The Pot Roast Principle and Inflation
“The price of anything is the amount of life you exchange for it.”– Henry David Thoreau
The tale goes like this. A new bride is preparing a pot roast for dinner. She carefully crops a few inches from each end before putting the roast in the pan to brown. Her husband asks why she is trimming away so much. “It’s grandma’s famous recipe,” she replies. “I don’t really know why.”
So she calls her mom to ask. “Well, that was what mom always did,” says her mom. Finally, they get Grandma on the phone. Grandma explains, “My casserole pan was too small.”
Versions of this story go back at least thirty years. The moral is always to explore the status quo and not do things by rote. Call it the “pot roast principle” but rules and standards are not always as well-thought-out as they seem. This came to mind when I learned the origin story of how 2% became the inflation target for economies around the globe.
Inflation topped 17% in New Zealand in the ’80s. By 1990, inflation lingered above 7%. After reaching out to countries around the world, the New Zealand authorities realized that no one really had a formula for battling inflation. So they asked an interesting question, what if they just proposed a target of 2% and corralled everyone toward it?
Reuters recently reported on that critical moment: “It was a bit of a shock to everyone, I think,” said Roger Douglas, the Labour Party finance minister at the time. He worked with the Treasury and Reserve Bank of New Zealand (RBNZ) to pioneer the policy. “I just announced it was gonna be two percent, and it sort of stuck.”
They even came up with a helpful jingle, “Zero to 2 by ’92!” to rally the public. Spoiler alert—it worked. Since then economies around the world have adopted “Grandma Kiwi’s” recipe for inflation control.
So in your role as the economist of choice for your clients, when someone asks, “Why two percent?,” you can let them know that it’s pretty arbitrary. And just because 2% works, we may yet find a better target if we stay curious.
In the past two decades, we’ve interviewed thousands of top real estate professionals. One trait successful agents share is a healthy skepticism of the status quo. Just because everyone is doing something, doesn’t make it true. Investigate. Be curious. Experiment.
When our team expanded to St. Louis, our agent Rosalyn was told that no one hosted open houses on Sundays. Knowing that open houses on Sundays had worked well for her Austin market, Rosalyn ignored this unwritten rule and decided to host opens on Sundays anyway. Sellers noticed. They weren’t in on the no-Sundays policy, so Rosalyn stood out as someone willing to go the extra mile.
One question to ponder in your thinking time: What aspect of the business have I assumed to be true that just isn’t so?
Make an Impact!