Isabella Weber On a New Way to Think About Inflation

Tracy Alloway (0:10)

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

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, I feel like I'm gonna jinx things by saying this, but it feels like inflation is maybe starting to come down a little bit. At least it's not accelerating.

Let's put it that way.

Joe Weisenthal (0:28)

Well, here's what I've been thinking about, which is that for the last year, the last year and a half, we've done all of these episodes on supply chains and disruptions for this or that reason. And all of the various times we've used the term perfect storm to describe certain things in certain industries.

Tracy Alloway (0:48)

Perfect storm of perfect storms.

Joe Weisenthal (0:50)

My guess right now, in January 2023, is that 2023's episodes will be a little less dominated by these topics. That would be my guess. I'm guessing that this year we do a few fewer perfect storm episodes.

Tracy Alloway (1:02)

I think that's right. But I think, we spoke a lot about what it was that people didn't see coming when it comes to inflation. Why did a lot of economists get it wrong? Why was the inflation that was supposed to be transitory? Maybe it was transitory in the sense that it was narrow, not a big sort of macro unleashed inflation, but it definitely stuck around longer than a lot of people expected.

And so every time we have these big questions, like why aren't we better at forecasting inflation, it provides an opportunity to maybe learn something and start thinking about it in a slightly different way.

Joe Weisenthal (1:38)

Well, yeah, absolutely. And I would say there's really two things that I feel are unanswered by all of the conversations that we've had in the last year. So one is still, is inflation a macro or a micro thing? Did it happen because a few categories really had some disruptions and then spilled elsewhere and therefore it's not really about fiscal or monetary policy specifically?

And B, okay, we do have very high inflation right now, even if there's evidence coming down.

What tool, like if it is the case that a lot of it is related to disruptions and chip shortages and freezes in Texas, et cetera, what are the tools that are best to address that? Because it is important to get inflation down. But on the other hand, there's a pretty good argument that if the issue is some sort of disruption at the ports or whatever, that sort of like strict blunt instruments, like raising rates aren't necessarily the best approach to dealing with that kind of inflation.

Tracy Alloway (2:37)

Or raising rates won't grow more trees to turn into lumber and things like that.

Joe Weisenthal (2:41)

Or more births at the ports or anything like that.

Tracy Alloway (2:43)

So I'm so glad you said that because today, we are going to be speaking with one of our Odd Lots favorites and she has just written a new paper, which she says is inspired by some of the conversations that we've had on Odd Lots. But it's also just really interesting because it presents a new sort of third wave, potentially, of thinking about inflation.

Joe Weisenthal (3:03)

Not transitory, not persistent, a new more interesting third option and that maybe could help us think about ways of accepting, yes, inflation is real, it is a problem, but that some of these blunt instruments that just treat inflation as a function of there's too much money in the economy, we need there to be less, maybe there are better approaches than just this sort of blunt monetary approaches to addressing them.

Tracy Alloway (3:29)

Absolutely, so without further ado, we are going to be speaking today to Isabella Weber. She is of course, a economics professor over at the University of Massachusetts Amherst, and you might remember her from some previous episodes.

So Isabella, thank you so much for coming back on Odd Lots.

Isabella Weber (3:46)

Thank you so much for having me, it's a pleasure, thank you.

Tracy Alloway (3:50)

So the paper is called Inflation in Times of Overlapping Emergencies, Systemically Significant Prices from an Input-Output Perspective. But I just want to get you to say on camera that this is inspired by Odd Lots.

Isabella Weber (4:05)

It is, I mean, I have been listening to your podcast all through the pandemic, and as you were just saying, obviously you have been tracing all these price shocks that have been rippling through the economy. So this paper is trying to come up with a framework to trace these shocks and ripple effects in a somewhat more aggregate and possibly less fine print, but maybe a little bit more formal kind of fashion.