Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula
forbes.com
forbes.com
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.
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.
Edit: another source puts it at 3.3[2].
[1]: https://www.statista.com/statistics/183657/average-size-of-a...
[2]: https://www.statista.com/statistics/183648/average-size-of-h...
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 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.
We just dont know what % of those were single mothers, widows, divorcees or single women, etc.
Is a child with a paper route 'in the work force?'
What class has shown absolutely insane growth in wealth and income in the face of what looks like crippling inflation?
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.
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
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.
Truer words have never been spoken. Fiscal conservatism died with Reagan.
On the topic, I found this informative: https://www.in2013dollars.com/us/inflation/1963?amount=1
“ $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%.”
Also: https://www.census.gov/library/publications/1964/demo/p60-04...
“ 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.”
> 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%
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).
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.
With less intention and planning it will take longer, but could still happen, and there are some natural pressures pushing things in that direction.
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
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.
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.
On average, it will be close enough.
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.
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.
1) Materiels
2) Labour
3) Land
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.
We need a concept for debasement / hidden tax that allows people to hold their policymakers accountable.
My point is that CPI isn't it, it underestimates true inflation by 3-5x or more , and it interferes with good governance.
If the govt wants money from the people, they need to tax them and be held accountable for the policy
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.
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.
This is a really good idea and I hope someone popularizes a new measure.
And you think the US in general has gotten more dangerous?
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?
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).
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.
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.
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.
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].
As noted elsewhere, this ignores race. Compare white women under 20 <https://fred.stlouisfed.org/series/LNS11300029> to black women under 20 <https://fred.stlouisfed.org/series/LNS11300032>; dramatically different numbers.
Labor force participation rate isn't ideal, but it gives the picture.
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.
You address the supply side of the "housing crisis", what about demand?
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.
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.
95% of white suburban zips might have been safe and livable, but nowhere close to 95% of all zips.
"The thing I have noticed is when the anecdotes and the data disagree, the anecdotes are usually right. There's something wrong with the way you are measuring it". —Jeff Bezos <https://sports.yahoo.com/amazon-ceo-jeff-bezos-explains-2123...>
People think “data” is the conclusion, when in fact it’s just a signal to ask more questions.
1) the rest of the world was in ruins, so for 50s-60s US was sole industrial power more or less.
2) artificial labor “scarcity” where POC and women were banned from many occupations. The remaining available labor (ie white men) had more leverage.
A four day work-week would bring us at least a little bit closer to the 1950s situation, and improve the leverage of workers.
4 x 2 > 5, of course, but 4 x 2 is still less than 5 x 2.
[1] https://www.bls.gov/pir/journal/gj02.pdf
[2] https://twitter.com/darioperkins/status/1770783161330323925/...
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.
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
- People had only one car.
- People ate meat once per week.
- People had way fewer things in their houses.
You gotta consider increases in material possessions as well if you want to calculate inflation properly.
https://twitter.com/Outdoctrination/status/16948423262110437...
https://twitter.com/Outdoctrination/status/16948423228723817...
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
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?
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.
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?
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.
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).
https://www.slowboring.com/p/nostalgia-economics-is-totally-...
And it doesn't account for qualities that have degraded. it assumes that since we have more possessions that life is better.
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.
Okay, it was the McDonald's hamburger that seems to have been $0.15 in 1963. That is $1.53 in CPI-inflated 2024 dollars.
The cost today is $2.19. That's about a 0.6% difference in the compounding inflation rate over 61 years.
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.
95% + of the recent employment rates have been part time employment.
U3 doesn't account for the historically low participation rate (about 60%)
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.
The average person today has a far higher standard of living than the average person in 1963.
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.
Subway fares for NYC [1]
- 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]
[1] https://en.m.wikipedia.org/wiki/New_York_City_transit_fares
[2] https://old.reddit.com/r/nyc/comments/11u0s3z/nyc_subway_far...
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.
Is that really true, or is it more a feeling many Americans have? As a Swede it’s a bit hard to relate to.
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.
https://www.nyc.gov/assets/nypd/downloads/pdf/analysis_and_p...
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?
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.
[1]: https://www.statista.com/statistics/183657/average-size-of-a...
[2]: https://www.statista.com/statistics/183648/average-size-of-h...
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.
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.
https://en.m.wikipedia.org/wiki/Lawrence_Bittaker_and_Roy_No...
The US Post is great and all, but I would gladly trade the US post for a large beaver-hunting territory!
Horses are too fast! Walking is better.
Or whatever... come on!
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.
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.
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?
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.
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)
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
My maternal grandfather was a school principal and his wife didn't need a job. They went to England and Spain on vacation.
We also of course absolutely loved potatoes. We still do.
Should we value technology so much that we cheer on the loss of the real world?
Potatoes are a main staple in many ways outside of the cities even to this day.
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.
I don't think that the cost of a computer should silently get included into basics like rent for a roof over your head, food, and medical treatment.
It's the same house. They put drywall up in the basement and walls around the porch and call it a sun room.
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!
Hard to believe this example is worth it's weight in freedom units per capitalist product.
The reality is the economy and government were weaponized to enforce the lost of freedom to discriminate.
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!
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.
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.
* https://awealthofcommonsense.com/2024/01/americans-are-bette...
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.
* https://archive.ph/zvtPw / https://www.nytimes.com/2022/05/24/technology/inflation-meas...
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).
* https://web.archive.org/web/20210929154549/https://www.pragc...
> 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.
* https://www.pragcap.com/should-house-prices-be-in-the-cpi/
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:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
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.
* https://www.bankofcanada.ca/wp-content/uploads/2015/11/boc-r...
In the StatCan CPI paper there is some explanation towards the complexities of shelter / owner accommodation:
* https://www150.statcan.gc.ca/n1/pub/62-553-x/2019001/chap-10...
* https://www150.statcan.gc.ca/n1/pub/62f0014m/62f0014m2017001...
Yeah, and unless they were like, a doctor or a lawyer, they were living in borderline poverty.
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.
You can't be serious.
>$135k in 1980, my dad made more than that contracting in building nuclear plants
That's over six times the median household income in 1980. $135k today would still be nearly twice the median household income.
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.
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.
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.
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.
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)
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)?
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.
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.
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.
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.
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.
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.
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.
>Blindly stacking
Stawman nonsense that literally no one suggested
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.
Screw the EPI and screw FREOPP.
[0] - https://www.c-span.org/video/?529864-3/avik-roy-freedom-cons...
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.
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.
Given that it's all connected I don't quite follow why you are cleanly dividing them here.
Wait, there is actually a misery index: https://en.wikipedia.org/wiki/Misery_index_(economics)
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.
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.
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.
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.
Obviously you didn't live through the 1980's, because that is obviously false to anybody who has.
Again, this appeal to the vibe you're getting right now is not compelling to anyone who actually cares about economics.
It sounds complicated, but I think this is actually the right approach.
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.
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.
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:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020cal...
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Further, the number you see in headlines is a national average which may be different to what has happened to your local prices.
TL; DR: model of reality ≠ reality.
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.
* https://www.bls.gov/opub/hom/cpi/history.htm
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:
* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
† Often no such thing exists, but rather trade-offs in various metrics.
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.
You do notice that your link to back up disagreeing with the assertion of potential government bias is to a .gov domain, surely?
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?
And then of course, they often report monthly numbers on an annualized basis.
Okay, because the air quotes and knee jerk dismissal annoy me...
The 3.x% being published is journalists repeating the reported CPI.
They are indeed still a free press, they're just dealing with people who don't on average understand how inflation measures are built, nor care.
Which is why there are articles that attempt to educate on that, whenever it comes to popular attention https://www.npr.org/2023/10/18/1197954369/two-indicators-bur... https://www.forbes.com/advisor/investing/cpi-consumer-price-...
If you wanted to air quote something, a "viewer-respecting" "intelligent" free press would be more accurately dismissive.
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.
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:
* https://www.frbsf.org/research-and-insights/publications/eco...
* https://www.frbsf.org/research-and-insights/data-and-indicat...
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!)
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.
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.
[1] https://imageio.forbes.com/specials-images/imageserve/65fec8...
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 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?
[1] https://fred.stlouisfed.org/graph/?graph_id=1317969 [2] https://fred.stlouisfed.org/graph/?graph_id=1326338&rn=637
> 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.
Am I misreading this?
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.
I wonder if that is behind some price increases blamed on inflation that are larger than inflation. They mean inflation not CPI.
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?
"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."
https://en.m.wikipedia.org/wiki/Asset_price_inflation#:~:tex...
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".
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.
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.
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?
"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.
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.
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.
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.
Because it's relevant