Issue #229: I went to the White House to understand deflation

plus the Florida Man Games + pickle triplets
͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ 
March 13, 2024 • Issue #229
Dollar Scholar

Hi y’all —

I smoothed my skirt, took a deep breath and walked through the gates. I had arrived at the White House, and I was on a mission.

Last week, I traveled to Washington, D.C., to interview Biden administration officials and cover a handful of announcements related to junk fees. (Among them was a new rule by the Consumer Financial Protection Bureau intended to slash the typical credit card late fee from $32 to $8 — you can read my story here.)

My day at the White House was exciting and exhausting both personally and professionally. But most of all, it was helpful, because I was finally able to get clarity on a question that’s been bugging me for some time now.

What is the difference between deflation and disinflation, and which should I be rooting for?

It’s common knowledge that inflation isn’t quite where we — as in, the government and everyday Americans — want it to be. Due mostly to an explosion in demand after the worst of the pandemic, inflation surged to a record 9.1% in June 2022. That’s obviously way higher than the 2% long-run target the Federal Reserve aims for.

Thanks in no small part to the Fed’s rate hikes over the past couple years, the massive price increases have abated. As of February, inflation had reached 3.2%; a soft landing seems to be the consensus.

What’s been happening is so far disinflation, according to Jadrian Wooten, an economist at Virginia Tech. Disinflation means the rate of inflation is decreasing. In other words, prices are still going up... but slower than before.

He says deflation, on the other hand, is something “very different.” By definition, deflation is when the price level of goods and services sees a sustained decrease.

“It’s really important to recognize that deflation is not normally a good thing,” Wooten adds.

people been complaining about inflation for weeks but didn’t blink twice at spending $50 on a t-shirt and a cd. it’s me i’m people.

While I was at the White House, I asked Jared Bernstein, chair of the U.S. Council of Economic Advisers, to explain why. We don’t want to see a broad deflation of the price level across the economy, he says, “because the only way that happens is if the bottom falls out.”

Wondering what that looks like? Unfortunately, we already know.

During the Great Depression, the unemployment rate passed 25%. The consumer price index decreased by over 25% between 1929 and 1933. In 1932, the rate of deflation in the U.S. reached 10%.

In particular, that deflation took a toll on Wisconsin farmers, who saw the average price for milk go from $2.01 to $0.89 in the span of three years. Cash-strapped and frustrated with the government, they staged milk strikes, attempting to withhold dairy from the public until prices (and therefore, their payouts) were raised. The Wisconsin Milk Strikes of 1933 got so tense that, at one point, strikers attacked dairy trucks and literally dumped out their milk on the side of the road.

And that’s just one example. If the U.S. saw significant deflation today, the effects could be far-reaching. According to one theory, people could start waiting to make purchases in anticipation that they’ll have greater purchasing power in the future, ultimately leading to sluggish economic growth and trapping the nation in a deflationary loop.

“Even though we might want lower prices, we verbally say we want deflation, our wages and earnings are tied to how much things cost,” Wooten says. “And so if we really did see an economy where we got deflation — so, negative inflation rates — the corollary to that is we would also see our wages and our salaries go down.”

Although widespread deflation would be rough, Bernstein clarifies that he’d like to see *some* deflation in specific goods and services that saw their prices spike in the months/years following the pandemic. Think: airfare, used cars and eggs.

Speaking generally, though, I shouldn't be crossing my fingers for no inflation at all. He says some inflation is good because it’s characteristic of a healthy economy.

“It's sort of like saying, ‘I don't want to have a fever of 110 [degrees].’ And then someone might say, ‘Well, gee, would you rather have a fever of 50?’” Bernstein says. “‘No: 98.6 is some heat, but it's the level of heat that I'm comfortable with.’"

He adds: “An economy that's generating some heat should have some inflation.”

The bottom line
(but please don't tell me you scrolled past all of my hard work)

Deflation is when prices come down directly, and disinflation is when price increases slow down. Differentiating is key: Disinflation is typically preferable to widespread deflation because it keeps the economy functioning.

Though decreasing inflation rates does not mean everything is suddenly going to get cheaper, Wooten says, “slower inflation is generally a good thing — that’s what helps make sure we get raises and pay increases.”

Volleyball
via Giphy

Smart MONEY MOVE
cover up (please)

HomeHome insurance costs increased 21% between 2022 and 2023, but that’s still no reason to go “bare” (you know, skip coverage). Why? Well, opting out might actually prompt your landlord to stick you with a pricey policy with less-than-adequate protection. Trust us — saving a few bucks now isn’t worth risking budget-busting incidents down the road.

View our best home insurance list to get a quote and make sure your stuff is properly shielded.

Receipt of the week
check out this wild celebrity purchase
Patrick Mahomes
via Instagram

Before playing in (and winning!) the Super Bowl in February, Kansas City Chiefs quarterback Patrick Mahomes played Santa over Christmas by giving the entire offensive line custom golf carts. Thirteen of his teammates received $12,700 electric golf carts with their names and numbers on them, which adds up to a roughly $165,000 bill for Mahomes. As friends come, I suppose he’s a good catch.

Internet gold
five things I'm loving online right now
1
My home state recently held the Florida Man Games, an athletic competition where challenges included a speed pork-butt-eating contest, a pool noodle mud duel and an obstacle course where participants dodge actual police officers. Ridiculous? Yes. But also hilarious. “I have an absolute disregard for self-preservation,” one contestant told the Associated Press. “I will do anything.”
2
Happy birthday to Dill, Gherkin and Jalapeño! The triplets, whose dad is tortoise Mr. Pickles at the Houston Zoo, just turned 1 year old.
3
This year’s hottest track is a rap song about… retirement. (Yup, you read that right.) Wyclef Jean and Pusha T helped TIAA release a single called “Paper Right” to drive conversations about retirement gaps and future generations. It launched alongside a fundraising drive, which is incredibly cool.
4
My entire timeline is Cerveza Cristal jokes right now, and I’m not complaining.

401(k)9 CONTRIBUTION
send me cute pictures of your pets, please
Jilly
via Maddy Will
Meet Jilly. Jilly is less interested in disinflation than you throwing disball for fetch.

See you next week.

P.S. How are you coping with inflation? Could you win a pool noodle duel? Which Star Wars movie do you think is the best? Send feedback to julia@money.com — your reply could appear here in a future issue!

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