ZOE CHACE, BYLINE: Hey, PLANET MONEY listeners, NPR has a new show coming out January 9. It is called Invisibilia. It is hosted by the very excellent Alix Spiegel from This American Life and NPR's Science Desk and Lulu Miller from Radio Lab. And it is so good. It is a show, basically, about invisible forces that control human behavior, and you can subscribe to it wherever you subscribe to your podcasts. And it will also be on the radio starting January 9.
CAITLIN KENNEY, HOST:
Hello, and welcome to PLANET MONEY. I'm Caitlin Kenney. Today on the show, a man who knows way too much about women's clothing and why that knowledge could help determine the future of the U.S. economy. The show we have for you today is a show we did a couple years ago. I hosted it with Adam Davidson. But it's a favorite of ours here at PLANET MONEY because it shows us how this big number that the whole economy relies on - it shows us exactly how we come up with it. So I'm going to let Adam start the show.
ADAM DAVIDSON, HOST:
We, like every news outlet, you know, at NPR we report every month on the CPI - the consumer price index. And that is a really important number. It comes out every month, and it tells you if prices overall in the U.S. have gone up or gone down. Are we facing inflation? Are we facing deflation? And that number, the CPI, determines so much economic activity. Social Security is tied to CPI. School lunches and food stamps, a lot of union salaries, a lot of bonds and stocks are affected dramatically by CPI. It tells you how much you can buy with your salary.
So this number sort of appears as if it's just a fact, but we wanted to know, where does this number come from? Actually, Caitlin, you had the idea. I want to figure out, how do they know if prices have gone up or gone down? How does the Bureau of Labor Statistics figure it out?
KENNEY: Yeah. It's something, like you said, we've talked about so much, and so I just sort of wanted to get inside it. And it turns out there's a lot of pounding the pavement. The prices are collected by 450 people around the country. They're called economic assistants. And it's their job to physically walk into the stores and offices and write down, OK, orange juice is $3.99 this month, last month it was $3.98. Or maybe they'll go to a dentist's office and find out that a white filling for your tooth is $200 this month, which is the same price it was last month.
Part of their job seems straightforward, but I still had a lot of questions about it. Like, how do they choose the products that they price or the stores that they visit? So I wanted to go out and follow one of these guys.
DAVIDSON: So, Caitlin, you brought this up in a PLANET MONEY story meeting a few months ago, and I feel like every few weeks since then, I've heard you on the phone talking to the Bureau of Labor Statistics trying to negotiate this. It sounded really hard to get to follow one of these guys around.
KENNEY: Yeah. It was surprisingly intense. They had me sign this nondisclosure affidavit, and there were a whole list of things that I promised I wouldn't reveal, including the names of the stores, the names of the store owners, the brand names of the products and even the color of the store employees' uniforms.
So all they told me was, OK, go to this subway stop - which, Adam, I can't tell you the name of. But it's off the F train in Brooklyn, New York. And they gave me a cell phone number for a guy named George Minichiello. So I called George, and he has a hard time hearing me at first. But then I looked down the block, and he's there. And here's what you should know about George, and it makes me a little nervous, but I have been authorized to disclose his name and describe him for you. George is a really unassuming guy. He doesn't drive a fancy government car or wear a BLS jacket, and he was really sweet. He kept asking me if I was having a good time. One of the first things he did when I got in the car with him was he reminded me to put on my seatbelt.
GEORGE MINICHIELLO: You need a seatbelt.
KENNEY: Oh, yes, I do.
He's pretty methodical, and he takes his job very seriously.
Where are we headed right now?
MINICHIELLO: We're headed to a store in this area. This is the - sort of the end of Park Slope. We're going to a grocery store.
KENNEY: And is this your regular territory, or are you in different neighborhoods all the time?
MINICHIELLO: This is one of my regular stops, yes.
KENNEY: So how often have you been to this grocery store we're about to go to?
MINICHIELLO: I've been here once a month for probably the last three years.
KENNEY: And I know there's a few ground rules, that there's certain things we can't reveal. So can I say the name of the store?
MINICHIELLO: No. The owners of the stores are given a confidentiality pledge, so their names are not revealed or their store names are not revealed.
KENNEY: So what can you tell me about where we're going right now?
MINICHIELLO: Well, you're going to see for yourself. I'm not going to give you the name of the store, but I can tell you we'll be pricing some grocery items in this outlet - produce, lettuce.
KENNEY: And you have a specific list?
DAVIDSON: God, you can hear him, like, wrestling with - can I tell her it's lettuce? And I have to say it makes total sense to me that they are so secretive about this. I mean, just imagine what you could do if you could learn the CPI number a few weeks before everybody else does. I mean, you could - I think you could get rich off of it.
I mean, if you find out a few weeks early that CPI is going to go up dramatically, then you know pretty certainly that gold prices are going to go up dramatically. All sorts of bond prices are likely to fall. So you could hoard gold or short bonds or do something. I bet you could make a ton of money. And so, if some hedge fund or whatever could figure out where all the Georges in the world are and figure out what stores they go to and what stuff they buy, they could really start messing with the markets.
KENNEY: Yeah. If you could follow all the Georges and the 85,000 prices they collect a month, you could. But I was just following this one George, and we only went to four places. So we're standing in the store, and George is holding his computer. It's in this big, black, bulky, leather case and it sort of looks a little old-school to me. But George says, oh, no, this is way better than it used to be. I used to have these reams of paper that I had to walk around with and check things off. And then when I was done, I had to FedEx them to Washington. Now he can just transmit them overnight. So we're standing there looking at his computer, and it's telling him he needs to find a price for a very specific type of lettuce.
MINICHIELLO: A bag of romaine hearts of lettuce, which is usually over here. Now we're going to get the price. Hi, could you scan that for me? I just want to know the price.
UNIDENTIFIED MAN #1: Two-ninety-nine.
MINICHIELLO: Two-ninety-nine. Thank you. So $2.99 is the same price. Oh, wait. We have a change here. It's the same price. However, the weight is different. So, effectively, that's a price decrease for these packaged romaine heads.
KENNEY: So we're seeing deflation right here.
MINICHIELLO: We're seeing a reduction in the price, yes.
DAVIDSON: Wow. So you went out one day, and you found 27 percent price drop - massive deflation.
KENNEY: I was excited like you were, Adam, and then George was like, listen, you kind of have to chill. Food is really different. George prices food all the time, and he says he sees lots of fluctuations in the price, especially with produce because the sizes and the weights are changing based on the weather and the seasons.
DAVIDSON: Yeah. I mean, what economic journalists and economists do is they actually divide CPI into two different CPIs. There's something they call headline CPI, and that's everything - all the stuff that George and the other Georges price. And then there's something called core CPI, and basically all they do is they cut out food and the price of oil and things that fluctuate wildly so that you can get a more stable, less volatile number. I think, like, the Fed generally follows core CPI.
KENNEY: And speaking of core CPI, I'm glad you brought this up, Adam, because the next item we're pricing happens to be a core item, - clothing. George and I headed to what he refers to as the next outlet. To you and I, and outlet could be a grocery store, a corner bodega, or even a auto repair shop. In this case, the next outlet we were headed for is a discount clothing store in Bensonhurst, Brooklyn.
MINICHIELLO: So we're going to an outlet now that sells clothing. And we're going to price shirts in this outlet. And that guy got my spot (laughter).
KENNEY: How does pricing clothing compare to grocery stores?
MINICHIELLO: Well, for me, one of the harder items to price is ladies' dresses - ladies' clothing because I've learned how to describe ladies' dresses. You know, handkerchief hem, or I've learned what ruffles are and ribbons and lace and stitching, things that I never really cared about or paid attention to before. So...
KENNEY: So have you ever shocked your female friends or relatives by saying, oh, that's a very nice A-line dress you're wearing with a ruffled hem?
MINICHIELLO: Yes. Yes, I have (laughter). People - I probably know too much about ladies' clothing (laughter).
KENNEY: So George has to know all of these specific details, things he never cared about, like hems and ruffles, because that's what the computer is telling him to price. And the computer knows what to price because the computer knows what Americans, you and I, are buying.
DAVIDSON: Right. Remember that the whole idea of George's job, of that computer, the whole idea of the CPI is to figure out what are Americans paying for the stuff they are buying. So first thing you need to figure out is, well, what are people buying? And that changes all the time. I mean, think about all the stuff you buy - iPods and computers and fax machines - things that didn't exist 10 or 20 or 30 years ago.
So the Bureau of Labor Statistics is constantly serving thousands and thousands of American families to figure out what the average American is spending their money on. And they come up with a really long list, everything from chips to refrigerators to chewing gum to whatever. You might have heard of that list. It's called the market basket, and that's supposed to represent the typical purchases of a typical U.S. household.
KENNEY: And then they divide all those items among the Georges, all the 450 economic assistants, and the computer tells George - today you have to price romaine hearts and a collared shirt for a grade-school boy.
MINICHIELLO: This is size 14. So it's within the size range for boys' shirts that I'm looking for. And I'm looking at the content here - the fabric content. And this shirt is 97 percent cotton and 3 percent...
KENNEY: As George was shuffling through the merchandise in the store, I just kept thinking, I mean, there's got to be a better way to do this. Like, George and I had already driven all around Brooklyn that day. Couldn't he just call the stores or check the prices on the Internet? I asked the people at the BLS about that, and they said, yeah, we could just call the store, but the store owners are busy, and they don't have time to find you a size 14 shirt with a specific fabric make-up. You actually need to go and look at it to make sure it meets all the specifications. So that's why George and I are here just to price this one item.
MINICHIELLO: And the price for the shirt is $25 today. It's the same price as it was last month when I was here.
KENNEY: The people in the store may not notice George and I. They're busy with their own shopping. But the store owners all recognize him. They come over and say hello, give him a smile and a handshake. In fact, in this store, the owner came over to see if we needed any help.
UNIDENTIFIED MAN #2: The shirt that you picked up is a stock item...
KENNEY: Now, Adam, you remember the rules. I can't tell you the store owner's name. But I did get a chance to talk to him. And I asked him what he knew about George's work.
UNIDENTIFIED MAN #2: I look at it and say, OK, you're pricing a shirt in my establishment. Yeah, that is kind of - I guess you're in awe a little bit. You can't believe that you have an effect.
KENNEY: Yeah. I mean, you are a part of, you know, what they're going to decide to do about this economy.
UNIDENTIFIED MAN #2: A very small part.
DAVIDSON: That's what I love about this story. We spend a lot of time here at PLANET MONEY thinking about big, macroeconomic theory. And whether you're a libertarian Chicago schooler or a liberal Keynesian or something else, central to modern macroeconomics - one of the central things it deals with is this issue, this number, this CPI number. How do you keep prices stable in an extremely dynamic market? In fact, the whole reason there is a Federal Reserve or any central bank at all is exactly that - to keep the CPI relatively stable. And all this theoretical stuff, this stuff that people have won Nobel Prizes for, that intellectual battles have been waged for decades over, it all comes down to a guy named George driving around Bensonhurst, Brooklyn to figure how much a boy's shirt costs.
KENNEY: That's right. The numbers that we have talked about today for the lettuce and the boy's shirt and the other things that George and I priced that day - fish sticks and canned sardines - they're all going to be part of the next CPI release, which comes out next month. And a lot of people are watching and waiting to see what's going to happen.
DAVIDSON: Yeah. CPI is more important than normal because it's a big, big question mark.
(SOUNDBITE OF SONG, "LOST IN THE SUPERMARKET")
STRUMMER: (Singing) I'm all lost in the supermarket. I can no longer shop happily. I came in here for a special offer - a guaranteed personality.
KENNEY: As always, we want to hear thoughts about today's show or past shows we've done, or things you want us to do in the future. You can write to us on our Facebook page, facebook.com/planetmoney.
DAVIDSON: Or by visiting our blog, npr.org/money. Or write us emails - firstname.lastname@example.org. I'm Adam Davidson.
KENNEY: And I'm Caitlin Kenney. Thanks for listening.
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