Kyla Scanlon is an economic commentator and educator. Her new book is In This Economy? How Money & Markets Really Work.
Motley Fool host Mary Long caught up with Scanlon for a conversation about:
- The challenges of measuring economic data.
- What's driving inflation.
- How Domino's turned around its business.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on June 2, 2024.
Kyla Scanlon: You know, there's even research papers that are saying, we don't need to have a recession. If we spend money the right way in a productive capacity, if the Federal Reserve comes in with their tool kit, it should be OK. But we're dealing with the consequences of that now, too, where the Fed's tool kit might not be the right tool kit to fight some of the inflation that we're experiencing. Raising rates in order to battle inflation when a lot of inflation is caused by shelter costs is not maybe the best path.
Mary Long: I'm Mary Long and that's Kyla Scanlon, an economic commentator, educator, and the author of the new book In This Economy? How Money & Markets Really Work. I caught up with Kyla in our Denver Studio for a conversation about the disconnect between how people feel about the economy and real economic data. Why inflation right now is funky and how Bluey and Peppa Pig are disrupting the nostalgia cycle. You start your journey in this world, learning about individual companies in the stock market. Now you comment most often on the macro, so how did you go from focusing on the micro to the macro and what is it that now you find so compelling about that larger, broader picture?
Kyla Scanlon: I started the financial content creator, "Journey" when GameStop happened. Even back then, I was more focused on companies, I would write various pieces. I remember I wrote this big piece on Roblox and then the Federal Reserve started getting more attention because inflation was getting out of control and I realized that there was maybe a gap in knowledge between what the Federal Reserve was doing and what people understood them to be doing. I started making videos about monetary policy. I just really found it so fascinating. I get called a Fed simp sometimes [laughs], but I think that the way that money works and how it moves through out the world, it's almost a beautiful thing, if it didn't have such a big impact on our lives, it would be beautiful. That's how I switched over to macros. I felt like it was important for people to understand.
Mary Long: I think the focus of so much of your work is on people. I think we typically think of economics as being a very math heavy statistics focused field. Honestly, this might sound trite, but before I started reading your book, I think I often waved it away when I heard the economy is people. There's something about understanding, yes incentives, but understanding, no, there's this specific person and how they think about the world, that impacts how X, Y, and Z moves. You do a really great job of illuminating that connection in the book and making that really clear. You kick the book off with an analogy of sorts and I'll let you describe it. Why do you think of the economy like a kingdom?
Kyla Scanlon: Do you remember those rugs that you would play on when you were little, the city rugs, with those street roads, and you would draw your finger, do you know what I'm talking about?
Mary Long: I don't but you wrote about that [laughs].
Kyla Scanlon: My analogy doesn't apply here. It's like this rug that is just a city scape. That's how I think about the economy, is an interconnectivity. I think part of the reason that people feel overwhelmed by the economy is it's hard to see all the moving pieces, especially hard to imagine them all together. The economic kingdom is meant to demonstrate that interconnectivity, so showing how fiscal policy and monetary policy relate to inflation, relate to the US dollar, commodities, etc, and it's just meant to be a visualization of the economy at large. Of course, it should be massive. It's way bigger than just the book page, but I had to condense it down the best that I could, but that was just meant to be a way to understand how all the moving parts click together.
Mary Long: I'll just add here that the book is also illustrated. You will get an illustration of what this economic kingdom looks like in the actual book. You're known for talking a lot about vibes. We're recording this May 23. What are the vibes? [laughs]
Kyla Scanlon: I know, the vibe session is back in the discourse, again. We had a pretty brutal sentiment reading. Then there was a Harris Guardian poll that was released earlier this week that showed, 55% of Americans think that we're in a recession, 49% of Americans think the stock market is down on the year, 49% of Americans think that unemployment is at a 50 year high. It's almost heartbreaking, reading the statistics. It is heartbreaking because we're not in a recession, the stock market is up 12% on the year, unemployment is at a 50 year low, but all these people feel this way. There's a couple of reasons, number 1, is structural affordability. We have a housing crisis. Childcare is exorbitantly expensive, so people aren't having kids. It's up 32% since 2019. Elder care is $10,000 a month. We don't have a social safety net. There's real reasons why people feel bad. But I think what the statistics showed and I've been thinking through this all of today, so you're getting the fresh thoughts.
Mary Long: We love fresh thoughts, lay it on us.
Kyla Scanlon: It's almost a media literacy crisis, I think with the economic data and how people are interpreting it, because there's an objectivity to the S&P being up, you can't argue that. Almost 50% of Americans think it's down. I think, number 1, to make it so clear, there's reasons why people feel bad, obviously, but there's something deeper going on where it's a media literacy crisis, whether that be from people's inability to interpret the information accurately or the media sources that they're getting it from, not allowing them to interpret it accurately. There's some issues.
Mary Long: This poll really stuck out to me. It's funny that you mentioned it, because I've got it written on my notes as well. I think you're right, that part of this is a media literacy issue. I feel part of it is also anecdotal. Anecdotes and what people see in their life versus what they see in headlines, sometimes. As we were saying earlier, I think it can be really hard for a lot of people to understand what these big macroeconomic metrics mean. We'll get into some of the metrics because your book does a great job of outlining them and how they're built, so we can get into what they are, how we land on certain numbers and what they actually mean. But I think when someone sees a percentage come out each month that's supposed to indicate what inflation means, that feels really different and maybe not representative of the prices that a person sees when their grocery bill just goes up. I agree with everything that you said about that being the problem, but I also think there's a disconnect between the metrics that we use to gauge economic health, not capturing the anecdotal experience of people. I don't know what we do about that, or how we capture that, but so much of your work talks about, again, the economy as people. Do misaligned vibes mean that we ought to rethink how we gauge the health of the economy? What metrics would you pull from instead?
Kyla Scanlon: I think that, to your point about anecdotes, this is where it gets fuzzy because 70% of people feel great about their personal economic situation, but only 30% feel OK about the national level. There's all of these points of discrepancy. People's behavior, they're out there spending and of course, going back to your point, they might be spending and not feeling great about it or not feeling that upward mobility is on the decline in the United States. I think there's an element of truth to the anecdotal stuff, of course, people are going to respond to a survey and be, "I don't really know what's happening", so there's truth to that. I talk about this in the book specifically, I rag on GDP in the book quite a bit because I don't think it does a good job capturing how people should feel about the economy, because it's a measurement that does capture consumer spending and it does capture government spending and does capture imports and exports and how businesses are spending, but I don't think it does a good job at measuring consumer happiness. This is something I've been rolling around with for a while, because a lot of people ask me, will people ever feel happy about the economy? I don't know [laughs]. But I do think there needs to be measurements out there. Even if you look at the labor market metrics, JOLTS, the Job Openings and Labor Turnover Survey, I talked about that in the book, too, 30% response rate and we're using that to gauge the success of the labor market. Of course, we look at other metrics too and that the economic tapestry is a bunch of different metrics telling us a bunch of different stories and that converges to a mean, but I would say that the metrics are not doing a great job. In terms of how we should measure it, I don't know if surveys are the best option. I think that data and data interpretation is a little bit fuzzy. I think there is going to be ways to capture, because information moves so fast, we should be able to capture data a little bit better than we are now, but it's easy to sit here on a podcast and say we should be doing a better job and not be contributing to that, so I'm not sure.
Mary Long: Another disconnect is that not that long ago, many economists were predicting with 100% certainty of recession.
Kyla Scanlon: I remember that headline.
Mary Long: We've avoided that, which maybe depending on who you ask or what you look at, that could speak to the Federal Reserve doing a good job of navigating this soft landing and actually making that happen. But recessions are also a natural part of an economic cycle, so if we avoided one when it was supposed to come, and now we're at a point where the stock market's at all time highs, it seems there's a lot of misalignment going on. Is this a bad thing? Does the avoiding of this recession that was predicted not so long ago, only delay one further down the road and make the repercussions of that worse and they might have been, had we just dealt with it in the first place?
Kyla Scanlon: I don't think so. I think that those headlines were misplaced. They were stating things that weren't necessarily true. I think, if anything, this is the resiliency of the American consumer. But to your point of can it be OK for a while, you're starting to see credit card delinquency rates tick up, which means that people were spending and maybe not having the income to spend or the savings spend, savings are dwindling. I don't know if it's going to be worse down the road. I don't know if it's just, we circumnavigated it now and now we're going to have to deal with consequences of that. Well, they do come every 7-8 years, but we had a mini one in COVID, so I'm not sure. There's even research papers that are saying, we don't need to have a recession. If we spend money the right way in a productive capacity, if the Federal Reserve comes in with their tool kit, it should be OK, but we're dealing with the consequences of that now too, where the Fed's tool kit might not be the right tool kit to fight some of the inflation that we're experiencing. Raising rates in order to battle inflation, when a lot of inflation is caused by shelter cost is not maybe the best path because higher rates makes it more expensive to build homes, which is what we need to fight shelter inflation. Then you're seeing government spending which saved us from the recession. Fiscal spending is what got us away from the recession that we could have experienced, that those headlines were predicting and now interest servicing costs are sky high because the Fed has been raising rates soon to surpass defense spending, which is not great. I think that there are real world constraints to what we can do to avoid a recession. I would love to never have a recession again. I think that would be great. But I do think they are a natural part of what we deal with.
Mary Long: One of the things again, that your book does really well is focusing on these different metrics and numbers that we use to gauge the health of the economy and actually explain what they mean, where those numbers come from. We'll focus on inflation for now because it's the name of the game and what everybody's talking about. You talk about how inflation is calculated by looking at a basket of goods. There was recently a misconception that came out, not with your work, but with someone on Twitter pointing out the coffee was removed from this basket, so do you maybe want to give us an overview of how exactly this basket of goods is determined and what falls into that basket and what doesn't?
Kyla Scanlon: That coffee thing was funny. That goes back to the media stuff, too, what people say matters, and screaming on Twitter, that coffee's being removed from the CPI, and then having the Bureau of Labor Statistics who calculates CPI step in and be, that's not true. That was a big deal [laughs] in a very small section of the universe [laughs]. Consumer price index, CPI and personal consumption expenditures, PCE. The Fed looks at PCE in order to gauge inflation, but CPI is the commonplace metric that a lot of people use. It's a market basket of goods and so you track the changes in the prices of the market basket of goods, all sorts of things go into it, so shelter being owners' equivalent rent, as well as rent costs to owners' equivalent is a survey of homeowners, asking them how much they would pay to rent out their house. Rental costs are more measured from the market. Energy costs go into it, food costs, a bunch of other things as well. They have a whole list on the website. What's been driving it recently is auto insurance, shelter cost and energy cost. Auto insurance has been just sky high, I think it went up 20% over a certain time period, which is concerning. Part of that is because Americans aren't great drivers, and we keep hitting each other and then part of that is higher rates as well. Then shelter costs, not enough homes. Home prices just being exorbitantly high. Also the weird way that we measure it through owners' equivalent rent, which is probably outside of the scope of this podcast, but really interesting, if anybody's interested. Then energy costs, too, because we're switching to sweet summer crude blend for oil and a lot of refineries are under maintenance, and so energy costs are higher because of that, as well. It's this storm that's impacting inflation right now, but a lot of inflation was driven by a lot of pressure in core shelter ex-services part of CPI, which is what the Federal Reserve was looking at as well. Inflation is just funky and it is complicated to look at.
Mary Long: I want to transition from this more macro picture to talking about some more specific companies and business trends that we're seeing on the same topic of pricing and how our perception of that has changed recently. My colleague Ricky Mulvey recently pointed out that a burger and regular fries at Five Guys is the same price as an eight ounce sirloin with two sides at a Texas Roadhouse. I feel we're at this weird moment in the food and inflation story, where we're seeing fast food prices rise and become the same price as fast casual. We used to scoff at the idea of spending $17 on a salad and now, you could buy a meal at McDonald's for not much less and that just seems misaligned. I don't know that that's misaligned vibes, but misaligned prices, that I wonder if you had any take on that.
Kyla Scanlon: McDonald's made some massive mistakes. It's really interesting to watch them walk that back. They raised prices and consumers were, what are you doing? Now they're walking that back, as well as Wendy's, they're offering this $5 meal because [laughs] they misunderstood their consumer. There's even a chart that shows how expensive McDonald's has gotten relative to a lot of other fast food chains. I think that's a big part of it and also, Americans love eating out. The amount of money that we spend on eating out relative to groceries, we spend a lot more. We love restaurants. It's funny, I'm working on this story, I think, as literally everybody else in the world, is the Red Lobster story. I've been working on that a little bit. Red Lobster was the first, essentially, fast casual restaurant. The reason that they were so popular in 1968 is because they were the first sit down place that had seafood in Middle America, which is like a huge red flag. I think that's a big part of people's frustration is that food is expensive. Domino's and others have navigated it through loyalty programs and Costco too. But I feel it; going to a restaurant or even my grocery bill, it's brutal. It's the same thing with gas prices. You have a neon sign on every street corner telling you how expensive it is to be alive. It's not just vibes, it's actual reality. Food has gotten really expensive, I think the exact number is around 20% since 2020 or maybe it's 24% between 20-24%, increase in the price of food since 2020.
Mary Long: I want to talk about Domino's because you teased that out and I've heard you talk about this before. In 2009, they were ranked to last in terms of customer taste preferences, they were tied with Chuck E. Cheese, I believe. By 2019, that had radically changed and they were the top pizza company in the country. How did that happen?
Kyla Scanlon: I'm actually not allowed to talk about Domino's in my friend group anymore.
Mary Long: I'm sorry, anymore? You can take that off, but if it's a friend thing.
Kyla Scanlon: It's a friend thing. I get a slap on the wrist if I talk about Domino's because I was so obsessed with them for a few weeks, but Domino's is really fascinating. It's like a corporate turnaround story. They started in the 1960s as well and their founder was this guy who was just obsessed with pizza and had questionable tendencies later in life. But just obsessed with pizza, but it got to the point where they became very much less obsessed with pizza, the pizza was basically cardboard. In 2008-ish, the CEO was like we got to fix this, everybody hates our pizza, this sucks, and they got that ranking and so they turned things around in 2010. They added more garlic to the crust, they added provolone and mozzarella to the cheese and it just made a whole new pizza based on consumer taste preferences, and like ask people what they wanted in pizza. They did this whole ad campaign where they apologized. They said, we're really sorry that we sucked so bad, please try again with us and people did. That was a really cool story because you don't really see corporations apologize a lot for bad behavior, but they did.
Mary Long: I love that bad behavior in this case is making a bad pizza [laughs].
Kyla Scanlon: People will still eat it and they'd be, I hate my life. It's funny, there's another stat around Domino's where, if people thought it was Domino's, even if it wasn't, they would rank it last. Even if it was Papa John's, if they were told was Domino's, they'd rank it last. Which says maybe something about the survey metrics that we were talking about earlier is, how influence can happen. But Domino's is a fascinating company. Some people say Domino's is an e-commerce company that sells pizza and I think there's an element of truth to that too, because the founder, he invented, the corrugated, I think is how you say, corrugated pizza box. He was a guy who used a dough grinder to grind up cheese and meat because it would take 9 minutes off making a pizza. He just was always innovating. Even now, they have really focused on technology. They created a car to deliver the pizzas in that has a 400-something-degree oven inside of it so they're impressive.
Mary Long: You talk a bit in your book about the nostalgia cycle and again, in other writings that you've had in how Hollywood and so many media outlets are leaning into never-ending IP loops rather than creating original content. I think that we're right now, we're seeing that that IP loop leaning on that is not as foolproof a formula as some media executives might have thought. Originality might be what sells. I've heard you talk about Bluey and Peppa Pig and the economics of kids and family TV shows. Why are Bluey and Peppa Pig thriving right now?
Kyla Scanlon: I'm also not allowed to talk about [laughs]. They're, this is getting weird. But Bluey is fascinating. The creator, Joe Brumm, he was never intending to create a TV show. Then in 2015, he put together this small pilot meant to be the Australian version of Peppa Pig. It was just a dad hanging out with his daughters. That's what the whole show is about is, it's meant to show all of these components of life, sharing and playing, but then also, they talk about infertility and having adult friends and the meaning of life. I think it really is for both parents and kids. That's very special in a world of CoComelons, which are more data-driven. CoComelon is owned by a media conglomerate, which is backed by Blackstone, so exposure to private equity versus Bluey is owned by BBC Studios, as well as the Australian Broadcasting Corporation. I think the way that I talk about Bluey is very similar to how I talk about Calvin and Hobbes, that comic from Bill Watterson is just a very authentic comic versus maybe a CoComelon, which doesn't have the same level of authenticity.
Kyla Scanlon: I wonder if this is, I'm smiling to myself as I say this because I almost hate to turn this into a conversation about AI. But I wonder if exactly what you just hit on, the originality and the authenticity of Bluey is something that we as creative people can cling to in a world where you're seeing so many people lean on this focus on AI and wait, we can just look back to content that's already been written to build something that's similar to that. It's heartening to see examples of authentic original content, like winning, yes, the hearts of people, but also being monetary successes as well.
Kyla Scanlon: Bluey's a Behemoth. It's worth about $2 billion, as Bloomberg Business Week reported, Peppa the Pig sold. Peppa the Pig is funny because they were bought up by this company called eOne, Entertainment One, which was then sold to Hasbro for about $4 billion in 2019. Then Hasbro just sold off eOne from themselves. They sold eOne for 500 million, but they kept Peppa, meaning that Peppa is probably worth north of $3.5 billion which is where Bluey is headed.
Mary Long: Awesome. Well, Kyla, thanks so much for the long winded, many topiced discussion. It's been honestly, such a real treat to talk with you. I've been reading your stuff for really long time. Really great to see that you've put so much of your work into a book, so excited for you and wishing you the best of luck with this and whatever comes next. Thanks for being here today.
Kyla Scanlon: Thanks for having me.
Mary Long: As always, people on the program may have interest in the stocks they talk about. The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow.
