The Current U.S. Economy: Recession, Inflation, and Interest Rates – Lab 079

I'll tell you one thing. What yesterday's price is not today's price. A okay, the price went up. I feel like that's every day, literally every day, and for everything everything, gallon of milk, bread, cheese.

Chicken, chicken wings. Nothing is safe, No one is safe. All of our pockets are getting got. They did say the chicken wing price went back to pre pandemic prices.

Well, I don't know how. There was a wing shortage, but not a rest of the chicken shortage. Anyway, it didn't affect me because you know I'm roasting whole chickens at my house. Oh yeah, yeah, that's.

True, my friend.

Oh my gosh, you remember when you put that turkey breast on the grill.

It was so good?

Those were good times. Man.

The kid cooks so good it make you want to fight her because you know you're not gonna eat that good again.

Well, I won't do it again. Not if you ain't like that, be so mad.

I'm like, man, because I know it's gonna be a lung time before I eat this good again.

So if you think about that turkey that I had, then if you look at inflation and the changing prices, the price of meat has gone up from anywhere between nine and a half and ten and a half percent and twenty twenty two. Oh so if that turkey was twenty dollars last year, then this twenty two dollars this year.

That's a large percentage.

Yes, And that is the difference between having Thanksgiving and not having Thanksgiving.

That's the difference between Thanksgiving and thank you. Come again, because we will be at the drive through coming.

Okay, Oh my god.

Our friend she's a comedian, Honey, comedic timing chef kid.

I'm TT and I'm Zakiah and from Spotify. This is Dope Labs.

Welcome to Dope Labs, a weekly podcast that mixes hardcore science, pop culture, and a healthy Delta friendship. We want to help you, our listeners and ourselves, yes, understand the economy. We've heard things about it slowing down, speeding up, people needing to tighten the reins.

It sounds like we're talking about a whorse.

And we've also heard some buzzwords like inflation and recession and a lot of people talking about those things.

And we've been hearing about different types of interventions like the student loan forgiveness program, and people have been acting crazy on Twitter about that, right, if you're a friend of the show, you know at Dope we can find science anywhere. So today we're talking all about the economy.

Let's get into the recitation. What do we know?

We know that prices are up.

But another thing that I do know is that I did not do well in freshman economics.

Okay, that was one of.

The worst performance in college I had was in my freshman year economic scores. So I don't know much about the economy. Did I even have economics?

I feel like everybody's first foray into economics was those people set up in the student center in college giving you credit cards with too high of an interest rate. That was my first adventure in economics. Okay, shoot yeah, mine was a victorious secret credit card.

I have a job, like I can barely pay for this now, how am I gonna pay interests to?

And what I know is I'm still figuring those same things out today.

All right, So what do we want to know? Well, I want a.

Bird's eye view of the US economy, like what is it and what's going on?

And what is the current state of the US economy because it feels like, you know, depending on what station you're listening to. Some people are saying, Oh, everything's gonna be okay, the Fed has got it covered, and other people are like, hold on to your wallets, it's about to.

Be a dude. Yeah.

So I don't know what to believe and I don't know what any of this means and is.

There a recession or not? Are we in it?

And it's just not deep or coming, like is it like a tidal wave? Because people have been talking about a recession since mid twenty twenty, and I'd really like to understand. You know, I've lived through one recession, but I didn't have any money anyway, so it didn't really mad didn't matter and I didn't understand the economy. Then go ahead and recess, right, it's just a break.

I love.

Recess is what I really want to understand, Like what does it mean and what are the effects and at this big age, how should I be preparing. Let's jump into the dissection. Our guest for today's lab is doctor Vanessa Perry.

My name is Vanessa Perry.

I am a Professor of Strategic Management Public Policy at the George Washington University School of Business. I am also a non resident Fellow at the Urban Institute's Housing Finance Policy Center.

Okay, so with doctor Perry, we had to start very basic, and so our first question was, what is the US economy.

Our system of production and consumption that creates wealth and sort of encompasses the sum.

Total of our recent sources.

That's what we mean by our economy and the US economy are roughly speaking, those aspects those institutions that are US based.

Now, it's really hard to talk about the US economy without the context of the entire global economy. And this is because we live in a global society in the United States and the world economy are inextricably tied. But for the main purposes of this lab we're going to mainly talk about the state of the United States economy without looking at what's happening around.

This Over the last six to ten months, there's been a lot happening with the economy, and it seems like it's been dominating the news cycles with talks of inflation and a possible recession. And we'll get to those things a little bit later, But first we wanted to ask doctor Perry about the current state of the economy.

The US economy is doing extremely well and has since the beginning of the pandemic. That is highly unexpected because what I think most people anticipated was that the pandemic and nobody knew how long it was going to last. But once we went past sort of the three month mark, nobody expected the economy to boom the way that it has.

That's really interesting because there is a lot on my television saying that the economy is going down, down, down.

So what does it really mean when you say the economy is doing well? According to doctor Perry, it means that the economy is growing, there's an abundance of jobs, incomes are fairly high, and unemployment is low.

Okay, so how did we get here?

Even though the pandemic sort of shifted purchasing behavior and lifestyles in many ways, it also sparked a lot of just different kinds of consumption, So what we used to do just kind of got swapped out for other things.

In Lap thirty nine, ad Tocarte with Christoph for he told us that once the pandemic hit, people were purchasing everything online, and so the economy did a lot better than expected because we turned into like hyper consumers. We were getting our groceries delivered. We were buying toilet paper on Amazon everything, but.

That was twenty twenty. I don't have no money now. Well, I don't know how it's still booming, but doctor Parry says it is. I'm not contributing to the boom.

I feel like I am a little bit contributing to the boom.

I need to stop contributing. Send your contributions this way.

In fact, it was moving so quickly that the government started to get concerned that it was actually growing too fast. It was getting too hot, and that often leads to inflation.

Inflation is rate of increase in prices over a given period of time, and we're seeing a lot of that right now. We buy certain things kind of all the time, from groceries to gas to clothes, and you might have noticed that things are not the same price that they used to be.

The annual inflation rate for the United States was eight point five percent from July of twenty twenty one to July of twenty twenty two, and according to the US Labor Department, it's the highest it's been since nineteen eighty one.

But how is inflation even measured.

It's usually measured by the Consumer Price Index that's the number one measure of infliction and it's created by the Bureau of Labor Statistics, which is part of the.

US Department of Labor.

How do I know this because my mother's one of her first jobs was actually computing the Consumer Price Index.

That was before the government even had a computer.

And the CPI, this index, simply put, is just a basket of products and services and they go out is then they measure the price at one point in time, and then they go back and measure the price at another point in time, and then they combine these into an index.

To show how much the prices for those same goods went.

Up over that period of time. And that's roughly what the CPI is telling us.

Okay, so that's the CPI. But what caused the inflation that we're seeing right now?

What caused those The pandemic and the effects that the pandemic had on supply chains ability to be able to get goods and services to where they needed to be, and things like wars and multiple parts of the world that have affected the supplies of food and energy, and those have combined to create these inflationary pressures where companies can't provide goods and services at the same price, so they.

Raise the prices.

We heard earlier that the economy is doing so well, incomes higher and unemployment is lower.

So what does that mean for inflation.

Does it have as much of an impact Do we just not feel the sting of inflation if people are making more money.

It's particularly a problem when prices go up faster than our incomes go up, because if our incomes were to go.

Up at the same rate, it wouldn't matter. We would notice the inflation.

We notice it because our incomes increases lag inflation, and they almost always will because companies, governments, employers will argue that they cannot afford to keep up with these high inflationary rates.

Aside from making things less affordable, inflation can really be a problem because it's an indicator of a potential recession. A recession is basically when the economy comes to a screeching halt. People stop buying things, people are laid off from their jobs, and really just generally face a lot of financial hardship.

So inflation is one thing that might lead to recession, but that is not necessarily the case or always the case. I know it sounds like I'm being circular because it is extremely complicated.

A and B. None of these things are precise.

The National Bureau of Economic Research has a Business Cycle Dating Committee, and it's the department of the government that can officially declare a recession. They define a recession as a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The last major recession we had was over ten years ago, and that was the Great Recession of two thousand and eight, and that was fueled by the collapse of the housing market.

And then there was also.

A mini recession and it was the shortest on record, and that was between February and April of twenty twenty, and that was due to unprecedented levels of unemployment during the COVID nineteen pandemic.

The opposite of a recession is an expansion. Expansion is the economy's natural state, and recessions are more short lived. Recessions are a natural part of the cycle of our economy, but they're not very pleasant.

So the question on everybody's.

Mind is is there a recession coming.

Well, we're in this weird space where a lot of people are predicting that a recession is coming, but then there are other indicators that suggests that maybe it's not, or maybe it will be later rather than sooner. It's really hard to tell. And anybody that tells you that they know precisely is lying because they're all sorts of predictions. And all we have to look at is what's happened in the past.

And you know, we've never really been in these particular circumstances, so looking to the past can only get us so far. We haven't had a pandemic since nineteen seventeen, and certainly we didn't have the internet then, okay, and so we didn't have access to all this technology, so it's kind of hard to predict what's gonna happen. Tt you said that you heard all the ready that a recession is inevitable. Yeah, that's what they were saying. And I was very scared.

Beans? What do you do?

I need to get all the bread and all the milk and pack a go bag.

You know, I love a go bag.

My friend loves a go bag. But is a recession something that has to happen or is it a course correction or can we keep the recession at bay?

We can keep it at bay temporarily, but recession is part of an economic cycle that always has booms and busts. The economy always has gone up, then slows down, then it picks up, then it slows down, and those cycles, those bumps, those dips get triggered by different things. But I don't think anybody would predict that will never have

And things are already sowing down. The GDP or the gross domestic product, and this value is the value of goods produced and services provided in a country during one year. So the GDP is falling, which is also sometimes considered an indicator of the beginning of a recession. Recessions are an inevitable part of the economy, but that doesn't mean they don't suck.

A recession can cause a lot of suffering for people. And if there is a recession, what can the government do to help?

Well, there are a number of things that the government can do to help people, and we can look at that little mini recession in twenty twenty as an example. So there were a lot of people that were out of work at the beginning of COVID, and the government stepped in and put a moratorium on evictions and foreclosures. Private sector adjusted the credit score system so people weren't

There are interventions that can occur in both the private and public sector that can alleviate some of the negative effects of the recession on individuals and households. But when it's all said and done, there will be higher unemployment, there will be lower incomes, and if this is coupled with inflation, that means buying power will be reduced.

So we want to avoid that two punch combo exactly of low wages and high prices. We don't want to lose that buying power. I want somebody to regulate that. I want that to stay far away.

Another way that the government can manipulate the to me not necessarily in a recession is to increase the interest rate. It seems like all summer there have been headlines about the Federal Reserve or the FED raising the interest rate yet again.

So the Federal Reserve Bank is the central bank of the United States. All countries have for central bank, and actually sometimes a region will have a central bank, and their job is essentially to be the bank for the banks and to regulate their operations and to make sure that the banks, even though many of them are private corporations, but the goal is to make sure that they continue to serve the overall economy because that's where the country's money.

Resides, right It's in the banking system.

So the FED is able to control the money supplied by controlling interest rates. You can think about interest rates as the price of money. If I borrow a hundred dollars from you, how long are yougo let me have that one hundred dollars before you charge me one hundred and five dollars for it?

Is this hypothetical you really want to know? I don't think I want to know. Let's keep this friendship with that. No, I would never ask for the money back.

So that's zero percent interest. But if the interest rate is higher. You know, you might say, Okay, you're gonna have to pay me a little bit to hold that one hundred dollars. And the more I have to pay you, it means the price of the money is higher. So rate increases mean higher payments on credit cards, on cars, on student loans, things that you're financing. And that also means that you're not able to save as much because you're spending it paying more on the money you've borrowed.

So when interest rates go up, it means people are going to pull back on their spending and it becomes more expensive to borrow that one hundred dollars.

Now, my favorite analogy for this is a fish tank. Fish tank, you fill it with water. If you put too much water in the fish tank, it overflows, makes a mess. If you have too little water in the fish tank, fish can swim effectively. And so that's the fed and the money supply. They've got to make sure that the right amount of cash is in that tank so that the economy, the fish.

The consumers, the producers.

Can exchange value in a way that makes sense that works without spilling water over the tank. And they certainly want to make sure that they don't put too much water in the tank, because that then will also throw off the balance of what's going on with the fish.

So this all makes sense on a kind of macro level, but we wanted to know what does this mean specifically for folks who are affected by the decisions that the Fed makes and the state of the economy in general. So if the interest rate is going up, what does that mean for folks.

It's hard to say a negative impact on one group because there's sort of positive and negatives for everyone. So people, people who are lower moderate incomes, younger consumers, people with student loan balances. These people can actually suffer negative consequences.

For example, people saving for a house when interest rates go up, they can afford less because they have to pay more in interest. Or if you're trying to pay down your debts, it's harder because your interest rates have gone up and so your payments are higher. But this is different for folks who have plenty of money in savings.

For example, the Federal Reserve raises interest rates to try to manage inflation, and that's one of the tools that the FED has. When that happens, it's a great time to save money if you can. If you have any extra money, put it in the bank.

This is blowing my mind because I don't really think about interest rates in terms of saving. Like, whenever I think about interest rates, I'm thinking about borrowing in aprs and all of that. So I think I didn't consider that if you got a lot of money under your mattress when the interest rate is up, put it in the bank.

The other part of the issue when interest rates go up. And think about this now from the perspective of a business owner. Businesses have to borrow money as well in order to keep their operations going, and they may borrow money to cover labor costs or other kinds of costs that they face. And so who pays for that? Consumers pay for that. That actually can feed into higher prices because the costs of doing business are increased when interest rates go up.

What this really captures is that it's a double edged sword. So sure, if you have money to save, you can make some more money on it, But can you really save money when everything is so expensive because the interest rates are up. Let's take a break, and when we come back, we're going to talk about what the government is doing to rain this economy in. Okay, we're back, but before we get back into the lab, we just want to let you know that we'll be off next week.

Let's get back to the lab.

We've been talking to doctor Vanessa Perry all about the economy.

Doctor Perry has already mentioned that the economy is cyclical. We're going to go through these booms and busts, and so my next question is about what policies have been in place to prevent economic failures and what have the policies of the past taught us about what we should do right now.

I can think of two examples where the federal government did just an extraordinary job of preventing disaster. The first was after the two thousand and eight housing crisis, and the government has stepped in with a number of bailout type programs to one stabilize the banking system and to provide opportunities for people to stay in their homes by

Those were all evidence of the government acting quickly to try to keep Americans in a stable situation and to prevent further disaster and hardship.

The Inflation Reduction Act has been all over the news, and Congress finally passed it in August. This act is basically a sweeping new law that is trying to curb inflation through a variety of different means.

The Inflation Reduction Act is interesting. It's got a lot of cool stuff in it, including a label that some people suggest as misleading because it makes it sound like it might, you know, put a cap on prices across the board, and that's not exactly what it does. But it will have some positive effects on many markets and many aspects of the economy.

Specifically, the new law will spend three hundred and sixty nine billion on energy and climate change, three hundred billion in deficit reduction, three ye of subsidies for the Affordable Care Act, prescription drug reform, and tax reform we Act. Doctor perry which parts of the Inflation Reduction Act stood out to her.

So the one that stands out to me is Medicare.

One of the biggest effects that I think that is included in this legislation is that now Medicare can negotiate down the prices of prescription medications, and there are also some other benefits in there for Affordable Care Act recipients, So that is going to put a damper on some of these prescription drug prices. A lot of people cannot afford the medication that they need to stay alive and to stay healthy.

And the part of the bill that has to do with environmental sustainability includes incentives for businesses and consumers to adopt more energy efficient tools and technologies.

There's been a lot of innovations in terms of energy efficiency, but a lot of people haven't been able to afford them.

So this is going to affect the inflation. Probably less so in the immediate short term, but in the sort of medium term it's going to have a positive impact for a lot of people.

A positive impact for a lot of people is one thing, but what about a positive impact for the folks who need it most. You know, these huge pieces of legislation we've been talking about are good when there's a major crisis, But what about more isolated hardships that specific groups of.

People are facing every day.

Doctor Perry says, when it comes to government intervention, we are not doing enough to help these groups.

What we don't have enough of are ways to help people through these.

Kinds of service cans.

So, for example, people lose their jobs a lot of times because of changes in technology, changes in employment markets and requirements, or their company moves to another state and they are unable to move, or they face some kind of unforeseen health medical problem with themselves or a family member.

Now, all these things.

Happen, and interestingly, these unforeseen negative events are more likely to happen to people of color who are also suffering from cumulative disadvantage from prior generations dealing with racism and discrimination.

So there are far too few, in my.

Opinion, interventions available for people who find no fault of their own Because of where they were born or to whom they were born, they are more likely to suffer these unforeseen circumstances, and we don't have a lot of protections for them. So we have mortgage insurance, for example, or homeowners' insurance that protect banks. They protect the lenders, but we don't really have any requirements to protect the borrowers. If something happens and they can't make a payment, they

That is such a great point, you know, Yes, especially as we see folks living longer, you know, we're gonna need some more of these types of protections.

It's so true, And I mean, we have to be correcting for how our culture is changing, and the fact that we're just trying to keep things the same means that the people who were privileged of the past will continue to be privileged in the future, and there's no room for anybody else to live long and prosper.

This was complicated, but I'm glad we covered it. Yeah.

I think that's a really important point to make that the economy is very complicated. It isn't black and white. There's a lot of nuance that has to be considered.

And it also isn't static.

So the verdict for today could be different from the verdict next week. And you know, there are some things that we didn't talk about here but that we both know are really important, right, which we mentioned at the top, around the global economy and how things changing and happening in other countries affect what's happening in our country.

Yeah, and we talked about that in past episodes, like, for example, how the war in Ukraine was affecting semiconductor production.

But I think there's one thing that we've seen an important and movable pillar of the US economy, and we've seen this stay steady throughout all of this, and I'm curious about how it's working, but it is the price of the Arizona tee at ninety.

Nine cents, that's still a dollar, how.

And so we really appreciate doctor Perry helping us unpack such a complex issue.

You got to be.

Really skeptical about people who can talk about anything in economics with certainty, because if they really could predict what is going to happen, we could get ahead of it, right, we would have never had recessions or economic depressions or any of those things. So it's never really been done. There's a Nobel prize in economics. Is it been the most profound predictions made by those Nobel laureate economists has been?

Do with, hey, we really actually got this all wrong.

All right, it's time for the one thing? T T what's your one thing this week?

My one thing this week?

You know, we're talking about the economy and how we're spending our dollars, and one way I like to spend my dollars is.

On black businesses.

And I stumbled across this really amazing black woman owned business on TikTok, owned by a woman named Camille McCallum. The name of her brand is black Woman on a Mission and she makes a pail, so socks, t shirts, sweatshirts, hat, and so I've gotten a hat and some socks from her. They both say Black Women on a Mission on it. I love wearing it because one of the things that she said in her TikTok is that it always starts a conversation. People will ask her, you know, what mission are you on?

What do you do?

And it actually does happen. When I wore that, I had somebody ask me that. So I got a chance to talk about the podcast and put us out there even more to people who may not know about us. So that is black Woman on a Mission. The website is black Woman on a Mission dot com. The owner is Camille McCollum. You can follow her and her brand on Instagram and on TikTok. She is so much fun I love her TikTok. She's so funny, and so I really love being able to support her in this way.

Yes, that sounds great. What's your one thing?

My one thing, and I've talked about it before is an app and it's called Digit. So when we're thinking about the economy and how you might save and capitalize on those interest rates, digit is an app that basically is taking money out of your account. And I know that's scary. It was scary to me, but you can set the daily limits and it just pulls tiny little dollars away, and before you know it, you have a

For Lap seventy nine.

I want to know do you want interest rates to go up? Are you excited about the student loan forgiveness program for against it?

What do you think?

Call us at two zero two five six seven seven zero two eight and tell us what you thought, or give us an idea for a lab you think we should do this semester. That's two zero two five six seven seven zero two eight.

And don't forget there's so much more for you to dig into on our website. There'll be a cheat sheet for today's lab and additional links and resources in the show notes. Plus you can sign up for our newsletter check it out at Dope labspodcast dot com. Special thanks to today's guest expert, doctor Vanessa Perry, you.

Can find doctor Perry on LinkedIn just search Vanessa Perry.

And you can find us on Twitter and Instagram at Dope Labs podcast, tt is on Twitter and Instagram at dr Underscore t Sho.

And you can find Zakia at z said So. Dope Labs is a Spotify original production from Mega OWM Media Group. Our producers are Jenny Radlett, Mask and Lydia Smith of WaveRunner Studios. Our associate producer is Caro Orlando. Editing and sound designed by Rob Smarziak, with additional mixing and sound design by Hannis Brown. Original music composed and produced by Taka Yasuzawa and Alex Sugiura from Spotify Creative producer Miguel Contreras.

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