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Unpacking what's going on with the economy with Matthew Klein: podcast and transcript

Chris Hayes speaks with author Matthew Klein about inflation, supply chain changes and economic recovery efforts.

The United States hasn’t seen inflation like current levels since the late 1970s. The pandemic prompted unusually high levels of fiscal stimulus, including the rollout of relief through programs like the American Rescue Plan, which some have blamed for inflation. But our guest this week shares that increased economic relief isn’t really the biggest contributing factor leading to inflation. Author Matthew Klein points out that supply chain disruptions created by the COVID crisis, along with the war in Ukraine, actually explain the majority of the changes we’re experiencing. Klein has reported for numerous outlets including Bloomberg, the Financial Times, and Barron’s. He joins WITHpod to provide a gut check on the economy and to discuss why he believes the Fed has raised interest rates, the role that supply and demand plays in global financial systems, the impact of monetary policy changes on economic recovery efforts and more.

Note: This is a rough transcript — please excuse any typos.

Matthew Klein: The basic problem is there were these huge disruptions with the pandemic. There's a new set of disruptions related to Russia's invasion of Ukraine, that's creating all sorts of real problems in the world. Those problems have economic and financial manifestations. It's basically a question of how do we count them and allocate them, and inflation is kind of the normal way to do it.

Chris Hayes: Hello and welcome to "Why Is This Happening?" with me your host, Chris Hayes.

So if you are basically 40 years or younger, a few years younger than me, you have never in your life experienced inflation at the rate that it's been over the last year. You've just never been in a world where prices went up 7% or 8%. You've never had the visceral experience of it, which is really something, I have to say, I mean, I haven't really experienced either because I was like 2 or 3 when it was last happening. And you do have a lot of occasion to buy a thing, grocery store, a cup of coffee, pay for some service like your car needs fixed and thinking like, oh, that's a lot. Go to rent a car, oh, really? Is that really what they're charging rent-a-car? Like, that is a very common experience.

It's pretty new for those of us, my age and younger, and it speaks to something about the current macroeconomic environment which is one of the most profoundly weird moments in the time that I've covered the economy, and probably one of the weirdest moments we've ever really encountered. Were a little bit off the map. The post-war economy from World War II in late ‘70s had a few things, right? Pretty high labor union participation, what we called wage compression, so relatively small levels of inequality compared to now; high marginal taxes, a lot of government involvement in the economy in terms of Keynesian stimulus, right? And then we got this big bout of inflation in the late 1970s.

Now, the source of that we'll talk about what caused it and how to deal with it. But what ended up happening was Paul Volcker, at the Federal Reserve, basically said, “We are going to do whatever it takes to get inflation down.” For people that don't know how the Federal Reserve works, I'm going to give a quick monetary policy management 101 here. It's oversimplified on purpose, but I want to bring people into this conversation who are not familiar with how the Fed works.

So the Fed has what's called a dual mandate. There are two things it's supposed to be doing; price stability, which is keeping inflation low, so around 2% or 3% a year. So your cup of coffee isn't going up a huge amount in time, and goods and services aren't going up. When goods and services are going up; A, people don't really like it. But there's lots of reasons to think that it can get out of control. It can spiral, and it gets hard to get under control when it gets out of control because the expectations start to get baked into the system. And there's a bunch of different reasons why that's bad for an economy. So price stability.

The other is full employment, which is to keep the unemployment rate low. Now, the tricky thing is in the standard model that economists have used for years, and there's dissent from this and we can get into that. There's a trade-off between these two. The tool that the Federal Reserve uses is interest rates, which it controls for the purchase of U.S. Treasuries. It uses interest rates to try to steer the economy between these two things.

If inflation is high, what you want to do is cool the economy down, which is essentially like put the brakes on the economy. And the way you put the brakes on the economy, as you raise interest rates, comes more expensive to borrow. When it becomes more expensive to borrow, there's less money running through the system. Less money running through the system means demand goes down, and inflation goes down. That's the theory, anyway.

When unemployment is high, because the economy is not growing and because people are out of work, you want to put your foot on the gas. Putting your foot on the gas is cutting interest rates. So that's what we saw happen in the wake of COVID, right? The Chair of the Fed Jay Powell, we shut the economy down. It utterly collapsed. And he basically cut interest rates to zero, like money became free, essentially, what's called the risk-free rate, okay?

Now, they're in a tough position. Unemployment is very low. The economy is growing. Inflation is high and stubbornly high, and they want to bring it down. So what have they done? They put their foot on the brake. How does putting the foot on the brake work? They have raised interest rates quite a bit. But then the question becomes, can you figure out a way to steer this car, such that you bring inflation down, but you don't push us into a recession, which is you don't slam on the brakes too hard, the car stops moving, unemployment skyrockets up, and all of a sudden we're in a recession.

The job here which to mix metaphors here, they’re just in kind of Goldilocks position, which people in economics call a soft landing is what everyone is looking for, but no one is sure they can pull off. And there's all sorts of fascinating policy issues, economic theories, political interests implicated in the question of monetary policy right now, in this moment. Because we are in such profoundly uncertain times, there's just never been anything quite like this, what we're in right now.

And so I've been wanting for a while to talk to someone about this. What it means if inflation is so high? Why it's so high? When will it come down? What can the Fed do? Does raising interest rates actually affect the source of the problem? If the problem is, say, a war on the European continent, which the interest rates aren't going to do much to stop. And the perfect person for this is a guy I've been reading forever. Matthew Klein, who's an economics writer, writes about finance and global markets and the economy. He used to be at Bloomberg and Financial Times, and Barron's.

He now has his own Substack called “The Overshoot,” which is about making sense of the global economy and financial markets, and I read it all the time. It's really useful. He's co-authored the book “Trade Wars Are Class Wars,” along with Michael Pettis. And it's my great pleasure to welcome Matthew to the program.

Matthew Klein: Thank you, Chris, very much for having me.

Chris Hayes: Maybe let's first start with the weirdness here, and here's my take on this. Again, I'm an amateur here, but I like to read like wonky econ stuff. I've covered it for a while. In the post Great Recession, one of the lines of thought that I found very compelling, actually, and I think proved to be right was like, look, yes, the details here are different, but we know what this looks like. Like, a financial crisis and a huge amount of bad debt floating around happens. Like, there's a huge literature on this. There's a canonical book about this called “Manias, Panics, and Crashes.”

We've seen it over and over again, and we kind of know the treatment and the remedy. And there was a big fight about whether we did or not, and some people said, “Well, no, we don't.”

Okay. This situation right now seems not like that. This situation does seem really weird, and really novel. And I wonder if you agree or disagree in how you view the current global macroeconomic conditions.

Matthew Klein: So first of all, I do agree that the current situation is unprecedented in terms of what happened with the pandemic, and the speed of the response and the magnitude of the disruption. So there certainly have been global pandemics in the past. They've been very disruptive. They've killed a lot of people. But nothing that's been, literally in the span of weeks, the entire large swath of global economy just shutting down. That's just never happened before. And that's a reflection of the fact that technology and communications, and the way the modern society is structured, that you can have these really dramatic changes on a dime. And so that really is unprecedented.

And so when you go back, and you look at what was going on in February and March, and April of 2020, the fact that people were just completely going to zero in terms of going to restaurants or getting on a plane, or car factories just completely going from like a million units a month to zero units a month. I mean, these are enormous changes.

Chris Hayes: And it's literally never happened before.

Matthew Klein: That's right.

Chris Hayes: Yeah.

Matthew Klein: I mean, the closest thing we can look at as an analogy, which is imperfect for a lot of ways, but the closest one is you can look at what happened in, say, like World War II and you have this really big dramatic shift in terms of what people are able to buy, what people want to buy, where people are working, what's being produced. Even that, though, is a much slower process than what we had in the pandemic. And so it's not a perfect analogy, but it's sort of like the closest we have, and that's really only one time.

Chris Hayes: So right. So what happened prior to this moment, the speed with which the global economy as a volitional matter, I mean, this is the kind of thing that's crazy about it, right? It's not some huge, like, we had a big financial crisis, or like, as a matter of policy, now, obviously, in response to this exogenous shock, which is the pandemic, right? But as a matter of policy, we collectively shut down an enormous part of the global economy and keep much of it shut down for a long time. Then a lot gets opened back up.

And so let's first talk about some of the issues that happened coming out of that, right? That themselves, I thought were fairly novel as well, though, there's some case to be made that, again, there's a parallel a little bit with detransitioning out of wartime economy, or Europe rebuilding after it was bombed, et cetera. But talk about the great supply crisis of 2021 and what that looked like.

Matthew Klein: Sure. So I think, actually, it's probably helpful to start back in 2020 because even in the period when things were getting shut down, this is part a credit to the policy response, people still had money to spend. They just wanted to buy very different things. So you weren't going out to the movies, but suddenly you were buying groceries, or getting them delivered, or people wanted the sanitizing cloths or face masks, or whatever, just the mix of things that people wanted shifted very dramatically, and so that was also very disruptive.

So it's both that people weren't getting dental checkups. And also people were saying, “Okay, well, I have some spare cash and now is a good time to redo the kitchen.” And so that led to a lot of supply pressures in 2020. And you can look at the data back then and see that, for example, the prices of things like washing machines were spiking quite dramatically, or home exercise equipment, all that stuff in 2020.

Chris Hayes: Yeah. I had conversations in the summer of 2020. I'll never forget this. I've had conversations with a few carpenters, some contractors, landscapers, roofers. Again, this was like the tandem, we did have vaccine, the pandemic was going. It wasn't that first March-April period, but this was June-July.

And a lot of this work that they were doing was outside, so it was relatively safe. And all of them were just like, “I've never been busier.” And it was wild to hear this amidst the pandemic. Like, yeah, no one is taking a summer vacation. So that money is going to go into like, yeah, we needed a new roof anyway, or something like that, like just a lot of transference of disposable consumption from services and travel to, say, home improvement.

Matthew Klein: That's exactly right. And I mean, that was actually deliberate. I mean, the point was if people had stopped spending all the money that they were going to be spending on nights out, and dental work, and elective surgeries, and travel and all that --

Chris Hayes: The basket of goods.

Matthew Klein: It is, but it's a large thing for the economy.

Chris Hayes: Caribbean vacations and elective surgery.

Matthew Klein: Right. But it adds a lot. If people stopped spending all that money, if they weren't spending on something else, I mean, all the people who are going to be getting that income, they suddenly are out and they can't pay their workers. They can't pay their suppliers. They can't cover their rent or their mortgage. And that would have led to a huge downward cascade, and you would have had like a Great Depression kind of scenario. It would have been catastrophic. And policymakers in the U.S. and many other countries recognize this, and to varying degrees, decided that the solution was we have to get people enough money that this doesn't happen.

Chris Hayes: Right. So instead of shutting off the faucet, we're going to just going to reroute the water, right? Like, the water is going to continue to flow. It can't flow into these things like air travel, vacation, but we're going to keep the water going. And it's going to find places to go like new washing machines.

Matthew Klein: Exactly. And so then you see a housing boom, which is exacerbated by the fact that people also think they want to move because of the possibilities of remote work, or people are afraid of living in a city, or what have you. So, in addition to the fact there's always money available, there's also a reason to do it. And then you have the extra money for home improvement. People think they need cars because maybe they're afraid of public transit, or they moved out to the suburbs, or they're just stuck at home, say, “Well, okay, I need a new computer and I need this exercise equipment because my gym is closed.” And that led to a huge increase in spending, and in prices for all those things.

Now, what's interesting is that in 2020, the net effect on inflation was basically zero because the huge collapse in prices for hotels, and air fares, and clothes, and education, and a lot of healthcare services was offsetting the fact that the prices of these other goods was going up. So in 2020, even though you had this huge dispersion in prices, the aggregate inflation number was not anything different than it was in 2019.

Chris Hayes: Right. If you were trying to buy a used car, you were paying a crazy premium or couldn't get one. But that was cancelled out by the fact that like other things like airfare to Miami that might have been $350, it seems now like $59.99 because no one wants fly to Miami. And so when you put all that together aggregate in the measure of inflation, the Consumer Price Index, which is what's called the basket of goods and services, it all netted out to zero, even though inside it, some stuff was way more expensive, and some stuff was way cheaper.

Matthew Klein: Exactly. And it's fair to ask, is this actually representative of people's experiences, if the reason that airfare is so much cheaper is nobody wants to get on a plane? But that's a deeper question about how you think about what inflation is. But that's right, in terms of what the headline numbers were, they were not remarkable in 2020 for that reason.

Chris Hayes: And then what happens in 2021?

Matthew Klein: In 2021, what happens is, basically, you have vaccinations come online, and people start feeling better about the economy, and all those prices that had gone down, then start coming back up. That's sort of the single biggest thing. So the prices of hotels, and air fares, and clothing all start to go back up, and education, which is what you want.

The problem is the prices of the various goods that people wanted in 2020 didn't go back down, which is what you would have needed to happen. And so either they stayed high, or they kept going up. And basically the reasons for this, they're complicated, but essentially, that the overall productive potential in the U.S. and globally for making these goods had not increased enough to meet the fact there was all this extra demand that was still there. And so these two things sort of collide together, and that led to a lot of additional inflation.

And it's fair to ask, well, why did goods inflation remain high? Why were people still wanting to buy exercise equipment and cars, and all these things in 2021, after 2020? That's an open question. There are probably several factors at play there. But it's the confluence of those two things at the same time, that led to the big uptick in inflation, really, ever since March, February of 2021.

Chris Hayes: So again, let's do a little econ 101 here for folks, like if demand is high and supply is low, prices go up. So you've got people sitting around and there's six slices of pizza, and there's more people than that, and they can bid in an auction, right? The price per slice is going to be relatively high, much higher than if you had three pies of pizza and there was ample supply, right?

So one way to think about the price level and inflation is on the demand side and on the supply side, right? Like, is there enough pizza for everyone who wants to eat pizza, right? And how many people and how much money do they have to pay for pizza, right? Those are two ways of dividing it. And one of the things I think people kept saying was, look, the reason these prices are high artificially isn't that people have too much money. It isn't on the demand side. Like, yes, we put a lot of money into the economy, into people's pockets.

But fundamentally, the fact is, like, all the pizza ovens are closed. They're just coming out of furlough. They're just hiring enough pizza cooks. They're just getting them online to make enough pizza. Be patient. And all that stuff will sort of start to come back to where it was. That's the sort of supply side story here.

Matthew Klein: Yes, I think that's exactly right. I mean, there's spending power, whether it's money you have in the bank account, or how much you get paid, or how easy it is for you to borrow. And then there's how much real stuff is there. And that's the interaction of those two things. And of course, the problem is you have a vast, complex, dynamic economy. The price level is about averages of all the different things people want to buy.

If it turns out that people want to buy specific items that for some reason are not available, and they spend a lot of money on those things, even if there are many other items that are available, then that's going to push up overall inflation. So even if the total amount of spending power is not excessive, if people are using that spending power to buy cars, for example, as opposed to sit down in restaurant meals, or dental appointments, or what have you, then that's going to have divergent impacts on inflation. And so this is what happened.

I mean, one of the things I do a lot is look kind of in the details of what specific components were causing the aggregate inflation numbers to do what they're doing. And it's really striking how so much of the inflation that we've experienced, the excess inflation we've experienced has come from just anything related to motor vehicles and anything related to energy. Now, these are significant categories, but they're not that big. I think in total, it’s about 20% of the overall consumption basket, which is not a lot. And yet, we're talking about something like two-thirds is 70% of the excess inflation we've had over the past couple of years. And what's striking about both of these categories is that we can --

Chris Hayes: Wow.

Matthew Klein: Yeah, it's really remarkable, I think, that so much of it is going to be attributed to these small --

Chris Hayes: Cars and energy?

Matthew Klein: That’s right, cars and energy. And when I say cars, it also includes things like car rental and stuff. But that's right, just cars and energy.

Chris Hayes: Right.

Matthew Klein: And it's really striking because in both of these cases, we actually can look at other data that show very clearly that these are supply-related problems, that when the pandemic first struck, that car manufacturers in the U.S. and abroad dramatically shut down. Their production basically went from, as I said, like 800,000 or 900, 000 a month to zero in April. And then when they came back, they didn't try to make up for the lost production.

In fact, they came back at lower levels and kept it at lower levels because, and I think this is not entirely unreasonable in their part, they were concerned about a rerun of what happened after the financial crisis, where there was a long-term permanent downtrend in how much people wanted to buy. And they didn't want to get caught out by banking on a rapid recovery, and then ending up a lot of excess inventory. So they didn't.

The problem was that that meant that there were too few cars. And they also did things like cancel their orders for various parts, particularly microprocessors that they would need if they were to ramp up production. And so even before you have stories about a chip shortage, which really those stories you start hearing from the end of 202, even before then, we're already just in the U.S. alone, about 2 million cars and trucks short of where you would have expected in terms of production. And that's a lot because a normal year of auto sales is like 17 million, so like 2 million short by then is a lot.

Chris Hayes: Wow. This is also important, too, because I think people are like, what is this going to be like? What's the recovery going to be like, right? It's being shut down. And I think the mental model a lot of people had was the last one, which was the Great Recession and its aftermath in which there was quasi-permanent lower levels of output in the economy for years, right? It took seven or eight years to get back to the employment levels, like to get GDP back on trend, right? We had this very long, painful --

Matthew Klein: It never got back on track, actually.

Chris Hayes: Right. It never got back on track. Right. That's right. Although we have a shot of getting back on track now unless the Fed ruins it. But this is a long, very painful recovery. And firms, whether on energy or cars, are making calculations about the recovery based on that recovery, right? So the car makers are like, “We don't want to overproduce here and get caught with a bunch of cars laying around no one wants to buy, and then we have to cut prices.” So they underproduced.

But then it turns out that the recovery is not like the past recovery. And the same thing my understanding happens in oil production and in the number of rigs. They had massively overdrilled. They push the price of energy down. They were all feel licking their wounds from that. So this time around, they're like, “Nope, we're not going to do that again.”

Matthew Klein: That's exactly right. You may remember, I think it was in April of 2020, there's this weird day where the price of West Texas Intermediate crude oil, which is the U.S. benchmark, went negative for the day.

Chris Hayes: We did a segment on my show about it, because it was so weird.

Matthew Klein: Right, which is very right. Obviously, in that kind of environment, you're not going to be drilling for oil. You're going to be laying off people and claim bankruptcy. There's massive wave of bankruptcies. And that was just a couple of years after a previous wave of bankruptcies in 2015-2016. So the oil producers were really not in the mood to be ready to ramp up and drilling. So you need a lot of high skilled workers with special knowledge and expertise, and those people got laid off, maybe they just retired or went into something else. You need specialized parts that may not have been maintained.

And the other thing, of course, is that there's infrastructure that's in place that wasn't necessarily kept up. So refinery is one of those things. The refining capacity in the U.S., the Energy Information Administration tracks this every week, and it's down about 7% compared to the pre-pandemic period.

Chris Hayes: Wow.

Matthew Klein: Because you own these refineries and they've been around for a while and you think, okay, I'm going to spend a lot of money to make it last for another three decades, or am I just going to mothball it. And so for a lot of people, especially when you see gasoline demand at that time being very low, you think, “Well, no. I'm going to get rid of it. I don't need to keep spending this money.” And so the problem is, now, even though gasoline demand in the U.S. has not exceeded the pre-pandemic level, you’re nevertheless in a situation where there's less refining capacity available, and so it's much harder to produce as much gasoline as people want for that reason.

And it was a perfectly rational choice at that time, especially given the financial constraints, but even not thinking about the financing situation, just like why would you think it would come back so quickly, and that happened. And so between what happened there with oil and gas, what happened with motor vehicles, that explains a lot, not everything, but it explains a lot. And you also see it in other sectors that are smaller.

So for example, airlines, we've seen all these flight cancellations, and a lot of that is due to the fact that a lot of airlines thought, “Well, we have expensive pilots who could be near enough to retirement age, so we’d give them a buyout. We don't know if or when air traffic demand is going to come back, so we'll just have them take early retirement.” And that made sense at that time, when air travel had completely collapse. Of course, now that's recovered, so how you're going to get those people back. I mean, you can.

Chris Hayes: Right.

Matthew Klein: It's just going to take time. It's going to be expensive. And in the meantime, you don't have enough pilots, and then your customers are annoyed.

Chris Hayes: More of our conversation after this quick break.


Chris Hayes: I mean, the story you're telling here is a supply-constrained-driven story that's born of both the inertial response in a physical sense, right, of like what it takes to get a factory up and running again after you've shuttered it.

Matthew Klein: Right.

Chris Hayes: And also expectations, what firms are planning for what the recovery will look like, and how they're managing their supply going forward to meet what they think the demand will be, based on what their projections of recovery rate and growth are. We've mostly been talking about the U.S. But one of the things we've seen is that this is a global phenomenon, right? And it's interesting to watch, if you watch U.K. politics at all, the parties are inverted, but the arguments are very similar, because inflation is a great non-ideological argument for the out-party.

So there, it's a conservative government in power and a center-left government labor out of power. And they're just beating the brains out the Tories with inflation and cost of living, right? They sound just like the Republicans do here because, again, it's a layup in politics. Like, those guys are in power, everything costs too much, vote for us, right? Why has this been such a global phenomenon in terms of inflation?

Matthew Klein: So I think one reason is, first of all, pandemic was a global phenomenon.

Chris Hayes: Right.

Matthew Klein: So in that sense, we were all affected by it to varying degrees.

Chris Hayes: Right. Like, the Dutch Airline isn't flying either, right?

Matthew Klein: Yeah.

Chris Hayes: They're making the same decisions that everyone else does.

Matthew Klein: Yeah, to a degree, absolutely. I mean, the policy responses, there were some interesting differences. And I mean, in the U.S., we were kind of unique for allowing businesses to close and workers get laid off, but giving people a lot of money to compensate them for that. Whereas in Europe and Canada, and Australia, Japan, there was more of “We'll give money to businesses to keep people on payrolls.”

Chris Hayes: Right.

Matthew Klein: I don't know yet, to be honest, how much of that difference matters, but that was a difference. But nevertheless, the amount of money that was spent was very large across much of the global economy. China was kind of a weird exception there. But most countries spent a lot of money. So you have a lot of money getting spent by governments. You have a pandemic that hits everyone. So that automatically should suggest there's going to be some common experience.

On top of that, a lot of the inflation we've seen, well, not all, but a lot of it's been in goods that are traded globally. So that also makes sense that some of it, especially if you look at the exercise equipment and the electronics, and things like that, that's not made in the U.S. for the most part. It's made in China, or Vietnam, or what have you. So like the extent that the prices are going up for them, I mean, that would flow through to Europeans as much as it would to Americans.

So the last thing I would say on this point is you can look at kind of the specific drivers, I mean, they are different in some places, even if the aggregate number is the same. So in Europe and in U.K., energy prices, and to a lesser extent, food prices are much more of a factor for inflation compared in the U.S. The net result is surprisingly similar as the U.S., but that is something that’s known, and that's partly because their energy system is just much different than ours.

Chris Hayes: Yeah. I want to loop back to energy, which is one of the big question marks as we head into the winter. And I think it’s very scary, actually, what this one should look like, particularly in Europe. And so now let's get back to there's a supply story to tell. I mean, the kind of Larry Summers and Republican Party argument is the profligate Democrats came in, and they spent too much money in fiscal stimulus, and maybe actually Donald Trump and the CARES Act, and there was just too much money thrown at the COVID problem that created the inflation, and stop spending money, tighten your belts, and try to get the Fed to jack rates until basically unemployment really starts to go up.

Matthew Klein: Yeah. Well, first of all, there are two parts of the argument. One is what caused it, and then one is what we should be doing about it now.

Chris Hayes: Yeah, take the first one because I want to talk about the second one in a sort of different sections. So let's talk about just cause.

Matthew Klein: Sure.

Chris Hayes: The supply constrained argument first, the too much fiscal stimulus, too much demand.

Matthew Klein: So I guess the question is, what would the alternative have been? So I mentioned earlier that if there had been no government support at all, or nothing really meaningful, you would have had a situation where large swathes of the economy would have collapsed because there wouldn’t have been any spending there. There wouldn't have been any offsetting income anywhere else that would have led to a downward spiral.

We can remember at the beginning of the pandemic, there were situations where ad sales companies, which you think could be completely isolated from this, but they were actually having big revenue hits because it turns out, a lot of the people who buy ads are businesses that were getting hit by customers not showing up. And so you can just visualize and imagine how that would have cascaded to all every part of the economy, nothing would have been untouched. It would have been a really dramatic disaster. And then you would have had, as I said, mortgage defaults, millions of people getting foreclosed on, and evictions, and all sorts of things.

And so if that's the alternative, which I think reasonably speaking, it was the alternative. And in fact, Larry Summers made a very good point in beginning of March of 2020, that calling for fiscal policy and saying, “Look, monetary policy is not enough. You can stop economic time.” This is the phrase he used, “But financial time was still going on. People still have bills to pay. So you needed to have money to get dispersed so that that wouldn't be a problem.”

And so the thing is, if people aren't producing as much because they can't, or whatever, but they have money, and if any of that money gets spent, it's not surprising it's going to show up as some form of inflation. But that's reflecting the fact that there was this very disruptive pandemic that made it hard to do things you wanted and killed a lot of people. That's the underlying problem. The inflation is really a consequence of that.

In terms of the question of was it the American Rescue Plan Act, or what have you? I mean, it is an unfortunate coincidence of timing that the American Rescue Plan Act was passed in March. And March is basically when inflation started picking up on a month-to-month and year-over-year basis. I don't think that's actually what caused it, though.

I mean, one way you can look at this, and again, like assuming these data are correct and aren't revised, but like the government every month publishes pretty detailed data on what Americans earn, what that income is coming from, and then how much they spend. And you can use these tables they published and sort of subtract out all the pandemic-related emergency programs. So all the things related CARES, ARP, all that, and say, what's the underlying trend? And it turns out that consumer spending most closely follows what you might think of like the core underlying income before anything the government did. So how much you get from your job, how much you get from Social Security, how much you get from, I mean, to a lesser extent, like dividends or interest. That's basically what it tracks.

And so, remarkably, and this seemed weird, but it's what's in the data, you can add up all the money that was dispersed through all the emergency pandemic-related programs, it's like $2.2 trillion or something cumulatively over that period. And essentially, none of that was spent in the aggregate. I mean, obviously, some people got it and spent it, but that was offset by other people who were spending less for whatever reason.

And so if that's the case, then it's very difficult for me to say that that is the driver of inflation. I mean, we have seen some acceleration in wage growth over the past year and a half, and that has tracked with the increase in consumer spending. But, A, that's very modest; and B, it's not clear to me that that was caused specifically by the amount of money that was dispersed at those points in time, or what the reasonable good alternative would have been.

I mean, the other thing to bear in mind here is that we've had this big adjustment of what people are doing because, I mean, the economy has snapped back remarkably well in a lot of ways. But it snapped back in a different way --

Chris Hayes: Right.

Matthew Klein: -- in terms of the things that people want and what they do. I mean, there's huge increase in unemployment in things like warehouses and transportation, big declines in certain kinds of entertainment and leisure activities. And overall, employment has recovered. And in fact, it's recovered in a way where people are working more in higher paying professions and more in full-time jobs than before, which I think is a good thing. But it's obviously going to be a very different mix. And so making that transition work, there's some messiness involved, and employers to pay more. But it's not clear to me that that's something we would have wanted to avoid, or that it would have been better to have a much weaker recovery to prevent that.

Chris Hayes: That's fascinating. And I think the point about the $2.2 trillion, and one of the other place this shows up in the data is what household balance sheets look like, right? So how much money, how much savings do people have? How much debt are they in? I mean, the pandemic ends up repairing a huge amount of this post Great Recession household balance sheet problem, right? Like, people are in better shape in aggregate about how much debt they're holding and what their savings are considerably post pandemic than they were beforehand.

Matthew Klein: That's right. It is really remarkable. I mean, as with most things, like the benefits tend to be skewed towards people at the top end. But even with that, the people basically across the income distribution, ended up with lower debt and much higher balances in their checking and savings accounts, which is really impressive because, I mean, we think about the data that we had on what people were like before the pandemic. And the Federal Reserve had this survey question of, if you needed to come up, I think it's $400, if you needed to come up with it on short notice, what would you do, or could you do it?

Chris Hayes: Right.

Matthew Klein: And there was always this, like, shockingly high proportion of Americans that really was shocked.

Chris Hayes: 50%.

Matthew Klein: Yeah, exactly. And now, that's improved a lot, which is good. And so, exactly, it turns out they give people money. And if they don't necessarily spend it, then their financial situation is better and I think that can have all sorts of positive effects in terms of their own kind of psychological well-being, and they're thinking about what kind of jobs they want to take. And I think, overall, it's very positive. But yeah, it's a big change.

Chris Hayes: Yeah. And that connects to the other big feature of this economy at this moment, which I think is so striking and shows up in your day-to-day life, and then also politically, which is a high degree of labor power, right? I mean, when unemployment is very high, as it was for an extended period of time in the Great Recession, employers have more leverage. It's like if 10 people apply for every one job opening, they can be choosy. They could not offer benefits. They can be like, “Well, you got to work three weekends a month,” a whole bunch of stuff, right? Like, don't bring your phone to work. No, you can't remote commute.

If half a person applies for every one opening, all of a sudden, you're saying, “Oh, well, what if you could work from home a few days a week.” And so there's just this huge tilt in the balance of power that we've seen between employers and employees, between capital and labor, with this labor market that is very hot, in which unemployment is 3.8%, or whatever it is. And then also, I mean, the negative part of this from the employer perspective is like, “I can't hire anyone. We can't find cooks for a restaurant. There's a labor shortage.”

And from a consumer side, it might even be like, “Oh, my God, every time I go to a store, I have to wait online twice as long as I used to,” right? Like, that's very much a real thing. But the positive is we're seeing unionization efforts like, I mean, a raft of unionization sweeping the economy. I mean, what do you think about the change here in terms of relative amounts of labor power in this economy?

Matthew Klein: Yeah, it has been very significant. And what's interesting is it's also a global phenomenon. You can look at in the U.K., or Europe, or Australia, that all these places are showing that unemployment is basically hitting record lows, or the share of the population that's employed is hitting record highs. And this is showing up, it's starting to translate into wage growth. There's some variation there. But it is a global phenomenon, and it’s really striking to see that.

I think the argument that someone who's worried about inflation being a persistent phenomenon would make is that if you have this kind of labor power and pushing for more and more increases in wages, that's going to end up leading to higher prices and a sort of this cascading situation where employers will try to compensate by raising prices to maintain their margins. For what it's worth, I'm not sure that in the U.S., anyway, we're seeing that yet. I mean, for better or worse, it seems as if a lot of what we've seen has been kind of a big one-off shift in terms of labor share, having increased a bit worker power, increasing wage levels in certain industries, particularly restaurants, increasing very dramatically.

And then it seems like kind of the growth rate is sort of moderated and we're kind of getting back to something closer to normal in terms of pre-pandemic, for better or worse, I mean, which quite frankly, is like, what, Federal Reserve officials would want if they're looking for kind of a soft landing outcome, what we'll see if that actually plays out. But it is really dramatic that this has been happening and like the share of people quitting their jobs is, I think, probably the best indicator of that. You saw how that spiked really dramatically, basically, in sort of the beginning of 2021 as more the economy opened up, people felt like there were more opportunities. And that coincided very much with an acceleration in wage growth.

And the question is how much of that acceleration wage growth can we preserve without becoming inflationary? I mean, on one hand, it increases cost for employers, and also it's more spending power for people. If there's not more stuff available to buy, that could be a challenge. But that's sort of basically I think probably how Fed officials are looking at it, for example.

Chris Hayes: Yeah. I mean, the classic term for this is what's called a wage price spiral, which is that let's say you have an economy that is experiencing high inflation, let's say 10% a year, and you've also got a very high degree of labor power, including lots of sectorwide union contracts that guarantee cost of living increases every year, right? What you're going to get is like, it's going to be a little self-fulfilling, right? Like, well, price is going to go up 10%. Everyone's wage just goes up 10%. But of course, everyone's wage is going up 10% to cover the cost of living. It's part of what's driving the cost of living going up. And that's when you end up in these sort of gnarly spirals, which are bad.

I mean, I'm against inflationary spirals, just to be clear on my position on this. But it brings us to this question of, well, what is to be done? And this comes back to the fact that if we have inflation, first of all, one thing I have to concede here and I think it's been interesting for me because I've written about and studied inflation a lot, but as a historical phenomenon and seeing it in person is very interesting, because one of the things that's been clear to me is, yes, there's a lot of coverage of it, and even propaganda about it. But it also, like, organically, people are allergic to it. Like, as an organic democratic expression of preference, I think it's fair to say people don't like prices going up a lot. Would you agree with that?

Matthew Klein: Yeah, I think that's absolutely right. And I think that's true across cultures as well.

Chris Hayes: Yes, true across cultures. It's also like when you go back and it's like, “Oh, right. Like, bread prices spiking is like the classic thing that sets off revolutions.

Matthew Klein: Right.

Chris Hayes: This is also historical reality, right?

Matthew Klein: It seems like it's a human phenomenon. That's right. We just don't like it.

Chris Hayes: Right. So then the question becomes, okay, well, obviously, you need to get inflation down. 8% is way too high and it would be bad for the economy for that to continue. But then you come to this really tricky question, which is basically this, if it's being driven on the supply side, supply constraints, the Fed can't make more pizza ovens. The Fed can't make more cars, making car factories. The Fed can't put more oil rigs in the ground.

All the Fed could do is on the demand side. If there's only one pizza pie, we could just make people a lot poorer so that they can't bid up the price of the pizza. But that's all we can do. We can't make more pizza. And this is really the fraught position, right? We do have inflation. I'm pretty persuaded by you or other’s cases, it's supply driven. But the Fed only got one tool in the toolkit. So what do they do?

Matthew Klein: Well, this is a great question. And I mean, to be fair, the Fed, for a while, was of the view that the best strategy was to wait. You just needed a certain amount of patience and the supply problems would eventually fix themselves. And ironically, they stop waiting. But it seems like those things actually are happening now. You can look at the data on motor vehicle production. The New York Fed has this index they created on looking at global supply chain pressures. It's a mix of survey data and prices for shipping, and things like that, and you've seen that coming way down. I think it peaked back in April or something, and it's way down since then, still elevated, but coming down.

You can look at container shipping prices, which are an input to that. I mean, a lot of these things are fixing themselves. But the issue is, are people willing to wait? I mean, the dilemma the Fed always faced was how long can we wait before people start to embed expectations of prices going up and have that change their behavior? Because as long as people weren't thinking that prices would keep going up, as long as everyone believed that this is going to be a one-off problem, and eventually would go away, then that gave them a lot of flexibility to wait.

And their concern, for whatever reason, is that that no longer is the case. They have to be seen to be doing something. And so that creates a challenge because they know just as well as you do, that they can't fix these problems except by making people poor. But that might be from their perspective, the only option that's really available at this point. I think the good news is, I mean, in terms of what they've done so far, the rapidity of the pace of rate increases they've done is very dramatic.

But if we're looking at kind of the levels for a moment here, basically, I mean, it's still very low. Low levels of mortgage rates or short term interest rates, or most of the other things we're looking at, relative to where you were before the pandemic are not high by any means. And in fact, when we think about what people's standards were for normal levels of interest rates, whatever that means, before like financial crisis, were still very low.

And even sort of the most kind of extreme forecasts people have of where the Fed is going to be in the next year or two would still put the level of short term interest rates well below where they were, what would have been considered normal pre 2007. So even with the rhetoric that they have, like, we're going to do Volcker again, and that kind of thing, no one is saying like, “Yeah, we're going to bring interest rates back up to 20.” Like, they’re talking about 4.

Chris Hayes: Yeah. Boomers will happily tell you about their first mortgage, which they took out at 16%.

Matthew Klein: Right.

Chris Hayes: It's like a completely foreign universe to us.

Matthew Klein: Right. Yeah, I mean, who knows, maybe that will happen. But it's not at all what is in the cards, not what anyone is really talking about right now. And so I think at the moment, we're still in the situation where the Fed is essentially removing what can be thought of as emergency measures that were put in place during the pandemic, and they're doing it in a way to sort of maximize on the rhetoric of saying that we're tougher on inflation. And then the interesting question is going to be what happens with actual inflation data, and that gives them sort of the chance to adjust and sort of pick where they're going to end up.

Chris Hayes: We'll be right back after we take this quick break.


Chris Hayes: This is where we start to get into some of the more technical aspects of the art and science of monetary policy. But one of the points here and this is something that a whole bunch of people have written about is that expectations become very important. And so if you convince people on expectations, like the ideal situation to me is basically speak sharply and carry a small stick, which is to say really convince people that you're going to Volckerize them, that you're going to work at a rate, we'll get up to 16%, try me. Like, I guarantee you, right?

And that everybody then embeds the expectation that like, okay, they're serious. And maybe that affects behavior enough in the margins, that they don't have to do it, right? And I think the only hope for a soft landing, which is that we get inflation down without a recession, is that people don't embed the expectation, right?

Matthew Klein: Right. I mean, what they’ve said, they've kind of laid this out, and I think the good news is we're, I think, possibly actually starting to see it. But what they've said is, “Look, we don't need to have unemployment go up a lot, thankfully. But what we need, though, is we need to have some change in the job market in the sense of fewer people quitting, and raise not quite the same kind of magnitude of wage increase that we've seen.

And the good news is we're starting to actually see that. So the number of posted job openings has not been going down. And so if you're looking at that, you'd be concerned. But the share of people who are quitting their job has been going down steadily. I mean, it's still elevated, but it's going down steadily. And wage growth is decelerating. And so far, employment is still going up. And in fact, the composition of employment is going up in a way that's very good for workers, as I said, more full time relative to part time, more higher paying occupations. And so that is basically the exact scenario that they would love to see. We'll see if that continues to play out.

But I mean, there is kind of a path there of you have this big one-off adjustment. It might take a while. We're still in the middle of it. But that finishes, then you get back to something that kind of resembles normal, and then they might be happy and say, “We don't need to do anything crazy.” I think it's also worth noting that until June, this June, the official projections the Fed put out in terms of what they were expecting would occur under what they call appropriate monetary policy, was that inflation would come down without unemployment going up at all and without growth slowing at all.

Now, in June, they changed that a little bit. But even so, it's still the case that they aren't really projecting any kind of extreme, or even mild downturn really. We'll see in September, the next FOMC meeting, they'll be putting out their most updated set of projections. It will be interesting to see what they're forecasting there in terms of what they think will happen under appropriate monetary policy, sort of their aspirational goal in terms of inflation and growth. But until very recently, weren't expecting any kind of trade-off even when they were still talking very hawkish rhetoric. So it will be interesting how that plays out.

Chris Hayes: Yeah, it's a great point. I mean, I consider myself a real like full employment zealot. And I think the combined both macro and monetary policy flaws of the Great Recession recovery are like a generational crime, basically. And part of it, totally, well intentioned people just getting it wrong, and then part of the poorly intentioned people getting what they wanted, which was austerity, pain, misery and very weak labor markets and low wage growth.

But even as a full employment zealot, when unemployment is 3.8% and if there's some softening at the margins, that gets you to 4.3. Like, you still got a pretty close to full employment economy. There's still a universe in which people who want jobs can get them. Wage growth is still there. But there's a little room there just because it's so tight right now, right?

Matthew Klein: Yeah. I guess the thing, though, I mean, that's trickier because we just don't have a lot of experience of that kind of modest adjustment where it stays there. But, I mean, that's right. I mean, I think to be fair, I mean, what's actually interesting, we saw the unemployment rate ticked up last month and went from I think 3.5 to 3.7. And that wasn't because the number of people with jobs went down. I mean, this might get revised later, or whatever. But what happened was actually that more people were saying they were looking for work. And so that's actually a great outcome.

Chris Hayes: Right.

Matthew Klein: That would also be an example of the Fed official saying, “Okay, well, we're getting the soft landing one and without anyone really losing out,” because you basically have a situation where people, maybe they retired early, or they dropped out of labor force at some point during the pandemic. And now, they think it's a good time to look, and they weren't immediately able to get a job. But hopefully, the idea is that they will be able to do that and that would also be encouraging.

But I would be cautious about saying that we want to actually get people out of work for the sake of the economy. I mean, if for no other reason, then, I mean, ostensibly, if someone is working, then they're producing or creating something of value for the rest of society. And so if they're not doing that, then we're actually world worse off as a whole. That would mean less supply of certain things.

Chris Hayes: Right.

Matthew Klein: I mean, obviously, in terms of the inflation impact, it depends on what it is they're making versus what it is we're short of. So that doesn't always line up.

Chris Hayes: So you're saying insufficiently a full employment zealot.

Matthew Klein: Maybe, yeah. I think --

Chris Hayes: You're saying that you're more of a full employment zealot.

Matthew Klein: Sure. Yes. In this case, I think that might be the case. That's right.

Chris Hayes: Yeah. No. I mean, right. Again, my thinking on this is a little bit changed because I've come to view the political effects of inflation and sustain high inflation is so pernicious in an environment in which the U.S. has like a very acute democratic threat. I really freaked out about that combination. And obviously, it's not like we don't have examples in history of high inflation ushering in fascism. So that lingers over the way I'm thinking about this. But it just does seem to me, yeah, you just got to get inflation down. And again, I'm sort of weirdly optimistic, too, that we might be getting it in the Goldilocks route.

Matthew Klein: Yeah. I mean, I think kind of going back, the basic problem is there were these huge disruptions with the pandemic. There's a new set of disruptions related to Russia's invasion of Ukraine, that's creating all sorts of real problems in the world. Those problems have economic and financial manifestations. It's basically a question of how do we count them and allocate them, and inflation is kind of the normal way to do it.

Chris Hayes: That's a great point, right? Like, a global pandemic produces real shocks and hits to material well-being, to life and to health. War produces those things. Like, it's not like some theoretical abstraction of like a bunch of credit default swaps defaulted. It's like buildings that existed no longer exist. People that were alive are now dead. People that were healthy are now sick. And the economy is going to be epiphenomenal to that, right? Like, there's only so many ways to paper over, or to deal with, or to compensate for real losses and material well-being.

Matthew Klein: Yeah, absolutely. And I think one thing is interesting and kind of looking back at like the U.S. response versus other countries. One way of kind of judging how all these things added up is you can say, what were the forecasts that people were making before the pandemic, and then how's reality sort of matched with those forecasts or not. And the gap, you can use that as sort of a rough proxy for less the cost the pandemic net of the policy response.

And so the OECD put out a bunch of forecasting in November-December of 2019, which is pretty good in terms of setting a benchmark here, through the end of 2021. And among major economies, every economy was worse off by the end 2021 than what was forecast, which is not a surprise. What's interesting is that the U.S. was the one that was closest to the pre-pandemic forecast.

Chris Hayes: Wow.

Matthew Klein: And that other countries that were close or below were countries that did a much better job of actually managing the pandemic itself, so Australia, South Korea and Japan. And if you compare the U.S. to countries that had comparable or worse public health outcomes like Western Europe, or Eastern Europe or whatever, they did much worse relative their pre-pandemic forecasts. And so, looking at this, it's very hard for me to say that the U.S. policy response, at least on economic policy front, it was too much, maybe you'd it was too little. But like saying it was too much, it's very hard for me to say given that kind of benchmark.

Chris Hayes: No. I mean, the two great paradoxes of the pandemic in terms of U.S. policy are the central one, which I said before in the program, which is like the U.S. along with partners and other countries, including Germany and Turkish immigrants, and U.S. companies, and largely U.S. technology produced a vaccine in record time. And then, like, tens of millions of Americans refused to take it. Like, two sides of the American coin, right?

Like, yes, American innovation, like, “Oh, Jesus.” And then the other part of it is like, honestly, I think probably one of the worst public health responses in the wealthy world in the OECD, and that's borne out I think if you look at our per capita mortality and things like that, and one of the best fiscal responses like economic responses. These are some of the contradictions of American pandemic response.

Matthew Klein: Yeah, it's really remarkable. And apparently, at least, if I sort of using the narrow metric of GDP, that the economic policy success outweighed in terms of GDP and not anything else, but outweighed the mistakes of the public health side, to the extent that we had an economic trajectory of comparable, better than, in fact, countries that did a much better job in public health like Korea, Japan, and Australia.

Chris Hayes: Although, I mean, I've talked about this thing in I think a new podcast. I mean, the sort of mortality figures and the sort of life expectancy is, to me, it's like the great scandal of our time right now in the U.S. Like, this very wealthy country is going through something that looks more like what happened to like Russia after the fall of the Soviet Union, or it looks like a country that's been through a war or a country has been like enormous disruptions. Like, the decline in life expectancy and increased mortality is like enormous generational tragedy and challenge.

Matthew Klein: Yes.

Chris Hayes: But we'll talk about that later. Let's finally end up on you mentioned, I mean, again, one of the arguments that Joe Biden can make is we're in better shape than a lot of pure countries. And we've managed this better. And the Biden administration and democratic unified governance has put us in a much better position. You rather be us than France, Germany, the U.K. Now, a huge part of the story is they are in real danger this winter because they are extremely dependent on Russian natural gas, particularly in hydrocarbons. And it's about to get cold. I don't know what's going to happen. How are you tracking this situation?

Matthew Klein: It's really a tricky question. So basically, a lot of it depends on just what the weather is going to be like. They have a lot of gas in storage, and they are able to get fuel from other places, Norway and the U.K. and the U.S., and Qatar and North Africa. So the question becomes, essentially, how can they ration it to make it available? Because realistically, unless there's really bad weather, they will have enough. I mean, people aren't going to freeze to death.

The question is going to be are chemical companies going to get the inputs they need for manufacturing others things and stuff like that. I mean, Russian natural gas for Europe, as a whole, was a significant source of the total, I think like a third, or something like that, with significant variation across different European countries. They can substitute that at higher prices. That's going to mean that, of course, because the total amount of gas in the world is not going up, it means other people are going to have to pay more for gas or get less.

So if they're paying more for liquefied natural gas from the U.S. and the Middle East, that means that Asians are going to have less. So that's going to be a challenge for someone. Realistically, that's probably going to mean like more coal burning in China, for example. But I think unless like the weather turns really bad really early, I mean, they are hitting their storage goals well. It turns out that there have been some adaptations by industry of efficiency gains in using alternative materials.

There's an economist in Germany, Benjamin Moll, who has been tracking this and it turns out a lot of German manufacturers have been able to find ways around it. I mean, one thing that's really interesting is you can look at already the gas supply to German industry has gone down quite a bit over the past few months.

Chris Hayes: Wow.

Matthew Klein: But total production has actually been flat. So it's not great. But if production is flat and supply is down 20%, 30%, that's actually --

Chris Hayes: You're doing something.

Matthew Klein: Yeah, exactly. And so I think that there is going to be a capacity to do stuff. I mean, the challenge is basically managing the electricity and heating prices for people, because right now the system they have is basically that people will pay whatever the natural gas price is. And that's gone up by a factor of 10 or more. And so I mean, we've seen in the U.K. just announced a plan where they're going to cap prices and pay people different. Spain and Portugal already done something like this, which I think is probably going to be the right call. It's going to be expensive, but I don't think it's going to lead to people freezing in the dark, thankfully.

They might need to be doing more things of reopening Dutch gas fields, or burning more coal temporarily, or things like that, which might generally not want to have happened. But, I mean, longer term, the Russians are going to be in trouble on this front because rerouting that gas to other customers is going to take at least 10 years to build the pipelines.

Chris Hayes: Wow.

Matthew Klein: That assumes that they have the expertise and the access to the financing and materials to do that, which they probably would not. I mean, slightly going off topic, but I think this is really reflecting the desperation on the Russian side to kind of get the west out of the war. Because once you do the kind of thing they're doing, it's only the Europeans are going to go back to Russian gas. So they're making a lot of adjustments to protect themselves from this in the future, and then like you've just burned your largest customer. What are you going to do with that?

Chris Hayes: It's a great point because also, I mean, in the same way that offices and commuting, and the global economy came back after the pandemic different than what was before. Like, if and when this war ends, depending on what that ending looks like, is there's actually a peace agreement or an actual like definitive battlefield victory by one side or the other, the idea of using your fossil fuel, as a sort of geopolitical tool and the sort of main export, is going to be tough on the other side of this.

And also, I think, for Europe and for everyone, I mean, one of the big lessons here is fossil fuels are bad for the planet. They're destroying the planet. They're also just this unbelievably volatile commodity whose pricing is opaque and controlled often by really nefarious actors, or actual cartels. And the more that everyone could just get off these things, independent of the climate issue, would be just so much better for everyone's geopolitical stability and economic stability. If you had predictable inputs of energy costs, that wasn't like, well, Mohammed bin Salman decided to, like, give Joe Biden the finger or like, Vladimir Putin invaded Ukraine. Like, that's no way to structure your economy based on the inputs on those wins.

Matthew Klein: Yeah, exactly. And I think we're seeing that the Europeans are realizing that. And the efforts they're making to secure alternative sources, I would be surprised that they undo all that effort that they've made and all the efficiency gains they made, and all their rerouting of things, even if Russians say, “Oh, like, we're done now. We're sorry. It's fixed.” And so I think it's going to be costly in the long run. And as I said, building pipelines to send the gas to China would be a very difficult undertaking, especially because those pipelines generally require Western expertise and technology to build in the first place.

Chris Hayes: Well, I mean, one of the weird things about the era we live in, and I'm speaking to you amidst some of the worst September heat waves we've ever seen, certainly in California, the worst that we've ever seen, a grid, which, as of now, who knows by the time you hear this, has managed to kind of make it through remarkably, largely due to both demand management and a lot of solar, thank goodness. But the future is going to look very different, I think, on the other side of both pandemic and this war. And I'm hopeful that some of these shocks are going to produce efficiencies and innovation where it's most desperately needed.

Matthew Klein is the founder of “The Overshoot,” which is a great Substack. It's all about making sense of the global economy and financial markets. He wrote a book with Michael Pettis called “Trade Wars Are Class Wars.” He used to be at Bloomberg and Financial Times, and Barron's. Matt, it's really great to have you on the program. Thanks so much.

Matthew Klein: Thank you very much for having me, Chris.

Chris Hayes: Once again, great thanks to Matthew Klein. I learned a lot from that. We'd love to hear what you think, how you've experienced the economy at this moment, your hopes or fears were going forward. Tweet us with the hashtag #WITHpod, email And be sure to follow us on TikTok by searching for WITHpod.

“Why Is This Happening?” is presented by MSNBC and NBC News, produced by Doni Holloway and Brendan O'Melia, engineered by Bob Mallory, and features music by Eddie Cooper. You can see more of our work, including links to things we mentioned here, by going to

Tweet us with the hashtag #WITHpod, email Follow us on TikTok by searching for WITHpod. “Why Is This Happening?” is presented by MSNBC and NBC News, produced by Doni Holloway and Brendan O'Melia, engineered by Bob Mallory and features music by Eddie Cooper. You can see more of our work, including links to things we mentioned here, by going to