I recommend people use many different indicators to get a mental model of inflation, and you will notice that CPI does not represent inflation well.
The memes of Arby’s 5 for $5 becoming 4 for $10 are more informative than the CPI numbers. Don’t let the shock at the grocery store wear off – it’s real and painful despite what the news tells you.
True inflation would measure the amount of prosperity achieved per hour worked.
Take 1963 as an Example. Sears sold entire two story home kits with all materials for $1600. An Italian rifle in 1963 was $20. McDonalds burgers were 15¢ . Postage was 5¢ and had only increased 5 times in the previous 100 years.
You might retort that average household income is $70000 now vs $6200 in the early 60s– a tremendous boon. Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home.
In other words you had 1 man working 50 hours a week afford a house and support 5-6 other people. Today you have 2 people working 100 hours a week to support 1-2 additional people , while living in an apartment and living in a run down and crime infested neighborhood.
In case you think this is academic, look at the occupations for those who lived in today’s wealthiest neighborhoods. Today Palo Alto, Menlo Park, and other super zips are exclusively $500k incomes and up. In the 1960 census records you will find these good neighborhoods occupied with plumbers, painters and other blue collar workers.
My point is that inflation isn’t abstract and it isn’t a law of nature. It’s a deliberate approach to stealing your prosperity while you cheer it on.
Summers is right more than he’s wrong. Real inflation has always been higher than the bogus CPI numbers, and the past 5 years it’s been accelerating.
> Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home.
This is a ridiculous exaggeration: the average US household was 3.7 people in the 1960s, not over 6[1].
There are good reasons to hold politicians to task for recent abnormally high inflation. But this comment is more of an atavistic fever dream of the past than an expression of those reasons.
That's missing forest for the trees. The more important part is that average 3.7 people household was a single-income one.
I would rather disagree with GP's:
> My point is that inflation isn’t abstract and it isn’t a law of nature. It’s a deliberate approach to stealing your prosperity while you cheer it on.
A lot of the inflation, including how suddenly a single-income household isn't a viable option for most people in the West, is market working as intended - quickly consuming any surplus money, should it suddenly become greater than 0 on average, and slowly eating into any value that isn't bare-minimum strictly necessary to move a product.
> That's missing forest for the trees. The more important part is that average 3.7 people household was a single-income one.
That's not necessarily true. Per FRED (https://fred.stlouisfed.org/series/LRAC25FEUSM156S), in 1963 about 44% of women aged 25-55 were in the workforce. That's obviously much lower than the ≈96% rate for men, but it implies that the average couple had closer to 1.4 incomes. The comparable rate based on today's labour force participation rates would be about 1.66 incomes.
The single-income family may have been the norm, but it was far from a rule. I think that our popular perception of life in the 60s has been filtered through media portrayals, which all tend to reinforce ideals as commonplace norms.
I think people are asking the wrong questions when it comes to inflation. It's not which president is at fault... It's who is profiting from it? It's not the minimum wage worker. It's not the standard office worker.
What class has shown absolutely insane growth in wealth and income in the face of what looks like crippling inflation?
Your standard office worker probably refinanced their mortgage at ~3% and is now laughing their way to the bank as their debt inflates away so they probably are profiting from it. I know I am.
Your standard retiree on the other hand who holds a lot of bonds that got absolutely hammered by inflation and rising interest rates is not doing so well.
The only party "profiting" from inflation is the government which controls the money supply. If you keep the money supply constant, no one profits from inflation; inflation merely reflects supply and demand of the constant money supply vs all other goods and services on the market. Inflation does not reflect capital that is accumulated and taken off the market.
When I worked a lot with government this used to be a big problem. Some minor tangential point in a finding would be slighty off or not adequately supported and people would jump on that, ignore the rest and pretend it invalidated the whole argument. It's mainly something that comes up talking to insecure bureaucrats that don't want to change.
However, when a person is making a post saying "don't trust those dodgy manipulated numbers" and offering alternative numbers, their post is a lot less convincing if their numbers are also dodgy
I didn’t get they said the numbers were dodgy or manipulated. Don’t make the typical straw man when discussing inflation that people challenging the current formula for CPI are challenging the underlying data and so are conspiracists. The point is the relevance of the indicator. In fact the very article is about a different value if we take an older formula.
A number can be dodgy and manipulated without being outright fraudulent. And in politics it's rare someone will outright lie - I'm sure you've heard the term "lies, damn lies and statistics".
For example, during the pandemic the UK government set itself a target for covid testing, then proudly announced that they'd hit their target - but it turned out they were not counting the number of tests processed in labs but instead the number of test kits sent out by mail regardless of whether they were received, returned, or processed - allowing them to declare success before increasing lab capacity. It's not outright fraudulent, but it's questionable and errs in a politically convenient direction - that's a dodgy number.
And as I understand it, the claim in this discussion is that the government changed the definition of inflation, in a way that made the number lower? And that it now doesn't accurately reflect what it purports to reflect?
It's not the market that's eating the "surplus". Economic inequality is at an all time high. Big corporations are posting record-busting profits. Inflation is driven by greedflation, mostly.
Did you think I was claiming the corporations themselves were hoarding the wealth? Did it not occur to you that I was referring to the corporations as the tools of the shareholders? Do I really have to be that explicit and include misquotation alerts for every possible idiot?
The average household also includes empty nesters and people who have moved out yet haven't started a family yet. The average number of children per family in the 60s was 2.3, which means quite a few families had 3 or 4 children.
Far more divorced now too, so more demand on housing, and more people want to live in cities than in the 1960s, leading to even more demand.
It all comes down to the cost of housing, at least in the UK where housing has been ridiculous for over 20 years. That housing is driven up to soak all available income by artificially constrained supply.
All available income has increased on a household basis because of egalitarian reasons -- more women work now, which means that more women have to work now. The excess income is lost to housing costs.
We’ve replaced a world in which women are forced to stay at home with a world where women are forced to work until 70 (or whatever the retirement age is in your country). Great if you’re an exec or have some mentally stimulating job, but for the typical woman it means stacking shelves until your back gives out. What an achievement for society.
There is more at play than simply equal rights. Housing supply hasn't risen to keep up with demand. Education and healthcare costs too have grown significantly compared to pregnant-and-barefoot-in-the-kitchen eras.
Not my rant. Regardless, my point is that one cannot say that the cost of equality must always or only be housing requiring dual income or shitty working life/hours.
I personally think the "forced" part is mostly bullshit. It was the default arrangement but far from the only one.
In fact, when you read some historical without the feminist propaganda bias it becomes very obvious that it was mostly a desirable position for women.
It seems to me that the whole equality propaganda mostly comes from less desirable women who would have a much harder time finding a highly valuable man that would be able to bring a lot to the home (either in the way of money or skills, craftmanship, etc). They wrongly determined it would be better for them if they could be like a man.
But reality doesn't care much about feelings and what happens is that those women still get the less desirable man and if they go at it solo, they find out the hard way that there are many things a man provide that are very costly if you have to pay for it in the market.
One thing too often overlooked is the importance of a man in children upbringing and there are some nasty statistics about single women raising kids that pretty much depict that very painfully.
In the end it doesn't matter, everybody's got much poorer for it, the only winners are the bourgeois women who started it all, who already had a lot of power in the first place. But I guess it was the intended result even if it came at the expense of all the lower social class...
According to our experience of the last 7 years, we should expect interest rate cuts, tax cuts, and more fiscal expansion either at the same time or in some sequence. Each of them will help solve our problem. There is no fiscal conservative left in America.
Between Brussels and Frankfurt (EU institutions I mean) the general consensus was that the Greek situation was more akin to loansharking than anything else. And Germany was undeniably the largest driving factor behind this approach, and the country that most benefited from it.
In what way was Reagan a fiscal conservative other than making the poor targets for pain? He destroyed half the social safety net in this country while running on a hideously bigoted platform and STILL ended up spending an insane amount of money compared to his predecessors. The only fiscal conservative of the past 50 years in the White House was Bill Clinton.
That one of the two American political parties believes they can lower the deficit by cutting taxes (primarily for the wealthy but that's immaterial to the basic math here) has always created some sense of unreality for me; I really no longer understand what the goal is for many of these people and I often think that they don't really know either. It's almost pure nihilism except when it comes to lust for power.
Their goal is simply to live their life as richly as they can at the expense of those they consider less than themselves. They are the wealthy and they act accordingly.
Why anyone sees Republicans as anything else boggles my mind.
Anyone who isn't a billionaire and is voting Republican may as well be a turkey voting for Thanksgiving.
Revealing of what? That racist jokes were normalized back in the 1970s? It’s not like we stopped telling exactly that same joke—we just changed the social norm around who is allowed to tell that joke. Are you more likely to treat people fairly because you won’t tell that joke (but would still laugh at the similar Dave Chapelle bits?) and what does it have to do with his platform?
maybe more like Bush. Clinton was the last president who oversaw a brief surplus in the federal budget and once said "the era of big government is over".
pretty wild to think that surplus was in part driven by the internet boom. now we have some kind of stock market boom while the federal deficit is 10% of total GDP and national debt is growing by a trillion dollars (a million times a million) every 100 days or so.
"Fiscal conservativism" is the equivalent of a household not purchasing any insurance, not going to the doctor or dentist, and saying "look how affordable everything is if we cut out all those stupid things? It's wasteful spending!" Then you get into a car accident, go to the hospital, lose your job, and cry about the inefficiency of the market because you now have a huge bill that you can't pay. It's short sighted at best. True fiscal conservatism would be all about social safety nets and free education to grow the economy, but y'all just want to save a few hundred bucks on your property taxes, everything else be damned.
I often like to observe that there is capitalism and then there is Capitalism with a an uppercase--dare I say "capital"--letter C.
The first is a kind of economic engineering with trade-offs and conditions and acknowledged edge-cases, the second is a brand supported by some rather culty dogma.
You are using a straw man. The reason we have a democracy and freedom of speech is so that each of us can voice our opinions and vote for those that share them. Unfortunately, nothing is perfect.
I'm using the term as it's used 9/10 times it comes up. I've never in my life met a self proclaimed fiscal conservative that didn't just mean "I want lower taxes". The way to lower taxes is a healthy and intelligent population. That is seen as a cost but is actually an investment that pays massive dividends. That's what a fiscal conservative would do, invest at the societal level. Otherwise they're basically just a libertarian.
So a strawman. You set up the premise, you set up your misunderstanding, and then expect everyone else to follow your misunderstanding. You've even redefined what a "fiscal conservative" would actually do (if you were the one defining it).
Then you pulled in "libertarian" out of nowhere. Which is an obvious set up for another strawman, so lets lean into it. Whats a "libertarian"?
I have no skin in this because I don't live in the USA and don't want to, but no, everything in the comment you replied to falsifies "So a strawman".
You can be wrong without being a strawman. When every example you have of X is Y, it's not a "strawman" to say "all X are Y" — when you're wrong like that, it's a black swan.
> When every example you have of X is Y, it's not a "strawman" to say "all X are Y" — when you're wrong like that, it's a black swan.
Either way, I don't appreciate you putting words in my mouth, I hope you don't go around proclaiming you're the arbiter of all that's right in the world.
The very thing you quoted demonstrates that mine allows for people to make errors without condemning them as deliberately weak setups.
> I don't appreciate you putting words in my mouth
If you do not like how your words are perceived by others, you should consider choosing them more carefully.
Despite your lack of appreciation, this comment is one which I am still only able to read in a way which suggests that you are stuck with this false dichotomy:
> No it doesn't, user exclaims their ignorance and your follow up emboldens their ignorance does not make a QED.
> The very thing you quoted demonstrates that mine allows for people to make errors without condemning them as deliberately weak setups.
No.
> If you do not like how your words are perceived by others, you should consider choosing them more carefully.
Lets see, you deliberately trolling and being bad faith is somehow my issue. Interesting.
> Despite your lack of appreciation, this comment is one which I am still only able to read in a way which suggests that you are stuck with this false dichotomy:
Is that actually true though? Are you not assuming perfect rationality on behalf of the poster, and that they have an adequate sample size, which tends to be subject to who the individual associates with.
> it's not a "strawman" to say "all X are Y"
That depends on the truth of the matter.
>when you're wrong, it's a black swan.
Only if the initial guess was correct.
You may be describing appearances. That which cannot be seen does in fact exist, it just doesn't seem like it because it exists in a different realm, and how our culture is trained to think about such problems spaces.
> True fiscal conservatism would be all about social safety nets and free education to grow the economy
Which is why Italy and France have such strong economies, right? What’s really standing in the way of economic growth is that the government isn’t paying for people to get free degrees in left wing studies.
or the Scandinavian countries that generally have higher spending power than the us.
remember not to conflate a strong economy with an economy that is worth living in. you can possess minimum paid jobs in order to make profits for shareholders and never see a dime of that wealth yourself, but alas, you live in a strong economy.
I agree that you can’t conflate a strong economy with one worth living in. But OP was saying that we should invest in education for economic growth, and that doesn’t make sense. There’s trade offs to be made between growth and quality of life.
It’s not true Scandinavian countries have more spending power. The OECD keeps very detailed economic data. The US has the highest PPP disposable income in the OECD: https://www.statista.com/statistics/725764/oecd-household-di.... It’s about 67% higher than Sweden and Denmark.
Now you might say, but Swedes and Danes live longer and are happier. That’s true! But as far as I can tell, Americans would rather live shorter lives and have more TVs and trinkets. My parents came back from traveling in Australia. My mom was ranting for weeks about how small and close together the houses are and nobody can get really rich. We are immigrants from a third world country. All of my family members that have come here think that “making it” means living in a McMansion and driving an SUV. I don’t know if it’s something in the water, or the people who come here are just that way, or maybe a bit of both. But it’s worth contemplating that Americans are making rational choices based on their particular utility functions.
> or the Scandinavian countries that generally have higher spending power than the us.
Do they? PPP they all have lower disposable income than the US and they are not even at the top in Europe (including social transfers). Germany, Switzerland, Austria and the Netherlands are above Norway and Sweden is even lower than France.
Of course we have higher Disposable Income in the US, it's a useless metric for these sorts of comparison purposes as it includes expenditures for things like healthcare, which in most other places is paid for by taxes (aka. not part of disposable income). A more useful metric would be Discretionary Income.
The OECD economists are pretty smart cookies, and account for government services delivered in kind (like healthcare). The net adjusted household disposable income includes the value of government provided healthcare: https://www.oecdbetterlifeindex.org/topics/income/ (“Household adjusted disposable income includes income from economic activity (wages and salaries; profits of self-employed business owners), property income (dividends, interests and rents), social benefits in cash (retirement pensions, unemployment benefits, family allowances, basic income support, etc.), and social transfers in kind (goods and services such as health care, education and housing, received either free of charge or at reduced prices).”) So the income top line in European countries is higher than the actual income to account for the value of those services.
Ok putting the fever dream aside, even at 3.7 people per household the 1963 to 2024 numbers as it relates to income vs cost of living is pretty eye opening. You are not really disproving the general point by getting fussy over the numbers.
The current average US household has 3.1 members. There’s an important discussion to be had about cost of living and stagnant wages despite productivity, but as I said in another comment: that conversation needs to be factually grounded. Vague reactionary handwringing about the good old days isn’t going to cut it, especially when the good old days weren’t all that great by contemporary standards (or for contemporary American demographics).
“ $1 in 1963 is equivalent in purchasing power to about $10.21 today, an increase of $9.21 over 61 years. The dollar had an average inflation rate of 3.88% per year between 1963 and today, producing a cumulative price increase of 920.69%.”
“ The median income of all families in 1963 was about $6,200; but for families headed by college graduates, the median was $9,700. The median for all families was about $290, or 5 percent, higher than in 1962. Consumer prices rose during this period by about 1 percent; therefore, not all of this amount represented a net gain in purchasing power for the average family.1
Median family income in current dollars has more than doubled in the postwar period (from about $3,000 in 1947 to about $6,200 in 1963). This rise was accompanied by a gradual upward shift of families on the income scale. However, consumer prices have risen substantially during this period so that only about three-fifths of the increase in current-dollar incomes represented an increase in real income. In terms of constant (1963) dollars, median family income increased from $4,200 in 1947 to $6,200 in 1963. This increase was less pronounced than the increase in current-dollar income, but it was nevertheless substantial.”
You still haven’t addressed the greater point. Instead you are fixating on the accuracy of least important number in the point the original commenters post. I suspect it’s because it’s the only one you can pick at. The point being can the average single income household of 3.x in 2024 afford house, car, groceries, etc at the same ability as the average single income family household of 3.x in 1963?
>> Remember in 1963 only the man was working, and typically supported 4 kids
> This is a ridiculous exaggeration: the average US household was 3.7 people
The avg figure in your rebuttal doesn't well reflect the commonality of large US households in the 20th century nor their change during that time.
According to US Census data, the % of US families with 4 or more children fell 10fold during 20th century.
Early 1900s: About 35%
Early 1910s: About 26%
Early 1920s: About 23%
Early 1930s: About 19%
Early 1940s: About 18%
Early 1950s: About 21%
Early 1960s: About 21%
Early 1970s: About 10%
Early 1980s: About 5%
Early 1990s: About 3%
Early 2000s: About 3%
Early 2010s: About 3%
This, and also the myth that only the men used to work and provide for the needs of their family: while is was true in the growing middle class it wasn't the case in the popular class at all.
Your comment explicitly mentions averages. It's a matter of basic fact that the average working-age male in 1963 was not supporting 5 other people with his salary.
The method is listed in the description below the statistics. Again: if you think these numbers are suspect, you are encouraged to find a different citation that contradicts them. Without that, your complaints are unsubstantiated.
These are the US Census Bureau's numbers. If you're going to contradict the US Census Bureau, then you're going to need to provide some actual sources here. Without that, this is low-effort trolling.
> There are good reasons to hold politicians to task for recent abnormally high inflation.
Well, maybe 25% for the budget deficits. The Fed is responsible for 75%. They keep over-goosing the economy. They keep saturating the money supply. That devaluing is what inflation reflects. That is your money is worth less (and appears like prices going up).
You can listen to Bing Crosby's Christmas album, to the song "It's Beginning to Look a Lot Like Christmas", where the parents having 4 children (household size thus 6) is described, as an anecdotal supporting note... since it was a popular song for the masses, 4 kids was not seen as unusual.
Why not? Stats are numbers compiled for someone at some point. A song this popular is a snapshot into how people lived and perceived themselves back then. A measurement of sorts. A disagreement between the two is a good indicator that the stats are suspect, or not the right stats to be looking at
Because people dont accurately represent their situations? This seems so silly. West Virginia has a huge culture of music singing about how its a state of coal miners, when in reality, there are less than 15k working in the coal mines, with a population of 1.75 million.
That does not indicate that there are secretly a lot more coal miners, it just indicates that people are clinging to and showing off an identity that they like and want to be represented by.
The parsimonious reason is that people write songs about comfort and large, happy families, not about AGIs and statistical households of 3.3 to 3.7 people with 1 to 1.44 breadwinners. Songs (and media) reflect cultural values, not cultural realities; see also rosy movies about the "good old days" of 1960s USA being not particularly representative of the period's racial and economic strife.
> Today Palo Alto, Menlo Park, and other super zips are exclusively [A slight exaggeration] $500k incomes and up. In the 1960 census records you will find these good neighborhoods occupied with plumbers, painters and other blue collar workers.
This was unfortunately a deliberate consequence of the dot com boom, not something that happened in previous tech booms. Until around 2000 Palo Alto actually had a lower median income than some surrounding towns due to a policy of promoting section 8 housing, some SRO residences for the homeless etc. Those prior booms didn't suck in as many outsiders and mostly were nerds making fun tech (think of the mac). NYT amusingly published an article were they said how weird the SV was because people who drove mercedes cars still shopped at Costco rather than at "proper" shops appropriate to their "station".
Dot com sucked in a bunch of people who came only for the money ("I'm starting a company -- need a tech cofounder" is the complete opposite of those days when it was "I'm starting a company -- we're big enough that we need some business people"). Then we started to have fancy restaurants and pretentiously-named magazines about how to spend your money.
And then in 2000 the real estate people got control of the city council. The SROs were turned into boutique hotels and the city was re-organzied for the lucky.
PA used to be a town where the Grateful Dead, Jefferson Airplane, and the like got started. Harold and Maude was (partially) filmed here. But such things are now inconceivable.
Although what goes up can come down... if some other state or region within California permitted large amounts of construction, enabled businesses to move in, and threw a few hundred million at building a great university, property values here would drop a lot.
With less intention and planning it will take longer, but could still happen, and there are some natural pressures pushing things in that direction.
>PA used to be a town where the Grateful Dead, Jefferson Airplane, and the like got started. Harold and Maude was (partially) filmed here. But such things are now inconceivable.
I remember how in the 80's and 90's there were still movies like Mrs. Doubtfire with characters on minimum wage renting in downtown San Francisco lol
In those days SF was a bedroom community for Silicon Valley. SF still had a thriving art scene and was worth living in — I made that commute for a while, thankfully carpooling with Larry McVoy.
Then in the same dot com boom…well that is well documented. People say SV grew up the peninsula and absorbed SF, but I prefer to think of it as SF was sacrificed as a honeypot.
It took off when they lowered the interest rates after the dot com crash. The issue was the too low for too long interest rates that drove the increase in home ownership (and rents).
> In other words you had 1 man working 50 hours a week afford a house...
With inflation, we want to know about the change in value of the dollar only. We don't want to factor in the change in value of houses, food, etc. There is a place for understanding that too, but inflation is not it. Something like a cost of living index is more suitable to that kind of information.
On that note, houses are unquestionably more valuable today. For one, they are twice the size they were 60 years ago. We can all agree that a bigger house has more value than a small house, at least within reason. You can fit more in it, it is more comfortable, etc. and that is valuable. They are also a lot safer. That too is more valuable.
As such, a housing costing x% more today than as compared to some time in the past does not mean that inflation is x%. Again, we only want to know about how the dollar changed in value, not housing. Of course, if you only have numbers, it is impossible to know what share is due to housing being more valuable and what share is the dollar being less valuable, although we can say with great certainty that it is some combination of both.
CPI tries to tess out what is the dollar portion only by looking at a large basket of goods of things people buy frequently. Where you see common moment in the change in price across all items in the basket, that is assumed to be the change in value of the dollar. It's not perfect. There is no perfect metric. You are quite right that one should look at many different models, even though none of them will be perfect either. It is all good information, none of it great, but at some point you have to pick a single number.
They also have better insulation and construction, they’re all wired for electricity and plumbing, they all have advanced HVAC. Fancier kitchens with more plumbing, appliances and nicer materials. People have access to more furniture and fixtures and appliances to fill more home - no one needed laundry rooms before a washer/drier was invented. Few had garages. Don’t let survivorship bias fool you - the 1950s homes that working class families had were not that nice.
The homes today cost more because more goes into them. We could all live in stuck huts we made ourself like in 1750 and everyone could afford two houses in 2024. Instead, housing has gone up because the utility of that housing has gone up.
Oh and of course we’re not making nearly as many per-capita as we used to. So the scarcity is going up.
Have you seen the price of land recently? It’s more than half the price of construction! Mud hut, pole barn, unserviced cabin, what-have-you, the land is going to be a major and significant expense.
That’s only in high-demand areas. You can get dirt cheap land in most of the US - but obviously demand to live there is low. You wanna live in the bay are, and your cost is largely land. But you can’t build a modern home without significant cost, even if the land was free.
It absolutely raises the “floor” of the housing costs - more materials simply means more costs. And the labor to do extra work means more costs - and quality labor is much more expensive today. Same reason a bigger house means more costs.
I would posit - admittedly without data - that outside of major metros where land is the clear dominant cost, most costs for housing increase is labor.
There are houses and empty lots available within 15min of downtown Cleveland that are selling for <50k. If you go up to $100k, there are dozens of houses. They’re all empty lots or houses that need renovations. If you want a new construction in the same neighborhood, it’s $300k. The cost difference is labor or materials.
Obviously Cleveland is a cherry-picked example but I used to live there so I picked my old neighborhood. San Francisco, Boston, Seattle, etc are obviously mostly driven by land costs due to demand and very high incomes.
Having worked near these neighborhoods the value you put in would be at a high risk. It's very possible you'll be assaulted, your home will be robbed, and the market value won't match the renovation costs.
All that said, some parts are gentrifying. Though mostly where developers can get large enough plots.
Yea for sure. I lived near there for a short while (in school) and have some friends in the area still.
The point is that most of the cost of these homes are labor - even when land is nearly free (<50k in a city), you can’t get a “cheap” home that’s made to modern standards. If the land is free, there is no demand and high supply, but the house is expensive- it’s labor or materials driving the cost.
Show me a company that can sell a less advanced 1960s style house for the average worker's median income and I'll show you the next 100-billion dollar company.
The 1960s supply chain isn't there anymore. Where are you going to find, for example, asbestos insulation? No single company can take that all on. It would require coordination across much of the entire population.
Perhaps housing is important enough to see the people do that. But even if you could somehow faithfully recreate the entire supply chain, the house won't be up to code. That 100-billion dollar company is going to spend all that money in the courts. Why bother?
Okay, sure, if the people can come together to recreate the supply chain they can also change the code. But then who actually wants to live in a 1960s home? Even the homes actually built in 1960 that are still standing, which is generally going to be those that were built to a higher standard, have been upgraded to modern standards, at significant cost, over the years because nobody actually wants to subject themselves to the 1960s.
And even if you could build the perfectly equivalent house with modern supplies and people actually wanted to live in them, there is still that pesky labour cost, which is a significant portion of the building cost. Yes, the median income of a full-time male in 1960 is almost exactly the same as the median income of a full-time male today, but the median income of the population at large doesn't tell the story of those building houses. Someone who would have worked on a job site in the 1960s is more likely to work in something like a restaurant today. As a result, of those who still are willing to build houses, you have to pay a lot more to get them to show up. "The trades are where the money is now" may have become somewhat of a meme, but there is also a kernel of truth to it.
Now, a business that can make modern houses less valuable will be on to something. That's a 100-billion dollar company. But also a hard problem to solve.
> Pick whatever word you like if "inflation" is reserved for economists because regular people are "just too dumb to understand".
Regular people understand inflation just fine. How useful it is to them is debatable, but it doesn't have to be for everyone. It's okay if some measurements are only useful to scientists and economists. The measure of the speed of light doesn't mean much in my day to day life either, but we don't have to abolish it because of that.
> We need a concept for debasement / hidden tax that allows people to hold their policymakers accountable.
I think what most people are looking for is simply cost of living measure. They want to know by how much the costs to live (housing, food, etc.) have increased over inflation. Which we have. But that one might actually be a case of being "too dumb to understand", explaining why it is not commonly put to use. Inflation is, indeed, a much simpler concept. Or it may be that the ultimate cost of living measurement comes from one's own personal accounting records[1], negating the need to reach for any 'universal' perspective.
[1] But I suspect most people don't keep any accounting records, so most likely the first one.
> what most people are looking for is simply cost of living measure
You may have cracked the conundrum right there. People use inflation as a gauge of COL. That is incorrect, but understandable given the lack of a well-publicised national COL metric.
Which is interesting as you'd think actually living, and incurring the costs that go along with it, would be a much more useful gauge.
Probably goes along with my suspicion that most people, especially those not already accounting for business activities, don't keep any meaningful record of their transactions. Hard to calculate COL without data.
But at the same time, there isn't much effort in publishing national COL metrics as it is presumed that people will already know their own situation, which is always going to be way more telling. Individual COL can vary widely, even between neighbours, let alone on a national scale.
> you'd think actually living, and incurring the costs that go along with it, would be a much more useful gauge
Not for a monetary authority. Given how much drama we have around even our Census Bureau, this gap makes sense. (Also, for every complaint about a given inflation gauge, one increases the parameter and thus bitchable space by orders of magnitude when it comes to COL.)
> there isn't much effort in publishing national COL metrics as it is presumed that people will already know their own situation
We track this information, though. Anyone doing any economic-related work will be well familiar with the data. We just don't publicize in any grand fashion because who else needs to hear it? I'll grant you that people who write comments on the internet tend to be completely out to lunch, but most people have some kind of handle on their COL situation. They aren't going to learn anything they don't already know, so there is no reason to listen in. You need demand in order for supply to show up.
Inflation doesn't mean much to Average Joe either, to be fair, except it is a leading indicator of interest rates, and Average Joe does care about interest rates, so this is why Average Joe is listening for inflation information.
> But political leaders won’t.
The leaders are the people. The very same people.
If you are trying to imply that the leaders are as lazy about democracy as they are accounting, and are willing to let the hired help do whatever it wants because they don't want to ever have to take the time to talk to them, I'm with you. Not much you can do there. But if they don't care, nobody else is going to either.
For me, I'm not surprised inflation went up. We had a global lockdown during which some industries made a lot of money and some industries made little to no money. Once the lockdown ended, I assume the ones who made a lot started to lose sales and increased their prices to keep growing. I assume the ones who didn't make a lot of money started to increase sales again and probably increased their prices to recover the money they didn't make. I imagine both of them want to make sure they have enough money to survive another global crisis, especially the ones that almost didn't survive it.
So, yes, I think the government has a role in trying to limit inflation (and also increase wages), I just think that some inflation makes sense from those dynamics above.
The US gets more and less dangerous over time, it varies. It's presently a little bit more dangerous than the early 60s, but way less dangerous than the 70s-90s.
You are completely mathematically illiterate if you think that annual inflation is 3-5 times higher than the reported value. The average annual inflation since 1960 is 3.7%. If the real annual inflation were 3x that (11.1%) then we would have seen 85000% cumulative inflation since 1960. A gallon of gasoline cost $0.30 in 1960, so it would cost $250 in 2024 under 850x inflation. In reality a gallon of gas costs $3.60 today, which is not far off from the 10.5x inflation the CPI measures over that time frame (the same CPI you claim is massively understated).
You're running around this thread smugly declaring yourself too smart to fall for the government's lies while failing to spend a few seconds doing the trivial arithmetic that would disprove all of your deeply held beliefs. Which of your other political or economic beliefs will fall apart with a little bit of middle school math?
Your account has been breaking the site guidelines repeatedly and we have to ban that sort of account, so if you'd please review https://news.ycombinator.com/newsguidelines.html and stick to the rules from now on (regardless of how wrong anybody else is or you feel they are), we'd appreciate it.
Are you seriously insisting that the average product has gone up in price by 850x since 1960 and that gasoline is a huge outlier that has appreciated much much less than everything else?
> With inflation, we want to know about the change in value of the dollar only.
By "we", you are referring to you and others who want to know only this.
Some people (not many) want to know what is going on comprehensively, and in fact. For example: I would like to know if there is any strategic changing of formulas to improve appearances going on, like there has been at pretty much every single job I have ever worked on.
But to be fair, this is a subjective personal preference, and an unusual one at that. Most people prefer simplistic, memetic representations of reality (though, few can agree on which memes).
> By "we", you are referring to you and others who want to know only this.
Right. I am referring to all those who want to know only this, along with everyone else. Because those who want to know something else would use another measure. Those complaining that inflation doesn't give you some other economic indicator is like someone complaining that temperature is not a good measure of distance. Well... duh.
> Some people (not many) want to know what is going on comprehensively
Absolutely. Which is why we have many different ways to look at inflation. In fact, don't White House economists use 30-some-odd different measures of inflation throughout the course of their work?
But eventually you are going to want to put it to practical use, mathematically, and our formulas require a single number. CPI is the one we picked to standardize on (but, of course, you can choose another if you want). It won't be 100% accurate – determining that is fundamentally impossible and you know that going into it – but it will be good enough.
> Right. I am referring to all those who want to know only this, along with everyone else.
"along with everyone else" is incorrect, because you have no way of knowing what other people want (and worse, maybe no way to know that). And the only way you "know" what "all those who want to know only this" is because it is a tautology, it is necessarily true. Though, you have no way of knowing what percentage of the population thinks like you do, so it is not particularly informative knowledge.
> Because those who want to know something else would use another measure.
Some people (me) would like to see all methodologies maintained indefinitely on a chart, so we can see how different versions of The Truth vary over time. I am interested to see if changes in methodology tend to correlate with changes in the "vibe" of the cost of making ends meet people are experiencing. I prefer this approach because it is more transparent, and because I do not trust my government, or the perceptions of my fellow Westerners (because of the way they think: how it "is", is how it seems to be....which tends to correlate quite nicely with how it is said (repeatedly) to be).
> Those complaining that inflation doesn't give you some other economic indicator is like someone complaining that temperature is not a good measure of distance.
It is also "like" someone whining about how appliances don't last as long as they used to, but "is likes" are often more misinformative than informative (perhaps why they are so popular?).
> Well... duh.
Are you blaming others for the way you think?
> Absolutely. Which is why we have many different ways to look at inflation.
And also why I do not want historic "truth discovery" methodologies memory holed.
> In fact, don't White House economists use 30-some-odd different measures of inflation throughout the course of their work?
Don't know, but I do not trust them.
Also, "in fact" terminating with "?" is a rather interesting approach.
> But eventually you are going to want to put it to practical use, mathematically, and our formulas require a single number.
Maybe we should get better formulas, because reality does not fit so nicely into simple, reductive, misleading models.
> CPI is the one we picked to standardize on
No, "we" did not pick it, someone else picked it "on our behalf"...according to "democracy" we are trained to believe, though it is not both flawlessly true and not misinformative.
> (but, of course, you can choose another if you want).
I can't get it published as "fact".
> It won't be 100% accurate – determining that is fundamentally impossible and you know that going into it – but it will be good enough.
Good enough to satisfy people that want to be satisfied, but not good enough to satisfy all.
> No, "we" did not pick it, someone else picked it "on our behalf"
With a gun to your back, eh? We can use whatever source of inflation we want. Nobody is selecting for us. But, as it happens, CPI is the one we've chosen as the default. If we change our minds, we don't have to default to it forevermore. It's up to us.
> Are you blaming others for the way you think?
I don't think. You do enough of that for all of us. No need for me to duplicate efforts.
I relay the state of the world to the thinkers so they don't have to. The efficiency of specialization!
> Good enough to satisfy people that want to be satisfied, but not good enough to satisfy all.
Which, again, is why we have many sources of inflation. Pick a different one if need be. Indeed, there is good reason why there is more than one.
And if inflation isn't the right tool for the job, which is probably the case, use a different economic measure. There are many tools in the toolbox. You don't have to measure distance with temperature.
Let's be real, the only reason we talk about inflation at all is because it is shares a relationship with interest rates. Interest rates are what people actually care about here. As principal value declines with inflation that makes borrowing more attractive, thus interest rates need to compensate, thus a change in inflation rate serves as a useful leading indicator of interest rate movement. If it weren't for that, it is doubtful that anyone, economists and statisticians aside, would even know that inflation is a used measure.
Beyond interest rates, it doesn't mean much to Average Joe. Average Joe is more worried about things like cost of living. Inflation isn't meant to be useful to Average Joe, though, it is for economists who need to look at much more than Average Joe. Average Joe is free to use it if we wants, but it's funny when he starts complaining that it doesn't work right when misapplied.
People discuss inflation because everyone from the Economist to Yellen to the President brings up inflation numbers whenever people start feeling their COL increase, or when people demand better state services etc. It is one of the most widely publicized economic indicators, along with GDP, unemployment rate, and foreign debt.
But in many of these discussions, it is deliberately being presented as equivalent to COL, which is never addressed separately. So, in reality, for the vast majority of people who learn about these numbers from the media, not economics degrees, "inflation" actually refers to COL, except that the numbers they are given are the ones for what economists call inflation.
Given that a word is defined by what the majority of the people using it mean by it, I think inflation in common English is closer in meaning to COL than to the technical economics term inflation.
> it is deliberately being presented as equivalent to COL
It kind of is. That's what makes it confusing, I suppose.
If you buy a house of equal value as compared to 60 years ago, then the amount in dollars you will pay, when adjusted for inflation, will be equivalent to 60 years ago (within some margin of error; inflation is impossible to calculate perfectly). If we live exactly like they did in 1960, then inflation and the change in cost of living are the same thing.
But, people expect more today. As mentioned in several comments up-thread, take housing: They are bigger, safer, more energy efficient, more attractive, more comfortable, etc. Alongside that, the married family unit is quickly dying – people are more likely to be single nowadays, so we place more value on being able to live alone. Land is more valuable too. This is particularly noticeable anywhere near agricultural areas, where climate instability and more mouths to feed in the world has made food more valuable, making farmland more valuable, making urban sprawl out into the farmland more expensive. It goes on and on and on. So, even if the dollar was of constant value, you would unquestionably paying more for a house today as compared to in the past. But you're getting more! People are willing to pay more, in constant dollars, because it is worth it.
Only on the dollar side are you getting less. The so-called 'hidden tax'. This is what inflation tries to find. If you are a politician speaking to the people, especially on a national scale, this is the only thing in your control, the only thing that is relevant to you. People choosing to buy bigger and better things is not really of your concern. Why shouldn't someone be able to buy something nicer if they want to?
> Given that a word is defined by what the majority of the people using it mean by it
In the absence of any other definition, that is true. If a speaker defines a word, though, then that new definition takes force while they are speaking. And economists and the President have most definitely provided a specific definition for "inflation".
> I think inflation in common English is closer in meaning to COL than to the technical economics term
I'm quite sure the most common definition is "that single number they talk about on the news", which is equivalent to CPI, which is most definitely not a cost of living measure.
> We can use whatever source of inflation we want. Nobody is selecting for us. But, as it happens, CPI is the one we've chosen as the default. If we change our minds, we don't have to default to it forevermore. It's up to us.
a) Who, specifically, is "we" in this context?
b) What is your information source for these facts?
> Beyond interest rates, it doesn't mean much to Average Joe.
What is your information source for the meaning contained within the minds of the average Joe? Please be specific, please at least try to speak truthfully.
Changing human nature seems rather analogous to the difficulty of nuclear fusion, and I suspect it is similarly powerful/useful if a trick could be found to accomplish it. At least we're trying with nuclear fusion.
>On that note, houses are unquestionably more valuable today. For one, they are twice the size they were 60 years ago. We can all agree that a bigger house has more value than a small house, at least within reason. You can fit more in it, it is more comfortable, etc. and that is valuable. They are also a lot safer. That too is more valuable.
Keep in mind, demand was higher with the baby boom than it is today. Houses also used to be built to much higher specifications. Old houses were made with tons of premium timber that is still valuable even 50+ years later.
That is mostly survivor bias and cost of materials difference. We’ve used up most of the stores of large timber causing the price of it to go way up. At the same time the price of construction grade metal has come way down. Thus large beam construction has become a luxury.
As for housing quality, post war tract homes were wildly worse. My wifes family still owns the tract home they lived in growing up. It was exposed concrete, exposed roof and no ductwork until a HUD funded remodel in the 70s. It’s also 750 sq feet. A modern double wide trailer is higher quality.
>At the same time the price of construction grade metal has come way down. Thus large beam construction has become a luxury.
Have you ever seen an old 2x4? This isn't "large beam" but it's obviously higher-quality than new 2x4s.
>As for housing quality, post war tract homes were wildly worse. My wifes family still owns the tract home they lived in growing up. It was exposed concrete, exposed roof and no ductwork until a HUD funded remodel in the 70s. It’s also 750 sq feet. A modern double wide trailer is higher quality.
There used to be some homes built to low specifications. But most were built super solid. Ductwork, insulation, and just about anything else can easily be upgraded. Compared to classic European houses, ours are temporary trash.
>A modern double wide trailer is higher quality.
You just discredited yourself there to everyone who knows even a little bit about houses. Go find a 50 year old trailer and see how that looks lol. American houses are optimized for size at the expense of permanence, and trailers are no different. They are cheap for a reason. Although they can be good for some people (no judgement here), it's just not on par with either a new house or an old one.
> Have you ever seen an old 2x4? This isn't "large beam" but it's obviously higher-quality than new 2x4s.
The 2x4 was decreased in size below 2x4 in the 1920s because shipping costs started dominating lumber prices because we’d depleted the forests near the cities where demand was greatest. It was further reduced during the second world war because building of necessity became standardized and again shipping volume was of primacy.
The US forest labs did tons of tests on this in the 1920s fwiw proving there was no quality difference.
Now there are many fine homes left from prior to these changes, but there are many many more crap homes that are gone because they weren’t capable of lasting. These are the homes you should be comparing to the average home built today.
But you mostly can’t. When you can, as in my example, you will find the older homes were built to similar specs as today from a structural stand point but much lower spec on systems, finish and especially size.
This doesn’t even touch on tenement apartments where most of the population lived in cities (the place housing costs have swelled the most).
These would quite literally be considered incapable of being housing now.
I am certainly not an expert on housing but my father was professionally and I did help my grandfather add an addition to our family farm house that was from the 1910s, when it was literally 1 room without plumbing (they’d done a previous remodel in the 60s to add bedrooms and plumbing, the materials from that remodel were not significantly different than the materials we used in the 90s).
>The US forest labs did tons of tests on this in the 1920s fwiw proving there was no quality difference.
Lol if you see old 2x4s and new 2x4s first-hand you'll know immediately that this is wrong.
>Now there are many fine homes left from prior to these changes, but there are many many more crap homes that are gone because they weren’t capable of lasting. These are the homes you should be comparing to the average home built today.
In many cases perfectly salvageable homes were demolished to make room for new stuff. Don't forget about those.
>I am certainly not an expert on housing but my father was professionally and I did help my grandfather add an addition to our family farm house that was from the 1910s, when it was literally 1 room without plumbing (they’d done a previous remodel in the 60s to add bedrooms and plumbing, the materials from that remodel were not significantly different than the materials we used in the 90s).
There is a high degree of variance in the quality of old construction, I have to admit. But from what I've seen, prior to the 70s (and maybe even later) even simple homes were built with materials that would be considered premium today. Hardwood floors, solid wood walls, tongue-in-groove planks everywhere. If it's a brick house, it's actual solid brick instead of a brick facade on cheap trash wood. Very rare to see drywall or plywood, or the other flimsy materials people use now. Even old plywood is premium compared to the new composite crap all glued together.
I’d respectfully suggest you go look at the forest lab reports before just dismissing them. Literally, it’s public domain, we spent tons of money on the research and your vibes about how the lumber looks compared to the structural tests they ran might not hold up.
The “simple” homes you’ve seen that have tongue in groove planks or solid wood floors were the exception in housing. It was literally the very good stuff. Most housing prior to ww2 had dirt floors! Post ww2 it was concrete slab. Solid brick housing was a huge luxury item. Most housing in the US was wood plank.
In cities solid brick apartment buildings were more common prior to ww2, but they’d have aesthetic brick in the front and “common” brick on the sides. Interior walls would just be the exterior wall. Dry wall and insulation was effectively unheard of.
>On that note, houses are unquestionably more valuable today.
No. They are better, not necessarily more valuable.
Simple example:
Today you can get a phone with a chip more powerful than the best supercomputers 50 years ago. Is today's chip more valuable (ie. price-value) than that supercomputer? No. An equivalent supercomputer back then would cost WAY more. You're bringing other variables into play and confusing things. Technology has improved, manufacturing costs have gone WAY down for higher quality products. The fact that we can get higher quality things nowadays has little to do with purchasing power and everything to do with science and technology. The fact we can afford a better quality house nowadays, is also much more related to material improvements, manufacturing, logistics, overall system efficiency (transportation, company competition,...) improvements than purchasing power.
What we can compare is what other poster's are doing: time vs functions. For example, working time needed to have an average place to live in by the time's standards. And if you do that, you'll see today it requires A LOT more working time.
Others have pointed out the flaws in the rest of this, but the labor force participation rate of Women[1] was around 33% in 1950, 38% in 1963, and 60% in 2000; it's 57% now. That's a huge change, but 1963 is a far cry from 0%. See also men[2].
Also look at the prime-age participation rates (https://fred.stlouisfed.org/graph/?g=1k7Vy), which help control for demographic changes over the decades. The 1963 prime-age LFPRs were 44/99% for women/men respectively, and today those figures are 77/89%.
There are 153 million more people in the U.S. today than in 1963.
The reason these neighborhoods are exclusive to the wealthy is that housing there is scarce despite growing demand due to job growth. Housing in places like the Bay Area is such a big portion of monthly expenses that stuff like Arby's 4 for $10 or whatever isn't whats hurting people the most.
Lots of these issues just come down to housing and restrictive zoning.
I've been trying to give your comments the benefit of the doubt, but now it's abundantly clear that you're fundamentally unserious about having a conversation grounded in reality.
>You address the supply side of the "housing crisis"
Why the scare quotes especially when no such term was used?
>what about demand?
"...growing demand due to job growth" <- demand side was indeed mentioned.
It's literally illegal to build enough housing in many, many places where jobs are via low height limits, absurd parking requirements, and large setbacks etc.
>The memes of Arby’s 5 for $5 becoming 4 for $10 are more informative than the CPI numbers. Don’t let the shock at the grocery store wear off – it’s real and painful despite what the news tells you.
From the article, the biggest discrepancy between CPI and true inflation is a result of a change in the formula made in 1987 that removed interst rates aka the cost of money from CPI. The CPI formula replaced the actual cost of financing homes and autos with a new term, owner's equivalent rent. The argument made by the underlying paper [1] is that the older calculation better reflects the cost of living increases experienced by consumers and more closely correlates with the widely used University of Michigan Index of Consumer Sentiment. Also, notable is that consumers care much more about the cumulative multi-year effect of inflation while economists only worry about year/year changes in the rate of inflation as can be seen here [2] (worth a click)
The really interesting thing about their proposed measure is that it reduces the period of extremely low interest rates post GFC. We'd be living in a very different world had this been our north star throughout that decade.
It has more to do with a hidden class structure below your average white family, working for much less, providing goods and services at a discount. Inflating the means of the average white family in a way that wouldn't be possible today because we're not as purposefully racist or sexist as we used to be.
In order to make a better comparison one should compare what was affordable to the average black family in the 1960s (or whatever previous time period you choose for which we have figures) to today.
There's other factors like the aftermath of WW2, the real and "soft" power the US held back then in comparison to today, and the role women played in the economy.
Today's world is a lot different from then but the truth is that the wealth and power we've amassed since then should have us in a better position, not worse. The factors at play in today's economy are not benefiting the common man nearly as much as they should.
We're beginning to look more and more like a post-scarcity economy every day yet our laws, regulations, and culture are not evolving with the times. The fact that land and homes are vastly inflated compared to regular every day goods and even the "durable" kind is strong evidence that our entire economic system stands on precipice of great change.
Either we're just getting started on a great collapse or a great sea change in politics and economic systems. I very much doubt things are going to go back to the way they were... Ever.
We as a society can decide to spread our prosperity around or we can increasingly suffer for the lack of it by continuing the status quo.
Artificial labor scarcity is a good thing, to keep wealth in the hands of labor instead of capitalists. But it needs to be equitably distributed (more households working fewer hours each).
> Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home.
Things are a lot cheaper if you keep them in a 1200 square foot house
> Today you have 2 people working 100 hours a week to support 1-2 additional people , while living in an apartment and living in a run down and crime infested neighborhood.
Highly doubt people at this income rank were buying houses in 1960 and living comfortably.
> Summers is right more than he’s wrong
Entire argument is whether you should count interest or not. I can see arguments both ways
You're right, but it doesn't account for the entire loss in prosperity.
Prosperity was also growing 1880-1960 at at even faster rate, but inflation was much flatter.
We went from scarse food, horses, no telecomms, no planes, almost-no electricity, moderate running water to nearly modern conditions 1880-1960 with minimal inflation
> True inflation would measure the amount of prosperity achieved per hour worked.
I think this isn't a measure of inflation per se, because productivity changes are big over the decades. But I do think looking at costs in terms of hours of work is really helpful.
I think back to an event in some HS extracurricular when a group of students got to ask questions of a gubernatorial candidate, and one kid asked if he was going to do anything to make college more affordable at state schools, and this candidate (perhaps keenly aware that almost none of the students could vote) basically laughed it off and talked about working at restaurants to put himself through school (I think in the 70s). How many hours of (unskilled?) labor was a semester of tuition then, versus 30 years later? How many hours was a tankful of gas, or rent for half an apartment, or a heating bill? How feasible is it really to work one's way through even a public school?
I agree with the point about the cost of education.
In real terms, however, the cost of a tank of gas is about what it was in the 1960s[1]. Today's average is $3.63[2], which is about $0.34 in 1960 dollars.
I never understand the "in X dollars" argument, especially when looking back longer than about a decade. The CPI only considers a certain basket of goods, it's not representative of a cost of living (that's what this thread is about), various things change price at radically different rates.
How much was an iPhone or Xbox in 1960 dollars? What was the typical cable TV bill? What did a typical American pay for a California roll or a burrito in 1960? Alternatively, given your 10x price boost, why isnt the cost of a television set or vacuum cleaner in the multiple thousands?
The comparison doesn't work on manufactured products. You can really only compare commodities.
Anything that is manufactured has a multitude of factors that will reduce cost of a product significantly over time. If the circuitry in an Xbox were constructed in 1960 no government on the planet would have been able to afford it. It would also be difficult to find enough power to run it or a place big enough to build it with the technology of the time.
Yes -- the whole thing should be how many hours it takes to buy X instead of how many dollars.
It's then interesting to see how that looks in different economic brackets. Maybe in one bracket a car costs 1000 hours, and in another the same car costs 350 hours (so might as well get a 700 hour car. Still cheaper).
As a counter point, this post by Matthew Yglesias might be interesting. Basically makes the case that the standard of living today is significantly higher than back then, and we wouldn’t be okay living today like we did back then.
I randomly ran across this blog post https://economistwritingeveryday.com/2024/04/10/grocery-infl... today. It says fast food prices have gone up faster than grocery prices or inflation. I don't eat fast food so I don't know if it's true. But it got me thinking.
Maybe the likes of Doordash are to blame, at least indirectly. Food delivery companies have proved that people will pay $15 for a lukewarm McDonald's burger if it's brought to their doorstep. So there is obviously some room to increase prices even for in-store purchases.
You're right a lot of unhealthy habits increased during covid, including alcohol, junk food binging, marijuana/ vaping, anti-social behavior -- which led to greater inflation in unhealthy products and healthcare.
> In case you think this is academic, look at the occupations for those who lived in today’s wealthiest neighborhoods. Today Palo Alto, Menlo Park, and other super zips are exclusively $500k incomes and up. In the 1960 census records you will find these good neighborhoods occupied with plumbers, painters and other blue collar workers.
How much is this related to inflation compared to the complete refusal of the Silicon Valley suburbs to building new housing? If rich people want to move somewhere, and people living in that area dont build houses for them to move into, its going to drive the prices up, because the wealthy people will go there no matter what.
Also your whole bit about the past being so much better is insane. Hard to tell what is you exaggerating and what is a serious argument. My partner and I make ~100k + 40k combined a year, and we rent an apartment in one of the nicest SF neighborhoods, save for retirement, go out and do (paid) things every weekend, and still save a good chunk of money every month. We also have gym memberships, own cars, buy nice groceries, etc.
Inflation does suck, and the sticker shock is bad, but the high inflation also stems from policies that have let us have insanely good unemployment levels. Post 2008 we saw less inflation, but unemployment stayed high for almost a decade. Unemployment is already down to super low levels post 2020, which is better for everyone. Average and lower wage workers have also seen large growths in what they make.
>It’s a deliberate approach to stealing your prosperity while you cheer it on.
Excellent way to put it.
To put things in perspective if one works for 5 days a week, you are paying the govt (all taxes + inflation) about 3 days of your earnings. You only get to keep what you earn for 2 days.
This is easy: how much did an acre of land in Palo Alto cost then, and how much does it cost now? Why? Why does the price of land “need” to go up? It pays no wages, no rent, no suppliers, no anything. It’s just there being land, no matter what price it is. So why has its price gone up and who benefits from that?
This is an interesting take and it got me thinking. The replacement rate in the US is not 4. In fact, I would imagine that 4 is probably unsustainable. I like to see money more as a chemical gradient a la chemotaxis, though more clever people than I call it a carrot. With inflation the carrot is being removed, perhaps even being used as a stick. A superfluity of resources without controls of some sort may well lead to runaway growth, and I presume with the relative expenses of everything that there is an unsustainable imbalance at the fundamental level excess demand for intrinsically limited supply.
Of course the inflation model is applicable outside of the purely monetary. The more people you have the larger the labor army, and with each number added to that the less valuable the individual becomes even in terms of highly specialized labor, because ostensibly this can essentially be predicted with a distribution and with the way people are commoditized in most positions and companies these day, excellence is neither expected, sought for, nor wanted. This is still within the realms of the economists wheelhouse.
I would argue there's a third inflation, social inflation, as well. And this essentially hinges on the same principal that the labor army does: more people, less individual value (“a single death is a tragedy, a million deaths are a statistic”). And I would posit that the decrements have been seriously exacerbated in this realm by social media, television, celebrity, and so forth. I would also point out that the civil rights movement and women's lib has also (rightly) had a profound effect on social orientation that has yet to fully manifest itself.
If I recall correctly many developed nations have declining "native" populations. I'm unsure of the causal factors, but I wouldn't be surprised if it was in some ways an instinctual aversion to these sorts scaling laws. If I'm not mistaken Dunbar's number is roughly adhered to in nature, so it makes sense that there is somewhat of a drive to limit pack/civilizations size.
- 2 fare increases in the first 60 years of operation.
- 17 fare increases in the next 60 years.
Note that even with the fare increases in the last 60 years, once adjusted for inflation, the cost of MTA fares were actually going down until 1984 or 40 years or so, when fares really exploded [2]
All of this is very tricky stuff, I would just call it shades of grey and leave it at that, no black and white.
Similar lore happened in the DC metro, everything was fine until it got to be XX years old and then they jacked up the prices and starting shutting things down all the time -- because the infrastucture was all getting dangerously old (subway fires and such) and so they had to quasi-build-new infrastucture, so that got a guy that basically said "we're gonna fix it and it will be painful but we will still fix it"
for example - https://thehill.com/policy/transportation/291651-dc-metro-ex...
The crux of it is, it's generally easy to maintain a pretty new system than an aging one (bathtub curve type scenario like in the hard drives). As such we see China sitting real pretty presently but say 50 years from now it will inevitably be a different tune.
Now in the case of NYC I wouldn't be surprised if some of that had to do with crumbling, very very old infrastructure, and I wouldn't deny either by the same token it had to do with macro-economic factors as well, all shades of grey. First 60 years of operation NYC probably had a lot of "brand new" stuff at any given time.
> Today you have 2 people working 100 hours a week to support 1-2 additional people , while living in an apartment and living in a run down and crime infested neighborhood.
Is that really true, or is it more a feeling many Americans have? As a Swede it’s a bit hard to relate to.
Crime is much much lower than it was decades ago almost everywhere in the US.
Also “run down” in reference to cities is just not true outside of a few failed areas like Detroit. NYC today is dramatically nicer than it was decades ago.
The opioid issue is absolutely a big degradation in QOL from recent years, but no the current crime rate is still well below decades ago, especially on a per capita basis.
But it’s not like our standard of living has remained static while we need to work more. A lot has changed. In 1960 the average single family home was 1300 square feet, now it’s more than double that, and it’s packed with amazing amenities and entertainment options. What would an iPad cost in 1960?
Obviously the question is kind of nonsensical and yet on the other hand, if you were to try and quantify the price of our ability to work from home, for instance, we have a way better deal going than they did in 1960. You could retort that this is the inevitable march of technological progress, but could it be the result of hard work and innovation including the hard work and innovation of women in the work force?
I would gladly trade WFH to be the one person supporting a family of 6. (Me, partner, two kids, two grandparents.)
The Internet's great and all (although sometimes it seems like it was a mistake), but we're so far from 1 very average person being able to support a middle class life style for 6 people.
Median income in 1960 was $5,600, which is equivalent to $60,000 today, but according to the EPI*, to provide for a family of 6, I'd need to make about $150k/yr to live in Cincinnati, Ohio (in SF it's $280k). Which isn't a lot in the FAANG world, but the point is that a very average not-very-smart person was able to provide for that many people back then.
How many very average not-very-smart unskilled people do you know make $150k/yr; how many smart people do you know that make less than that?
> Which isn't a lot in the FAANG world, but the point is that a very average not-very-smart person was able to provide for that many people back then
They weren't. The average household income in the 1960s (i.e., from a single breadwinner) was supporting a household of 3-4 people not 6[1][2]. The claim that you could support a family of 6 on a single breadwinner's income in 1960 and achieve anything close to 2024's quality of life is an egregious misrepresentation by the GGP.
The standard of living today is immensely higher. If you wanted to live at 1960 level you could certainly afford to do so. You’d have 1,000 sq ft of house, a single unreliable car, almost never go out to eat or travel, etc.
Is it? sure we have the Internet and big TVs and fast cars, but how much time do we actually have to enjoy them? quality of life is measured in more than just the things you have. I mean, yeah, if you're getting Doordash every meal and spending all your money that way, that's on you. Trader Joe's is frigging great, imo. but eating at home and having an older car isn't going to get me to a place where one median American salary can comfortably support a meaningful amount of people.
this is after we decry the other ills of there 1960's, of racism and sexism, which hopefully it's obvious I don't want to go back to, but letting both parents work somehow became both parents need to work for middle America and I'm just tired of my friends living at the edge.
Ah, the 1960s. Have you tried living in a jungle, slaughtering villagers in their homes, fighting to overthrow a foreign government in exchange for college tuition? Good times.
I was reading murder Wikipedia the other day and one of the guys got out of prison the second time and was able to pick up a job making 1k/week in the late 70’s (49-50k/year) in SoCal.
That’s what I was making a decade ago in SoCal with a college degree (slightly more with OT).
Ohh to live the life of an uneducated violent offender in the 70’s.
so the tradeoff, for having to have both parents working for a very average family, is that they can surf the Internet and get Doordash? you come on. I'm not denying that we have a better quality of living today, but how much time do you have outside of weekends to just go fishing or whatever? all these labor saving devices were supposed to give us more leisure time but instead we're worrying harder than ever!
I was going to say this typo was accurate, but now I realise I've never actually seen a detailed analysis of how much people worried in the past, just confident claims it was so.
haha good catch. we've only been tracking happiness since 2012, with Finland in the lead, though worry isn't the opposite of happiness, it would be fascinating to be able to have a global tally of how humans are feeling.
When was this chill time when we could just take off fishing for a week or two?
Random breakdown of time :)
* 1800s
* 1900-WW1
* WW1-WW2
* WW2-1980
* 1980-Now
And yeah, single breadwinner households were a thing back in the day it was generally because women didn't have a choice at all.
I'm pretty sure you have more options and choice today as to how you want to live your life, but if you want a family you gotta feed the little bastards one way or another, that has always been a "worry".
The main thing is, that I could actually support a household of 6 people on a single income if I was allowed to fix the comfort at the 60s level.
1. No flying on vacation and only simple camping as vacation
2. No technology: Computers, phone, television. Nothing, and no associated costs with subscriptions, etc.
3. Eat like it was the 60s, mainly potatoes (I am from Northern Europe).
That said: I truly believe in the parent commenters key idea. We need to create more real prosperity for people. But in order to do that, we need to adjust the activities – Marketing and expensive dead-end projects (read: projects that occupy a lot of person-hours) does not achieve real prosperity.
No, you couldn't. The average working male earning 6200 USD a year in 1963 was supporting 2-3 other people (i.e., the nuclear family), not 5. This is almost directly in line, via inflation, with the average US household income and size in 2024.
I agree with the larger point about prosperity, and I think there are ways in which the US (and other developed countries) have gone backwards in QoL metrics. But a serious conversation about that needs to start with numbers rooted in reality, not a rose-glass view of the past.
Yes, so I am saying that a median income today could sustain a 6 person household if you were allowed to fix your comfort level to the level of the 60s. That is 3 more than a single median income supported in the 60s.
I am definitely not trying to paint a rose-glass view of the past. I am saying that we do have more prosperity today than we had 60 years ago.
I am also saying that we pay of a lot of time to have things that provide diminishing returns. (Ie. would you rather have flush toilets or access to facebook - style of reasoning). Maybe the famous 80% value for 20% cost is also inflating?
Take your typical family of 4 living on 2 incomes today.
Are they living in a 1,500sf house (median size in 1960)? Without AC, no cable TV, no computers, 1 car, no exotic / organic foods except from the garden, few toys, 60’s era medicine. Do they actually repair or even make clothes? How about home repairs?
My mother was a teen in the 60’s and while objectively they were well above the median income for the time period in many ways they lived like extremely poor people do in 2024. Some of that was actually saving money for retirement, but mostly it was just far lower expectations.
Right. By virtually every metric, the average American family is materially more prosperous than they would have been in the 1960s.
Backwards movement in QoL metrics is mostly on the left tail: impoverished Americans have access to AC and refrigerators, but often live in food deserts or are subjected to perverse policies in our social safety net (e.g. welfare cliffs that punish people for working by taking away benefits that enable them to work).
You make some valid points but one nitpick: what we call organic food today, they simply called food in the 60's since all food was by definition organic.
That is abjectly false. Synthetic pesticides have been used since before the second world war. Silent Spring was written in 1962 about the effects of the amounts of DDT that had already accumulated in the environment by that point.
No. Because the things that cost significant amounts of money aren't computers, phones, and tvs (notice that poor people have these). It's the minimum bar to be a player in society that has been raised.
1960s
- could have a good career without college education and it was inexpensive
- can afford a house
- can often not have a car
2020s
- need bachelors degree to get started, probably also need a professional degree
- houses occupy
- need cars (likely for all adult family members)
What is it then, that is so super expensive today, that wasn't too expensive in the 60s?
also it is a strawman to mention the poor people has it. the hierarchy of what you spend money on is not settled in a hiatorical occurance of said product. you don't buy a watch before a phone because it was invented first.
also, it is completely irrelevant. my proposition is that if you fix your comforts at the 60s level then you have greater spending power than equivalent people of the 60s
> What is it then, that is so super expensive today, that wasn't too expensive in the 60s?
- Education. Include how much education you need and prep (duration increases costs and reduces wages).
- Insurance,
- Health care
- Transportation (gas, cost of vehicles, average commutes).
- Professional services (accounting, law, etc).
- Housing
The point is in 1960 you could be a normal member of society with no health insurance, a high school diploma, one car for your family, and 1000 square foot house downtown.
Some aspects have improved, and others have declined.
Home entertainment has more options, we spend more time at the TV and computer.
Other aspects of life have declined.
It's challenging because there are qualitative and aesthetic aspects to the process, so it takes some discussion to come up with a good understanding.
Regardless CPI is misleading. The amount of time spent working over a lifetime to support the family and cover taxes has grown significantly, at a higher rate than CPI suggests.
Community/social life has greatly declined for almost everyone. Home appliances are fancier today, but they are far less reliable. Furniture is much worse in almost every way (e.g. my grandma sleeps today on the same bed and spring mattress that her parents-in-law bought, some 60-70 years ago, and it is still extremely comfortable). Clothes are far less durable as well. Fruits and vegetables are typically worse in taste. Education is extraordinarily more expensive. Job security is much worse.
The opulent space per inhabitant (as families are also smaller) is now viewed by many as a negative in face of the climate crisis, not to mention the cost of housing and the resulting need to work more.
I also have like six different machines in my house that would each, single-handedly, put the entire computing infrastructure of the Apollo program to shame. And my corneas have been reshaped into the ideal form by a computer-controlled laser, giving me 20/10 vision. I haven’t done it yet, but I could get my entire genome sequenced. A $20 Italian rifle sounds like a good deal but today you can buy a machine that literally prints guns (some assembly required). Any one of these things would be worth millions if not billions of dollars in the 1960’s.
This also explains why Palo Alto is so much more expensive these days. Some the things I mentioned were invented around there, which made a lot of those people rich.
Other things have become more affordable too. In 1960, a round trip flight from New York to London cost $550. I can find similar fares right now. In 1984, a Macintosh cost $2500, had 128 KB of RAM and a 9 inch 512 by 342 pixel display. For half as many dollars today, you can buy an iMac with a 24 inch 4.5K display and 8 GB of RAM.
Now, I will admit that many things are needlessly more expensive, and while the reasons for this are complicated, I don’t think it’s any coincidence that many of these cost increases are directly associated with institutions getting taken over by parasitic classes of administrators and bureaucrats. If you go to college, you’re not just paying for the inherent costs of the college; you’re also paying for the growing administrative bureaucracy that has infested the institution. If you go to the doctor, you’re not just paying your local family doctor; you’re paying an entire bureaucracy that has reduced your family doctor—who used to own a private practice—to the status of a corporate employee, plus a completely separate “health insurance” bureaucracy. (It turned out that the doctor who reshaped my corneas with lasers was happy to just take cash though!)
Governments are some of the worst effected. The cost to build the US interstate highway system was, adjusted for inflation, about 618 billion dollars. The 2021 infrastructure bill totaled 1.2 trillion dollars, but are we really getting the equivalent of two complete interstate highway systems? But hey, it could be worse—it’s not like they actually collected all the tax dollars they needed to pay for it! That’s a problem for future America. I don’t envy those guys!
The extremely short summary of where all that prosperity went: up and abroad. The capitalist class hollowed out the middle income USA by siphoning solid jobs off abroad and pocketing the difference. You can thank all the neolib useful idiots for that. It is not really the result of interest rates.
I agree with this: inflation as an economic measure is an intentional policy tool to transfer wealth from the poor to the wealthy.
In the last few months we've seen headlines about inflation "levelling off" but that just means prices aren't growing as fast. The 20-30% increases in housing in particular aren't going down. In fact, it's intentional government policy to make sure house prices and rents never go down.
You mention Silicon Valley and others dismiss this as a result of the dot com bubble but it's really not. It's zoning policy. IIRC the smallest lot in Menlo Park or Mountain View is ~10,000 square feet.
But you see it elsewhere. The average house price in London is ~706k GBP. 30 years ago it was ~70k.
Inflation is used to justify wage suppression. Whatever the formula, it doesn't accurately reflect to cost-of-living crisis we're in.
Comparing Palo Alto circa 1960 to Palo Alto circa 2020 is frankly bizarre. But if we’re using that logic why stop at 1960? Coulda had that land for almost nothing in 1700, so there was infinite inflation from 1700 to 1960! Gasp!
But what’s the result if we look at the price of a compute that a 1960 worker could buy vs a 2020 person? Let’s see a modern household has the equivalent to a very large number of 1960 mainframe computers, looks like their buying power has gone up infinitely!
Or lots in prime La neighborhoods, super affordable in 1860! That means people have lost so much purchasing power because they’re hard to afford now!
> so there was infinite inflation from 1700 to 1960
Infinite is exaggerating but the US dollar has lost >95.0% of its value since the 1700s. So that observation is technically wrong but intuitively is fairly reasonable. If you assumed infinite inflation since then you'd be accurate enough for casual conversation.
> Take 1963 as an Example. Sears sold entire two story home kits with all materials for $1600.
How big (area-wise) were those houses? What kind of heating did they have? How air-tight/leaky/drafty were they (which would dictate OpEx on heating)? Did they have air conditioning? What kind of electrical service could they handle (60A? 100A? 200A?)? Did that include the foundations/footings/slab? Were those parts insulated (i.e., how cold were your feet)? Did they come with sprinklers or even smoke/fire alarms?
> And you weren’t getting an HGTV-approved home in the 1950s. Those cheap homes everyone was buying were 700-900 square feet with two to three bedrooms and one bathroom. Most had no basement, porch or back deck. You were lucky if you got a one-stall garage.
> No open floor plans, granite countertops, stainless steel appliances, walk-in closets, man caves or room to entertain. Most homes were bare bones.
I'm not sure how many folks would like to live in a current $1600-equivalent house.
> My point is that inflation isn’t abstract and it isn’t a law of nature. It’s a deliberate approach to stealing your prosperity while you cheer it on.
If you think inflation is bad, try deflation (1930s).
> Summers is right more than he’s wrong. Real inflation has always been higher than the bogus CPI numbers, and the past 5 years it’s been accelerating.
The pre-1983 algorithms were moved away from for a reason: do you know that reason? Was it a good or bad reason(s)? Why?
> In 1983, the government switched from using home prices — which also included mortgage payments and maintenance costs — to using rental prices to gauge the cost of housing.
> The cost of housing for people who own their property is now measured using what is called “owners’ equivalent rent”: how much their house would cost to rent if they did not own it.
> The idea is that homes are an investment. House prices appreciate, and you may eventually sell for a profit a property that you have purchased. Rent, however, represents consumption. It does not leave you with an asset that you can sell down the road.
> Critics often argue that by leaving home prices out of the equation, the inflation metric underestimates the cost of living at moments when home prices are increasing markedly and when it costs first-time buyers more to get a foothold in the market. Some even claim that if the government used the old methodology, its reported inflation rate would be much higher today than it was during the 1980s.
Housing prices are not considered in the CPI ("cost of living") because they are mostly an asset:
> House prices are an interesting case. Houses are considered capital investment by the [US] BLS. So, when the value of your home increases that's a good thing as you didn't consume the house. In other words, you don't need to replace the house. Consumption goods are different in that you need to replace the thing you bought. Inflation is very bad for consumption goods because it costs you more to replace that thing each time you need it (food, for instance).
> The BLS views housing as a mostly “investment” item as opposed to a consumption item. So, for instance, when you consume a hot dog and have to replace it then the cost of replacement is a direct reflection on your well-being. A $1 hot dog that costs $2 one year later is a material change in living standards, all else equal, since the hot dog is an asset that you literally consume. A house is much more complex. [...]
> Of course, anyone who owns a house knows that it’s not that simple. You do basically consume your house over time. For instance, my home has appreciated substantially since I purchased it just 5 years ago and underwent a hellish remodel. At that time the cost of replacement was roughly $300 per square foot. But in the ensuing years the cost of replacement has increased to $400 per square foot. As my physical home falls apart over the years I will need to replace it. But the key point is that, as I replace these components the housing market is likely to revalue the total home value to account for this investment. So even though I am consuming my house over time I am very likely to recoup those costs.
Upkeep is a part of the CPI (as is Rent, under the broader Shelter category), but house/land prices are not. The "C" in CPI stands for consumer. Housing assets aren't in the CPI for the same reasons stocks and bonds are not: we don't consume them to live.
'Shelter' is considered in the CPI generally though (and with-in that things like home repair (lumber, plumbing) are accounted for); for Canada:
And as the Bank of Canada notes, there is no internationally agreed upon method:
> International statistical agencies have unanimously adopted the net acquisition approach for durables, but there is no consensus about the best approach to the treatment of OA in the CPI16 (Table 1). Rental equivalence is the most popular approach among countries belonging to the Organisation for Economic Co- operation and Development.17 Johnson’s (2015) recent review of the U.K. CPI proposes using CPIH, which includes the costs of OA and is based on a rental- equivalence approach, as the U.K.’s main measure of inflation. Several countries in the European Union have refrained from incorporating OA into their CPI, although Eurostat is currently conducting a pilot study for the euro area based on the net acquisition approach. Australia and New Zealand use a net acquisition approach, while Sweden and Finland—like Canada—are using a partial user-cost approach. No country has adopted a full-fledged user-cost approach.
Honestly, calling BS on this. The cheapest large package mass produced factory farmed chicken at my local big retailer grocery store is $2/lb. The nicer stuff is more like $5/lb.
If people want cheaper food, they should eat less meat or no meat at all. It blows my mind how cheap it is to eat a vegetarian diet. Dried black beans are $1/pound. That is a lot of food for very little money! Rice is super cheap. Potatoes are super cheap.
If you rely on staple vegetarian food for the bulk of your calories and then “decorate” with fresh fruits and vegetables, you can eat very well for not a lot of money.
Maybe it's because I'm in WA - a huge agricultural state. I get Draper Valley Farms whole chickens for 99c/lb on the regular. It's $2.89/lb (already a good price) when not on sale, but the sale has been happening a couple times a month like clockwork now.
The Draper Valley Farms stuff is generally cheaper than the Kroger-branded stuff, no matter the cut. Like right now, boneless thighs are 50c cheaper per lb (no sales). It's $6/lb vs $6.50/lb. Bone-in is $3.79/lb! The Kroger brand doesn't even offer that variety for some reason.
A few lbs of that + some orzo (cheap) + some staple produce (shallot, cherry tomatoes, garlic) can make you 6 very filling and delicious meals. When you compare it to fast food, the difference is staggering - definitely a divergence compared to the diff years ago. It's the convenience stuff that is truly spiking. Groceries are definitely a lower % of my income than half a decade ago.
The barrier to most people is they can't process a whole chicken.
> Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home.
They used older kids to watch younger kids, and generally let the kids fend more for themselves (my boomer dad was the oldest of 8 kids, and that was his experience, but having his grandparents die of spanish flu after WW2 hurt and helped a bit). I actually kind of admire that, and think we've lost something with more hands on parenting.
I totally agree. In a sense, FAANG salaries aren't especially high by historical standards, it is just that everyone else has fallen so far behind. $500k/year household income is firmly middle class, and is like earning $135k in 1980, my dad made more than that contracting in building nuclear plants with an associates degree from Spokane Community College.
It wasn't that much back then, especially when the industry was feast or famine (and it did implode in 1986 or so). But really, my only point was "a guy who had an associates degree from a CC could earn that much."
My buying power is essentially worse than my dad's, although I put in a lot more time in school for it, and supposedly made the right career choice, things just suck these days and techies are keeping their heads above water but not much more.
I don't really understand the argument at the heart of this article, which is "we should include interest rates in CPI".
How do interest rates effect everyday people exactly, other than price inflation on goods and services (which is included separately in CPI)?
The only way seems to be interest rates on personal loans and mortgages. So if anything, we should only include interest rates in proportion to how many people are taking out major loans during the sampled period (and maybe some additional amount based on the effect on adjustable-rate mortgages, etc).
Blindly stacking interest rates on top of CPI doesn't really make sense as a measure of personal inflation, and "it feels like stuff got more expensive" (as a lot of other comments here argue) isn't so much an argument for this strategy so much as an argument that the CPI 'basket of goods' needs to be rebalanced in other ways.
> "The only way seems to be interest rates on personal loans and mortgages."
Yes, exactly.
As noted in the article and the underlying study, 80% of car purchases are done via a loan and financing is not part of the inflation measure. When you look at buying a home, most are also done via loans and still financing is not part of the measure. In both cases, interest rates are a factor in affordability and cost.
> Blindly stacking interest rates on top of CPI doesn't really make sense
Well then it's good that's not what they're doing.
> interest rates are a factor in affordability and cost
Paradoxically over a long term, interest rates don't affect house affordability much.
People bid on houses at the limit of what they can spend - the constraint is their income not the interest rate.
As interest rates fall, people pay the same interest payments but bid higher on the house price (driving house prices up). As interest rates rise, people spend the same amount monthly (on interest payments) but borrow less in total and can bid less on houses.
It is a steady-state argument, so other things do matter (income changes, mortgage qualification rules, immigration into the area, dynamic effects of interest rate changes). Rent has other factors but the constraint of income has parallel effects.
If interest rates remain the same for a longer period then houses must sell for a price where people can pay their mortgages.
Household income is a hard constraint. People can't pay more for interest payments than they earn.
House prices can still rise if:
• people can pay more on interest e.g. reduce their spending in other areas e.g. increase income using overtime. e.g. rent or AirBnB rooms.
• Or if they can lower mortgage interest costs by increasing deposits/equity e.g. sell down other investments, or borrow from friends/family e.g. downsize house.
• Or if more wealthy people move into the area
And it is a market - I am talking about how individuals drive the market price but obviously the price is set by successful sales and purchases. There is a lot of unmet demand by people who can't quite afford a deposit/mortgage.
Irrelevant whether someone is living in it or not.
And I don't think China is a relevant example when discussing mortgages in my country or the US.
If the market is driven by mortgages (presuming there are not other reasons why the market is disfunctional) then someone is paying the mortgage (or the opportunity cost of investing cash).
The market price mostly depends on how much people are capable (and willing) to spend on interest payments. Somewhat different dynamics in New Zealand because to an approximation our mortgages are all variable so we see house prices shift over a couple of years as interest rate changes (plus our interest rates are often higher than US rates). US 30 year mortgages at a fixed rate mean market prices drop more slowly, but I'm guessing can still rise quickly. Interest rates went up in NZ and two years later property prices are down 10% currently I think (plus sentiment still really matters too).
You can still fiddle with terms and a bunch of other free variables, but interest payments are one of the most significant variables.
I don't buy this is reasonable for home purchases. They already factor imputed rent in CPI; you'd have to somehow do some sort of complex weighing of own vs rent to factor mortgages (complex since it only affects new purchases given most folks are on fixed rate mortgages)
The argument is bunk, and your observation is correct: inflation can be higher than the current CPI predicts, but this does not somehow imply that the CPI basket should factor instruments that do not disproportionately affect ordinary Americans' finances (or double-count ones already accounted for more directly).
> So if anything, we should only include interest rates in proportion to how many people are taking out major loans during the sampled period
Is that right? What about people that didn't buy a home in 2023 because interest rates were high (i.e. they the impact of high interest rates was so large that they _wouldn't appear_ in your weighting because they were pushed out of the market)?
Mortgages aren't some small detail distorting the numbers. They make the difference between being able to afford a house or not. Having to live with your parents vs being able to buy a house and start a family of your own.
I was lucky to buy a house 10 years ago, and got a 3.5% fixed rate mortgage. Today the house value has gone up by 50%, and mortgage rates are about double at 7%. Just due to the mortgage increase alone, someone buying this house today would have a monthly payment about double what I am paying. I would not be able to afford it. On top of the mortgage rate increase, there's also that 50% inflation in the value of the house, meaning that if it sold today the new buyer (assuming they financed it) would be paying closer to triple (150% x 200%) what I am.
The reason to ignore it would be mechanical: it's more difficult to measure something when the measurement includes a thing that is adjusted by the measurement.
For purposes of setting Fed rates, it makes sense to exclude it.
For purposes of measuring perceived inflation, it makes sense to include it.
Interest expense and interest rates, concretely paid by people like any other expense is not any more nebulous than tracking other expenditures.
We already know the interest rate and various categories of interest expense paid by population. It is just not included. Your rationale sounds very much like "we shouldn't include it because the inflation rate would be higher".
There is nothing mechanically weird about not ignoring a real expense the economy and people bear the cost of.
This isn't touchy feely, this is concrete costs people pay. Not tracking is purely political.
CPI is used for other things too, including contract negotiations and standard of living comparisons.
Anyway, recursive sums like that are nothing unusual; as long as the sum converges it's not a problem. Any negative feedback amplifier does the same thing.
It isn't exactly. Increasing interest can mean you have to pay liabilities unexpectedly early. But it's really the difference between your income and interest that matters. If your income is keeping up with inflation then higher inflation doesn't make you worse off; it just means you are paying off debts faster.
If in a year a burger goes from $5 to $10 and the Fed rate goes from 2% to 5%, what do you think the inflationary factor should be in your methodology?
> The only way seems to be interest rates on personal loans and mortgages.
Most interest rates across the economy are set in relation to a benchmark rate, which loosely follow the Fed rate. E.g. the US prime rate.
This effects essentially all credit that isn't fixed rate, which is a huge portion.
How this effects you -- the price of credit that businesses use to function, which essentially every business uses, ultimately shows up in the cost of goods.
> So if anything, we should only include interest rates in proportion to how many people are taking out major loans during the sampled period
It goes both ways: in that case, we should also discount from CPI calculation the effect of sub-3% mortgages, low/zero interest auto loans, forgiven fraudulent PPP loans, etc.
Interest rates impact the cost of everything you buy.
Almost all large businesses are financing their operations on credit, not by spending down a war chest replenished with revenue. Large public companies borrow money against their remaining held stock to finance their operation. It is true that inflation impacts the base cost of the raw materials and labor but those costs are also more expensive because of the higher business loan interest rate to finance an operation. The extra financing cost is passed to the consumer.
The higher cost of financing drives layoffs too, companies will layoff when financing costs rise so they can stay cost neutral.
To me it makes sense to include interest rates, because even if a person doesn't have any loans (or get new ones), they pay current rates on the cost of loans, because businesses do have loans and they pass the costs through.
> we should only include interest rates in proportion to how many people are taking out major loans during the sampled period
The price of beef went up. A lot. As a result, quite a lot of people stopped eating beef. Should we remove the beef from the CPI basket?
Similarly, the mortgage rates skyrocketed, and the number of home purchases plummeted. But many more people would buy a home, if only they could afford it. Just like more people would start eating beef again, if they could afford it.
>How do interest rates effect everyday people exactly, other than price inflation on goods and services (which is included separately in CPI)?
We artificially made interest rates low (look up open market operations). Low rates make risky ventures more financially attractive by making the DCF denominator smaller. People look to invest in growth instead of reliable revenue. That is, "bet on the future" becomes dramatically more attractive than "goods and services being made now". Additionally, it devalues wages and increases the value of financial assets. It's literally "rich get richer: the policy".
Anyone who is upset about NFTs millionares existing while EMS workers and teachers struggle, or upset about billionaires' staggering wealth inequality, or fraudulent do-nothing scam businesses like WeWork and Theranos, obviously stupid ventures like Juicero, or basically any economic upside-downness that most laypeople have recently come to blame on "capitalism" need look no further than LIRP and ZIRP. We snapped all the fingers of the invisible hand, but did it far upstream of anything that average people pay attention to. Anyone who wasn't paid in equity got fucking robbed over the last 20 years.
I don't really agree that interest should be included in CPI, but I do agree that CPI (and PCE) is an absolute joke that doesn't measure what it claims to.
Fundamentally, the argument is "The Cost of Money is Part of the Cost of Living" (as the paper's title states).
The trillion dollar question is whether it really does.
Based on the backtesting done the paper, it spiked extremely high in late 2023, and then drastically fell to 1980s levels.
If we use Summers' argument, then the Reagan era was a high inflation era as well (as the paper itself shows).
Tbf, this is the very reason the CPI was changed. The rate of change of Cost of Goods has fallen, and incomes at the median level has risen, but housing remains expensive.
That said, lower interest rates aren't going to change squat, as the number of houses built has basically crashed to nil after 2008. There is a supply issue and it's not because of zoning - it's because financing dried up after the entire real estate financial sector collapsed in the 2008-11 period.
The Forbes contributer themselves is not a good source, as they gloss over a significant portion of the paper, and their think tank (FREOPP) is partisan [0]
P.S. I am opposed to partisan shilling on both sides of the aisle on policy related subjects. We are all on the same team - America - and we better darn act like it.
Interesting that the article doesn't mention what seems to be an obvious takeaway if you believe that interest rates explain the gap between CPI and sentiment: raising interest rates to fight inflation will make people feel inflation is worse.
I'm suspicious that this isn't mentioned because Summers and Roy are inflation hawks who've advocated the Fed raise rates and the alleged fact that people will experience this as increased inflation at least in the short term is politically inconvenient for them, even as they'd like to claim inflation is worse than the CPI says so they can claim vindication for their hawkishness...
As the debt increases, the federal government has to borrow more money from U.S. and foreign investors. But as would-be lenders to the U.S. see America as increasingly insolvent, investors will demand higher interest rates to lend us that money. Higher rates of government borrowing lead to higher rates for home mortgages, credit cards, student loans, car loans, and every other form of borrowing. And, as we’ve seen, these higher interest rates lead to higher price inflation, whether or not the Bureau of Labor Statistics recognizes it as such.
This talks about higher interest rates due to investors being reluctant to purchase US government debt, which is not something we've observed recently. It doesn't talk about higher interest rates due to deliberate action by the Federal Reserve, which is something we've observed recently. Mortgage rates aren't up because of debt, they're up because the Fed raised rates sharply 2022-3, as you can find on a different portion of the Forbes website: https://www.forbes.com/advisor/investing/fed-funds-rate-hist...
I'd actually missed or forgotten the paragraph you quote, but in context it seems pretty disingenuous, using a hypothetical which smoothly transitions to present tense to imply that the debt bogeyman is to blame for what Roy knows very well are actually, in the last few years, consequences of attempts to combat inflation. This only makes me more doubtful of his intellectual honesty.
But the biggest "investor" in US government debt is the Fed, so I don't quite follow how you can separate the two things here. And the other investors are using money that was ultimately issued into existence via lending against reserves, and the Fed controls interest rates by issuing or withdrawing high powered money. And the money the government spends after borrowing it is re-deposited back into the banking system, raising their reserves and letting them issue more loans, further increasing the size of the monetary base and therefore inflation.
Given that it's all connected I don't quite follow why you are cleanly dividing them here.
The CPI is kinda fine and should not include interest rates. The CPI is used to measure price inflation and not individual misery and should be left to do just that.
It would have been better to invest in such an index. Here is a simplified example: The US is made of two cities; NYC and midland. Inflation rate is 0% for both and misery is non-existent. midland now has no jobs. None. So people move to NYC and inflate prices there. Inflation in NYC is 20% while deflation in midland is 30%. The Fed works the numbers and says that overall inflation is around 2% for the whole country and so everything is fine.
The reality is that misery is sky high; people are being burnt by prices in NYC and can't find jobs/buyers in midland. They have to move at high personal costs or close their businesses in the midland. On the other hand, they struggle to make a living in the new NYC town.
CPI doesn't measure things like healthcare properly (17% of GDP) as those prices are not paid by consumers. the insurers get their cut straight out of your paycheck.
College either. Tuition is priced as is, but what about people who pay many multiples of the original tuition in interest expenses over the years? not counted in CPI. Tuition inflation for a person with the means to pay out of pocket is much lower than someone who finances their education.
It's interesting that consumer sentiment apparently tracks the older formula more closely. Presumably we have data that could allow us to include "the price of money" in inflation metrics, perhaps weighed based on how much the average American borrows.
Headline consumer sentiment is polluted by junk like this article. People report their personal household situation is fine and they expect it to continue being at least this good or better in 1 and 5 years. But they've heard so much shadowstats horseshit on the radio that they are compelled to stake out a negative view on the economy as a whole.
In the latest UMich consumer survey majority of respondents expect their incomes to grow faster than prices, in fact the reported probability of real personal income rising has never been higher in the history of the survey. And, with respect to inflation, consumers expect incomes to rise about 2.5% per year, and that expectation is higher than the expected increase in prices. During times of very high inflation respondents reported expectations of 6% nominal income increases. So this is all consistent with the idea that inflation as people actually experience it has been moderate. But, further down the February results, you can see that record numbers of people report hearing negative news stories about prices, way way way higher than in 1980! Which is totally crazy if you were here in 1980! You can also read further and see that expectation of rising unemployment have been consistently high for the last 5 years, and reports of having heard news stories about unemployment have been at record highs, while responses about the probability of losing their own job are at record lows and of course objective unemployment is almost dangerously low.
>But, further down the February results, you can see that record numbers of people report hearing negative news stories about prices, way way way higher than in 1980! Which is totally crazy if you were here in 1980!
If you had taken a moment to consider the data presented in the article instead of dismissing it out of hand because it offends your sensibilities, you would realize it states that it obviously implies it is not crazy to hear more news about inflation nowadays than in the 1980s, because it shows inflation is worse nowadays than in the 1980s. Feel free keep raving about how you get a much better vibe from the economy today despite the info if that's what matters more to you, though.
Bad facts are not useful. The article compares the consumer sentiment index from the 80s with today's. That's a made up number, only relevant for short term relative comparisons. Long term absolute comparisons have little value. What's the Y axis on that?
The experienced inflation is the area under the spike in that graph. And the area is approximately way larger in the 80's spike. Above 7% for a decade versus 2 for the current spike. And just like interest, that compounds over time.
Oh, this got even worse than I expected. Let me show you another graph, then. This is FRED's official price index, which is the source of the blue inflation line in that graphic. I've overlayed two red lines for its value in the eleven years from Aug 1972 to Aug 1983, plus two orange lines comparing its value now (Mar 2024) to Mar 2013, also eleven years. Notice how the gap between the red lines is a price rise of $58.2 on a 1982/84 $100 basket, while the gap between the red lines is a rise $79.948, which is significantly higher: https://fred.stlouisfed.org/graph/?graph_id=1327450
Now imagine how much worse this would get if we did these calculations with the yellow line data instead, which is essentially the same in the 70-80s but much worse today. (Or maybe also imagine how much worse the past ten years could be five years from now if we got a second inflationary spike like the 70s-80 did, making this a more apples to apples comparison!)
You mean the time that I read and memorized long ago had an inflation of 14%? You have read the title of this post, right? And you're aware that 18 > 14? If I assume you are, you are just making another vibes-based assertion. Would you rather I didn't?
Nothing you said has anything to do with the article and its proposal to incorporate interest rates into inflation. Maybe it's your type of post that should be considered polution.
In Sweden we measure inflation both with and without interest rate changes. The latter measure is called KPIF (“konsumentprisindex med fast ränta” / “consumer price index with fixed interest rate”). The central bank inflation target of 2% is formally for this KPIF. As I understand it KPIF includes borrowing costs (e.g. car loans), but at a fixed fake / interest rate.
It sounds complicated, but I think this is actually the right approach.
That seems subjectively accurate, looking at my grocery store receipts and $13/lb meat. Certainly more accurate than “3.5%” bullshit the “free press” is asking us to believe.
The "free press" is reporting BLS data. And BLS produces a CPI number based on a formula to act as an indicator, not an absolute measure. People tend to react to things they buy frequently which also happen to be the most volatile (food and fuel) and react less to things they actually spend most of their money on (shelter and transportation). CPI is a broad indicator and will never match the lived experiences of 350M individuals. Inflation can vary widely across a lot of dimensions including geography. Absolutely all of this data is available from the BLS. They only put CPI in headlines because it is meant to convey broad national trends in a bite-sized data point.
>People tend to react to things they buy frequently which also happen to be the most volatile (food and fuel) and react less to things they actually spend most of their money on (shelter and transportation).
Are you suggesting housing prices haven't gone up similar to food prices? Because they have. House prices in many places went up 50% in the last few years and never went back down. People aren't imagining this inflation. It isn't 3%, that's for damn sure. It's at least 10% right now, and probably hit as high as 20% during the pandemic.
I am not implying that. But house prices by their nature move more slowly. Even if new listing are more expensive, anyone in a long-term lease or an owner isn't subject to new prices. Or anyone who has exited the housing marker (ie moving in with parents) is not paying high prices.
>But house prices by their nature move more slowly.
They can and have moved very fast in the past few years.
>Even if new listing are more expensive, anyone in a long-term lease or an owner isn't subject to new prices. Or anyone who has exited the housing marker (ie moving in with parents) is not paying high prices.
That is a very short-term situation. Everyone who doesn't own a house needs to pay rent. And homeowners will eventually be faced with higher taxes as a result of inflated values, and they might not be able to cope. People who are forced to move in with parents aren't managing some epic life hack, they are trying to scrape by in the face of high prices.
It seems like you're trying to make the argument "There is no inflation and even if there is, it doesn't matter." And I'm not buying it.
I am not making that argument at all. I'm explaining why the numbers are the numbers. And why the numbers don't capture how people perceive things. I should clarify that I mean the "prices people pay for housing move slowly" even if they prices of available housing move quickly for the reasons I mentioned above. And I don't think exiting the housing market is a life hack, I'm just saying it's happening. It's the kind of thing that would explicitly not be reflected in inflation indicators because no price is being paid but would be felt as a negative effect of inflation by people experiencing it.
>I should clarify that I mean the "prices people pay for housing move slowly" even if they prices of available housing move quickly for the reasons I mentioned above.
It's not right to count fixed prices in inflation figures. If you are locked into a lease or mortgage, you're not a market participant and any perceived non-increase in prices is tangential to the behavior of the money supply. But the government can't let a good excuse go to waste, which I explain below.
>It's the kind of thing that would explicitly not be reflected in inflation indicators because no price is being paid but would be felt as a negative effect of inflation by people experiencing it.
Actually, there is a very goofy methodology used to estimate housing costs in the official CPI called "owner's equivalent rent". Basically owners of housing are surveyed and asked how much their properties would rent for, which they obviously would tend to underestimate because they are actively out of the rental market in general. This is another reason CPI is a bad measure of inflation. There are many adjustments with plausible excuses, which cumulatively add up to a significant understatement of inflation numbers.
> That seems subjectively accurate, looking at my grocery store receipts and $13/lb meat. Certainly more accurate than “3.5%” bullshit the “free press” is asking us to believe.
You do know that the CPI (and CPE) are made up of components, right? Like Shelter, Energy, Transportation… Food.
Food can go up more that 3.5% while other items (like Transportation/Energy/Oil) go down, so on average the prices you see have gone up by 3.5%. The individual components may be more (or less) than the 3.5% average.
Further, the CPI is an average basket of goods and services (taken from spending surveys done by many people), which may or may not correspond to what you personally put in your own basket. In Canada, StatCan has a Personal Inflation Calculator where you can enter budget as see your personal inflation rate which may be different than the headline inflation rate:
> CPI is designed to make the government look good, hence the article.
The CPI is run by the Bureau of Labor Statistics:
> The "food price index" evolved into what we now call the Consumer Price Index (CPI). During World War I, rapid increases in prices, particularly in shipbuilding centers, made a more comprehensive index essential for calculating cost-of-living adjustments in wages. Studies of family expenditures were conducted in 92 industrial centers in 1917–19 in order to provide appropriate weighting patterns for the index. Periodic collection of prices was started and, in 1919, the Bureau of Labor Statistics (BLS) began publication of separate consumer price indexes for 32 cities. Regular publication of a national index, the U.S. city average, began in 1921, and indexes were estimated back to 1913.
It is one of most examined numbers in statistics, and while the "best" way† to do things is debated, are there any non-tin-foil hat people that think that the numbers are actually wrong given the published methodologies? Entire research projects (which have released source code) have examined the official numbers and found that they track things fairly well:
> are there any non-tin-foil hat people that think that the numbers are actually wrong given the published methodologies?
No, but the whole point of the poster above, and of the article we're commenting on, is that the methodologies themselves are wrong (i.e. that they don't measure what people really care about, they measure something that the government thinks will look better than reality).
This is a very common problem in economics: numbers agree very well with the models, but the models themselves are barely applicable to reality.
If the CPI was designed to make the government look good it wouldn’t use a modified Laspeyres index which introduces overestimation bias by assuming substitution does not happen between basket adjustments. It would be trivial to use a different index type which introduces the opposite bias, but they don’t.
> It would be trivial to use a different index type which introduces the opposite bias, but they don’t.
What would be an example(s) of this different type of index? Do you know of any (online?) resources that explain these differences about different types?
The Paasche index would be the alternative to the indexes used today that would tend to understate inflation. It is not commonly used however. If you wanted to be move clever you could use the Fisher index or Marshall–Edgeworth index, which would give lower inflation values than the methods commonly used today while also being easier to justify since you can argue that you believe they’re more accurate than other methods.
I did make a mistake in my comment above - I said that we use a Laspereys index, but we actually use a Lowe index, which is modification to the Laspereys formula.
We’re at a point where my bigtech six figure circles are starting to notice and switch to chicken. But by all means do please continue to deny reality. Because by the looks of it we’re headed into a Carter style stagflation for the next 15 years.
Did you read the article at all? Unless you were buying meat with personal loans the issue of whether or not interest expenses should be included in CPI has no relevance to correct measurement of food inflation.
"Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that.""
Those aren’t fancy cuts or prime grade beef. Just regular steak at Kroger or Costco. Go see for yourself if you’re in the US. It really feels like the bottom is about to fall out from US economy. I don’t know how the low income families deal with a 30% increase in their grocery bills which were a significant chunk of their spending even a few years ago. Nor how they pay rent which has also increased massively.
> Those aren’t fancy cuts or prime grade beef. Just regular steak... I don’t know how the low income families deal with a 30% increase in their grocery bills
I don't think low income families are buying steak - and price increases in luxury goods can understandably grow faster than in staples like non-steak beef.
But _all_ cuts of beef went up by a lot as far as I can tell. So did chicken, fish, and all other sources of protein. It’s not just protein though, everything across the board is on average 25-30% more expensive now than it was 3-4 years ago. A cart of foodstuffs that used to cost $100 give or take is now $130-140. This isn’t some Whole Foods kind of situation, this is a run of the mill Kroger normal people shop at
If you're comparing against 3-4 years ago, CPI says inflation was 18-21%.
So if it's actually 25-30%, that's a significant level of error but not an enormous one.
CPI says that, of those four years, almost all the inflation was in the middle two. So when it says 3.5% since last year, that's not a crazy number, it's more that it's hard to determine/remember which part of the inflation happened in exactly which month. Comparing today to 3-4 years ago is a better option for both accurate numbers and accurate memories.
It's not funny dude, that is a serious problem. I have parents on Social Security and I have to pay for their budgetary shortfall. Social Security in particular is supposed to be adjusted for inflation, which is one of the reasons the numbers are deliberately wrong.
>But seriously, there is a huge difference between "I think this metric is off by 3x or more" and "I think this metric is off by 1.4x"
I think annual inflation is actually 10% right now and probably got up to 20% during the pandemic. Depending on when you look at it, that is 2-3x what the official numbers say. Prices have not gone up uniformly across categories of course, but most things are significantly more expensive than than the official numbers would predict.
> Then you're talking about a completely different situation than ein0p. You shouldn't have replied to me about it.
I was respinding to the 1.4x vs 3x error thing.
I didn't edit the comment (I think). I'm not actually offended by the haha. I just think people may lose touch with the fact that these stats aren't just fun and games, and that some people get seriously screwed by inflation. If you thought houses were expensive before, that's probably just the beginning.
I think I misread something before I made that comment. Ignore the laughter.
But even with that mistake, I don't know why you think I was calling inflation itself funny.
-
Though, you say the "money you worked so hard to earn"...
I could interpret that as either wages or savings.
If it means your wages buy 30% less, and inflation is 30%, then your nominal income hasn't increased. If so, something has gone very wrong, and it sounds like your employer is screwing you over.
So I think you mean the savings you had a few years ago. Is that right?
But if you had a meaningful amount of savings, were none of the savings in stocks? Stocks have gone up tremendously since the peak in early 2020.
And if you had a mortgage, it would have effectively shrunk by whatever amount your nominal income increased.
>If it means your wages buy 30% less, and inflation is 30%, then your nominal income hasn't increased. If so, something has gone very wrong, and it sounds like your employer is screwing you over.
Employers use the fake numbers to determine adjustments. It's not like they are necessarily screwing you over if they don't give you a 30% raise due to inflation either lol. They have to come up with extra cash because of inflation too.
>But if you had a meaningful amount of savings, were none of the savings in stocks? Stocks have gone up tremendously since the peak in early 2020.
That's not a profit dude. It's the simple phenomenon of everything costing more. Since most businesses are hurt by inflation, stocks do not keep up with rapid inflation.
>And if you had a mortgage, it would have effectively shrunk by whatever amount your nominal income increased.
It is true that inflation makes debts easier to pay, up to a point. But that means the lender gets screwed. It is a dysfunctional situation.
> It's not like they are necessarily screwing you over if they don't give you a 30% raise
Yes, but I wasn't asking about whether the raise is 30%. If you have a 12% raise during 30% inflation then you can buy 18% less, for example.
> That's not a profit dude. It's the simple phenomenon of everything costing more. Since most businesses are hurt by inflation, stocks do not keep up with rapid inflation.
It wouldn't have to be a profit for my point to work.
But have you looked at stocks? The S&P 500 went up not just more than 30%, it went up more than 50%. Stocks did profit. And that's versus the relative peak. Any other baseline in the range of 4 years ago and the increase is even higher, and from 5 years ago it's up 75%.
> But that means the lender gets screwed. It is a dysfunctional situation.
You can't make everyone happy, but I was focusing on the experience of a relatively average person.
>Yes, but I wasn't asking about whether the raise is 30%. If you have a 12% raise during 30% inflation then you can buy 18% less, for example.
If you're supposed to be getting raises anyway, how much of your raise is due to inflation and how much is due to advancement? I am making more money than I did before the pandemic but that was almost 4 years of grinding to reach that point. All indications I've seen point to people's wages not keeping up with inflation. Wages always lag behind other prices, and usually by a lot.
>It wouldn't have to be a profit for my point to work.
Your point was precisely that "gains" in the stock market make up for other downsides of inflation. This just doesn't work out. Our economy relies on the value of money remaining stable.
>But have you looked at stocks? The S&P 500 went up not just more than 30%, it went up more than 50%. Stocks did profit. And that's versus the relative peak. Any other baseline in the range of 4 years ago and the increase is even higher, and from 5 years ago it's up 75%.
Sorry but stocks are supposed to profit. In real terms there is probably a slight profit. The rest of the increases are pure devaluation of the dollar. At some point, businesses will likely struggle to remain profitable as everyone tries to cut costs.
>You can't make everyone happy, but I was focusing on the experience of a relatively average person.
I think stable money would actually be the best-case scenario and would make people happier than high inflation.
You have a very distorted idea of what is a "relatively average person"... Most people don't have money in the stock market (which I've already argued is not making up for inflation anyway). Most people don't own houses either. As much as I hate banks, lenders getting screwed due to inflation is terrible for the economy.
> Your point was precisely that "gains" in the stock market make up for other downsides of inflation.
Nah, just saying it can reduce the damage.
> You have a very distorted idea of what is a "relatively average person"... Most people don't have money in the stock market (which I've already argued is not making up for inflation anyway). Most people don't own houses either. As much as I hate banks, lenders getting screwed due to inflation is terrible for the economy.
I was covering all the bases. If you don't have significant savings, then losing 30% of negligible is also negligible. And the most common situations that involve savings/debt have gone in the favor of individuals.
It's not good for businesses, and the drop in real income is not good. But the income hurt is smaller than raw inflation, and the the savings situation is pretty nice actually.
> Sorry but stocks are supposed to profit. In real terms there is probably a slight profit.
Well I was talking to the guy that said inflation was 25-30%. If they're right than stocks have had a huge real profit.
Increased nominal value of assets doesn't reduce any damage actually. It just means that maybe you lost a smaller portion of your net worth than you would have otherwise.
>It's not good for businesses, and the drop in real income is not good. But the income hurt is smaller than raw inflation, and the the savings situation is pretty nice actually.
While some businesses may be able to psych people out with an unnecessary price hike, it doesn't actually help anything.
>Well I was talking to the guy that said inflation was 25-30%. If they're right than stocks have had a huge real profit.
No, there is no profit from inflation. The numbers are just getting bigger. There is one actual way to profit from inflation, and that is to borrow money and buy valuable stuff, then repay the loan with less valuable dollars.
> It just means that maybe you lost a smaller portion of your net worth than you would have otherwise.
Y-yes? That isn't reducing the damage to you?
> No, there is no profit from inflation. The numbers are just getting bigger. There is one actual way to profit from inflation, and that is to borrow money and buy valuable stuff, then repay the loan with less valuable dollars.
I didn't say the profit was from inflation.
If inflation is 30% percent, but your savings went up 60% since 4 years ago, then you profited overall. (And stocks would not have gone up the same amount if there was no inflation.)
Overall you're probably worse off than if inflation was lower, but you can't say that your money buys 30% less now.
Remember, I was specifically objecting to the idea that "inflation is X% in the last few years, therefore my money buys X% less". Ignoring that it's the wrong way to calculate percentages, the baseline idea is not true. The amount your wallet is impacted is more than 0, but less than inflation.
It is only reducing damage to you if you anticipated the inflation and avoided it. Here's an example:
Person 1: Has $5k in cash.
Person 2: Has $5k in cash and a house that is paid for, worth $100k.
After inflation, both of these people would lose the same amount of spending power on the $5k. The one with the house has an asset that goes up in dollars but is likely worth the same or less. His spending power goes down by just as much as the other guy, if not more.
>If inflation is 30% percent, but your savings went up 60% since 4 years ago, then you profited overall. (And stocks would not have gone up the same amount if there was no inflation.)
Ok so yes, if your stocks outperformed inflation somehow (despite inflation unofficially running 10-20% per year!) then you can claim a profit. But stocks are supposed to profit anyway. You did make it sound like you thought the inflation made the stocks more valuable. It does not, because inflation raises all prices in general.
>Overall you're probably worse off than if inflation was lower, but you can't say that your money buys 30% less now.
Actually yes you can. Money buys 30% less. If you had assets that rose with inflation, you can preserve your spending power. But your salary is not like that, nor any cash-adjacent instrument you have like savings, CDs, and treasuries.
>Remember, I was specifically objecting to the idea that "inflation is X% in the last few years, therefore my money buys X% less". Ignoring that it's the wrong way to calculate percentages, the baseline idea is not true. The amount your wallet is impacted is more than 0, but less than inflation.
You do have a point about it being backward. 20% inflation means your dollar buys about 83% of what it did previously. But as inflation is measured by price changes it literally means your money buys the straightforwardly-calculated reduced amount. You can't point to inflation avoidance schemes or occasional salary increases and say that shit offsets the actual price increases in a meaningful way. Accounting for inflation avoidance (an economic inefficiency produced by inflation) would require a whole new statistic.
> Person 1: Has $5k in cash. Person 2: Has $5k in cash and a house that is paid for, worth $100k.
Yeah the guy that has a paid-for house and zero stocks loses out asset-wise. That's a weird-ass balance of assets though.
> Ok so yes, if your stocks outperformed inflation somehow
Well again, I was talking to someone else, using their inflation number of 30% as the basis of my comment. Stocks objectively rose by a lot more than 30%.
I don't want to argue with you about what actual inflation was.
> Actually yes you can. Money buys 30% less. If you had assets that rose with inflation, you can preserve your spending power. But your salary is not like that, nor any cash-adjacent instrument you have like savings, CDs, and treasuries.
I addressed salary in my earlier comment. If your salary didn't have any extra increase because of inflation, your employer is screwing you over, stop letting them do that.
Salary and savings are two separate arguments and I made both of them.
> You can't point to inflation avoidance schemes
"Own some stock" is not a scheme, it's what you're supposed to do with significant amounts of savings.
> or occasional salary increases and say that shit offsets the actual price increases in a meaningful way
I think it's fair to count on an extra salary increase. Tons of people got extra salary increases from inflation. Were they enough to compensate for all of inflation? Usually not. But they were enough to reduce the losses. Which is all I need to make my point.
Especially because lower wage jobs got better increases, and higher wage jobs correlate to owning at least a few thousand dollars of stock.
>Yeah the guy that has a paid-for house and zero stocks loses out asset-wise. That's a weird-ass balance of assets though.
What I'm trying to tell you is that stocks are assets too! If they went up due to inflation, that's not "profit". It just takes more weaker dollars to buy the same stocks again.
>Stocks objectively rose by a lot more than 30%. I don't want to argue with you about what actual inflation was.
Again, if inflation was 30% and stocks went up 60%, you have to figure inflation into the actual earnings to see if profits are actually good (i.e., your spending power increased by the expected amount). You can take losses in spending power as the numbers keep going up dramatically. It's not profit (in the most meaningful sense) unless your spending power goes up.
>I addressed salary in my earlier comment. If your salary didn't have any extra increase because of inflation, your employer is screwing you over, stop letting them do that.
You didn't actually address it because you keep missing the point. Number goes up != profit. As for employers, they suffer from inflation too. Even if you have the luxurious position of being able to name your price, your employer might simply not have the money. Inflation represents theft, and someone always gets screwed.
>"Own some stock" is not a scheme, it's what you're supposed to do with significant amounts of savings.
That is a strategy proposed for NPCs, and it isn't right for everyone. Even if it was, it does not really protect you from rapid inflation, because inflation is a sign of a bad economy. It's probably better than holding currency directly but profits may not keep up with inflation. And most of all, stockholders don't benefit from inflation. They at best avoid some of the effects of inflation, in the best case.
>I think it's fair to count on an extra salary increase. Tons of people got extra salary increases from inflation. Were they enough to compensate for all of inflation? Usually not. But they were enough to reduce the losses. Which is all I need to make my point.
That's a weak ass point, bro. Lots of people have fixed incomes, or otherwise can't demand salary hikes and get them in a timely manner. Wages always trail inflation, and the official cooked numbers are used to gaslight employees into taking less. Many workers get fired when their companies lose money due to inflation. There is no free lunch.
>Especially because lower wage jobs got better increases, and higher wage jobs correlate to owning at least a few thousand dollars of stock.
I don't believe they got better increases. Lower wage workers have a much larger proportion of their salaries going toward expenses, and they are far more at risk of literally not having enough money due to inflation. Higher-wage workers may be more likely to participate in the stock market, but as I've laid out that is not really adequate protection from inflation. People in debt may benefit from inflation, but forking over unearned benefits to people in debt is a misuse of resources and an injustice to well-meaning creditors.
If you're just trying to argue that people have ways of attempting to cope with inflation, you can stop now. I agree with that. What I object to is the attitude of "it's not so bad" that you're offering up. Inflation is bad and there's no real escape for most people. Our lives will really suck if inflation gets (more) out of hand.
> What I'm trying to tell you is that stocks are assets too! If they went up due to inflation, that's not "profit". It just takes more weaker dollars to buy the same stocks again.
Let me quote the original post again.
"the money I worked so hard to earn now buys 30% less"
If your $1000 becomes $1600, and prices went up 30%, then you can buy more stuff then before.
I don't care what you define profit as.
(And if you say something about how you can buy fewer stocks, that doesn't matter. Number of shares is not an important number, only how many dollars of shares you have.)
> You didn't actually address it because you keep missing the point. Number goes up != profit.
The comment I replied to didn't use the word profit, and I didn't use the word profit in my reply. You brought the word profit into the conversation. I didn't use the word profit the way you wanted, I guess. So I will stop using the word profit. Problem solved.
> That's a weak ass point, bro. Lots of people have fixed incomes, or otherwise can't demand salary hikes and get them in a timely manner. Wages always trail inflation, and the official cooked numbers are used to gaslight employees into taking less.
You mentioned fixed incomes increased based on official CPI numbers earlier, right? That's enough to prove the point I was making. The cost of living adjustment just has to be more than 0 for my argument to be correct.
Lagging doesn't affect my point as long as the lag is less than four years. Gaslit too-small numbers don't affect my point as long as the gaslit numbers are still above 0.
> If you're just trying to argue that people have ways of attempting to cope with inflation, you can stop now. I agree with that. What I object to is the attitude of "it's not so bad" that you're offering up. Inflation is bad and there's no real escape for most people. Our lives will really suck if inflation gets (more) out of hand.
No, that's not my point at all.
Let's have an example number. For this example let's pretend prices went up 30%. If I say "relative to your income and savings, you're paying 25% more", I'm not saying "it's not so bad". That situation is really bad. I'm just saying it's not 30%.
And it's important to realize that those numbers are different if we want to do accurate calculations about inflation. I'm not pointing out the difference for the sake of pedantry.
>If your $1000 becomes $1600, and prices went up 30%, then you can buy more stuff then before.
Again, your money does not increase like this. Only assets do. Stocks in particular go up in price due to inflation and naturally-occurring profit. You're the one asserting that assets ought to be brought into it, and I've been telling you that assets do not avoid the consequences of inflation.
>I don't care what you define profit as.
>The comment I replied to didn't use the word profit, and I didn't use the word profit in my reply. You brought the word profit into the conversation. I didn't use the word profit the way you wanted, I guess. So I will stop using the word profit. Problem solved.
Look, I don't think the original comment mentioned stocks either. You're the one who brought that into the equation. They did not gain because of inflation. They at best held value despite inflation. The reason they went up in terms of dollars is largely due to the depreciation of the dollar, and secondarily because of profits (using the dollar-based definition or purchasing-power definition, it doesn't matter). You're pointing to stocks as if they are a life hack for beating inflation, or even something to be taken for granted, and I'm here to tell you that they're not.
>You mentioned fixed incomes increased based on official CPI numbers earlier, right? That's enough to prove the point I was making. The cost of living adjustment just has to be more than 0 for my argument to be correct.
When they say the number is 6-8% and inflation is raging at 20%, your "point" is not helpful. Even if you're right, it's a pointless observation. Inflation is still bad mmmkay?
>Lagging doesn't affect my point as long as the lag is less than four years. Gaslit too-small numbers don't affect my point as long as the gaslit numbers are still above 0.
What does 4 years have to do with it? With even one year of high prices, you will lose a hell of a lot of money.
>Let's have an example number. For this example let's pretend prices went up 30%. If I say "relative to your income and savings, you're paying 25% more", I'm not saying "it's not so bad". That situation is really bad. I'm just saying it's not 30%.
>
>And it's important to realize that those numbers are different if we want to do accurate calculations about inflation. I'm not pointing out the difference for the sake of pedantry.
You are getting awfully pedantic. We talk about inflation in terms of price hikes because that's something that affects everyone. Accounting for all the inflation avoidance schemes and possible wage increases that people get to cope with inflation would require a different statistic. Those coping mechanisms are a red herring when it comes to the actual performance of our currency, which is what people actually care about.
I invoice in USD and have expenses in a different currency, and while I've seen a few (~5) percent decline in the exchange rate since then, it's been nowhere near 18%.
The pandemic was worldwide, and every other central bank has been printing, too. Depending on which currency you're trading against, that could be a factor. For a while in 2021-2, non-dollar currencies were inflating even faster, so DXY actually went up even as the dollar weakened against goods and services. Even if the tables have turned and the dollar is weakening faster now, it's not like everybody else has actually reigned in their own printing.
The pandemic didn’t cause this inflation. The governments response to it did. Governments love when people blame an infectious respiratory virus for their idiotic response.
Have you tried buying a car, new or used, recently? Supply chain issues caused by the pandemic certainly caused (parts of) inflation. Then there's geopolitics (energy/oil, food/wheat), also not helping with inflation.
Supply-driven inflation looks to be the cause of at least half the run-up:
Good point about local inflation. Both the World Bank and my gov't claim 4% from 3.22 to 3.24 (or ~2% a year, which would explain why I hadn't noticed)
So 5+4 = 9% imputed inflation for USD since 2022?
(or no more than 5% in 2022 if it's been steady ... but still time to bump my rates; thanks you all for convincing me to go through this exercise!)
It's really funny math, based solely on the idea I borrow enough with floating interest rates, pegged to treasuries. <sarcasm>but it confirms I am suffering, therefore it is correct</sarcasm>
Beware any election-year stories that just happen to elicit a deep sense of things being astray. Larry Summers in particular has a long track record of playing complex angles in his public policy views. The technical argument in the paper is totally separate from the headline here. The headline is what matters.
You can think of macroeconomic policy as having been trained on economic history, probably more so than any other hard-science discipline. The effect of the pandemic was ridiculously unlike any history on record, times a factor of 10.
The null hypothesis is that the inflation wave came and went. You won't find a credible economist that can prove otherwise.
Furthermore, the wave could not be avoided by any amount of conventional intervention, such as massive tightening. You'd have to get into war-time tools like price controls to manually constrain the massive shifts in supply and demand as people came in and out of the labor force, switched from demanding services to goods and back, etc.
>Beware any election-year stories that just happen to elicit a deep sense of things being astray. Larry Summers in particular has a long track record of playing complex angles in his public policy views. The technical argument in the paper is totally separate from the headline here. The headline is what matters. ... The null hypothesis is that the inflation wave came and went. You won't find a credible economist that can prove otherwise.
This is an almost deceptively bad characterization of Summers' data. Your comment implies Summers said inflation is still rising, when his proposed adjusted CPI also says inflation "came and went", as it is also just as far below its peak as the inflation of the official CPI is below its own. The difference is just that Summers' peaked later (plus higher, like the headline does mention) because of his inclusion of interest; while offical increase was declining his continued to rise just because during the increase of rates that increase offset the decrease in the increase of prices. Once rates stopped increasing this naturally also stopped, and his proposed inflation has been falling faster than official inflation did in order to close with it since [1].
Thus, no ultimate difference in failure to reject your null hypothesis.
I didn't characterize his data or the technical argument in the paper at all. I characterized the disingenuous headline, and emphasized the distinction.
Fair enough, in the struggle to avoid a WoT I implied some stuff. For clarification, insert the following paragraph after "The headline is what matters:"
The headline incidentally fosters the view that inflation is still a major problem, which many people hold. It reinforces their gut feeling that it's been much higher than reported, and by extension, that the reported end of the wave is untrue. As inflation and the smell of conspiracy rise to top-of-mind, they ignite blame against the current administration. The truth is that the inflation wave is essentially gone, and that the administration cannot be blamed for it in the first place.
> “Alternative measures of inflation that include borrowing costs” account for most of the gap between the experts’ rosy pictures and Americans’ skeptical assessment.
I think the article doesn't actually cover support for this (though I have not read the actual paper), because part of people's skepticism is not based in them doing a parallel calculation. Even people who aren't taking out a large loan often have the sense that inflation has been much worse than official sources state -- and I think part of it is related to cognitive biases where when we're shocked by the high price of a good, it becomes a salient example to us, and it skews our assessment of overall price increases. E.g. I've seen the recent stat that food prices have increased a total of ~25% since before the pandemic -- but if you have a few grocery items that you buy regularly that have doubled in price, you're likely to be skeptical of this.
It's more than just interest: 2022 just might have been the worst non-recession year in (modern, meaning years with acceptable stats) US economic history. Every tranche of net worth FRED tracks fell off a cliff that year, declining in (CPI, so we don't even need this competing metric to come to these conclusions) real terms by more than they did even during the 2020 recession [1], with the rich almost always losing more in absolute terms and the poor almost always losing more relative to their losses in 2020 [2]. If you look closely, you'll even notice that some of the rich lost more during these supposed business-as-usual days than they did during the 2008 meltdown of their moneymaking sector.
It's been pretty shocking to watch this happen, see the months roll on, and still hear basically no wideapread discussion on it in proportion to what has actually happened. We're coming up on two years of just not having an average of ~9% of our wealth we all worked hard to make from recovering from an economic equivalent of universal house arrest any more, and the best one can get a mainstream platform for is something like "possible cost of living concerns". Sure 2008 was worse for specifically the working class, but the working class are also much more sensitive to small changes in prosperity because they're not even in the same order of magnitude of diminishing returns (not to mention that it's pretty much as big a drop for them as the 2001 recession, which was also a quite painful time historically and was certainly seen as a moderate travesty before the perspective of 2008). How long can this dissatisfaction go on without starting a serious effort for acknowledgement and recovery?
It's interesting how throughout the paper they discuss the actual borrowing cost as the driver of low sentiment but that when it comes time to explain the jump in sentiment for January despite flat borrowing costs they quickly switch to talking about the derivative of borrowing costs:
> In January, after most of the research for this paper was completed, consumer sentiment jumped to its highest level since 2021. Although this is just one month of data, it appears consistent with our hypothesis. If high borrowing costs explain the consumer sentiment anomaly of 2023, then the recent moderation of the growth rate of borrowing costs in recent months could help consumers significantly in 2024, but further rises could prolong consumer dissatisfaction.
"Inflation, the wrong concept is to think of it as a single number, it is a multi-dimensional number. You have inflation for stock, real estate, food, energy. The policy makers bundle this into a single number, which is very misleading." - Didier Sornette; Oct 11, 2023; https://www.youtube.com/watch?v=IbU70IA4Z_w
What is CPI used for? Mostly to index the Social Security payments, and, to a lesser effect, adjust tax brackets. Retirees don't use much credit, on the contrary, they benefit from higher borrowing rates, because they are those that lend money. So it makes sense that borrowing costs are not included in the CPI. Otherwise it would be double-tap for retirees - they get greater SS increases and greater income from safe investments.
Inflation expectations are one of the key elements that determine next years inflation.
The main reason they have always "fiddled" the public inflation numbers is if they reported actual inflation people would set their expectations on that - and it would make next years inflation worse/more volatile.
insiders generally dont care about the public figures - they have their own in house statisticians to give them the real picture.
The reason the government lies on inflation isn't 2024 politics. Much older reason:
1) High inflation in 1960-1970s from stagflation
2) 1973 "COLAs" Law was passed, forcing increases in social security when inflation happens
3) By 1983, the US gov mathematically couldn't give those increases. Inflation raged across 1970s. So the government rigged CPI (inflation) numbers, by changing models
4) ShadowStats.com gives details and historic numbers
5) Lying about inflation numbers helped every politician from 1983 until now.
6) But citizens know the truth when they run out of money paying bills mid-month when they used to be able to pay for everything.
It remains absurd to me that the many ways inflation is measured and presented for the purpose of its impact on regular people is based almost entirely on its impact on funds with no meaningful component reflecting the impact on the overwhelming majority of distinct legal entities impacted by it.
My opinion is that if there are changes to monetary policy based on the effect of inflation, the policy should be centered on maximizing the outcome for the majority of distinct legal entities (ie overwhelmingly individuals) not maximizing the outcome for capital. Because wtf are you optimizing policy for the wealth generation of an overwhelming minority of the entities impacted by that policy?
This might help. Idk enough about the topic to really interpret this in a helpful way.
"When people talk about inflation, they usually refer to ordinary goods and services, which is tracked by the Consumer Price Index (CPI). This index excludes most financial assets and capital assets. Inflation of such assets should not be confused with inflation of consumer goods and services, as prices in the two categories are usually disconnected. The prices of some goods and services such as housing, energy, and food do track closely with some financial assets."
I understand how inflation is measured vs things like the CPI or "basic costs for the overwhelming majority of entities and tax payers".
What I am saying is that it does not make sense that the measurement that influences policy, is the one that only meaningfully measures a subset of the economy that is the minority of the all people impacted by that policy, and as a result the policy decisions are made to benefit entities that represent a minority of participants in the economy, that already have a disproportionately large amount of capital, and for whom the real world impact of bad policy changes is negligible.
If a government wants to make policy choices that impact economic outcomes for everyone, the measurement used to control that policy should reflect the actual economic reality of the majority of entities impacted that policy, and the policy choices should be based on ensuring the best outcome for the majority of those impacted by the policy.
The current use of "inflation" as a driver for fiscal and monetary policy, is BS: the definition of inflation that is being used to drive policy is one that does not reflect real world costs for the overwhelming majority of entities impacted by the policy, and the targeted outcome is "best outcome for a minority subset of the economy that are not subject to any the monetary or financial stressors or margins experienced by the majority". If we insist on a definition of "inflation" that does not reflect cost inflation for the majority of entities, then monetary policy should not be determined by "inflation".
It's a bit of a strange article. It's kind a obvious that in the case where prices of different goods/services increase by different amounts, there is not a single metric that would reflect the price increase. Also it is clear if we're trying to make some kind of weighted mean, the weights will differ for different groups of people, reflecting different consuptions.
So depending on what we want to measure we'd chose different weights. If say for low income population interest rates play a bigger role (i.e. due credit card debt), than that may have significant weight.
I feel as if some variant of this argument pops up constantly and it just comes down to definitions.
Inflation in almost all major economies does not represent the return rate at which your savings will maintain the same value from year to year.
I don't know what it does track - it seems that often there are "corrections" for people lowering their standards (e.g. buying cheaper/less meat, watching movies at home instead of in the cinema, etc).
To me that makes it kind of like some average of how much everyone is spending. I don't personally see any use in knowing that.
The big problem here is the breakdown in trust. If the government uses a figure for inflation that differs dramatically from what common Americans experience, the people conclude that the government is working against them instead of for them.
Many, perhaps most Americans have lost or are losing trust. The problem with this is where do people turn? Biden represents the government as manipulator. Where is the alternative? The truth is that in a choice between Biden and Trump many people have turned to Trump.
It is interesting in a sick way because the human reaction to betrayal is extremely strong. I find in myself a remarkable distaste for Biden. I find myself comparing Biden to President Snow. Not rational, but betrayal will do that to you.
And most concerning is that the problem is not really Biden or Trump. It is about corporations that have taken over our democracy. The most insightful question is: Cui Bono. Who benefits from the laws that are enacted? Corporations. Who uses the courts? Corporations because average citizens cannot afford a lawyer. [If you doubt this, ask yourself how much Microsoft owes in taxes to the American people]. And the Supreme Court? These are the people who decided that Corporations can buy and sell politicians and elections.
The disparity between the profits of Corporations and the daily lives of common American citizens is breathtaking. Who benefits from convincing Americans there is no inflation problem?
What specifically would you have preferred Biden do differently? The rest of the world also dealt with massive inflation, and most other economies have not. There is no magic formula that would've made our economy recover with insanely good labor statistics without causing some inflation. After the 2008 recession, it took 6 years (!!!) for U-1 unemployment to get under 3%, while it took just over a year for that to happen after 2020! The extra inflation is absolutely worth this tradeoff, but the absolutely insane response to it has basically guaranteed that next time a major event happens, we will be stuck with years of elevated unemployment.
"The governments number is different than what I experience" is not why people are mad. They just see prices go up and get mad immediately, even though statistically, wages have also risen a good amount, especially at the low end! The difference is that people think they worked hard for the raise and deserve it for their own work, and dont see it as a byproduct of the economy changing.
This is why I think raising interest rates to deal with inflation rather than working on increasing supply / reducing supply bottlenecks is absurd. Making money cost more isn’t reducing inflation, it’s reducing supply’s ability to produce while reducing demands ability to finance by making everything more expensive. That’s a dumb way to treat supply scarcity relative to demand - which is what makes inflation happen. The other way is reduce interest rates further and invest heavily in infrastructure and production targeting areas of specific demand. You might see a short term spike in inflation as more money enters pocketbooks but you’ll also see a dramatic drop as supply floods the market in response.
The wild card is housing, but making it more expensive to finance construction or purchase, interest rate hikes don’t help that either. It just makes more homeless.
Honest question: Paul Graham said that inflation was over if we exclude food, rent, gas, and used cars. Was this his intellectually honest thinking about economy or him being partisan?
Goodhart's law applies to how inflation measures have ceased to be an accurate measure: "when a measure becomes a target, it ceases to be a good measure."
Government makes its money from a share every transaction between members of its society and others. Salaries, income, capital gains, and property taxes add on top of that. Inflation happens when supply can’t keep up with demand or when supply is restricted to increase the costs on demand by retailers / manufacturers / suppliers of energy, etc.
Putin’s war on Ukraine triggered an energy shortage which jumped prices on everything worldwide. When that happens retailers have an excuse to raise prices and the excess cash in the system meant consumers didn’t really resist for a while (didn’t reduce spending, and won’t until credit tightened and people start filing for bankruptcy en masse). Instead of resisting higher prices with less consumption, the excess cash in the system is still so superfluous that it’s going back into crypto and stock market excess.
Now the expanding war in the middle east is going to raise energy prices even more and re-boost the inflation on everyday goods. The accumulating high interest consumer and commercial real estate debt is a ticking time-bomb and when that puts tension on the banks, the ever increasing liquidity ratios allowed by Trump will come back with a vengeance.
One way to fight back is to move massively to EVs and Solar - which is already happening. The decreases impact of oil prices and foreign conflicts on the economy would reduce inflation.
Another way is to increase supply of goods that are inflating. Lower tariffs or provide subsidies for new supply in each area with an increase in prices and see how incumbents would be incentivized to keep their prices at bay. Housing is kind of a big chunk of the wallet share. Increase supply - provide a massive incentive for families who built their first home or buy a new home. Provide incentive for empty homes or unused investment properties to be put back to use - many fear squatting or rent control laws, eliminate or reduce those and see how quickly the rentable supply increases, lowering costs of rent. Interest rates are a blunt tool. Increase supply and lower prices organically.
If interest rates and the costs of capital are added into the equation that determines interest rates by proxi of inflation, you’d get a recurrent function (an infinite loop). You want signal in the data, not noise. The problem is the current signal is employment, not supply. Incentivize supply.
Why bring this us up now? This formula was changed in 1983, when Ronald Reagan was president and the interest rate was 9.09% (down from 12.24% in 1982).
I'll note that Steve Forbes supported Trump in 2016, and claimed last year that Joe Biden is "not up to the job anymore" - although this is not necessarily relevant.
We can't change how we look at inflation based on the perception we want to achieve. This is what we have measured since 1983. And what if the change the formula back? Then we have a new number. And now what?
The article claims that the previous formula correlates better with sentiment. Maybe so. Sure, ever increasing money supply might make you feel rich, when in fact you are not.
Did we think we will never have to be pay the bill for over a decade of near-zero interest rates?
The current sentiment seems to be as much influenced by what people want to believe or what their peer group on social media believes.
It should be noted that the previous formula was from before 1983 when it was changed and it was changed because it overstated inflation.
So a better headline should be, academic sour about being wrong all the time uses outdated formula to calculate higher inflation number.
People are angry about inflation now because they compare prices to before the pandemic, so cumulative inflation over a longer period than one year.
Also given most mortgages are 30year fixed, the change in 1983 was the correct thing to do, though it could be updated to use internet data on rents more.
It is at least a bipartisan hobby, to go searching for any alternative numbers whenever there's good news for your opponent.
Though this is an impressive amping up: "previous" is 1983. This isn't some dastardly bit of math by the present administration. This dates back to Reagan.
Of more interest is that consumer sentiment is indeed grumpy, and that is a big deal with an election coming up. They don't really need this guy coming up with mendacious explanations for it.
Searching for alternative numbers to explain an anomaly, e.g. that consumer sentiment hasn't improved even though inflation is down, is what scientists do, although it is certainly not immune to partisan bias.
Have you got a critique of the paper's explanation and an example of how you think it's mendacious? The original is here: https://www.nber.org/papers/w32163. I don't have access, but the Forbes story says they check their result in Europe and it continues to hold.
The fact that he hasn't described all possible formulas, but instead included exactly the one that affirms his known preconceptions. He would not have published this thesis had it not supported him. He'd have looked around for some other metric.
This absolutely reads like a reasoned counterpoint to a dubious claim and totally not at all like an unhinged, partisan knee-jerk rejection of additional information that's bad news for your preferred platform.
I want to be able to read flagged comments.... why is it no longer possible, /u/DANG? Because most of the time I don't agree with the flagging anyways.... and it is important to look at opposing views.
The memes of Arby’s 5 for $5 becoming 4 for $10 are more informative than the CPI numbers. Don’t let the shock at the grocery store wear off – it’s real and painful despite what the news tells you.
True inflation would measure the amount of prosperity achieved per hour worked.
Take 1963 as an Example. Sears sold entire two story home kits with all materials for $1600. An Italian rifle in 1963 was $20. McDonalds burgers were 15¢ . Postage was 5¢ and had only increased 5 times in the previous 100 years.
You might retort that average household income is $70000 now vs $6200 in the early 60s– a tremendous boon. Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home.
In other words you had 1 man working 50 hours a week afford a house and support 5-6 other people. Today you have 2 people working 100 hours a week to support 1-2 additional people , while living in an apartment and living in a run down and crime infested neighborhood.
In case you think this is academic, look at the occupations for those who lived in today’s wealthiest neighborhoods. Today Palo Alto, Menlo Park, and other super zips are exclusively $500k incomes and up. In the 1960 census records you will find these good neighborhoods occupied with plumbers, painters and other blue collar workers.
My point is that inflation isn’t abstract and it isn’t a law of nature. It’s a deliberate approach to stealing your prosperity while you cheer it on.
Summers is right more than he’s wrong. Real inflation has always been higher than the bogus CPI numbers, and the past 5 years it’s been accelerating.