your money. That’s great.

Andy Slavitt  52:31

That’s helpful. Michelle?

Michelle Singletary  52:33

That’s good. Yeah, we keep using this word control. And we do have a lot of control. But there is a lot that is out of our control. It’s out of our control right now with the supply demand, it’s out of our control the war in Ukraine, it’s out of our control. The repercussions of that is higher gas prices. But here’s how I look at it. I’m a very frugal person. And I love what Betsy said, you know, my latest book, what to do with your money when crisis hit is, in the introduction, I talked about how I live my life like I’m in a recession. And people can say, well, that sounds so depressing. I said no, what it means is that, I know that life changes, things happen. And I’m going to always be prepared for the worst, I’m going to hope for the best, but prepare for the worst. And this is how I look at how you should handle your money. My husband plays golf. And so he likes those big beautiful golf umbrellas really strong, they are going to if you’re on the course, it’s going to keep the rain off for you. And it’s a great solid umbrella and you don’t have to replace them very often. Now I’m a cheapo so I go to the dollar store and buy $1 umbrella, that’s when you don’t say that’s when you send your kid to a college that you can’t afford. That’s when you make bad financial decisions based on your feelings. That’s the dollar store umbrella, it’s gonna keep you dry for a little bit, but it’s not as strong as a golf umbrella. And so you need to run your financial life like you’ve got that golf umbrella. So when you lift it up, it’s gonna protect you for a good while, but it can’t protect you from a tornado, it can’t protect you from a hurricane, but my God, that rainstorm is going to keep that rain off for you. And so you need to run your life like that so that you will have that gum on golf umbrella and it might blow away but it’s gonna be a while before I blow away don’t get that dollar store umbrella. Say be good, be you know, when you live without when you grow up in poverty and you come out of it. You know that you can I don’t ever have to take another vacation and I’m going to be happy because I’m never going to be hungry again. And so you got to live your life with less entitlement so that when times like this happened and you can’t do something you won’t be okay. I’m gonna be okay because I know what it’s like to be hungry. I know what it’s like to take a vacation. I know what it’s like. And so now you anything I did, I’m grateful for, I’m so grateful. And on an individual level, micro level, that’s how you deal with things like this. Now, when you’re living on an edge, you don’t necessarily have that luxury. But if you are over that edge, and a lot of people listening are, the answer to what’s happening now is to be grateful for what you have. And not only that, reach and help other people, if you’ve got an extra room in your house, bring somebody in there who could use the help and don’t charge them rent. You know, if you’ve got extra money in your bike, maybe you’ve got a niece or nephew who’s in college, buy their books or pay for this semester, so that they don’t have to take on loans. So if you are on the other side of that line, and you got more, you give more. And if you want to align and you don’t have as much, you got to make better financial decisions, wait to have kids, if you can’t double up in the house, and if you can stay home as long as you can, so that you can weather this storm, get that golf umbrella, and that’s gonna keep you that’s the most control that you can have.

Andy Slavitt  55:57

And there’s real joy in standing under a really strong umbrella in a really tough rainstorm, and feeling pretty dry. As you watch the world go by. Well, Michelle, Betsey, it’s been a great conversation and to inform people, but it’s been an unexpectedly delightful conversation, because you both shared a lot of yourselves, in a very personal conversation that every one of us has our own stories and dealing with it. And I’m really personally grateful to both of you for doing that. Thanks for being in the bubble.

Andy Slavitt  56:47

Another week in the bank, I really love that conversation. I hope you did, too. Next week, we’ve got general Gustave Perna, who is the general in charge of Operation Warp Speed. Fascinating person, great conversation, Larry Summers, the former Treasury Secretary, many other good things. Let’s ask the world to stop the surprises. But of course, if there are surprises, you know, we’ll bring them to you on the show. We’ll just make sure that the news and information that you need, gets to hear with great guests Good thinking, good talking. But right now, I think it’s the weekend. The weekend. I think it’s officially the weekend. Don’t tell your boss you’re leaving. By the way. There’s such low unemployment rate, just leave you don’t even have to tell your boss just go leave and start the weekend. Tell him Andy said so. We’ll talk to you Monday.

Andy Slavitt  57:45

Thanks for listening to IN THE BUBBLE. We’re a production of Lemonada Media. Kathryn Barnes, Jackie Harris and Kyle Shiely produced our show, and they’re great. Our mix is by Noah Smith and James Barber, and they’re great, too. Steve Nelson is the vice president of the weekly content, and he’s okay, too. And of course, the ultimate bosses, Jessica Cordova Kramer and Stephanie Wittels Wachs, they executive produced the show, we love them dearly. Our theme was composed by Dan Molad and Oliver Hill, with additional music by Ivan Kuraev. You can find out more about our show on social media at @LemonadaMedia where you’ll also get the transcript of the show. And you can find me at @ASlavitt on Twitter. If you like what you heard today, why don’t you tell your friends to listen as well, and get them to write a review. Thanks so much, talk to you next time.

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