A monetary supply inflation measure like M1 shows a remarkable rise since 2008. The central bank added lots of money by financing the US government debt, and that has indirectly bid up financial assets, VC, etc. If you owned US financial assets over the last decade you are flush; if you didn’t you are wondering why important things in life are so expensive.
Over the last 20 years, humans have really mastered cooperation on a global rather than a national scale. IMO, the economy as a whole has expanded as a result.
Note: I'm doing this calculation under the assumption that the value of an undergraduate degree has remained constant, while the average price of tuition has increased significantly. Some might even argue that the value of a degree has even decreased due to looser lending practices enabling more people to obtain degrees, further increasing this disparity.
There may have been improvements, but mastered? I guess a lack of global scale cooperation has nothing to do with our failure to address global warming....
Solar cell prices have decreased by 300x over the last 40 years and continue to do so. Similarly, solar production capacity and installations have increased very significantly.
There are also more electric car companies and models than ever before.
> And, it is important to notice, in today's world, even an unemployment rate of 3.6% has not been low enough to cause the kinds of wage gains that were normal for most of the 20th Century.
You're talking about the Phillips curve (https://en.wikipedia.org/wiki/Phillips_curve). I wonder if it's not dead. We've got the lowest unemployment rate in decades but no very little increase in AHE (average hourly earnings). It seems like while a lot of people are competing for jobs, companies still aren't willing to pay more.
It's really flummoxed some economists, for example https://www.npr.org/2018/10/29/661879814/is-it-time-for-the-...
Just search for "is the Phillips curve dead" just to find bunch of them. It is a head scratcher for me, but of course, I'm not sure who's right (and I don't think anyone does)
I think part of it is that there are large swaths of the labor force that are basically replaceable (retail, food service are examples), so there's no real need to pay someone more. Just get someone new.
You want to hand manufacture more widgets, you need to hire more people.
I'd be curious if there's also a de facto inflection point, whereby decreasing requirements for broadly available labor limit wage gains, which stunts demand, which stunts additional labor and hiring.
Essentially: in a bifurcated economy demand and unemployment become less tightly coupled.
I totally agree. I think this is even something they intended. And the workforce parts that aren't capital are more serving the capital (running expensive machines) rather than the machines helping workers be more productive. People's jobs have been tailored around becoming replaceable widgets, where you want to be able to replace someone as fast as possible (with minimal training).
But all this is basically saying the Phillips curve is dead. In that, lower unemployment doesn't lead to higher wages.
Wikipedia:
> Stated simply, decreased unemployment, (i.e., increased levels of employment) in an economy will correlate with higher rates of wage rises.[1] Phillips did not himself state there was any relationship between employment and inflation; this notion was a trivial deduction from his statistical findings.
You:
> whereas I wrote that low unemployment leads to higher wages
I made the "trivial deduction":
If low unemployment leads to higher wages, it means that the prices for the things those people are producing (with higher wages), are going up, or inflating. That, or profit margins for the company are decreasing, if prices are kept stable.
with so much money in equities and real estate, there is a huge inflation risk ahead of us. Just think what would happen if people actually started to sell off that equity and start spending it (such as those retiring baby boomers).
Furthermore, the fed is supposed to be smoothing out the economic cycles. If it keeps feeding the bull market with lower interest rates, it won't be able to do anything once we hit a recession. The result is much larger booms and much larger recessions: the exact opposite of what the fed is supposed to do.
Housing is hard to gauge because the same house moves up market as areas develop. When I was a kid, Reston (where Google has a big office), was a solidly middle, even lower middle class suburb with old housing stock. Now it’s got a Metro station, tons of new shopping, tons of tech jobs. Reston is, now, what Clarendon was when was a kid. Rents have gone way up in Reston, but that’s not inflation. It’s paying more for a more in-demand, premium product.
(The same thing happens with cars by the way. The Toyota Corolla was once Toyota’s low-end model. Now, it’s a mainstream sedan, with whole nameplate, Scion, filling the market segment previously targeted by the Corolla.)
DC is becoming an awful place unless you absolutely know where you'll be working for the next 20 years and can buy a home close to the office. Otherwise, you're not going to enjoy the 2.5 hour commute and $12 in tolls when client site location moves from Tysons to Silver Spring, MD. It's so crowded, though, because a lot of government workers and contractors who'd be making $50K in Anywhere, America can earn 6 figures after a bit of seniority in the gov.
I'm planning on bailing for good. I could now only barely afford one of those tiny condos with a $500/month HOA nowhere near a metro in NOVA, but I'd never get to enjoy it as I'd be spending the majority of my day sitting in traffic. And wages in DC for techies aren't really that good compared to SV or NYC, since it's mostly set by government. Maybe Amazon will force the contractors to pay more.
Also, inflation requires increasing demand for it to occur. The existence of increasing demand does not mean it's not inflation. That's why goods/services with no increasing demand do not inflate in an inflationary economy. Inflation has always been an uneven phenomenon.
I'm guessing there are similar games done with housing. For example, prices for condos in a lot of areas have probably kept pace with inflation, but meanwhile the HOAs have gone up from $200/month 10 years ago to $400/month now, and I suspect it's because government services have been cut. I doubt the fed takes into consideration things like my area is now so crowded, I pay $100/month to park whereas 10 years ago it was free. Same with tolls - the once free interstates have all been converted to toll roads in my area that cost $40/week to get to work.
Unfortunately, in this case, an astute reader would do research and conclude that the point you are trying to make is completely mythical. Housing (total, rent + everything else) accounts for 42% of the CPI calculation, and the 'owners equivalent of rent' (i.e. how much you would have to pay to rent your home) makes up ~24%: https://www.bls.gov/cpi/tables/relative-importance/2016.pdf
That captures rent renters pay as well, since for apartment buildings, the owner's equivalent rent is the rent being paid.
That one at least weights medical care at 22.3% ($13380) vs the 6.2% ($3700) in CPI, although that might be realistic if the median person simply doesn't get medical care because they can't afford it.
The owner occupied rent is a calculation of what the rent would be if the owner had paid rent on the house they own. For some background on this:
https://www.philadelphiafed.org/-/media/research-and-data/pu...
Consumer price inflation is low. Given the scale of money creation, it is likely that 'real' non-consumer prices are not completely real and are actually experiencing inflation, but for some reason the people claiming the money are competing for financial assets rather than consumer resources.
[1]https://www.marketwatch.com/story/wholesale-prices-barely-ri...
> when Amazon's market cap goes from a hundred billion to two hundred billion that doesn't mean that it has absorbed a hundred billion dollars from the economy
Totally on board with that, but it does mean ~100 billion dollars of control have been transferred from persons unknown to someone who knows how to borrow money; because lending is the mechanism for creating new money.
I consider myself an asset owner. This is all great for me short term, I'm getting wealthier relative to many of my peers because I own assets and they do not. I'm just completely mystified why anyone thinks this is a good outcome, because obviously in the long term economic control is going to transfer from capitalists who know how to make things work to financiers who found their way in front of the money hose.
I don't want the reward structure to favour giving control to entities who borrow vast sums of money, I want the reward structure to favour people who manage capital responsibly. The current reward structure is obviously going to cause crises and crashes. And I don't see it as responsible for creating real wealth, so I don't think it is a good system.
I mean, I understand why we do it. But that understanding hinges on the assumption that people don't trust the ability of numbers and incentives to predict the future.
Well, we are an increasingly unequal society, and rich people don't need to spend as much as a share of income on consumer goods.
The core rate of inflation may be low by the government's accounting, but there are problems with the way we calculate inflation, it seems, given how much rents and medical expenses have risen even during what was considered slow economic growth.
Arguably, because the commonly cited U3 unemployment rate is the percentage of people who are able to and actively looking for work and unable to find it, any unemployment rate above zero means that you're not at full employment.
That said, because even in the "best" economies that we've ever actually experienced there is always at least some level of job loss and it's always going to take at least some amount of time to find a new job, many people / economists tend to view full employment as something more like "the lowest level that we can realistically expect unemployment to reach given some unavoidable level of job churn". This is why you see statements like "4% unemployment is full employment".
Personally, I don't agree with this redefinition because I think it is at least _theoretically_ possible to get to a state where those who lose their jobs due to layoffs etc. are employed again extremely rapidly and the rate ends up being much closer to zero.
This has never happened though.
U3 being the Official Rate appears to because it's the metric comprised of orthogonal data points. The U4-6 rates are linearly related to the U3 rate; when the U3 doubles, so does the U5 and U6, likewise when the U3 halves. Which makes reporting the U4+ pointless for trending, it doesn't matter if you pick the rate that goes from 4% to 8% or the one from 7% to 14%.
The U1 & 2 rates do not demonstrate this correlation. The U1 can remain flat while the U2 spikes because they represent different pools of people.
So while we intuitively think that including discouraged workers make since, from an analytical perspective, including them doesn't give us any more predictive power than we had before. Calling sub-5% U3 unemployment "full employment" is more of an empirical definition than a logical one; it just happens to be the lowest point we've ever measured.
Congresswoman Ocasio-Cortez asked Fed Chair Powell about this at a recent hearing, and Powell said that it meant that the economists (including him) were wrong about the relationship between unemployment and inflation. That has led many to wonder if "full employment" (something economists technically call NAIRU- non-accelerating inflation rate of unemployment, meaning that full employment was the lowest unemployment consistent with stable prices) is a real thing or not, if that was another thing that is no longer operative in our current economy.
It doesn't use energy, healthcare, housing or any of the other many required things we pay for as a basis for its measure.
It is essentially disconnected from the daily costs we bear and has been for a long time.
Regardless, I keep stats, and I'm doing worse than I was 5 years ago. My rent has gone up about $300 a month (16%), health insurance about 30%, my daily coffee at Starbucks 18%, the toll road costs 33%, and various services like Netflix, cable, phone, etc. are up about 12%-15%. I just priced what it will cost to replace my car with the equivalent I bought in 2013, and it, too, looks like both the car and insurance will end up being about 15% higher.
I'm a single guy who makes good money and has few expenses, plus half my earnings end up in the stock market which has done well, so I can't complain. But I still don't understand how my coworkers - the guys with 2 kids, a wife who works part-time, and an average priced $600K house - do it year after year, especially when the biggest increase in prices seem to be things they spend far more on (health insurance, daycare, housing, education, etc).
* After five years of no raises, I just took matters into my own hands by moving, without asking, to a much more inexpensive city 120 miles away where housing is 1/2 the cost. I worked remote mostly anyway, and now only come back for important meetings about 1-2x a month. If they need me, I'm always on Slack or teleconference on Skype. My employer hasn't said a word, either. Guess we're both bad with confrontation. ;)
I have to hand it to you, this is one of the most insidious ways to misrepresent the true rate of inflation. If it was intentional, kudos to you; you almost tricked me. If it was not intentional, then a quick math nitpick:
If your coffee has increased 16% in price from five years ago, the average inflation rate (which almost always means per-year rate, and certainly means per-year given the stats cited above) is actually 16/5 = 3.2%.
Inflation is extremely low, so the Fed should consider cutting rates. Lower rates means lower unemployment, which should eventually lead to higher wages. As a model for what the Fed rate should be, assume that it should always be 0% plus whatever amount is needed to limit inflation. Since inflation has been low and stable, the rate should remain close to 0%. After all, we should want a world where unemployment goes low enough that wages eventually go up. And, it is important to notice, in today's world, even an unemployment rate of 3.6% has not been low enough to cause the kinds of wage gains that were normal for most of the 20th Century. If wages aren't rising and if inflation is low, then the Fed should be pushing the rate back toward 0%. The lower the rate, the easier it is for entrepreneurs to get money, to build a business, and thus to stimulate economic activity, and if enough entrepreneurs do so, then presumably unemployment will eventually go down to whatever level is needed to raise wages.