What is Inflation? Podcast Ep 26

Did you know that candy used to cost as little as a penny? Seeing a movie in a theaters used to cost as little as $5. But over time, costs have gone up. In this episode, Connor and Brittany discuss the “Creature from Jekyll Island” and why this ghastly creature is causing prices to go up.

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Links:

• Duck Tales Inflation Video 
• Tuttle Twins and the Creature from Jekyll Island 
• How to Teach Free Market Principles to Your Children

Here is the transcript of our conversation: 

 

Brittany: Hi Connor.

Connor: Hey, Brittany.

Brittany: So there’s something that’s been really bothering me today and I really wanna get it off my chest, if that’s okay. So I went to the movie theater a little bit ago, and I noticed that the cost of the movie ticket has actually gone up nearly 20 times since I was a kid.

Connor: That’s funny you say that. I was at a gas station recently, and I remember when I was a kid I could buy a Snickers bar for 24 cents. I remember. Cause I would take a quarter and now they’re like 99 cents or a dollar 29. And I get the gas stations a little more expensive than the grocery store, but still like to go up by three or four times the amount. I don’t feel that old, but you know what’s going on here?

I mean, we might be getting a little bit old, but No, I know what you mean, but it’s frustrating because we all work so hard for our money, but I’m starting to feel that no matter how much we make the prices of, you know, goods and services like food and movies keep going up. And it actually reminded me of one of my favorite Tuttle Twins books. The Creature from Jekyll Island.

Oh. So, you know, in that book we talk of course about how this has been happening for a long time. So, you know, do you have a quarter nearby, Brittany?

Brittany: Yeah, I do have a quarter actually.

Connor: Okay. All right. So any listeners, you know, you can help me with this too. If you pick up a quarter and you look at its sides, Brittany, if you’ve got one there, do you see those ridges on the side?

Brittany: I do, I do see the ridges.

Connor: So this was mind-blowing to me when I was a kid and we, I put this in the creature from Jekyll Island books. So even if our listeners don’t have a quarter, but they’ve read the book, they understand what this is. These ridges were put in place centuries ago as coins were basically the way money was spent as a way to make sure that money, that, excuse me, the metal was not being shaved off the site. Think if you had gold or silver coins. Right. What coins used to be Today’s coins is just worthless metal. Yeah,

Brittany: I was gonna say, I don’t think they’re, they’re worth a whole lot today.

Connor: In, fact, Brittany, now I’m remembering it was either the nickel or the dime, but then, the metal costs more than the value of the coin itself. In other words, I think it was the nickel, but I’ll use that

Brittany: I do too. I think it was Nick.

Connor: Yeah. So the nickel’s worth 5 cents, but the metal inside that you need to produce the nickel actually costs 6 cents, because the value of the dollar keeps going down. Right. So so in times past when coins were actually valuable metals, like gold and silver, you’d have kings and other powerful leaders who would want to be able to accumulate more wealth. And the easiest way to do that at the time was to take these coins that were being used in circulation and actually shave off the edges of this coin so that it still looked like a normal coin, but it’s just a little bit less. Right. They’re just taking some of these shavings off. Well, when you do that, and this doesn’t even have to be the kings, you can have anyone doing this, right? You’d have just people doing this on their own.

Brittany: As long as you have the tools to do it, I guess, right? You could do it.

Connor: Yeah. So, oh, here I’m gonna take my gold shavings and if I do this over and over and over and over again, I pretty soon end up with my own, you know, I can melt down that gold and create my own gold coin and I get free money out of nothing. And so the ridges were put in place as a measure to make sure that counterfeit coins would not be used or that people would not try and steal from these coins that were in circulation. And so what was happening is you have this inflation, this concept of new money, new coins, it’s the same amount of gold, right? But it was new coins because people were shaving off the edges. And so inflation, I guess maybe Britney, let me throw it to you. And, and for our listeners, it’s like, well, gold and silver, that’s, you know, a long time ago and whatever. So what does inflation look like today? Where does quote-unquote new money in the system today come from?

Brittany: Yeah. So new money is come well by the creature itself, right? Something we call the Federal Reserve. The Federal Reserve is a central bank and it can print however much money they want. And that’s nuts. If you think about it, think about if you and I were just like, you know, we want some more money, Let me just go to my handy dandy printing press and just print trillions and trillions of more dollars and throw them into the economy, that is nuts to think about. And it sounds almost absurd and insane, but that is exactly what’s happening.

Connor: So, Brittany, let me throw it back to you again. You just said it sounds absurd and it sounds insane, but the Federal Reserve never says, Oh, hey, we’re gonna print trillions more dollars. They’d never even say they’re gonna print money. They don’t call it inflation. They use terms like quantitative.

Brittany: Quantitative Easing. Yes.

Connor: Right, or, we need to inject liquidity into the marketplace. Why do you suppose that the people in control of, the Federal Reserve and the central banks, why do they mask what they’re doing in these types of like weird, flowery, abstract type of terms

Brittany: Now? Do you mean why do they inflate or why do they pretend? Why do they call it something else?

Connor: What do they call it something else?

Brittany: Nobody likes the term inflation. If you say inflation to anybody, it has a very, very negative connotation and she’s like a negative association with it. There is a The Weimer Republic, it was a government in Germany right after World War I, right? Right after. Yeah, Yeah. And they had infamously bad inflation. I mean, it was to the point where people were bringing will barrels full of them, was it the Weimar dollar? What was the dollar actually called or what was their current?

Connor: It was the, I’d have to look at, I have one on my wall in my office, you’re asking,

Brittany: I can’t remember it

Connor: Top of my head. Yeah, it’s a mark. It was a mark, I think

Brittany: A mark. Okay. And they had to bring, I mean, wheel borrows full of them because it had become so devalued because there was so much of it. Now they had been printing their own that it wasn’t worth anything. And so now historically we think of that, we think of inflation as that, that time. And so nobody wants to call it inflation, right? Just like they don’t wanna call taxation theft. Nobody wants to say what they’re really doing. They wanna kind of hide it and make it sound better than it is

Connor: It reminds me of Avengers when Spider-Man comes up and he is being introduced, I think to Dr. Strange or something, right? And he says, I’m Dr. Strange. And Peter Parker says, Oh, we’re using our pretend names. I’m Spiderman, right? So it’s, inflation is the, or quantitative easing, right? These things are pretending names for what is actually happening. Well, let’s even make it more simple, Brittany, because inflation itself could sound a little bit abstract, a little bit confusing. It doesn’t necessarily explain what’s happening. Inflation is really stealing money from people. So let’s try and understand how that works. And, I’ll use the example in the book. You’ve got Grandpa Tuttle, and they’re on a fixed income, which means that grandpa isn’t working anymore. They just are living off of the savings that they’ve accumulated earlier in their life.

And so they still have bills, they still have to pay food and, you know, for their home and things like that. So he’s not earning new money, and yet the cost of everything is going up. Grandpa, of course, complains just like you did, right? Oh, the movie theater, movie tickets used to be cheaper, you know, when I was your age. And so all these things are costing more and more and more every year, except he’s not earning new money. In other words, he’s not earning money at a job where they’re paying him a little more each year, a little more each year to kind of keep up with inflation, which is kind of common, right? A lot of people who work, kinda get little raises year after year. It’s called a cost of living increase, right? Because the cost of living keeps going up because of inflation.

No one really talks about it, and that’s why the cost of living is going up. But if you’re working, you’re kind of, oftentimes you’re getting raises. So you’re earning new money, which means you can kind of keep up in terms of your income from your job with the cost of your goods, your food, and so forth that are also going up, right? But grandpa, he’s not earning new money. He only earned the money years ago. That’s kind of stuck. And yet all the costs are going up. And so you’re basically stealing money from grandpa because he’s able to purchase fewer and fewer things. We’re stealing the wealth, we’re stealing, I should say the value is what I mean to say we’re stealing the value of Grandpa Tuttle’s dollars because the dollars that he saves are becoming worth less and less and less. And the value that’s being taken from his dollars is being given to who it’s being given to the people who are getting the new money.

When the Federal Reserve tells, you know, the Bank of Boyack, Hey, here’s your, you know, trillion dollars that we just printed, here you go, Well, I, as the recipient of that brand new money, I am getting a lot of value before that money goes into a kind of circulation into the whole market. And everyone starts feeling the effects of it. It’s the people who get the money right at the beginning who get a lot of the value and are able to benefit from that inflation. And so people who are kind of well connected, right? These bankers, these politicians, these people in government, and so forth, love this because they get the benefits and they can push the costs right on everyone else they can steal from everyone else. A little bit,  little bit,  little bit, little bit here

Brittany: That’s exactly like shaving off the coin it’s exactly what happened back in the day. Yeah. This is the shaving off that quarter, whatever, you know, know whatever the metal was

Connor: That’s right. Okay, so inflation is bad. We all understand it. I think from here, you know, a lot of listeners might be trying to better understand what it looks like today. So, you talked about the Weimar Republic as a bad example. And that’s hyperinflation, right? That’s why it got so bad. Is, it like inflation times infinity or times a thousand? It was just really bad. So the question I might post back to you, Brittany, is inflation really a bad thing today? Is it really causing problems we understand a century ago or whatever it was? But it’s not that bad today, is it?

Brittany: It is absolutely bad. And I think The Tuttle Twins example is really good, as a lot of people aren’t able to retire. And there are other reasons for that. But part of that is that their money isn’t going as far anymore because inflation keeps happening. And every time something goes wrong in the economy, our government’s answer to that is, Let’s inflate more. Let’s print more money and put more money into the economy. And it’s perpetuating, it’s continuing the bad cycle. So they think they’re fixing it and they’re actually making the problem much, much worse.

Connor: And what’s interesting, Brittany, you mentioned printing money, which often happens, but really what happens is it’s just a computer. And they will kinda make a little change in the computer and be like, Oh, okay, well we now have this much money to loan out as the Federal Reserve. And so banks come and get the new money, which then they have to go printed at the Treasury. But oftentimes it’s just a change in a computer that says, Oh, now we have all this new money in the economy that people can use. And so it’s very very simple to change. Okay? Brittany, when you were younger, did you have a savings account?

Brittany: I did not.

Connor: You didn’t, we’re not gonna use you as the example. We’ll use me as an example. Okay. So when I was younger, I had a savings account and my parents said, You know what, Connor, you’re earning a little bit of money, you’re doing some chores, some extra chores, you got some money, let’s go get you a savings account. And I remember every month I would get a letter from the bank in the mail and they would tell me how much money my savings account had. And what I loved is I was earning free money. I mean, wow,

Brittany: Free money.

Connor: There’s nothing more exciting to a kid that did

Brittany: No

Connor: Free Money And it wasn’t a ton, but hey, it was free, and what was happening? Well, I was giving my money to the bank and a savings account. And then they were then loaning that money out to other people and they were charging them interest for the loan, which is basically like the fee that the bank charges for you to borrow the loan. And then you have to pay that feedback in addition to the money you borrowed. And then they would give me a little bit of money in return for letting me let the bank loan my money out. It’s kind of, they’re saying, Hey Connor, thanks for letting us use your, you know, a hundred dollars for this loan. We’re gonna give you a few pennies. Now what was interesting at the time is that in my savings account, I was earning, I think I was earning like five or 6%. I was, so if I had you know, a hundred dollars you know, in the savings account and if I was earning 5% a year, then I’d get five free dollars that year, right? And so that was pretty cool as a kid.

Brittany: Pretty cool. Yeah.

Connor: Now savings accounts today basically will make you nothing. I have some money in a savings account right now and I’m blown away. I think I get like 0.2% or something like that.

Brittany: Yeah that’s what I get too.

Connor: Savings accounts do nothing today. And here’s why that’s a problem, Brittany. If you take your money, like, let’s say one of our kid listeners listened to our previous episode about being an entrepreneur and they go out and they mow a bunch of lawns or they babysit or they do a lemonade stand. So now they’ve got, we’ll say $500 cuz they’re a really hard worker. So they say, You know what, I’m gonna go put in a savings account cuz even though it’s not earning as much as Connor’s savings account was when he was younger, it’s at least earning a tiny bit. So let’s put in the scale of the savings. Well here’s why that’s a problem, Brittney. And it connects to the topic of our episode right now, which is inflation, The kind of average rate of inflation that most people kind of assume.

And I, think there are some problems with this, but that’s a little more advanced than we want to get on this show is kind of 3% a year. That’s kind of like, it’s like two to 3% a year. In other words, inflation is constantly going up two to 3% every year, which is why prices are always going up, which is why people get raises at work because they have to get paid more so they can pay for more expensive things. And the whole market just seems to be you know, going along at two to 3% every year, every year, every year. This is why Brittney, for you and I, as we get much older, we look back on our childhood after 10 years, 20 years, and that’s a lot of time, right? For that two, 3% to kick in and we’re like, Oh my gosh, look how far we’ve come and look how much more expensive everything is.

Well, if one of our kid listeners puts his $500 in the savings account, he’s only gonna earn a teeny, teeny tiny bit of interest, whereas the money right is not gonna be as useful next year or the following year as it is right now. Because it’s still gonna be basically just 500 bucks. Let’s say you hang onto that 500 bucks for 10 years. Well, meanwhile everything else is more expensive. And so you would’ve been smarter. And, Ethan, I believe in our, Tuttle Twins and The Creature From Jekyll Island, Yes, I believe he says that right? He’s like, Oh, let’s go blow all our money today.

Brittany: We may as well

Connor: Let’s go buy the cotton candy right now before, you know, it gets more expensive. But that’s the problem with inflation is it encourages people to spend, spend, spend rather than save. Because if I save money and I’m not earning at least 3% of, interest on my money every year, I’m basically losing money. And so it’s way better to spend. And so I think it creates a lot of problems, Brittany because people make different decisions for their life because of what inflation is doing.

Brittany: Yeah. and there’s something, this is a little, it’s related to inflation, but it’s so Ducktails, Ducktail is one of my favorite shows. I don’t know if you remember Ducktails. Yes, exactly. So they have a great episode that actually really brings this point home. And it’s weird cuz you’re like, wait for a second, Ducktails is gonna teach us about economics. But one of the, there’s like a crazy scientist in the show and he gives the kids a gun that duplicates everything. The problem is every time it duplicates, the thing they duplicate either gets less important or less valuable. And then nobody, like, at the end of the thing, I think they have like, 14 like what is it? Banana Splits like Sundaes and nobody wants ’em anymore. So, it’s really good, I’ll link it in the show notes. It’s a really good cartoon that just kind of explains what we’re talking about. It’s a little bit sillier, obviously, it’s not as serious as people not being able to spend their money or have it go as far, but I’ll link it in the show notes cause I think it’s a really good way to drive the point home.

Connor: I guess I’ll say here in closing, and Brittany that prompted a reminder, we have linked to a Ducktails episode in our free market curriculum where you will learn about inflation and all kinds of things. And this is stuff for the whole family. We have content for younger kids, we have it for older kids. And honestly, hey parents out there, you’re gonna learn a little bit too. Along the way. We get so many comments, especially from the mom cuz it’s often the moms who are helping the kids learn this stuff that, oh my gosh, I never learned that in school. That was so useful. And so you’re gonna want to go to free market dot TuttleTwins.com and we’ll link to this on the show notes page as well if you’re interested. So it’s free market dot tuttlewins.com and every week you’re gonna get a little lesson activity, a little bit of information so that you and your family can learn all about free market economics.

This stuff is so important. Why? Well, as we’re learning to be entrepreneurs as we’re going out and getting jobs, as we’re making decisions for our life, it’s so critical that we have an economic way of thinking so that we can make better choices, better decisions for our lives to have better outcomes. When we know that if I save 500 bucks in my savings account that I’m losing money, I’m gonna make a better decision to find somewhere else to stick that money. Right? Maybe I can invest that money or maybe I can find somewhere that’s gonna gimme more than 3% so I’m at least preserving the value. These are important decisions to make, but if you don’t understand economics, you’re gonna be making poor decisions. So make sure you sign up for your family’s free market. Tuttletwins.Com Brittany, great topic, and thanks for chatting.

Brittany: Thanks for chatting. Talk to you next time.