Dan Alpert on the Big Difference Between Now and the 1970s

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:19)

So Tracy, I think we recorded an episode on the recent CPI day, but regardless of when it was, I think there is this view now that, although I don't know whether it's team persistent or team transitory or whether teams are the right way to be thinking about this, that the sort of elevated inflation that we've seen for various reasons, logistics, commodities, et cetera, it doesn't seem to be going away anytime soon.

Tracy Alloway (0:48)

Yeah, we actually spoke about this on an Odd Lots episode. It was with one of the Fed governors. I think it might've been Kaplan, but we asked whether or not transitory was like a good way to describe it or whether they regretted choosing that word. And I think, fast forward a few weeks, it's very, very clear that the Fed probably regrets using the term transitory and probably would have benefited from using something like, you know, I guess broad-based inflation versus narrow inflation, something like that.

Joe Weisenthal (1:21)

Yeah, or just maybe like pandemic-related inflation, like something like super pedestrian. Because I do think like we're in this situation where people have taken transitory to mean like, oh, it's gonna be like this very brief spike. Like we'd have two months up and then we'd quickly go down. And that hasn't happened yet.

That being said, we are still in the mix of just like this very weird tumultuous time for the global economy. We talked about it recently with Jeff Curry and just like all the different things, going on, Chinese energy rationing and Indian coal shortages and weather patterns and all kinds of stuff. And so there's just like a bunch happening.

And I think like the question is, well, will this normalize? Well, when the pandemic is over and policy normalizes, will we have an inflationary environment that more or less resembles the pre-crisis environment? Or are we gonna be at some like new, elevated inflationary regime?

Tracy Alloway (2:18)

Yeah, I mean, with the surge in energy prices, the analogy that everyone is reaching for right now is the 1970s, right? The idea of double digit inflation and slower economic growth. So a sort of double punch of a stagflation. Although I gotta say, I feel like a lot of people are just using stagflation as like a synonym for inflation now when they are two very different things. But you're definitely seeing more people talking about that.

Joe Weisenthal (2:45)

Yeah, you know, and obviously job creation in the US has been a little bit slower than perhaps we would have hoped in the spring. So that, but on the other hand, like retail sales, the consumer seems to be absolutely booming.

So the stag part of the stagflation is a little bit hard to see at the moment. But you brought up the 70s. And I think that's really important because obviously that is the decade that people reach for when they look for analogs. And not only was it the last time that I think the US really had have sort of sustained elevated inflation, but a lot of our policy makers, central bank governors, you know, sort of grandees at universities sort of like made their chops in the 70s or 80s. And so I think it looms very large for how they may save the economy now and how they may view the proper policy response. So understanding what actually happened.

Tracy Alloway (3:36)

Yeah, and we had that episode with Ulrika Malmondier and she was talking about inflation expectations and how much individual experiences actually mattered to perceptions of inflation. And of course she did that great paper all about how if you look at the age of FOMC members, you can basically figure out how they're going to vote on interest rates just based on their age and their own personal experience of inflation.

Joe Weisenthal (4:07)

Right, well, I think both of us missed the 70s by a little bit.

And I think we talk about the 70s, but what happened in the 70s strikes me as then therefore an important question. And then you can think about like, well, can we have these conditions today? So I'm very excited about the guest because he has a new report out. It's titled inflation in the 21st century, taking down the inflationary straw man of the 1970s. We're gonna be speaking with Daniel Alpert. He's a senior fellow at Cornell and adjunct professor at the law school. And he has a managing partner at the investment banking firm, Westwood Capital.