Mark Blyth
speaker
294 appearances
3 recordings
3 series
first heard Aug 2024
last heard 3 Jul
Mark Blyth’s voice in public audio — every appearance, attributed to the second.
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That's a valedictorian. Got it.
So the basic understanding is the government spends too much money and that pushes up prices. That relies on you having a government that actually spends a lot of money, raises a lot of taxes, runs a lot of deficits, all this sort of stuff. And most of human history, I mean, we didn't even have a government. We had bloody anarchies running around the place and empires and stuff.
That's not to say there wasn't a great big inflationary period in the time of the Roman Empire. There's been other sort of historical examples of this, but modern inflation, something different. And we draw all of our examples from the 1970s.
Right. So kids, there was a time called the 1970s. It's when everyone was a swinger and had sideburns, right? Right. And it was all crazy. And Starsky and Hutch was a popular TV show. Now, what else happened in the 1970s? So go back a little bit. You had the Vietnam War.
So what that means is you have the government spending a lot of money. You've got a lot of people taken out of the labor market, shipped off to Southeast Asia. You've got a lot of government spending, all this sort of stuff. And the basic gloss of the story is that everybody was spending a lot of money then, more than they could cover with taxes.
And economies all through the developed world, all through the West, started to slow down. And that's a bit of a problem.
Government needs drywall as well.
Exactly. And not just that, you're pulling in marginal workers to cover them, and you've got super tight labor markets. Unemployment's pretty much non-existent. So what that means is you can be the dumbest person in your firm, leave a job at 12, get a better paid one at four, because everyone's competing for the last possible worker. Right. Got it.
So what then happens, and this is the official story, is that people began to focus on what are called their future expectations of prices. Now, stay with me on this because it's important, right? So people are used to prices being stable. And then they become unstable. They start to rise.
So then they start to say to themselves, well, I'm going to have to get a higher wage because everything's gone up. So they go to the employer and say, give me a higher wage. And the employer says, no, because I'm dealing with higher prices. And they said, well, fine. We'll go on strike. Now, remember, this is the 70s. 25% of people were in unions at that point in time.
Back in the day, things were made in the country. If you went on strike, you held up the production of the firm. So then the employee goes, oh, shit, I'll have to give you a pay rise. So then they give you a pay rise. And then to cover that cost, they then raise their prices. And this creates what economists of the time called a wage price spiral. And it just kept going up and up and up.
Now, that's a super dangerous thing because it's going to get out of control. You're going to get to what we call hyperinflation when it's just totally think Argentina, right? This sort of stuff.
So what we need to do is slam on the brakes. So how do you slam on the brakes? Well, you can't ask the government to do it. They're the criminals. They're the ones who are spending the money. So you've got to go to the police. Who are the police? The central bankers.
Paul Volcker is the central banker who's appointed by Jimmy Carter to run the Fed. And he basically says, right, I'll sort this out. I'm going to make the cost of borrowing money eye-wateringly expensive because I'm shoving interest rates up to 16%, 18%. But what happened was the inflation rate collapsed. And then by 1984, the inflation was more or less over.
And it was Reagan's famous morning in America.
And then after that, for a long period, we had pretty low inflation and pretty high growth. So the story of the 70s was, that's what happened. Government bad. Market's kind of good. Government can't be trusted. Spend too much money. Federal Reserve good, independent. Keep them away from the politicians. Push interest rates up. Crush the economy. Sorry, unemployment. But don't worry.
It'll only be two years, and then everything will be fine. That was the story. And everything is interpreted through that moment.
Exactly. I don't think it's totally wrong. I think it's incomplete.
What actually happened, if you go back to the 60s, you got half a million people in Vietnam, 2 million in support. Now add, for the first time in American history, women and minorities coming into the labor market at scale for the first time. You would think that that would be an increase in supply. Price would go down, right?
Showing 161–180 of 294 · page 9 of 15
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