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Comment by dvt | Hacker News Reader

> 5/ Fair enough. But, if you're a family that needs to buy a minivan, while it's nice that the 2018 Grand Caravan ($26,300 in 2018) has many features the 1996 Grand Caravan ($17,900 in 1996) did not, you still face the problem that you need an extra $8,500 to buy one.

$17,900.00 in 1996 is $28,647.64 in 2018. Doesn't take a genius to double-check this work. It's factually untrue that the Grand Caravan went up in price when adjusted for inflation. The rest would take a while to verify (graphs have no source citations).

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>It's factually untrue that the Grand Caravan went up in price when adjusted for inflation.

He explicitly says that right before? "4/ For example, our inflation-adjusted data say car prices have not increased since the mid-1990s."

I believe his argument is more around how we're calculating inflation, i.e. that prices have actually gone up more than economists claim through inflation. Looking at inflation adjusted numbers in the fifth thread would lead to circular reasoning and is besides his point. That said I am not great at dissecting these kinds of twitter threads and may be misinterpreting too; I agree that the way he is arguing it is confusing.

Inflation is calculated via the Current Consumer Price collected by the Bureau of Labor Statistics. if he has a problem with the methodology they use, he should talk about that, but as far as (4) is concerned:

> 4/ For example, our inflation-adjusted data say car prices have not increased since the mid-1990s. Obviously, that's not remotely true. What economists are saying is that cars have gotten better so the higher sticker price doesn't reflect inflation, it reflects higher quality.

Wait, what's not remotely true? That inflation also affects car prices? Is he being serious here? At the very least, can we agree that prices are comparable?

The not-remotely-true part is that, because inflation indexes are an average, they are way off when applied to specific categories of goods and services.

Real inflation is really calculated by the amount of currency that is created with no backing (fiat money).

The use of a basket of products to calculate something that the government calls inflation (but isn't), doesn't reflect the true lost value of money and only benefits the people who get the inflation money first. If you hold on to your money, you are being basically piled. This is no service for society, but to policymakers and to business dealing with the state.

No. You are wrong. That is not the definition of "real" inflation.

Here's an economy in, say, 1990. It has X amount of money.

Here's "the same" economy in 2020, except it has 20% more people, and 20% more produced per worker per year, so it produces 44% more output than it did in 1990. (All numbers made up on the spot for illustration purposes. Your economic growth may vary.) When I say "44% more output", I don't mean measured by dollars; I mean actual amount of stuff produced - cars and steel and food and movies.

Now, what should the money supply be in 2020? X? 1.2 X (to account for population growth)? 1.44 X (to account for amount of stuff being produced)? If the money supply is only X (no inflation, by your definition), then things that cost $1 in 1990 would cost $0.69 in 2020. That's... not what most of us consider to be "zero inflation". That's deflation.

The normal definition of zero inflation is that the cost of things remains constant, not that the total amount of money remains constant. That's reasonable because most of us get paid in a fixed number of dollars, not in a fixed fraction of the money supply.

No.

There are different views about what inflation is, and certainly, monetary inflation is a way more useful measure than price inflation:

https://en.wikipedia.org/wiki/Monetary_inflation

What is your basis for saying "way more useful"? So far, I've got an argument why price inflation is way more useful, and you've got a bare claim.

Even the article you linked says "However, there is a general consensus on the importance and responsibility of central banks and monetary authorities in setting public expectations of price inflation and in trying to control it." That is, economists recognize the importance and value of price inflation as a measure, while they are divided on how to consider monetary inflation.

My basis? Quite obvious: if you are okay with inflation, this means that people who saves money end up worst off by subsidizing people who consume. This impacts society a lot, and especially, the poorest people without means that justify investing in the market (be it buying shares in companies, buying gold, or just having something in the bank better than a horrible savings account).

I didn't ask what your basis was for opposing inflation. I asked what your basis was for saying that monetary inflation was the "real" inflation, as opposed to price inflation. You didn't answer that. Instead, you gave an answer that says that inflation is bad, which I agree with. But the negative effects you describe are at least as much the symptoms of price inflation as they are of monetary inflation.

I've given you a couple of chances to make a case that monetary inflation is the one that matters, and you have provided exactly zero (other than the bare claim that it was so). So I'm going to stick with my position, which is that your claim is wrong.

You're right that there are different measures and categories of inflation besides the basket of toilet paper and cat food beloved of economists. In particular the absolute ratios of between those over time are important not the instantaneous rates.

Also what you think is good bad depends strongly on where you fit in. If you're an economist then you think 10% year over year rent inflation is good and 10% year over year wage inflation as bad. If you actually work for a living then you think the reverse.

Actually it's the BLS that says inflation has not affected car prices. And, yes, he is questioning their methodology.

Inflation measurement is a hard problem. Some say it's over-estimated: https://johnhcochrane.blogspot.com/2019/08/inflation-and-his...

(More on quality adjustments: https://www.brookings.edu/blog/up-front/2018/07/25/measuring... )

Well, it's interesting.

If you wanted to buy a BMW with 250hp in 1996 that would run 0-60 in about 5.5s and seat four adults, you were going to be buying an M3 for about $40,000.

If you want to do the same thing in 2020, you're going to buy a 330i for almost the exact same money only with a bunch more safety tech, 50% better fuel economy, more luggage space, more passenger space ...

(Using made up numbers for easy math)

The economists are saying that due to additional features/horsepower/fuel economy etc in the base models we're getting the equivalent of 1.5 cars for 27K in 2018 vs getting 1 car for 18K in 1996, so that both 1996 and 2018 dollars buy equivalent amounts of car.

OTOH a $18K annual rent in 1996 is now $36K. So in a basket that's half car half rent, the economists calculations say that $18K car and $18K rent in 1996 is equivalent to 18K car + 36K rent in 2018 for 50% inflation.

The OP is saying that's bullshit. The car may be 50% better, but you can't buy part of a car. So the equivalent of $18K + $18K in 1996 is now $27K + $36K for 75% inflation.

It's hard to do with minivans, because the segment is pretty small.

But (assuming a 1996->2019 comparison) if you're looking at sedans, you can often go 'down market' for something that's objectively superior by almost every metric for very similar money.

For example, a mid-model Ford Taurus from 1996 (say $19K) is a much worse car than the base-model VW Jetta from 2020 that costs the same money. Slower, worse gas mileage, vastly inferior technology, safety equipment and so on.

Also let's not forget a good rate on a car loan in 1996 was 9%.

But you could fix it yourself, gas was cheaper and a taurus is a bigger different car compared to a jetta.

A 2000s taurus and a 2020 Jetta are about the same size. Cars have gotten a lot larger.

No, he's actually saying that the new minivan is more expensive even if adjusted for inflation, due to being a different product with more features, reliability and whatever. (You can't just opt out of those things because the available vans are what they are, and so you just have to pay more).

This is in keeping with the theme of the tweets that there are non-inflationary factors that are increasing costs above inflation, such as increased shared risk in health insurance driving up costs for the median. (You can't opt out of that new shared risk because some insurance powers that be have included that in the policy and premium calculations, and so you just have to pay more.)

Thus if those two minivan prices are actually identical if adjusted for inflation then that ... sort of does deflate the point he's making.

> I believe his argument is more around how we're calculating inflation, i.e. that prices have actually gone up more than economists claim through inflation.

Right. But @dvt is correct that the Dodge Caravan example undermines that point. The author's premise is that economists' measures of inflation understate the true amount of inflation--the prices of goods grew faster than you would expect using accepted inflation measures. But the Dodge Caravan's price grew slower than economists' inflation measures would predict. It should cost $28,647 today, but costs only $26,300.

The author's premise does not hinge of the price of single items. Sure, a Dodge Caravan in 2018 may have a lower inflation-adjusted price than the 1996 model, but the author never claimed that every individual item's price increased faster than the measured rate of inflation. He looked more broadly at the amount the median worker spends on transportation. No one buys just a Dodge Caravan. They buy the Caravan, they pay for it with a loan of a significantly longer time than you'd get in 1996, they pay for more gas (longer commutes) that is more expensive, they pay for car insurance, and tolls. This total transportation cost (plus other mandatory necessities like health insurance and rent) have grown faster than the median worker's wages.

> Sure, a Dodge Caravan in 2018 may have a lower inflation-adjusted price than the 1996 model, but the author never claimed that every individual item's price increased faster than the measured rate of inflation.

It was the author that uses the Dodge Caravan example. Obviously not every single item is going to fit the trend, but why pick such an item as your example.

Your other points are also incorrect. For example, auto loan interest rates are half of what they were in 1996: https://images.app.goo.gl/Bn3ACY7GLV8rFsxj7. The total interest paid on a 36 month loan at 8% (common in 1996) is higher than on a 60 month loan at 4.5% (common today).

Again, you're nitpicking. Cars aren't the only form of transportation, and vehicles and loans aren't the only expenses involved. The author advocates looking at categories of expenses rather than single items because it misrepresents the increase in expenses Americans are experiencing.

He's not nitpicking. He's pointing out a poor choice of an example.

For instance, I could say "Prime numbers are relatively very rare. For instance, take the first five positive integers, 1,2,3,4,5. 60% of them are prime". I'm both right about my statement and I have a bizarre choice of an example.

The car examples are particularly misleading because the same brands are moving upmarket over time. A Honda Accord is targeting a much more premium market segment today than in 1985.

Except that a current year Honda Fit is a great car, and is probably bigger than a 1970s Civic. I'll concede that it's not quite an apples to apples comparison (for a variety of reasons) but the availability of quality, cheap cars nowadays is nearly unmatched.

1970s Honda Civics were TINY, 9 inch wheels, they looked like toys. A 2020 Civic is a low end luxury car.

perhaps median car is a better measure

This tweet was poorly worded, I agree. What he should have said was that the increasing prices of new cars did not show up as inflation in the way economists calculate it, because of the way they adjust for quality improvements. In the full article he explains this more clearly: https://news.ycombinator.com/item?id=22378595

The article is also very confusing. He alternates between considering the inflation rate and not considering the inflation rate. I still don't know if he is claiming that BLS is claiming that, for cars, the inflation rate is 0.

I also find his COTI quite misleading. It seems he is counting 100% of health care expenses (100% of premiums) but not counting the ~70-80% of premiums an employer pays in median weekly earnings. In the college field, he also uses a semester if college tuition for some reason. Since this is a 1 time cost, it should almost surely be accounted for differently.

His point isn't that individual items are more expensive. His point is that necessities in broad categories have grown in price faster than the median male worker's income. It can be true that the Dodge Caravan (and all other cars) are cheaper today when adjusted for inflation, and the amount of money spent on transportation has grown faster than wages. The retail price of a Dodge Caravan does not include the higher cost of gasoline, longer commutes, rising toll fees, or increasing car loan terms.

The point of his index is to compare prices to wages at various points in time.

It does look like transportation takes up a similar ratio of earned income as it did before, however, if you look at PCE or CPI, cars have become _less expensive_, when in fact, they are no less expensive.

That assumes your wage has, also, increased at least equally or more to inflation.

Regulation is another factor.

The 1996 Grand Caravan is not legal to sell new anymore. Many new costly features are now mandatory, in the name of security and environmental protection etc.

This is fine for the comfortable Ivy League class that controls these things, but for poorer segments, it means they have to pay for a much more advanced car than they'd pick if given more choices.

You're being downvoted, but you are correct: driver and passenger airbags alone increase the price of a car several hundred dollars.

Until recently, I owned an airbag-less 1991 Saturn SL1, with the automatic seat belt, which was Saturn's very last-ditch effort to avoid installing airbags and raising the price of their cars.

Extend that trend across construction, transportation, electronics, etc. In many cases you literally cannot find an equivalent product sold or even legal to legal nowadays.

If you're adjusting for inflation you're not understanding the thread. Read it to the end...

His COTI (Cost-of-Thriving Index) is hand-wavy, means nothing to me, and (lo and behold) validates his hypothesis, namely, that CPI is somehow incorrect and inflation is fake news.

>His COTI (Cost-of-Thriving Index) is hand-wavy,

It's hand wavy in the sense that anything approaching an economic discussion in a twitter thread is hand wavy, but if you're looking for detail he links to it: https://www.manhattan-institute.org/reevaluating-prosperity-...

>namely, that CPI is somehow incorrect

He's telling you exactly why he thinks it's incorrect, not 'somehow.'

>means nothing to me, and (lo and behold) validates his hypothesis,

>inflation is fake news

Come on now, I think you owe a bit of generosity to the argument here.

EDIT: Look here, let's just break it down with the car example. Inflation as calculated currently is composed of two parts, let's call them the (1) monetary phenomenon and the (2) technological phenomenon.

So he says: while it's nice that the 2018 Grand Caravan ($26,300 in 2018) has many features the 1996 Grand Caravan ($17,900 in 1996) did not, you still face the problem that you need an extra $8,500 to buy one

and you say: $17,900.00 in 1996 is $28,647.64 in 2018.

But you're just combining 1 and 2 again, not separating them. Dodge is selling their 2018 Grand Caravan in 2018 for $26,300. How much would Dodge be able to sell a 1996 Grand Caravan for in 2018? Certainly not $26,000, maybe more than $17,900, maybe less. But that price, how much Dodge would be able to sell a 1996 Grand Caravan for in 2018 would give us the 'monetary' component of inflation, all the rest is based on technological improvements. And his point is that since there is no way to opt out of those technological improvements - because Dodge doesn't sell 1996 Grand Caravans priced at purely monetary inflation - it's stupid to put the # in an inflation calculator and then say it costs the same because it doesn't, it's more.

Have you looked into how CPI is calculated? It's not that it's "incorrect", just that it doesn't reflect the challenges that real people face trying to afford the basic expenses of life.

I find his COTI quite misleading/confusing. It seems he is counting 100% of health care expenses (100% of premiums) but not counting the ~70-80% of premiums an employer pays the median employee in median weekly earnings.

In the college field, he also uses a semester if college tuition for some reason. Since this is a 1 time cost, it should almost surely be accounted for differently.

In his article he defends all of the choices he made for the COTI calculation. 100% of the premium is used because most people in 1980 paid for the whole thing themselves. I guess it raises the question that the institution of employer sponsorship allowed the costs to balloon, but that is a whole different discussion.

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