>> There's one gap in the polling data that's bigger than we've ever seen before, which is if you ask people how is the economy, they say awful.

And yet if you ask them individually, "how is your situation", they're saying it's pretty good.

♪♪ >> Hello and welcome to "GZERO World."

I'm Ian Bremmer.

And today we talk all things inflation from the price of bacon to the cost of housing.

Everything but the stock market is going up.

We're all feeling it, and some a lot more than others.

At the same time, unemployment remains very low.

And thanks to months spent at home during the pandemic, many Americans have a bigger savings cushion to fight against high prices.

But as prices continue to hit 40-year highs, 65% of registered voters believe the U.S. economy is heading towards recession.

So why is it happening?

And is there anything that can be done to make it stop?

This week, I speak with American economist Austan Goolsbee.

And then Russia's war in Ukraine has led to an increase in one kind of petty crime in America.

>> What did you just do?

>> Don't worry.

I've also got your "Puppet Regime."

>> Okay, what would make you a great lifeguard?

>> I am comfortable working shirtless and love rescuing people from threats.

>> But first, a word from the folks who help us keep the lights on.

>> Major corporate funding provided by founding sponsor First Republic.

At First Republic, our clients come first.

Taking the time to listen helps us provide customized banking and wealth-management solutions.

More on our clients at firstrepublic.com.

Additional funding provided by... ...and by... >> I represent the "rent is too damn high" party.

My main job is to provide a roof over your head, food on the table, and money in your pocket.

>> I love that guy and he has a point.

But Jimmy McMillan says he has stepped away from politics after several unsuccessful bids for the mayoral and gubernatorial seats in New York.

Sure, his platform was lacking on substance, on well, pretty much on everything.

But he's right.

The rent is too damn high, especially in 2022.

The average rent in Manhattan hit a record $5,000 a month in June.

Landlords in the country's largest rental market are trying to recoup lost expenses from the pandemic, and national rents are up about 16% year over year.

These numbers make a difference in calculating just how bad the country's rising prices have gotten.

Inflation has hit a 40-year high in the United States.

The price of gas, housing and food has surged 9.1% since June of 2021.

And like most economic crises, lower-income workers, and particularly Black and Latino Americans, have all been hit the hardest.

The economy has been overheating, and that means until recently, growth has been high and consumer prices have gone up.

And the Federal Reserve, the Fed, is trying to do its best to bring those prices down without causing recession.

How do they do that?

Well, by raising interest rates, borrowing money becomes more expensive to consumers.

They, in turn, spend less.

Demand falls and inflation, ideally -- this is the theory -- starts to drop.

But the Fed has already raised rates four times in 2022, and we're likely looking at another raise in September.

Not at all clear whether this strategy will work.

Well-known economist -- we've had him on the show -- Larry Summers says that in order to get inflation under control, we're going to have to raise unemployment.

But that comes with a serious cost, with pain and suffering for the Americans who can least afford it.

And these are only the issues in the United States.

Europe's largest war since World War II has sent energy prices skyrocketing globally, and it's forcing the European Central Bank to raise rates for the first time in over a decade.

In Turkey, food prices have doubled.

Inflation at nearly 80%.

The world's most vulnerable in developing countries are suffering the most as the rising price of fertilizer, wheat and fuel have made it harder to put food on the table.

So what is it going to take to climb out of this hole?

This week, I speak with Austan Goolsbee.

He's professor of economics at the University of Chicago and he's former chairman of the White House Council of Economic Advisers under President Obama.

Here's our conversation.

Austan Goolsbee, thanks so much for joining us.

>> Yeah.

Great to see you again.

>> So, I haven't had anyone talking about the global economy in a few months, and it does seem high time.

I guess one way I want to get into this is that there's so much that feels unprecedented in these times.

I mean, this extraordinary sudden contraction, because we had to shut everything down with COVID and then this extraordinary explosion of demand because we opened up again.

What percentage of what we're experiencing right now just can be explained simply by those two facts?

>> [ Chuckles ] Those are both great facts.

And I'm tempted to just say a third, you know, a third, a third and another third.

I think it's an unprecedentedly steep downturn and an unprecedentedly rapid comeback.

But another thing to graft on it is it looked nothing like a normal recession.

So, normal recessions are driven by cyclically sensitive parts of the economy, like durable goods, manufacturing and housing and TVs and stuff like that.

And normally the things that don't go down in recessions in rich countries are services.

And this one looked nothing like a recession.

All of the stuff that normally goes down went up in the United States, in Europe, in the high-income countries.

They bought more TVs.

They wanted to buy more housing.

They want to buy more cars, leading to an overloading of the supply chain for physical goods.

And the thing that led the downturn was a bunch of people not going to the dentist and stuff that's normally recession-proof.

And so I think, you know, I'll say at least two thirds of what we've observed, it was about the nature of what was happening.

>> Now, a lot of people were very critical of the policy response the last time we had a massive recession, 2008, 2009, in part because they said we were taking care of the rich people and we didn't really care about the average American.

No one can say that about this crisis.

Right?

>> You know, Ian, I was there for the stimulus in 2009.

And the critique of the policy in 2009 in dealing with the financial crisis, of course, was they wished it were bigger.

And coming out of the Bush administration, people wished it wasn't primarily geared toward financial institutions.

So you could almost feel that in the response of the CARES Act under Trump and the Rescue Plan under Biden, that they weren't going to make the mistake of it being too small and make it as big as it could possibly be and to spread it around so it doesn't just go to banks.

They're going to be checks the people, we're going to help the unemployed, we're going to help the airline industry, the cruise ship industry.

We're going to help all small business.

We're going to have the Fed engage and unlock massive amounts of lending.

Looking back, for sure, given that the recovery was as fast as it was, you would not do as big of a rescue amounts as we did the -- you know, we did $5 trillion in the CARES Act and another $2 trillion in the Rescue Plan.

And not to mention there were some others as they go along.

And that's the biggest spend that we've ever had, you know, bigger than all the wars except World War II combined.

So I think the magnitude you would -- you would probably do smaller.

>> Now, why do you think today with unemployment as low as it is -- I mean, I understand that inflation upsets people, but is that solely the reason why people seem so incredibly negative about their economic estimates going forward, no matter who you talk to?

>> Look, the thing is, the polling data, there's one gap in the polling data that's bigger than we've ever seen before, which is if you ask people, how is the economy, they say awful.

As bad as they've ever said the economy was.

>> But if you ask them how they're doing -- >> Even worse than during the Great Recession.

And yet if you ask them individually, "how is your situation," how is your bank account, they're saying it's pretty good.

And that's because, as you highlighted, the unemployment rate is extremely low.

They're upset that wages for a lot of people have not kept up with inflation.

But overall, the difference between how they say the economy's doing and how they say their personal finances are doing has never been bigger.

So then we've got to try to figure out why is that?

I think part of it is that real incomes have slipped because for a lot of people, wages did not go up as much as prices.

But even there, it's not really sufficient because if you look at 2021, that was a year in which prices for the average family went up about $2,000, $2,500 more than their wages went up.

And the average family got a $3,500 tax cut as part of the Rescue Plan.

So if you look at the actual income situation of the average family, it was dramatically in the black.

It was not in the red.

So I don't think that the reality can really explain all of why the polling is as negative as it is.

>> What do you think is going to be sticky in terms of changes in how we think about the global economy on the back of the pandemic?

>> My view is if something was a trend for 50 or 100 years before COVID and we see a dramatic reversal for two years in an extremely unusual period, I think it's overwhelmingly likely we're going to go back to what it was before because there were some important factors driving at that.

We should be making all of this lower, lower-end stuff at home.

In the case of an emergency like this, you want to be able to have your own masks and have your own vaccines and have your own baby formula, have your own socks, whatever it is.

I think that will end up being a blip, even though that's now an overwhelming trend.

I think the fact that that -- that forgets how we got to the lean production system and globalized supply chain we had before COVID.

And that is there are big economies of scale and it's cheaper.

And as I say, what's going to happen is two years, four years, sometime from now, somebody is going to wake up and they're going to look out the window and they're going to say, why do we have a giant warehouse full of socks that we made here that we could buy on the open market for one third the price and we can just have shipped here when we need them?

Why do we have this warehouse?

And at that moment, kind of the legacy of the pandemic will be forgotten.

>> Speaking of blips, I mean, for decades before the pandemic, labor had less and less influence with capital and in the political system.

That obviously is changing now.

And everybody wants to work more flexibly.

People don't want to be in the office.

They can demand a lot more.

Is that also a blip?

>> I kind of am afraid that a lot of that is a blip, that right now workers have an almost unprecedented level of bargaining power where, as one CEO described it, the only question is, "Do you want your popcorn buttered or salted?"

So the thing that I think we're going to have to see is if you look in the period from, let's say, 1970 to 2020, over that 50-year period, we had a lot of productivity growth and pay did not match it.

So the theory says that people's pay should be -- should track productivity.

But we had a lot of productivity growth and that split from wages.

And that's a different way of saying corporate profits as a share of national income rose to unprecedented levels as a kind of a frontline indicator of what's the power, the bargaining power of workers.

And right now, workers are demanding and receiving work from home, flexibility, things like that, but now roll the tape forward to a period where it's more like a normal labor market.

Forget about a recession-like labor market.

Let's say we're just in normal times.

I think the employers are going to -- you know, it's going to be the Empire is going to strike back.

And the employers are basically going to say either, no, we demand you come to work and if you don't want to come into the office, you know, go work somewhere else, or they're going to say, hey, you've got an a nice bounty being able to work from home, so we're going to pay you less or we're going to expect you to work more on your own time.

So all of those things make me think it's not going to be as rosy a scenario as it seems right now.

>> Okay.

So, Austan, let's get to inflation for a moment.

How troubled are you by the persistence of this inflation?

Clearly longer and louder than the Biden administration had expected.

Do you think it is with us for the foreseeable future, and what are the implications of it?

>> It's been longer and louder.

I will highlight it's not just government officials who have made the mistake of thinking inflation was going to go away or be smaller.

The market absolutely made the same mistake.

Just look at interest rates.

They set interest rates below what the inflation rate ended up being.

So the real interest rate was negative.

If you took out -- If you borrowed money, if you got a mortgage at the rates before, you've been doing great for this year.

I have thought that the answer to the question of what we need to do hinges critically on this second question of did the inflation come from supply or did it come from demand?

If it came from excess stimulus, excess monetary stimulus, excess fiscal stimulus, which there are a lot of economists think it did, then the correct answer is the Fed needs to tighten monetary policy and raise the interest rate and try to cool off demand.

And that's kind of the traditional Fed thing to do.

They really only have one tool, which is the screwdriver.

We can tighten it, we can loosen it.

And they look at the interest rate-sensitive parts of the economy, and that's what they do.

The problem is, if the inflation came from supply, if you think war in Ukraine or the labor supply shocks from COVID or a series of things hitting the supply chain are where the inflation came from, well, there is another lesson from the 1970s, which is supply shock inflation doesn't go away from just tightening demand and that what the Fed would do in that case, they could raise the unemployment rate, but they're just going to generate a stagflation.

So that's the religious schism, as I call it, within the economics community over where did the inflation come from?

And that is why I think the Fed has been slow to act, is they've been sitting and waiting, hoping to figure out, well, was it supply and is it going to go away on its own or is it demand and we're going to have to crank this thing down?

>> And sounds like you're saying it is mostly supply.

>> I thought from the beginning it was mostly supply.

I will say that in the last two months, the fact that the non-energy, non-food parts of inflation, the so-called core inflation, which the Fed looks at as the pointer for what's the true state of affairs, the fact that that has not been coming down has led me to revise my view of how much of this was supply.

And I think if we get a couple, even two more months like the ones we just saw, I think they're going to be consulting the ghost of Paul Volcker and the Fed is really going to... >> And then rates are going way up.

>> ...feel like they need to raise rates a lot.

>> So I have to ask you the one question.

Larry Summers says, we have to, you know, let go a whole bunch of people if you want to fix this inflation story.

I take it you do not actually agree with that?

>> I don't.

It kind of goes to my thing of you got to answer, how much of this inflation do you think came from demand or supply?

In Larry's mind, I think is the view that this inflation is overwhelmingly from too much demand.

And so in that world, he says, you know, we got to raise the unemployment rate to 10% for one year or 7.5% for three years.

He gave you a whole menu, a schedule of what you could choose.

Fundamentally, that's a story of demand.

And I think at least 50% of the inflation is not from demand.

So what could easily happen if you were going to follow that prescription is you could raise the unemployment rate to 7.5%.

Millions of people lose their job and then the inflation's not going away because it's not coming from excess demand.

In which case, you probably want to be a little circumspect.

I mean, what it means for the unemployment rate to go to 7.5% is a lot of pain for millions of people.

>> So the next couple of months are actually pretty critical in this entire equation.

>> I think that's true.

I think the next couple of months, how fast the Fed and other central banks raise rates and whether you start to see the core inflation begin to come down and make people feel a little like the heat is a little less off -- It's not going to remove the political heat because it's not on an election timetable, so it's not going to be solved by November.

But if the new months of inflation started coming in lower because we started to get relief on the supply chain, I think that would be one path.

If not, if it just kept accelerating, even the new months keep accelerating, then I think the Fed and the central banks are going to have no choice but to raise rates quite a lot more.

>> Austan Goolsbee, thanks for joining us today.

>> Great to see you.

♪♪ >> Russia's war in Ukraine has had a big global impact.

Rising energy and food costs.

Supply chain gridlock.

Refugees fleeing violence.

But there's also one surprising impact you might not have expected.

>> You're watching thieves make off with a catalytic converter.

>> The theft took just over a minute and happened during the early morning hours.

>> Palladium is a rare and precious metal.

You knew that.

And Russia is the largest producer.

Maybe you didn't know that.

They make up 40% of the global supply.

It's used in flutes.

Yes, flutes.

At the dentist office.

And you guessed it, it's in your car's catalytic converter.

What is a catalytic converter, you ask.

Great question.

Catalytic converters, or cats for short, filter toxic compounds from your engine and convert it into something safer.

Like steam, essentially reducing the pollution that comes out of your tailpipe.

But the price of precious metals has skyrocketed after Russia's invasion on February 24th, with palladium hitting an all-time high of $3,440 an ounce in March.

Today, the price is closer to $2,000 an ounce, which is still a lot, especially if you're a flutist.

[ Sour note plays on flute ] The problem has gotten so bad that it's even hit "GZERO's" very own Matt Frampton, who does not play flute, but he does own a 2008 Prius and he parks it on the street in Brooklyn.

Matt, tell us what happened.

>> And my wife went down to move it one morning and gets in the car, turns on the car and just hears this God-awful sound.

And it just sounds like the car is going to explode.

We had no idea what it was.

You know, the guy who came from the towing service knew immediately, I mean, literally got out of the car and he said, "Oh, you've got a Prius.

Someone has stolen your catalytic converter."

He didn't even have to look.

He knew immediately what it was.

>> Catalytic converter thefts had been on the rise since the beginning of the pandemic.

The National Insurance Crime Bureau estimates that more than 52,000 catalytic converters were stolen in 2021.

In 2018, that number was just 1,300.

State lawmakers are trying to fix the issue and have been working on more than 150 pieces of legislation throughout the country, which is like more than three per state, which seems overdone to me.

There's even a congressional bill in the works because apparently the state legislators don't know what they're doing.

So what's a worried driver to do in the meantime?

[ Alarm shrieking ] You can install what's called a cat guard... [ Cat meows ] ...to help deter thieves.

Moose approves.

[ Dog barks ] Or you could mail your car repair bills to the Kremlin care of Vladimir Putin.

♪♪ And now to "Puppet Regime," where a lifeguard shortage has hit America hard this summer.

>> This just in.

America is in the midst of a national lifeguard shortage leading to job inquiries from some very unexpected applicants.

>> Okay.

What would make you a great lifeguard?

>> I am comfortable working shirtless and love rescuing people from threats.

Look, out in the water.

Those dolphins are Nazis.

>> Next.

>> What's that you say?

The economy is drowning?

I remember back in 1950 on the Delaware beaches, there was an old fish shack that was called Old Fishy's Fish Shack, and it was a fish shack that sold fishies.

>> Next.

>> Spray some of that rum punch directly into my mouth.

>> Next!

>> Have you seen me?

I am slim trim.

And I got that big dictator energy.

[ Laughs ] >> Okay, next question.

Are there any limitations on your ability to work as a lifeguard?

>> Well, you know, I kind of hate getting my robes wet.

They just -- The chafing is really uncomfortable, and they take forever to dry.

>> No, I will immediately run into the water and build a manmade island there.

>> Here in the metaverse, the only thing we're drowning in is community.

>> Wait, I have to keep people from dying on this job?

Why?

[ Whistle blows ] >> Okay.

Okay.

You know what?

Forget it.

Everyone can drown.

>> "Puppet Regime"!

>> That's our show this week.

Come back next week.

And if you like what you see or you just like sharks, you like to see sharks, you want to see some sharks in "Puppet Regime," that's right, check us out on gzeromedia.com.

♪♪ ♪♪ ♪♪ ♪♪ >> Major corporate funding provided by founding sponsor First Republic.

At First Republic, our clients come first.

Taking the time to listen helps us provide customized banking and wealth-management solutions.

More on our clients at firstrepublic.com.

Additional funding provided by... ...and by...