Bogleheads On Investing Podcast · bogleheads

Episode 78, Carola Binder, author of Shock Values: Prices and Inflation in American Democracy, host Rick Ferri

·59 min·4 clips

The Fed wants 2% inflation partly because wage cuts trigger stronger backlash than price cuts.

1. Bogleheads On Investing Podcast episode 78 focuses on Carola Binder's book Shock Values, Prices and Inflation in American Democracy. 2. Rick Ferri hosts Carola Binder, a University of Texas at Austin economics professor and inflation historian, whose work on inflation expectations gives the conversation its authority. 3. The episode asks how inflation, deflation, and government responses to price shocks shaped American democracy from colonial times to the Fed. 4. Binder defines inflation as growth in aggregate prices, not just rising egg prices or gas prices. 5. She defines deflation as falling aggregate prices and distinguishes it from disinflation, which is a slower rate of inflation. 6. Ferri and Binder use nominal illusion, or money illusion, to explain why wage cuts feel harsher when inflation is low. 7. Binder says the Federal Reserve targets 2% inflation partly to leave room for wages to adjust without nominal pay cuts. 8. She explains the difference between CPI, core CPI, PCE, and PPI, including why the Fed targets PCE rather than CPI. 9. Binder notes that PCE inflation tends to run about half a percentage point lower than CPI on average. 10. She says the book's title, Shock Values, is a play on supply shocks, demand shocks, and prices as values. 11. Binder traces U.S. price instability back to colonial restrictions on paper currency and wartime inflation during the Revolutionary War. 12. She says postwar deflation helped trigger Shays' Rebellion and helped push Washington, Jefferson, and Hamilton toward stronger federal monetary arrangements. 13. Binder describes the First Bank of the United States and the Second Bank of the United States as early attempts to manage national currency and bank-note issuance. 14. She says Andrew Jackson distrusted Nicholas Biddle's Second Bank and killed its charter renewal. 15. Binder explains that the Civil War produced greenbacks in the North and graybacks in the South, with expectations helping determine their value. 16. She says the Grange movement pushed monetary, regulatory, and fiscal responses to deflation after the Civil War, especially through railroad regulation and the Interstate Commerce Commission. 17. Binder describes the Panic of 1907, Nelson Aldrich's National Monetary Commission, and the secret Jekyll Island meeting that influenced the Federal Reserve Act. 18. She says World War I inflation, Treasury pressure on interest rates, and the 1920-1921 recession showed how central banking still sat inside the gold standard. 19. The tone is interview-based, historical, and policy-focused, with Ferri asking basic definitions before moving into chapters of the book. 20. Listeners interested in inflation history, the Federal Reserve, and monetary policy will get the most from it, while people seeking light personal finance advice may skip it.

As heard by us

A careful history of inflation as a political force.

Inflation is treated less like a monthly statistic and more like a force that shifts pain, reward, and political power. Binder and the host move through the book's four themes without much drift: homeowners and renters, debtors and creditors, crisis-driven government expansion,…

Read the full review in PlayNext →

Why you'd press play

Inflation, homeowners, debt, and policy power are all part of this episode's long view.

Read the full recommendation in PlayNext →

Listen to the show on

Apple Podcasts Spotify

Play clips from this episode More from Bogleheads On Investing Podcast