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Comment by rm999 | Hacker News Reader

>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.

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> 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.

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.

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