Podcast Summary: A Book with Legs

Episode: Mark Blyth and Nicolò Fraccaroli – Inflation
Date: October 20, 2025
Host: Cole Smead (Smead Capital Management)
Guest: Mark Blyth (Professor, Brown University)

Episode Overview

This episode of A Book with Legs dives deeply into inflation: how it works, why it happens, and—crucially—who wins and loses when prices rise. Cole Smead interviews Mark Blyth, co-author (with Nicolò Fraccaroli) of Inflation: A Guide for Users and Losers. Blyth challenges orthodoxies about inflation’s causes (is it always a “monetary phenomenon”?) and debates common policy interventions, using historical, political, and social lenses. The conversation is lively, skeptical, and packed with practical insights for investors and anyone trying to make sense of today's shifting economic landscape.

Key Discussion Points & Insights

1. Why Write About Inflation Now? (01:45–03:58)

• Blyth shares that the book started almost by accident—his postdoc (Fraccaroli) suggested it just as inflation was taking off post-COVID, and they realized traditional explanations didn’t fit the current moment.
• Historically, inflation has distributional impacts, benefitting asset holders (the rich) and hurting those with less (the poor and indebted). This insight parallels their prior work on austerity's regressive effects.

Quote:
“When you jack up interest rates to cure inflation, people who have interest-bearing assets at the top are going to make out, people at the bottom...are more likely to be made unemployed by the slowdown. They're the ones that carry the can.”
—Mark Blyth [02:30]

2. Understanding Inflation & Deflation (03:58–05:50)

• Inflation isn’t merely price increases; it’s a sustained increase across the board, especially in consumer goods.
• Blyth emphasizes the difference between the rate of change and the level of prices: economists care about the rate; the public cares about the level.

Quote:
“We’re looking at the delta, the rate of change. They’re looking at the absolute level. And if that absolute level keeps going up … there’s no wonder people don’t believe them.”
—Mark Blyth [05:10]

3. Measurement Complexities & Distributional Impacts (07:37–10:21)

• Measurement is hard, especially in an era of rapid product evolution and substitution.
• Official “core” inflation strips out food and energy—items most relevant to lower-income households. As a result, inflation feels much higher to those on lower incomes.
• John Authers’ work found the “real” inflation rate for lower-income Americans during some periods was closer to 10%.

Quote:
“Our surprise was how much you actually—not just can shelter from it—how much you can profit by it.”
—Mark Blyth [10:08]

4. Core vs. Headline Inflation: Who Cares? (10:25–11:17)

• Core inflation is meaningful for policy-makers searching for “signals” but less relevant for the daily lived experience of ordinary people, for whom food and energy matter most.

Quote:
“The further down the income distribution you go the more you care about the non-core items...there's a different experience of inflation.”
—Mark Blyth [11:04]

5. Rethinking Causes: Supply Shocks & the 1970s (11:25–15:21)

• Discussion of Alan Blinder’s reinterpretation of 1970s inflation as mainly driven by supply shocks (oil, commodities) rather than runaway demand or wage-push.
• Blyth was surprised to find mainstream economists (like Blinder) challenging the orthodox “monetary” explanation.

6. Fiscal Policy and Inflation (15:21–16:39)

• The line between fiscal and monetary policy is increasingly blurry post-2008; both are tools to manage aggregate demand, and central banks/fiscal authorities are more intertwined than ever.

7. Housing, Owner-Equivalent Rent, and Inflation Metrics (16:39–20:27)

• Owner-equivalent rent (OER) is a clumsy proxy meant to capture the experience of homeowners—should it be “consumption” if you’re building an asset?
• OER can distort official inflation statistics, leaving renters much more exposed to true cost increases.

8. Interest Rates as a Blunt Tool (21:40–26:15)

• Blyth challenges the hero-worship of Paul Volcker: while his rate hikes tamed inflation, they hit hardest after many inflation drivers had already receded. Perhaps mass unemployment was avoidable.
• Today’s global flows make “bond vigilantes” much less powerful than in the past.

Quote:
“You might be the bond vigilante who wants to come and...send that signal. There’s a lot of other people you got to convince. So I don’t think it works quite that way now.”
—Mark Blyth [25:31]

9. Inflation & Taxes: Winners and Losers (26:15–28:42)

• Inflation can push people into higher nominal tax brackets while eroding real income—governments may benefit (“inflation is defaulting softly, one heartbeat at a time”).
• Following WWII, the US used modest inflation (and financial repression) to shrink its debt-to-GDP ratio.

10. Price Controls, Subsidies, and Policy Trade-Offs (31:21–36:46)

• Price controls rarely work as neat solutions—real-world responses often undermine their intent (e.g., shortages, misallocation).
• Well-targeted subsidies (as Spain did with energy transport for vulnerable groups) can mitigate impacts without distorting prices for all.
• Regulation (price controls of a sort) is everywhere—energy, healthcare, telecom—so blanket arguments against controls miss this reality.

Quote:
“The entire medical market is made up. There’s no market—it’s all negotiated prices. So...we need to learn from places where [controls] work and not do dumb shit. Right?”
—Mark Blyth [34:07]

11. Windfall Taxes & Systemic Incentives (36:46–45:38)

• Windfall taxes can be justified where profits are due to pure luck rather than skill or investment—e.g., oil company surges in wartime.
• The structure of the banking sector and deposit markets differs sharply between countries, influencing how inflation and rate changes are felt.

Quote:
“A lot of things that happen is just luck and we ascribe it to skill and that’s why we don’t want you to touch it.”
—Mark Blyth [40:01]

12. Too Much Money? The Limits of the ‘Monetary Phenomenon’ Argument (46:15–51:13)

• Stimulus checks likely contributed to US inflation, but estimating the size is tough. Much “stimulus” paid down debts, muting its inflationary effect.
• Monetarist explanations fall short for recent episodes, and hyperinflation almost always signals deeper structural collapse, not simply printing too much money.

13. Perpetual Deficits & the Recession Question (53:10–55:57)

• Despite dire warnings about deficits, as long as the US issues the global reserve asset (Treasuries), the mechanics allow for perma-deficits. If the public sector is in deficit, the private sector has a surplus.
• Balancing the budget when the economy is weak only widens the pain.

14. Global Dollar System, Alternatives, and Geopolitics (55:57–58:11)

• The dominance of the US dollar is under pressure. Central banks (like Germany’s and China's) are diversifying with gold; crypto and BRICS alternatives are being explored, though nothing matches the dollar’s stability.

15. Micro vs. Macro: Can Anyone Really See the Next Crisis? (60:28–64:20)

• Central banks are often “looking in the wrong place”—focusing on labor markets or money supply when the real risks are elsewhere (extended supply chains, geopolitics).
• Micro-actors (arbitrageurs) cannot solve systemic problems, while macro-actors (central banks) often miss systemic fragilities.

16. A Multi-Factor Model for Inflation & the Cycles of Capitalism (64:20–73:56)

• Inflationary periods often follow long cycles: gold standard (deflation), Bretton Woods (inflation), neoliberal era (asset price booms, inequality).
• Today’s mix of demographics (aging, low fertility), de-globalization, and climate/supply shocks suggest inflation will persist higher than seen in recent decades.
• Real wealth cycles require periodically “recharging” the real economy via periods favoring labor and producers over mere asset holders.

Quote:
“These things do sort of pivot over 40-year cycles. They exhaust themselves...The bug in the software for [Bretton Woods] was constantly rising inflation. And then we solved the inflation problem...But what that did…was leverage in the banking system and asset inequality and we’re going to correct for it.”
—Mark Blyth [73:10]

17. Demographics, Technology, and the Future of Inflation (74:04–78:15)

• Demography now points toward inflation: fewer young workers, aging societies, less immigration, and the exhaustion of prior deflationary forces (China’s rise, internet’s capital efficiency).
• Future technological solutions (like AI and robotics) require huge capital outlays, which are inflationary.

Quote:
“If value variable 1 [number of workers] goes down, variable 2 [hours worked] has to go up … If you’re not going to work any longer hours, the solution is robots or immigrants.”
—Mark Blyth, paraphrasing Mike Green [76:55]

18. Energy & the Next Inflationary Spike (78:15–81:20)

• Oil investment is lagging; US supply faces constraints, while other countries are increasing their output.
• Two forces compete: widespread adoption of renewables (lower demand for oil) vs. continued population and economic growth (higher demand).
• Blyth predicts a longer-term oil price crash as renewables gain ground; Smead (host) is skeptical, sees continued demand supporting prices.

Notable Quotes & Memorable Moments

• “Inflation cures debt. As a finance friend of mine put it once, inflation is defaulting softly, one heartbeat at a time.” —Mark Blyth [27:54]
• “We need to have a look in the mirror. We do [price controls] all the time and we need to learn from places where we do it, where it kind of works, and then not do dumb shit.” —Mark Blyth [34:07]
• “[Windfall profits] ...it was pure. Nobody did anything to make this happen. ...The confusion between luck and skill. Right. A lot of things that happen is just luck and we ascribe it to skill...” —Mark Blyth [40:01]
• “If the public sector is running a deficit, that has to show up as a private sector surplus. And if the private sector has a surplus, they're going to spend it or they're going to save it.” —Mark Blyth [53:49]
• “Demographics...now argue inflation, not deflation.” —Cole Smead [74:39]

Timestamps for Important Segments

• Why write about inflation? — 01:45–03:58
• Defining inflation/deflation — 03:58–05:50
• Measurement & distributional issues — 07:37–10:21
• Core inflation’s relevance — 10:25–11:17
• Rethinking the 1970s “monetary” view — 11:25–15:21
• Fiscal vs. monetary policy — 15:21–16:39
• Housing & inflation metrics — 16:39–20:27
• Interest rates as a blunt tool — 21:40–26:15
• How inflation quietly benefits governments — 26:15–28:42
• Price controls & subsidies pros/cons — 31:21–36:46
• Windfall taxes — why and when? — 36:46–45:38
• Too much money argument & Latin America — 46:15–51:13
• Deficits & recession-hunting — 53:10–55:57
• Dollar system, alternatives, geopolitics — 55:57–58:11
• Micro vs. macro vision of crises — 60:28–64:20
• Cycles of inflation, capitalism and asset returns — 64:20–73:56
• Demography, technology, and inflation’s future — 74:04–78:15
• Oil & energy’s role in future inflation — 78:15–81:20

Conclusion & Closing Reflections

The episode encourages listeners to move beyond one-factor explanations of inflation. Instead, inflation remains a “multi-factor model,” shaped by demographics, geopolitics, policy choices, and shocks to real resources and supply. Crucially, every policy response—and every inflation episode—creates new winners and losers. Understanding those distributional dynamics is a key to investing, policy-making, and simply surviving the next cycle.

“Simple rules in my opinion are simply stupid. I think we should focus our time understanding who the winners and losers are.”
—Cole Smead [81:36]

For further reading, check out Mark Blyth and Nicolò Fraccaroli’s book, “Inflation: A Guide for Users and Losers.”