History's playbook for taming the beast of inflation

9:38Meg Jacobs:— Kitchen gestapo. Maybe a little over the top, but that's what the opponents of price controls called them.

9:45John Cochrane:— All these sort of negative connotations, but largely the program was successful because who wants to be subject to profiteering?

9:54Meg Jacobs:Armed with a grocery list of government-sanctioned prices, these voluntary housewives were essentially the foot soldiers of a new federal department called the Office of Price Administration, a.k.a. the OPA.

10:11John Cochrane:It's just a Christmas wonderland, this pricing office of the OPA in Washington.

10:17Meg Jacobs:Established in 1941 by President Roosevelt's administration, the OPA was created in response to the U.S.'s rapidly changing economy, an economy that was still recovering from the Great Depression and that was now entering a boom period sparked by World War II.

10:34John Cochrane:So you had people with lots of jobs, high pay, chasing after fewer goods because the market had shifted to military production. You do not have to be a professor of mathematics or economics to see that if people with plenty of cash start bidding against each other for scarce goods, the price of those goods goes up. The U.S.

11:03Meg Jacobs:government more or less forced many big industries to change their production from consumer goods to military equipment. Think car companies making tanks instead of Cadillacs. To fulfill these government contracts, tons more jobs were created. But since all the production was going to the war, there was less stuff for the workers to buy with that money. Lots of demand and very little supply equals inflation.

11:28John Cochrane:If the vicious spiral of inflation ever gets underway, the whole economic system will stagger. Prices and wages will go up so rapidly that the entire production program will be in danger.

11:45Meg Jacobs:Speaking directly to the public on the radio during his now-famous fireside chats, President Roosevelt connected the war against inflation with the war against Germany and Japan.

11:56John Cochrane:I realize that it may seem to you to be overstressing these economic problems at a time like this, when we're all deeply concerned about the news from far-distant fields of battle. But I give you the solemn assurance that failure to solve this problem here at home and to solve it now will make more difficult the winning of this war.

12:26Meg Jacobs:And Roosevelt laid out what he and his administration saw as the solution.

12:32John Cochrane:We must pick ceilings on prices and rents.

12:37Meg Jacobs:The Office of Price Administration established set prices for everyday items, from nylon stockings,$1.25 a pair, to milk,$0.15 a quart, to eggs,$0.61 a dozen.

12:50John Cochrane:Priceless were transparent. They were printed in newspapers. Retailers and merchants were required to hang them in their stores. In the case of shopping, grocery lists, you know, the OPA printed them up in like 14 different languages and distributed them directly to the housewives. You, the women of America, now have what everyone has been asking for. Top legal prices for market basket items. When you go shopping, you will know the correct top price.

13:21Meg Jacobs:you are an active and necessary partner in the business of holding down the cost of living. As time went on, the OPA grew bigger and bigger, employing more people and controlling more prices.

13:35John Cochrane:So it was really big. It had more economists, I believe, than in the Treasury Department. They had about 60 ,000 employees in a very short period of time.

13:47Meg Jacobs:And in order for the OPA to institute price controls, They needed to also institute something else. Rations.

13:55John Cochrane:So every household received a rationing booklet, and every time you went to go buy a piece of meat, you would have to surrender your ration coupon.

14:04Meg Jacobs:Basically, in order to be able to set caps on the prices of things, you needed to be able to limit how much of that thing people could buy. Because if you say, for example, steak can only cost 32 cents a pound, but allow people to buy as many pounds as they want, well, then you haven't solved the supply issue because you'll run out of stakes. So rationing was an important part of the OPA's work. And they created propaganda to tie rationing to patriotic duty.

14:33John Cochrane:20 million housewives signed what were called home front pledges. I will pay no more. I will pay no more.

14:43Meg Jacobs:I will pay no more than top legal prices.

14:45John Cochrane:Where they would promise not to pay more than government price ceilings. I will accept no rationed goods without giving up ration stamps. If you violated these price ceilings, you could be subject to fines. Now, how did you get fined? You got fined if someone registered a complaint against you. Nearly a quarter of a million volunteers who sat on these little OPAs, as they were called, about 5 ,000 sort of local community boards, where you could say, you know, the guy down the street, he's charting too much for his radio.

15:30Meg Jacobs:And these volunteers would take that complaint and report the guys selling radios to the OPA, who would get him to lower his prices or slap him with a fine. It can sound a little Big Brother, but these OPA volunteers felt they were preserving an American way of life.

15:47John Cochrane:If these selfish individuals are allowed to operate unhampered and unchecked, they will wreck our economic structure and run our cost of living up to unheard heights.

16:05Meg Jacobs:But the reality was, rations often meant that people had to go without things. They might go to the store and find out there was no more meat left that day. Still, on the whole, more people got what they needed.

16:17John Cochrane:The percentage of protein consumed went up higher for the bottom proportion of the population than the top. That is, those at the bottom were eating more meat than they had been before the war. And OPA was responsible for that.

16:34Meg Jacobs:And ultimately, it worked. The OPA's policies kept inflation at bay. Before price controls and rationing, inflation was rising by more than 20 percent. But once they were put in place, prices stabilized. Of course, not everyone was a fan.

16:53John Cochrane:— Suppose you're a business and, you know, you need some, you need a ball bearing and your whole business is going to fall apart. Well, with price controls, price controls mean shortages. There's only so much to go around, and how do you get it? Well, your whole business is shut down if you can't get ball bearings.

17:12Meg Jacobs:By the time the war ended in 1945, the opposition to price controls had really intensified. The National Association of Manufacturers led a public relations campaign against the OPA. It took out entire pages in newspapers to get their message across, blaming price controls for the lack of available goods.

17:32John Cochrane:Would you like some butter or a roast of beef? Well, here's why OPA ceilings make them hard to get. OPA means low production. Low production means black markets. Black markets mean needlessly high prices.

17:46Meg Jacobs:As the country transitioned from war to peace, the economy had to adjust. Industries were going back to making things like cars instead of tanks. Workers had to be retrained. And so a battle emerged about whether price controls were still necessary. With housewives and most Democrats on one side... I speak for thousands of housewives who want prices kept under control. Let the National Association of Manufacturers sweat it out. And Republican-backed industries on the other. If my family needs meat, I'm going to get it wherever I can.

18:24John Cochrane:And what happens then is everyone from meat packers to dress manufacturers to car manufacturers say, OK, well, you know, if you want us to keep making everything in a civilian economy where we're not guaranteed government contracts, then you need to let us charge what we think we need to earn in order to make profits, in order to invest, in order to expand our production. And if you don't, we're going to try to make you.

19:05Meg Jacobs:And some businesses decided to up profits by basically skimping the consumers.

19:11John Cochrane:Was the butcher sort of adding an extra piece of fat there and actually degrading the value of your piece of meat?

19:18Meg Jacobs:Candy bars weighed less, but cost the same. Shoes and clothing were shoddier. Yet, despite the efforts of industry, most Americans were in favor of extending price controls because they wanted prices to stay low. So when the government tried to extend price controls, the meat packers decided to play hardball.

19:38John Cochrane:To make sure that that doesn't happen, the packers withdraw their meat from market and basically starve the public into submission. Wow. So they held steaks as hostage. Yeah. They took the heart right to the bellies of American consumers.

19:57Meg Jacobs:Suddenly, meat shortages got worse, and the meatpackers blamed price controls. Within months, the American public started to turn against the OPA.

20:07John Cochrane:I am just one of the many thousands of harassed housewives trying to feed a family and keep them healthy during these days of no meat.

20:16Meg Jacobs:The meatpackers and manufacturers had won. The angry voice of the unorganized housewife, who is helpless at this moment, will have her day being heard in the forthcoming elections. And in the 1946 midterms, the Republican Party promised to bring back the meat.

20:39John Cochrane:Republicans ran on a platform that simply said, had enough. And the idea was, you know, have you had enough of all these wartime controls? Wouldn't you like to get rid of them? Go back to life as it is. and then you'll be able to buy everything you want to buy.

20:58Meg Jacobs:The message worked. Republicans won and took over Congress for the first time since 1930. Prices for everyday items shot up. Wholesale meat prices soared 89 percent. And by 1947, the rate of inflation was a whopping 20 percent.

21:25The U.S.

21:27Meg Jacobs:experiment using large-scale government price controls to respond to inflation was over.

21:37Coming up, another U.S.

21:39Meg Jacobs:president tries it again in a moment of economic crisis and ends up losing it all.

21:56Hi, this is Jessica from Door, Michigan, and you're listening to ThruLine from NPR.

22:03John Cochrane:This message comes from BetterHelp. May is Mental Health Awareness Month, a reminder that you don't have to do this life alone. From loneliness to anxiety to financial stress, right now people everywhere are struggling. But having a licensed therapist with you by video, phone, or chat can make a difference. And BetterHelp makes it easy. Sign up now and get 10 % off at betterhelp.com slash NPR. That's betterhelp.com slash NPR. Every episode of It's Been a Minute, NPR's What's Happening in Culture podcast starts by asking three questions. Who? How? Why now? If the culture's asking it, we're talking about it.

22:45John Cochrane:At NPR, we stand for your right to be curious and indulge your cultural curiosity. Follow It's Been a Minute wherever you get your podcasts, and we'll break down the zeitgeisty topics that are filling your feed. This message comes from the Capital One Saver Card. With Saver, you earn unlimited 3 % cash back on dining, entertainment, and at grocery stores. That's unlimited cash back on ordering takeout from home. So grab a bite, grab a seat, and earn unlimited 3 % cash back with the Saver Card. Capital One. What's in your wallet? Terms apply. See CapitalOne.com for details.

23:23John Cochrane:Part Two. Inflation Bonanza.

23:31Meg Jacobs:August 15th, 1971. Was just like any other Sunday.

23:45Meg Jacobs:As evening fell, millions of Americans sat back on their couches, kicked up their feet, and turned the dials on their TVs to NBC to catch that week's episode of Bonanza. Bonanza was one of the most popular primetime TV shows of the 1960s and early 70s. It followed a ranching family in the Wild West. And in 1971, around 20 million people watched it every week. A giant audience. which is why on this August night, in the midst of the war in Vietnam, President Nixon preempted the broadcast with an urgent message.

24:23John Cochrane:We interrupt this program for a special news bullet. Good evening. This Sunday evening is an appropriate time for us to turn our attention to the challenges of peace. One of the cruelest legacies of the artificial prosperity produced by war is inflation. Inflation robs every American, every one of you. The time has come for decisive action, action that will break the vicious circle of spiraling prices and costs. He wants to take the wind out of the sails of inflation. I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days. It was a really closely guarded secret, and not even everyone in the White House knew he was going to be doing this to say, I'm going to impose wage and price controls.

25:19John Cochrane:Imagine sitting there enjoying your favorite TV show, and suddenly there's Richard Nixon's nervous face on your screen telling you about something called price controls. It would have come out of left field. But here's the thing. The fact that he was there making that announcement was out of left field for Nixon, too. Nixon was a conservative. He was for less government involvement in the economy. Yet here he is talking about a major governmental intervention. And when you look into his past, this move gets stranger. So Richard Nixon's first job or one of his early jobs was to serve in the tire rationing department in the Office of Price Administration.

26:00John Cochrane:You heard that right. Richard Nixon once worked for the OPA. Which he claims he left to go join the Navy because he was disgusted by what he perceived to be the subversion of the capitalist system by OPA. When Nixon got out of the Navy in 1946, he immediately ran for Congress. His whole campaign railed against the government interventions of the 1940s, interventions he had once been paid to enforce, like price controls and the OPA. And he wins. Government didn't build the cities of America. The government didn't train the best skilled labor force that the world has ever seen in America. Private enterprise did.

26:42John Cochrane:I'm against sort of overweening government intervention. We've tried the big government way. Now let's try the private enterprise people way in order to get progress for America. That's my solution.

26:56John Cochrane:Until he's not. — We had lines that used to start at 4 o 'clock in the morning. Now this station didn't open until 7. — How much have you got left in there? — None. It's empty. — And as far as the eye could see, there was a never-ending line of automobiles. It got so bad during the month of February that I honestly broke down twice and cried.

27:20Meg Jacobs:— When Richard Nixon became president in 1969, the U.S. was already experiencing high inflation. But in the 1970s, it got a lot worse. Lots of things got more expensive, like food and clothes. And gas prices got so high that some people went on strike to protest them. People wanted the government to do something about it. So President Nixon, under pressure, instituted price controls. But not the way FDR did.

27:48John Cochrane:The wage price freeze will not be accompanied by the establishment of a huge price control bureaucracy. There are no, you know, 20 million housewives signing pledges. There are no OPAs. There are no dollars and cents shopping lists. I am relying on the voluntary cooperation of all Americans to make this freeze work. There is no rationing, and that's a big one. So to do price controls without rationing is kind of a nightmare.

28:17Meg Jacobs:That's because if you set a control on prices but don't cap how much a consumer can buy, then some people will buy more than their share, and then supply will go down, causing more inflation. This is why rationing was a key part of the OPA's price control program back in World War II.

28:35John Cochrane:If there's not enough gas to go around, it's going to be rationed. And it's either rationed by price or by time. If you want gas, you're either going to have to pay money for it, or you're going to have to spend an hour sitting in line.

28:51John Cochrane:President Nixon wasn't fully committed to price controls. And because of that, they didn't really work. They are not super enthusiastic in how they're applied. They're not super useful. They take them on, they put them off. They take them on, they put them off. Prices got higher and lines got longer. Not the outcome Nixon probably hoped for. They're really ineffectual. And it was a disaster. You just had this situation where consumers grew angrier and angrier and super cynical. And the rest of Nixon's presidency would only increase that cynicism.

29:35John Cochrane:The President of the United States, as you know, who said he was getting elected to end the war, turned out to be very far from the truth. Good evening. The biggest White House scandal in a century. The Watergate scandal broke wide open today. Who can you trust if you can't trust the President? And all of that sort of erodes faith that government, you know, can actually control the situation.

30:11John Cochrane:I shall resign the presidency effective at noon tomorrow. Vice President Ford will be sworn in as president at that hour in this office.

30:25Meg Jacobs:The government's lives during the Vietnam War and Nixon's disastrous presidency had shaken many Americans' faith in their government. But it wasn't just a crisis of trust. It was a reckoning. People started to wonder, is the government really here for us? Can we trust what it says? And how much power should it have? After Nixon's failed experiment with price controls, the U.S. economy experienced ups and downs throughout the 1970s. Jimmy Carter, a Democrat, became president in 1976. And by 1979, with inflation again surging, the nation and its attitude towards government had changed.

31:07John Cochrane:By the summer of 79, Americans are back on the gas lines, and guess what? They're furious. I will not take the blame for this thing. I will not take the crap and the harassment from these customers. People could get violent. People shot other people on gas lines. This is unreal. Isn't this disgusting? Why doesn't anybody contact the president? Why is he letting this happen to us? Carter Kiss My Gas was a popular bumper sticker. After two hours of pumping, that 1 ,500 gallons is gone. At that time, there was no sense keeping the pumps open because there's nothing left to sell. I think the nation was really sick of inflation.

31:49John Cochrane:It was clear that we got to do something about it. I went down there and told everybody we had no gas. Forget about it. And everybody still, they don't listen.

32:02John Cochrane:President Carter was under pressure. And he had to shake things up, do something drastic. So he appoints a guy named Paul Volcker to head up the U.S. Federal Reserve. We can't always be looking at the worst. If we're going to balance these risks of inflation and recession, we have to run not too scared. So it is a question of bringing about a balance. Volcker, heard here in a reenactment, was a shrewd economist with an Ivy League education. He told Carter he would do whatever it took to bring down inflation. The Fed only has so many tools in its toolbox to wrangle the economy. One of them is controlling interest rates.

32:43John Cochrane:Volcker thought that by raising interest rates, the Fed could cool down the economy and conquer inflation. Raising interest rates would make borrowing money more costly. That meant when people went to get loans from the bank to buy, say, a home, it was much more expensive. So they might not make that purchase. And that applied not just to people, but to companies, too.

33:04Meg Jacobs:Now, this strategy had a downside. It would likely raise unemployment and tip the country into a recession. But that was a sacrifice Carter was willing to make by appointing Volcker. He was desperate to deal with inflation and maybe, just maybe, save his hopes for re-election in the process. But it was too late for Carter to convince voters he could bring down inflation.

33:30John Cochrane:Enter former Hollywood actor and governor of California, Ronald Reagan. One of the things is that people keep looking to government for the answer, and government's the problem. His message was simple. The government cannot solve your problems. The government is the problem. And that message found an audience. There's very little that government can do as efficiently and as economically as the people can do themselves. And if government would shut the doors and sneak away for about three weeks, we'd never miss them.

33:59Meg Jacobs:In 1980, Americans elected Ronald Reagan as their new president. With his warm, reassuring smile, Reagan delivered a simple message.

34:08John Cochrane:For those who've abandoned hope, we'll restore hope and we'll welcome them into a great national crusade to make America great again. We want to go back to a growing economy. But I think it takes some pain to get there. And the pain was going to come from Paul Volcker. Now, I'm not saying that unemployment will not rise. Who was still running the Fed and continuing to raise interest rates by restricting money growth? I am saying the greater threat over a period of time would come from failing to deal with inflation rather than efforts to deal with it. He dialed up the rates fast. From 11 percent to...

34:52Meg Jacobs:To like 20 percent. 20 percent, the highest the Fed had raised the interest rate ever, of all time. It was designed to dramatically cool down the economy and bring inflation under control. This strategy came to be known as the Volcker Shock.

35:19John Cochrane:There's no jobs to be found. The country is going to the pits. The American dream is just floating right out the window. What did it do to, like, the average person? What did it, what kind of impact did it have on people in the economy? They lost their jobs. People that live from one payday to the next, like we do, suffer in the short term. The way things are going, it just, it's impossible. We can't survive two or three years while the economy readjusts and realigns, and people sit down and think about our problems for a solution. We've got to do something now. There was a very deep recession.

35:58Meg Jacobs:Almost 10 million Americans were out of work. But Volcker believed in what he was doing. He thought the pain of a recession outweighed the dangers of runaway inflation.

36:09John Cochrane:And Reagan supported Volcker and the continued high interest rates, knowing that it was necessary to kind of change the whole mentality. But very, very difficult politically. There was, you know, people protesting in Washington and stop this and, you know, stop strangling the economy just because there's a little inflation around.

36:28Meg Jacobs:The shock worked. In 1980, when Reagan was elected, inflation was at 13.5 percent. By 1983, it had dropped to 3.2 percent.

36:41John Cochrane:Like a sapling in springtime, our economy sprang back after a long winter and reached for the sun. The 80s were a boom for economic growth. The market rallies and there's a huge turnaround. And the sensible regulation movement of the Reagan era certainly helped that boom of economic growth. Which allows Reagan to then run in 1984 on the campaign It's Morning in America. It's morning again in America. We came together in a national crusade. And with inflation of less than half of what it was just four years ago, they can look forward with confidence to the future. Greatness lies ahead of us.

37:39John Cochrane:The free market, anti-government, economic ideology of Ronald Reagan had won. And basically, let's let it rip and let's let American businessmen do what they do best and none of this government interference. I call it not free market economics, I call it incentive economics. You just can't get around that people respond to incentives and when you take away their incentives, they don't respond. That all of the growth and vitality, the amazing growth in certainly my lifetime and even some of yours comes entirely from private sector innovation. And without that, we're all dead in the long run.

38:20Meg Jacobs:With Reaganomics, government-led solutions to economic problems, things like rationing and price controls, fell out of favor. Relics from a bygone era. The Volcker shock cost millions of people jobs and caused widespread economic pain. But the strategy of the Federal Reserve raising interest rates to pull the economy out of inflation was largely seen as a success.

38:44John Cochrane:It's not that the Federal Reserve didn't exist. The Fed had existed for more than half a century. But this idea of using the Fed as a frontline defense against inflation really was an innovation. Coming up, the Fed gains even more power and becomes the keeper of the economy.

39:18Meg Jacobs:This is Okelo Mukua from Denver, Colorado.

39:21John Cochrane:You're listening to ThruLine from NPR. Thank you.

39:25Meg Jacobs:This week on the NPR Politics Podcast, big news in Texas. One of the most senior Republicans in the U.S.

39:31John Cochrane:Senate just lost his primary to a challenger backed by President Trump. Now Democrats are more hopeful than ever that they can flip the seat in November. We'll break down the stakes for Texas and the balance of power in Congress on the NPR Politics Podcast. Listen on the NPR app or wherever you get your podcasts. This message comes from NPR sponsor, the Capital One Venture X card. Venture X offers the premium benefits you expect, like a$300 annual Capital One travel credit for less than you expect. Plus, earn unlimited double miles on every purchase and enjoy access to over 1 ,000 airport lounges worldwide.

40:19Part 3.

40:21John Cochrane:The Great Silence.

40:27John Cochrane:Clearly, wise leadership from the Fed has played a very large role in our strong economy. That is why today I am pleased to announce my decision to re-nominate Alan Greenspan as chairman of the Federal Reserve Board. This is President Bill Clinton at the White House in 2000, announcing that Alan Greenspan would continue to lead the Federal Reserve. For the past 12 years, Chairman Greenspan has guided the Federal Reserve with a rare combination of technical expertise, sophisticated analysis, and old-fashioned common sense. Bill Clinton and Alan Greenspan did not always get along. They didn't necessarily share the same ideology about economics.

41:08John Cochrane:Greenspan was a traditional fiscal conservative. He was appointed by President Reagan. While Clinton was a Democrat, a political animal, who had made boosting the economy part of his bid for re-election. But Clinton ultimately respected the independence of the Federal Reserve, mostly because during his administration, the American economy saw remarkable growth. I think it's certainly fair to say that the overall performance of the American economy has continued to surpass most forecasters' expectations. This is Greenspan testifying before Congress on the economic growth experienced in the U.S.

41:45John Cochrane:in the second half of the 1990s. The current cyclical upswing is now approaching six years in duration, and the economy has retained considerable vigor. If you grew up in the 1990s like me, you might remember it as a great time economically. That's because it kind of was. With few signs of imbalances and inflationary tensions that have disrupted past expansions. Basically, what he's saying here is that there was an amazing economic expansion in the 1990s without inflation. Greenspan's Federal Reserve played a major role in this success because he continued the tradition set by his predecessor, Paul Volcker, of acting aggressively to control monetary policy.

42:27John Cochrane:Generally, when the economy slowed, he would push the Fed to lower interest rates. When the economy grew, the unemployment rate went down, triggering fear that inflation would happen. Then he would raise interest rates, albeit slightly. I think that the 90s and the sort of Clinton-era growth that was seen to be sort of spectacular and sort of in alliance with people like Alan Greenspan. And that, I believe, sort of elevated them because, you know, no one was talking about interest rates that were 20%. 20%, like in the early 80s during the Volcker Shock. The late 1990s were like the Goldilocks zone of macroeconomics.

43:10John Cochrane:There was good economic growth, low interest rates, and low inflation. It was in these years of prosperity under Alan Greenspan's leadership that the Fed's influence continued to grow. They were increasingly seen as the first option in the fight against everything from unemployment to inflation. So it's easier to sort of like them as sort of, you know, your frontline defense as long as you don't have to call them in. Until you do. The Dow tumbled more than 500 points after two pillars of the street tumbled over the weekend. Lehman Brothers, a 158-year-old firm, filed for bankruptcy. Now it's official.

43:52John Cochrane:We are in a recession. It is definitely a very, very difficult time, and it's not going to get better quickly. So in just six months, three of the five biggest independent firms on Wall Street have now disappeared. But the question now, when will it end? In 2007, the economy crashed and the country went into a severe recession. Companies closed. Millions lost their jobs. People lost their savings. Alan Greenspan retired just a few years before. And the person who succeeded him as Fed chairman, Ben Bernanke, was the one who had to deal with the worst economic event in generations. We came extraordinarily close to a complete collapse of the global financial system, not just the United States, but the whole global financial system.

44:42John Cochrane:So the Federal Reserve was called in to save the day. They acted quickly to help the Treasury Department bail out major financial firms who were in danger of collapsing. This was a very unpopular policy because it looked like the government was essentially bailing out the Wall Street bankers whose risky investing caused the collapse in the first place. We took strong steps to try to prevent the financial system from melting down, essentially. The reason we did it was because we knew from history that the financial system is so critical to the functioning of our economy that the collapse of the financial system would have been catastrophic.

45:20John Cochrane:Whether the Fed needed to make this move to bail out Wall Street is a hotly debated topic. It's the issue that we most think of when it comes to the Fed and the 2008 financial crisis. But it further solidified the Fed's role as the government's primary agency for dealing with economic crisis. And so when it came to helping the U.S. get out of the recession, the Fed used interest rates, the tool it had relied on as an economic break-the-glass-in-cases-emergency superpower during the Reagan years. And Bernanke actually says, you know, maybe monetary policy, the level of interest rates, is in the right place.

45:57John Cochrane:They had kept them at 2%. And within a matter of weeks, he's moving to slash interest rates. The Federal Reserve lowered a key interest rate by a half percent Wednesday, the latest move by the government to try to keep the country from plunging into a deep recession. Eventually, the interest rate made it down to zero. And even after the economy stabilized and started to improve, the Fed kept it low. So the conventional view is that if the Fed were just to leave interest rates alone, you would get a spiraling inflation or deflation. And that was widely predicted in 2008 when the interest rate's at zero.

46:34John Cochrane:But it didn't happen. Traditional economic theory would say that if interest rates are really low and there's economic growth, then inflation is inevitable. But for over a decade after the 2008 recession, despite very low interest rates, inflation never really spiked. Interest rates were zero, and absolutely nothing happened. Inflation batted around 1.7 to 2%. Nothing happened. So that great silence is very troubling to the conventional theories that say there should have been some horrible thing happening. Many policymakers viewed this as a success for the Fed. So naturally, they continue to want the Fed to keep taking the lead on dealing with issues of economic importance like recessions and inflation.

47:20John Cochrane:A housing crisis? Have the Fed bail out the banks. Inflation? The Fed can just raise interest rates. Given the fact that there was economic growth, low unemployment, and low inflation, it seems rational why people would believe the Fed was the answer. But the fact that low interest rates didn't bring on inflation on some level defied traditional economic logic. The foundations of monetary economics were actually very deeply troubled by those 10 years of total quiet when everyone said, oh, don't worry, we're not having inflation.

47:59John Cochrane:We're going to get the latest U.S. government report on inflation tomorrow. And once again, many economists believe the spike in prices is going to be quite high compared with a year ago. We learned moments ago that last month, consumer prices rose 9.1 % compared to this time last year. Rising at the fastest rate in four decades. The good times would not roll. Worst inflation since 1981. I mean, we're going back to the days of Paul Volcker, baby. That's not good news for anybody.

48:37Meg Jacobs:2022. Runaway inflation was back. Worldwide. In the U.S., then-chair Powell stuck to the recent playbook. He pulled the interest rate lever. Nine times. And prices did come down eventually. But now, fast forward to 2026. Here we are again. Thanks in large part to U.S. tariff policies and the war in Iran. Prices are rising. Affordability is a main issue. and everybody is talking about inflation. And now we have a new Fed chair, Kevin Warsh. At his confirmation hearing, he promised senators that he'd bring new thinking, new tools, and what he called a new inflation framework to the job. Soon, we'll find out what he means, possibly as early as next month, when the new Fed chair meets with 18 of his colleagues to vote on what to do about this stubborn inflation, which won't give up its hold on the U.S.

49:36Meg Jacobs:economy.

49:50Meg Jacobs:That's it for this week's show. I'm Randa Abdel Fattah, and you've been listening to ThruLine from NPR. ThruLine was created by me and Ramtin Adablui. This episode was produced by me and...

50:02John Cochrane:Laurence Wu. Julie Kane. Victor Iveas.

50:06Meg Jacobs:Anya Steinberg.

50:07John Cochrane:Yolanda Sanguini. Casey Miner. Christina Kim. Devin Kadiyama. Amiri Tullo. Jennifer Etienne. Irene Noguchi.

50:15Meg Jacobs:Sarah Wyman.

50:17John Cochrane:Julia Redpath.

50:18Meg Jacobs:Kiana Mojaten. Fact-checking for this episode was done by Kevin Vocal. Thank you to Anya Steinberg, Tessa Hall, Amy Moore, Annie Downs, Myra Sierra, Tim Kloblen, Claire Trageser, Lara Finkbeiner, Tamar Charney, Kylie Sunderland, and Casey Murrell for their voiceover work. Thanks also to Kimberly Sullivan, Lindsay McKenna, Tamar Charney, and Anya Grunman. And special thanks to Darian Woods, Scott Horsley, and Rafael Nam. This episode was mixed by Josh Newell. Music for this episode was composed by Ramtin and his band, Drop Electric, which includes Anya Mizani,

50:57John Cochrane:Naveed Marvi, Sho Fujiwara,

51:00Meg Jacobs:and finally, if you have an idea or liked something you heard on the show, please write us at throughline at npr.org. And if you're open to us giving you a call back, leave your number, too. We might feature your idea in an upcoming episode. Also, make sure to follow us on Apple, Spotify, or the NPR app. That way, you'll never miss an episode. Thanks for listening.

51:29John Cochrane:This message comes from Instacart. Everyone prefers things a certain way, like groceries. If you want groceries just how you like them, you gotta try Instacart. They have a new preference picker that lets you pick how ripe or unripe you want your bananas. Shoppers can see your preferences up front, helping guide their choices. Because when it comes to groceries, the details matter. Or Instacart. Get groceries just how you like. Brazil used to have one of the fastest growing economies in the world. People called it the country of the future.

52:01Meg Jacobs:Their songs. O Brasil é o país do futuro. Because it seems like we have it all, man.

52:07John Cochrane:But then the music stopped. On the Planet Money podcast, a lot of countries these days aren't rich, they aren't poor, they're just kind of stuck in the middle. Why is that? Listen on the NPR app or wherever you get your podcasts.