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We've been hearing about it nonstop: prices on just about everything going up. David Pogue has our crash course on inflation. You might have noticed there's something crazy going on with the prices of everything. Restaurant prices are up five percent over a year ago. Cars, furniture, meat, fish, and eggs are up 10 to 12 percent. Used cars are up 24, and gasoline—gasoline is about 50 percent more expensive than it was a year ago. Heating oil has the same problem. It could be an expensive winter. At the heart of all this is one of the fundamentals of economics: supply and demand, as illustrated today by the David Pogue Thespian Ensemble. Water here, get your dehydrated water: four dollars, three dollars, two bucks. When there's a lot of supply and not much demand, the prices go down. But when there's very limited supply and a lot of demand, the prices go way up. I got the last two tickets to see Lady Gaga. I'll take the front row right here. Do I hear eight hundred dollars each? Nine hundred. The question is, why now? Megan, it's just eating into people's buying power, so that has real implications on every American. Economist Megan Green is a senior fellow at Harvard's Kennedy School and chief economist at the Kroll Institute. What did the pandemic do to supply? So, when we shut down the whole economy, that automatically caused disruptions in parts of a really complex global supply chain. We're seeing huge backlogs in terms of containers waiting in ports and ships waiting offshore, and that's partly because of labor. So, we can't find truckers or longshoremen in order to get all of these goods off of ships, into ports, and onto shelves. All right, so what about demand? As we reopen the economy, there's just been this surge in demand as people go out to buy stuff. On top of that, you have the Christmas holiday season coming. The spike in gas prices is a different problem. Oil companies who lost money during the great lockdown are now limiting how much oil they produce. Oil, get your oil. Oil, get your oil. Oh, come on, man. Hey, listen, buddy, during a lockdown, you people weren't flying or driving. We made all this oil that we couldn't sell. We are not getting burned again. Yeah, but you're driving up the prices of gas and food. Not my problem, pal. Oil, get your oil. If you're old enough, you might remember the big inflationary cycle of the 70s and early 80s. Mortgage rates at 18 percent. But Megan Green thinks that this cycle won't be like that one. I actually think what we're facing right now is pretty different. In the 70s, we had really high inflation and really low growth. It's called stagflation. But during the lockdown, many companies made themselves more productive by investing in automation and other improvements. So, if we have productivity growth, it doesn't necessarily result in higher prices. Does the fact that our government has poured trillions of dollars of cash into the economy play a part in all this? So, what the government has already done certainly has fed the flames of inflation a bit, and it was sort of designed to do that. Don't forget, the stimulus was offered in order to get the economy going and jump-started after it had been put in a deep freeze. And what about the trillions of dollars yet to come as part of the new infrastructure spending bill? There, I'm a lot less worried. The fiscal stimulus measures on the table are all due to be deployed over the next 10 years. A lot of it is aimed at infrastructure spending, and because we don't have many good shovel-ready projects ready to go, infrastructure spending ends up being kind of back-ended. All right, Megan, so the big question: when will this end? What I think, unfortunately, we need to see is both demand to wane and also this backlog in the supply chain to be alleviated. And so, I think that we'll probably really see inflation abate in early 2023. So, there's your crash course in the inflationary cycle of 2021 and 2022 and 2023. The pandemic triggered a shortage of almost everything, and the recovery triggered an increase in demand for almost everything. Things will not get back to normal until supply and demand even out again. Diagrams, get your economics diagrams. [Music] Boy.
