The hedonics/replacements occur in the data because what is looked is taken from surveys of what people buy:
* https://www.bls.gov/respondents/cpi/
I just happened to answer a question on the CPI in Canada in another forum: The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys:
* https://www.statcan.gc.ca/en/survey/household/3508
As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
You can see the list of changes going back to 1913 at (coal and lard were removed/replaced in 1956):
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%:
* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5)
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)
StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
This is the system working as intended, making government spending easy and gradually worsening poor's people lives.
That's the SV fantasy!: I'm awesome and a super-genius, everyone else is useless, dumb and annoying, and therefore I should be all-powerful!. It's like they're all still 13 year olds hacking on their computers, where they finally feel really powerful. It's almost as if they've never learned anything more about the world - humanities are just entertainment for the wealthy - leaving themselves vulnerable to the most obvious self-deception.
One might say that technology and innovation have turned our world into a hellscape, with massive social and political breakdown, massive mis/disinformation, and climate change. Maybe some innovation can build us new supersonic jets, better oil extraction, more effective automated online persuasion, or some snazzy financial tech - like CDOs, crypto, and private equity.
On the other hand, our political institutions did an amazing job of getting the US through a global pandemic without even a recession. There are serious problems, such as housing and education prices, but I don't think anyone could have predicted how well things went economically.
> On the other hand, our political institutions did an amazing job of getting the US through a global pandemic without even a recession. There are serious problems, such as housing and education prices, but I don't think anyone could have predicted how well things went economically.
Just wait lol ..
Feel free to laugh, if that's what makes you happy.
Technology is how we got a vaccine so quickly.
Technology is how we tracked the spread. Technology is how we notified of potential exposure.
Nobody with a humanities background did anything meaningful to help compared to the last pandemic. It was all technology, engineering, medicine, and science that let us approach this one differently.
If you learned a bit about it, you wouldn't show off rigid tunnel vision or you might express yourself clearly and without the blind destruction of hyperbole.
Why did people make or not make vaccines? Humanities (and social science). How were they funded, regulated, etc.? Ditto. What is the scientific method? Humanities (really). Why did the US and EU as expected, but not, e.g., Russia make the most effective vaccines? Humanities. Why did people take or not take vaccines? Humanities, or not enough humanities, or they were owned by people who mastered messaging and mass political communication, which is humanities.
The scientific method is philosophy, but the majority of humanities never go anywhere near the scientific method other than to convince themselves that doing a qualitative oral survey of some classmates is just as much a “science” as the falsifiable ones.
> Why did people take or not take vaccines? Humanities,
The failure of humanities to produce any meaningful predictive behavior of humans is a pretty good example of why it’s a failed branch of inquiry.
> mastered messaging and mass political communication, which is humanities.
The people who have done this are completely outside of the grasp of the humanities taught in US universities. Every Ivy League economist, sociologist, social psychologist, etc that was in US leadership for the last 20 years has done nothing but flounder.
"Education, healthcare" ... depends on the country involved, plus the extent of healthcare you can now get is vastly bigger due to scientific progress. Forty years ago, HIV infection was a death sentence and most cancers too.
It would be impossible to house homeless in vacant houses. Sellers and landlords would never accept it because would make it hard to find people. The short-term rentals would be hard to mange, not good for the homeless to always be moving, and easily go wrong. Is the government going to compensate for damages? For delayed moving into new house? It is almost certainly cheaper to build the homeless housing.
Prop 98 in 1988 shifted funding away from UC and CS systems towards community colleges. The UC system went from about 6% of the budget to a bit over 2%.
That amounts to a loss of ~$15,000 per student in today's dollars.
Notably, minimum wage in California has increased faster than inflation since 1984.
I trust the data, and the data shows their lives are better. If you don't trust the data, it's impossible to know.
So we can say wages have increased to keep up with inflation, but left out is all the money lost during the time lag before wages caught up. And whose wages caught up? If you use average wages, then you can hide the details. You really need to look at different income levels, or at least the median wage and the inflation experienced for that median person, bare minimum.
Inflation is a killer for the poor and most of the middle class - and a boon for the wealthy (who own appreciating assets) - everyone I know who is not wealthy enough to not care, is feeling it.
> Since 1963, inflation has risen 896%, while housing prices have risen by more than 2,350%.
> For example, between 1984 and 2021, home prices in Massachusetts rose by 469.89% while incomes increased by 221.10%.
ETC, ETC
https://www.investopedia.com/ask/answers/correlation-inflati...
Zone more land for denser development, and you will see the rents and home prices fall, or at least stagnate. That is why people started building skyscrapers immediately after reasonably developed lift technology was available.
As you reject ignorance (which I applaud), what knowledge is that based on?
This really took off in the Reagan years where real wages stagnated [1]. It was from the 1980s where you started to hear statements like "wage incresaes should be tied to productivity increases" [2]. If you parse that statement, it means no cost-of-living increases ie a decrease in real wages.
All of this is wealth transfer to the very rich and entirely intentional.
[1]: https://www.epi.org/publication/charting-wage-stagnation/
If the number of qualified workers increases significantly, you will end up with lower real wages. There were three major factors increasing labor supply around this time in the US. Immigration from Mexico, women continuing to enter the labor force, and reduction in demand/increase in (global) supply for lower skill labor via globalization of manufacturing
Not casting any judgment on whether these things are good, but they are far more likely to be the primary factor than inflation.
One thing that's occurred to me recently is that demands for a 4 day working week seem entirely reasonable in the context that the labour force has, if not quite doubled, dramatically increased (due to more women participating) over the last few decades (and that time has been taken away from time that was previously available for the completion of domestic chores).
I'm sure it is an efficiency win on the total, but perhaps not as gigantic as often assumed.
There is an efficiency gain in total, but a lot of losses that eat at the actual wins.
We could have been mowing your lawn or filling my taxes. That is how I remember it anyway. If you just help drink my beer we both get things out of it.
a computer won't increase the wage of someone whose work is unrelated to the procurement of the computer/system (even if their work was made more efficient).
For example, a checkout clerk now dont need to compute, because of the efficient Point-of-Sale system (when previously they'd need to recall prices). So even if the output of the clerk is now higher, they could be less skilled and so the supply increases, leading to lower wages.
The people whose job is to procure the computer systems _do_ get increased wages. That's why so many software engineers are rich.
Inflation calculations (in the US) did not happen under Greenspan, or under any other Federal Reserve chair, because the calculations are not done by the Fed, but by the Bureau of Labour Statistics (BLS: https://www.bls.gov/cpi/).
The 1990s change to the CPI were done under the auspices of the US Senate Boskin Commission:
* https://en.wikipedia.org/wiki/Boskin_Commission
* https://www.ssa.gov/history/reports/boskinrpt.html
One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high.
This is true in many (most?) countries: e.g., in Canada CPI is calculated by StatCan and various types are used by the Bank of Canada (BoC):
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
* https://www.bankofcanada.ca/rates/indicators/key-variables/k...
* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181002...
How is this any different from saying they changed the methodology to make the numbers look better? In my opinion the old methodology was better, but I realize this is a complex issue and there is no "correct" answer.
Define "better": is a higher CPI better, or is a lower CPI better?
Because the Boskin Commission found that the CPI numbers out of the BLS were too high and they changed the methodology to lower them after the Commission's report. Pre-Boskin CPI was being overstated.
Why is a lower CPI better for the government?
In what way does the CPI calculation translate to a "problem" and why does lower CPI = "smaller problem"?
Let me guess, you think anything other than 0% inflation is "bad"?
You really think it's a coincidence when inflation is peaking they change the formula and it just happens to be lower?
They changed the number because the number was not modelling reality as accurately as it could have.
Perhaps actually read the Boskin Report:
> 5. Changes in the CPI have substantially overstated the actual rate of price inflation, by about 1.3 percentage points per annum prior to 1996 (the extra 0.2 percentage point is due to a problem called formula bias inadvertently introduced in 1978 and fixed this year). It is likely that a large bias also occurred looking back over at least the last couple of decades.
> 6. The upward bias creates in the federal budget an annual automatic real increase in indexed benefits and a real tax cut. CBO estimates that if the change in the CPI overstated the change in the cost of living by an average of 1.1 percentage points per year over the next decade, this bias would contribute about $148 billion to the deficit in 2006 and $691 billion to the national debt by then. The bias alone would be the fourth largest federal program, after social security, health care and defense. By 2008, these totals reach $202 billion and $1.07 trillion, respectively.
> 7. Some have suggested that different groups in the population are likely to experience faster or slower growth in their cost of living than recorded by changes in the CPI. We find no compelling evidence of this to date (in fact just the opposite) but further exploration of this issue is desirable.
* https://www.ssa.gov/history/reports/boskinrpt.html
* https://en.wikipedia.org/wiki/Boskin_Commission
Feel free to point out any errors in the methodology and logic that they used.
Here's a paper from 2006 to get you started:
> This paper provides a retrospective on the 1996 Boskin Commission Report, Toward a More Accurate Measure of the Cost of Living, and its famous estimate that the CPI in 1995-96 was upward biased by 1.1 percent per year. The paper summarizes the report's methods, findings, and recommendations, and then reviews the criticisms that appeared soon after the Report was issued. Post-Boskin changes in the CPI are summarized and assessed, as is recent research on related issues. The paper sharply distinguishes two questions. First, with what we know now, what should the Commission have concluded about CPI bias in 1995-96? Second, what is the bias now after the many improvements introduced into the CPI since the Commission's Report?
> About the first question, my own recent research on apparel and rental housing indicates a substantial downward bias in the CPI over much of the twentieth century, diminishing in size after 1985. Incorporating these findings into the Boskin matrix would reduce its 0.6 percent annual upward bias due to quality change and new products to a smaller 0.4 percent bias. However, this is more than offset by the stunning discrepancy over 2000-06 in the chain-weighted C-CPI-U compared to the traditional CPI-U, indicating that the Commission greatly understated the magnitude of upper-level substitution bias. This retrospective evaluation suggests that the Boskin bias estimate for 1995-96 should have been 1.2 to 1.3 percent, not 1.1 percent.
> Current upward bias in the CPI is estimated to have declined from the revised 1.2-1.3 percent in the Boskin era to about 0.8 percent today. Yet the Boskin report, like most contemporary studies of quality change, failed to place sufficient value on the value of new products and on increased longevity. Allowing for these, today's bias is at least 1.0 percent per year or perhaps even higher.
Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket. Let's see... if we run the numbers by dropping goods that are experiencing rapid inflation, and then weight things in a way that has no correlation with the increase in cost of living experienced by 99% of the population we get... oh look at that! 4.1%! Great news for the person who buys a new TV with their groceries every week!
Do you understand how StatCan calculates the CPI? What their methodology is?
The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys:
* https://www.statcan.gc.ca/en/survey/household/3508
As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
You can see the list of changes going back to 1913 at:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
Do you think the CPI should reflect reality—i.e., track what people actually buy—or be some arbitrary list of stuff that has no relevances to people's actually basket of goods (e.g., coal and lard were removed/replaced in 1956; 35mm film removed in 2013; video rental removed in 2015).
It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%:
* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5)
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)
StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation)
* https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
> Great news for the person who buys a new TV with their groceries every week!
If you don't like televisions being a part of the 2.25% of the CPI that is "Household equipment":
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
Then tell the average Canadian to stop buying televisions so that it does not show in spending surveys. If people stop consuming televisions it will stop being part of the Consumer Price Index, QED.
Meanwhile Food is 11% of the CPI because that is on average what the average Canadian spends on their average basket of goods per the spending surveys that StatCan gets.
So, if the new measure is actually wrong, then inflation is underreported now, when it used to be correctly reported before. The Boskin committee believes it was overreported before and it is now correctly reported.
Either way, especially in recent years, it's pretty clear that CPI has been a flawed metric. I remember this episode fondly: https://www.wsj.com/articles/SB10001424052748704893604576199...
All the younger people I know in less than stellar jobs are really hurting. These people were never well off but were comfortable before the pandemic.
But now they’re making hard decisions for basic necessities and grinding down the quality of their lives.
Quality of living is plummeting and inflation on things you actually care about is way more than the headline rate. Housing, for example takes up a vast proportion of income and the increase has been way over inflation.
I don’t think it’s headline news to state that the headline rate of inflation is not all that reflective of reality.
Massive citation needed.
Or read any one of many articles about it.
https://www.theguardian.com/business/2022/jul/19/uk-living-s...
https://www.theguardian.com/business/2022/nov/17/obr-confirm...
https://www.cnbc.com/id/44962589
https://www.economist.com/graphic-detail/2022/09/08/global-l...
The CPI is a national average for an average basket of goods; your local conditions may be different. It has zero connection to your personal budget.
In Canada the headline national number was 2.8%, but the province of Alberta (as a 'whole') had 4.2%, while Manitoba had 0.9%:
* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5) * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc... * https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)
StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
If the government would stop trying to micromanage the economy, then it wouldn't need to find some aggregate statistic to use, no matter how misleading or counterproductive it was.
Right, but some of us are not religious, so proposals needs a little bit more than the blind faith of "take your hands off the wheel and I'm sure everything will magically be better for everybody, particularly the poor".
This is probably the best example of government lack of regulation, considering that their ample laws against monopoly's, cartels and duopolies from the days of Teddy Roosevelt's administration
They are effectively not enforced, or if enforcement is attempted corporate legal departments now have an effective means of defeating them since the Microsoft trial
You're contradicting yourself. You can't have "regulatory capture" and "deregulation" at the same time.
As a matter of actual fact, we do have lots of regulatory capture, which has resulted in huge swaths of regulation that favors large corporations who can afford lobbyists, and disfavors smaller business that actually are the most productive part of our economy. With what results, we see.
> They are effectively not enforced
Antitrust law enforcement has indeed been irregular since they were passed--but what enforcement has been done has done more harm than good. The classic cases of antitrust enforcement, such as Standard Oil or Alcoa Aluminum, resulted in higher prices and scarcer products for consumers--i.e., a negative impact, not a positive impact.
However, antitrust laws are a very small part of the total body of regulations that affect businesses. It's just that most of those regulations are written by executive branch bureaucrats instead of Congress. The Federal Register is much larger than the United States Code, and includes much more detailed micromanagement of all kinds of business activities. Which, again, favors the large corporations that bought those regulations in order to hamstring their competitors, smaller businesses who are more productive but less able to absorb the costs of compliance with that huge mass of regulations.
The only regulatory capture in play against antitrust is bribery of the judicial system officials, which we now know is rampant, and employing executive and congressional pressure on the DoJ, which obviously exists.
(if I said it it would be completely sarcastic, but some people do idealize the far past and probably mean it honestly, presumably because they mentally imagine / assume they wouldn't be in one of the sucky classes of society)
But people are waking up. The Internet has democratized information (sorry, it's popularized it), and now the elite gatekeepers in colleges can't stop anyone from gathering economic data with their own eyes and doing economic analysis. I can see how much a loaf of bread costs; I can see my basket of goods and my supermarket receipt.
Just kidding. I really think the lack of humanities education, especially history and literature, makes people - especially in SV and the wider less-educated world - very vulnerable to this nonsense. It's transparent nonsense if you understand it, but if you toss away generations of understanding about its technique and manipulative power and effects, you are a babe in the woods.
"Not to know what happened before one was born is always to be a child." - Cicero
No, they weren't. The worst depression in history, the Great Depression of the 1930s, occurred after the Federal Reserve was in place in the US, and similar central banks were in place in other developed countries.
I couldn’t care less what’s happening in some government statistical bureau. That doesn’t affect the quality of my day to day life.
But when I catch up with old friends, see young colleagues, talk to cashiers at the store, and they all have tales of misery, I feel miserable.
Which effectively limited them to people that already had very stable and financially supportive family situations.
Part of the reason that class mobility is going down. Although I think most of the production in class mobility is due to the disappearance of the high paid blue collar job in manufacturing
Supposedly manufacturing will be re- onshored in the next decade depending on who you talk to. So the tide may be turning?
If you're drowning in the ocean 100 ft below the surface, saying you managed to go 80 ft so you're still 20 ft below the surface is remarkably stupid and fails to appreciate the gravity of the situation.
So real gains may or may not exist without looking at the individual or individual cohort you are talking about.
> None of your economic beliefs are grounded reality
If you think reality is defined in economic reports I have a bridge to sell you.
And? It has always sucked to be poor / have less. That doesn't mean that the measurement of prices via CPI is inaccurate.
The fact that capitalism has run amok and income inequality is growing doesn't mean the statisticians at the BLS are wrong or are cooking the books.
[citation needed]
The CPI has been verified over and over again. There's open source software where you can do things yourself:
* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
It is probably the most looked at number that the government releases. There are economics professors/researchers, statistics professors/researchers, economists at hedge fund, economists at pension fund, economists at labour unions, bond traders, equities traders, etc, looking at the numbers every month. No one professionally involved with it thinks it's fudged.
There are certainly different methodologies, and that is often debated (e.g., how best to measure Shelter for homeowners versus renters), but for the current system, I'd like to see which non-tin foil hat wearing people (i.e., not Shadowstats.com) think it is being fudged and how.
It’s not even true in general that the trend has been switching towards lower quality products. Despite all the ahistoric whining about how much better the old days were, Americans have gotten richer over the past several decades and have been buying bigger cars, dining out instead of eating at home, spending more on travel etc.
People's lived experiences in many parts of the country don't match what they're being told. If macro trends go one way but microtrends all over the country go the other way, then the macrotrend analysis is functionally meaningless for millions of people. That's not a conspiracy theory, and hand-waving so many people's lived experiences away because it doesn't match YOUR ideological prior is not taking the discussion seriously and fundamentally and possibly wilfully misunderstanding the issue. Insisting that people everywhere saying life is harder than it was pre-pandemic or 10 years ago or whatever are wrong "because the charts say so" is silly.
Is there a point of view where not primarily discussing "bucket 1" even makes sense, given everyone's stated intentions?
This is EXACTLY the issue. The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation. Meanwhile, everyone else whose income comes primarily from a wage must constantly struggle for more concessions just to earn the same real amount they did last year.
Look, I'm sensitive to the struggles of the less well off, and that we are in a particularly rough part of a cycle. I don't believe the economy is at all optimal.
But your comment implies that people are getting poorer over time, and it flies in the face of reality, doesn't it? Society has become significantly wealthier, despite the absurdities of inflation and interest rates.
(I think the claim is still wrong, and that all quartiles are doing better in real terms, but that's a tougher thing to measure)
Annual wages are about 15% higher today compared to 1971 in real terms. Real terms is a bit suspect in this case as wage earners are more likely to pay nominal rent then owner equivalent rent. It may well be accurate that the average wage earner is worse off today then they were in 1971.
I'd venture a speculation that this is reflected in media, sitcoms of the 70s rarely had roommates - and the 80s/90s poked fun of those who lived in their parents basements. Roommates are relatively common in shows today.
Since 1971, the cumulative inflation rate was around 700%, with an average annual inflation being well over 3%.
So while wages increased 15%, the price of everything else around us increased over 700%.
The median income earners in Q1 1990 made 408$/week, one inflation source puts that at 951.17$/week in Q1 2023, vs 1095$ which is what the actual dividing line was. https://fred.stlouisfed.org/series/LES1252881500Q https://www.usinflationcalculator.com/ Numbers also look different depending on what exact dates are chosen.
However, there’s many ways of calculating inflation many show that hypothetical person worse off. And of course individuals aren’t going to stay at exactly the same income band so many many people really are significantly worse off.
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford
CPI is thoroughly flawed. It doesn't take into account that consumables are actually falling in value by 5%/year due to ever increasing efficiencies of production, and it only includes a carefully selected basket of goods which notably doesn't include hard assets like real estate. It's algorithm is even changed through years and if we use algorithms from previous decades, they produce much higher figures.
It completely ignores the fact that the fiat currencies are devalued through money supply inflation (the real inflation)
Gasoline was roughly 1/3rd the price, but 4 years of state college was 20k, not 100k.
A house I grew up in, while 30 years newer, cost 80k compared to 300k now, even though it needs a lot more work.
Minimum wage there went from 4.25 an hour 30 years ago to 7.5.
Health care costs have gone up way more than double.
So maybe people make twice as much cash, but their costs for the things they actually need, without bullshit fake adjustments, cost 3 to 4 times more than they used to.
One could argue for better, lik how react is "better" than html forms. But it isn't really worth the cost to me.
Excite was about as good at getting me search results for what I am looking for as google has enshittified itself to now.
Are you two talking about different time scales? Individuals in the workforce get poorer as their buying power drops, but each generation lives in a wealthier society as more innovation improves life.
That is the issue with the absurdities of inflation and interest rates - how do you tell whether we're better off if the yardstick for measuring value is being purpose fully distorted? And the way we measure the distortion seems to be unreliable;I don't see how inflation is supposed to rise faster than wages but asset prices seem to be inflating substantially faster than the inflation rate making it harder to save. GDP also disassociated from energy use in the 1970s so I don't see why it going up means I'm better off either - I need cheap energy to be comfortable. All the stuff GDP measures is nice, but rising energy prices are a massive problem that we don't focus on as much as we did when they were driving GDP growth despite the fact that they are still a major part of existing.
Asia is better off in real terms. A friend of mine was talking about how he went home to his ancestral village and they had toilets now which is a massive QoL step change. So if "society" is global, yes.
If we're talking English speaking countries, you can tell me I'm better off, but I'm not sure what metrics you're using or why we believe they matter. I have access to much better electronic equipment than my parents, and our ability to cure ailments has improved markedly. But a bunch of people I know had to leave the city because they literally couldn't afford to live here. Debt seems to be out of control. We're seeing political discontent in the UK and US that seems to be linked to people who don't believe that they are becoming better off, and I tend to believe people when they say that.
TLDR; maybe. But you're making a claim that is vaguer than you might think. We're a much smarter society than we were 50 years ago, but it is less obvious who it is that is "significantly wealthier" and what that means.
Haven’t people always done that though? America’a history is one of constant migration.
Searching for general stats on labor mobility, it seems that Americans are moving to find work (surely the same thing as moving because the place they are is unaffordable for the lifestyle they want?) _less_ now:
E.g. https://www.philadelphiafed.org/the-economy/regional-economi...
In recent decades, as land across the U.S. filled with development—particularly along the coasts—highly mobile cities became increasingly populated by people born there. As an example, in 1960, 20 percent of U.S.-born residents of Los Angeles were from California, while by 2010, 70 percent were. At the same time, population growth rates have converged and are now similar across all regions. Coate and Mangum theorize that these two trends are connected by home attachment, or “rootedness”—that is, people prefer to live near family and social connections.4 Despite individual differences in the intensity of home attachment, the authors find a preference for home among the young and the old, and for both college- and noncollege-educated workers.
I think there's a section of people in this demographic who have been seeing how much better off _others_ are (thru social media etc), and thus feel discontent. This is exacerbated by the fact that such type of discontent inducing content is clickbait and gets people emotional (therefore, engagement).
There's some truth, perhaps, to the idea that some people were better off in the seventies than today, but the majority of people are likely living a wealthier life today. They just dont feel it, because there exists an even wealthier class that is now very visible, and it has been ingrained into the youths that modern society has moved past feudalism and classism.
We like to hand wave and approximate costs via a single "inflation" number but smart phones are infinitely more cheap than 20 years ago - they didn't exist back then - whereas they don't solve basic needs like food & shelter. So we need better metrics.
So I have to hand wave a bit but if the economy grows such that everyone has better purchasing power, but the top 5% or 1% benefit 100x more than everyone else, I think that's a win; it'd of course be better if the new wealth was spread closer to equally, but the main thing is to make sure as much as practical that everyone is better off.
I'm not actually sure we know what the right economic policies to promote this sort of goal are.
If housing were constant then people would not be any poorer with respect to housing. They would be in the exact same position. But housing is not a constant. The average US house has have more than doubled in size over the past 50 years. The average US home also has one less person living in it as compared to 50 years ago. People today are way richer in housing.
I don't think your graph says what you think it says.
The graph shows a time series of the rate of homes which are owner-occupied to those that aren't. When the average Joe buys a house, they tend to stick with it for life. However, the graph you linked clearly shows this rate plummeting from 2004 to 2016, with the nosedive amounting to around 6%.
This means that in a short span of a decade, the amount of home owners living in their own home dropped 10%.
You have a small spike around 2020 which I bet was caused by WFO allowing people to live in places cheap enough that they could finally afford their home, but that stagnated already.
Also, it's interesting how such a meteoric drop happens in an indicator that tracks home ownership, which is something people do for life. You need a very radical change in the people's ability to afford a house to see so many people stop affording them in such a quick timespan.
You mean median person. If society gets wealthier the average nearly definitionally gets better (modulo population increase)
Things we consume have gotten cheaper - flights, electronics.
Things related to wealth - assets but also things like education have all gotten more expensive.
So we all get to live a more "experiential" life but good luck passing anything on, if you care about those kinds of things...
EDIT here we go - similar (if not the same) chart:
https://www.washingtonpost.com/news/wonk/wp/2016/08/17/the-s...
The family is not too much less wealthy but also we have families with two incomes, breadearners working overtime, stressed out family dynamics, and student going into deeper and deeper debt to be credentialed enough to participate in the sophisticated workforce.
If you look at the "wtf happened in 1970" chart, the y axes are productivity and real wages.
It turns out 2% inflation is enough to steal the productive increase of labor and middle classes and transfer it to the politically connected, wealthy, and financial sectors. At some point it's just going to be impossible to wring more gains out of labor and technology improvements. We're probably really close.
People say "everyone is richer" because the cost "nice things" generally drops with time due to efficiency. So nobody is in fact financially richer, just richness from a quality of life perspective versus someone living in a cave - it's kind of a cop-out and a twist on words.
Indeed the top 1% of the top 1% of the top 1% of the US holds over 95% of the wealth, it's actually completely insane. most people are poor, relatively and comparatively. A common sense wealth / net worth tax, 5% per year for 5 years, 2% per year thereafter, would ameloriate this.
I think you are confusing two entirely different things. You can have a society that's getting wealthier and still people getting poorer. In fact, you have just that in the real world. It's as simple as seeing how the median salary and average salary compare and evolve. It's as simple as comparing how minimum wages evolved with inflation.
It's no coincidence that even in the US, humanity's apex in economic development and wealth, the average Joe cannot afford a house while a few decades back it could.
But people look at other people who are visibly better off, compare themselves against those and get tricked into believing, that it is no just. How he can have more? Must be evil! Stolen from the people! Typical divide and conquer, to play with ego and greed, that causes misery and anger among our fellows. It makes me sad to see the same scheme being played out everytime.
Do you know the size of houses in 1960s and how many people lived in how much space? Today people are priced out of the housing market because everyone expects opulent luxury.
It is the home sellers who put "opulent luxury" prices on worn down homes in need of repair. It is the sellers who renovate homes for 100 000 to increase the asking price with 500 000.
Imagine if this was the market for cars or any other goods.
The reality is that in the fifties large families used to live packed quite tightly in a small space, and now, they... don't?
Better quality and more abundant goods with decreasing marginalized labor costs is what we should expect since technology is naturally deflationary. If anything, the oddity is that food prices ever increase over time when quality is stagnant. The book "The Price of Tomorrow" does a good job giving a perspective on this.
There's also the problem of misguided/fraudulent capital investment which is when governments and corporations raise costs under the guise of technological improvements. This is when they say they add in extra processes for quality when they're really just lining their pockets. Think medical schools and doctors (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6288618/), the FDA processes(https://en.wikipedia.org/wiki/Criticism_of_the_Food_and_Drug...), etc.
* Negotiating actual salary cuts, or * Job losses
Ideally in a market, prices adjust up and down freely. Obviously this is not a sensible approach to salaries. Given the bias towards loss aversion, having mild inflation make mild losses is preferable to having, say: 5% deflation, 7% salary cut.
This concept is from Econ 101. And it doesn't mean everyone's wage drops. It means struggling firms can adjust wages less painfully.
Your alternatives to 2% are:
* active deflation, with actual wage cuts
* higher inflation, where you have active salary negotiations each year to predict inflation and negotiate higher or lower than inflation, like in the 70s
Elon 101: hire aggressively until product finds PMF, then fire aggressively.
So if banks keep 10% in reserves, then a cash deposit gets multiplied by 1/.1 = 10 times, and that factor does not grow with time. Even if there were no law against continually lowering reserve ratios (and therefore increasing this multiplier), the market would tend to create a bound, for otherwise the bank would have greater risk of collapse from runs and unexpected loan defaults.
By contrast, if the central bank (Fed) keeps increasing its balance sheet (by buying assets using money it created from thin air), we have continual growth in the money supply (since the folks who sold the assets have new money in their accounts, granted magically by the central bank).
In fact, if we had a law that banned fractional-reserve banking for all commercial banks, so that all commercial banks had to have 100% / full reserves, eliminating your dilution, the central bank could still perform open market operations and buy assets with printed money, and thereby continue to increase the money supply. Full reserve for private/commercial banks is still compatible with money printing by a central bank.
So I know fractional-reserve gets a lot of heat by sound money folks, but the continual inflation observed since the 70s is not primarily a fractional-reserve problem, but a central bank money printing problem.
I would MUCH rather a firm have to face the music and reputational damage of cutting employee pay or firing employees. It's far more honest and the actual other option is gasp don't cut your employees wage and instead take a hit to your margins.
The premise of your quip is nonsensical, since people are let go anyways. You wouldn't know that you were the marginal human that was cut because we are in inflation or not.
If there's a downturn, then everyone will have to tighten belts, and firms can make that case to employees.
Making a real 2% salary cut the universal default is cruel, and if your typical hourly wage-earner understood clearly the choice being made on their behalf, they'd be pissed.
Deals shouldn't be altered without agreement, but that's what 2% inflation targets do. If you agree to a salary, then nobody should be specifically putting their thumb on the scale one way or the the other.
Professionals and job-hoppers have less problem negotiating to keep up with inflation. It's the poor people who get screwed.
Also, inflation is less steady the farther away from zero it is, I'd wager. So we have inflation spikes sometimes, like we've seen. There's always a time lag between spikes in price increases on goods, and wage increases (which require negotiation). During that lag period before a compensating wage increase, savings get used and real loss is suffered. I highly doubt that the loss in savings is generally recovered, and the Fed never even aims to recover that loss. The most vulnerable people lose the most, and are impeded from building wealth as a result, and probably come to depend on government more.
Additionally, usually workers have too take debts too buy their house. If there is a little inflation and the salaries are following inflation the debts becomes comparatively lower every year.
It's not just against workers. There are upsides and downsides for everybody.
Most firms have rising real wages: real wages rose during the 2% inflation period.
But sometimes a firm needs to lower costs. Having a small bit of inflation lets a firm do so without either firing people or actually cutting nominal wages.
There is no consistent "2%" inflation period. If a year were to have 6.5% inflation (like with year 2022-2023), most firms will not raise real wages to match it. Over the last decade we've had a 2.82% average inflation rate with 4.41% variance showing how much we overshot both metrics.
source: https://www.usinflationcalculator.com/inflation/consumer-pri...
But it is still true that a lot of people, including all stripes of middle class, are self employed or have income other than wages (I shared a chairlift recently with someone who spent 1/3 of the year ranching his cattle, 1/3 of the year farming a crop with his grandfather and a hired hand, and 1/3 of the year as a ski bum - 3 types of seasonal hard labor that gave him the freedom he wanted)
They also tend to be shorter than the standardized USA 30-year fixed.
Once you've taken out a fixed-rate mortgage, inflation absolutely has the effect of reducing the value of the debt you owe. It's more if you're about to take out a mortgage that you're rooting against (expectations of) inflation, as lower inflation will also serve to decrease the prevailing interest rate.
Debt should not be encouraged nor discouraged. Interest rates should be natural, based on market forces about the time value of money.
Homeowners don't deserve a mortgage subsidy paid via inflation. If there is a subsidy, make it explicit through law.
This isn't true (at least not by definition); no common measure of inflation uses the assets of the rich as a primary input. The closest thing you will find is OER, but that's unrelated to the stock market or other common assets used by the rich to park wealth.
It's not rigging. Here's a few observations from a study in 1776.
> It is not the actual greatness of national wealth, but its continual increase, which occasions a rise in the wages of labor.
> China has been long one of the richest, that is, one of the most fertile, best cultivated, most industrious, and most populous countries in the world. It seems, however, to have been long stationary. [...] The accounts of all travellers, inconsistent in many other respects, agree in the low wages of labor, and in the difficulty which a laborer finds in bringing up a family in China. If by digging the ground a whole day he can get what will purchase a small quantity of rice in the evening, he is contented. The condition of artificers is, if possible, still worse.
> The liberal reward of labor, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the laboring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they are going fast backward.
At risk of derailing the conversation, your post is an excellent demonstration of how conspiracy theories come about. You notice some basic social truth, and since it's a harsh and unpleasant one, you blame it on some sort of deliberate action.
This is also not the only reason for targeting inflation at some low but positive level. Another is that you _really_ don’t want persistent deflation, so aiming for modest inflation reduces that risk. Inflation also erodes unproductive savings, encouraging investment, which supports jobs and growth.
Holding assets during inflationary periods means paying a higher percentage of your real gains as taxes.
npoc, how do you play that game?
In Belgium, nearly all wages and salaries are "indexed" automatically in order to avoid social unrest [0]. If the government notices that prices of an index of goods have increased with 2% or more since the last increase, all wages, benefits and rents go up with the same number. The exact details could fill whole books though.
Indeed, if it weren't for such a mechanism, you would need to see strikes way too regularly in order to fix the runaway inflation against fixed wages (which is bad for productivity, which causes even more inflation).
It creates a setting where most people (who don't understand inflation anyway) don't need to care about inflation too much either. In fact, I have found most Belgians react incredulous when you point out it's pretty much the only country that handles inflation this way.
[0] https://en.m.wikipedia.org/wiki/Consumer_price_index_(Belgiu...
It's worth asking where the inflated money goes. It doesn't go to your bank account, it doesn't get sent out in checks to every citizen. It goes directly into the pockets of people who take out loans to fund business ventures -- capitalists/owners. That's what the interest rate is, interest on loans. When you have socialism for the rich as we do in America, that further compounds the corruptive damage of inflation, because those loans that are given out are then not defaulted on, so inflation then becomes a direct handout to the rich free from the consequences of risk. This makes both the rich richer and the poor poorer.
Inflation fuels wealth inequality, which fuels corruption, which destroys rule of law, which destroys innovation, which shrinks the economy, which requires more inflation.
Ray Dailio's Principles for Dealing with the Changing World Order talks about why the problem is so much more complex and worse than you think it is (45min): https://www.youtube.com/watch?v=xguam0TKMw8
1. It's your money, so it's not for others to control.
2. You may have a good reason for keeping money under your mattress. For example, you're poor and inexperienced with investing and have heard how people lose their shirts if they don't know what they're doing. There is a lot of complexity to investing, and scary contracts and qualifiers, and then you find out that you don't really own clear title to the stocks you've bought, and hear stories that brokerage firms transfer stock that they don't even have, but will protect favored rich clients if push comes to shove.
3. Maybe there's real risk in the economy, so recklessly investing despite that danger shouldn't be forced one someone with the threat of stealing value.
4. The rich can afford advisors who will help them invest so that they don't have to hold onto inflating cash, and know of ways to preserve value. Only the poor have a sizeable portion of their wealth in cash.
Assets don't automatically rise in value with inflation. If you own shares in a business generating $100,000 in profit in the current year, then it won't automatically generate $102,000 the next year. In fact, because of inflation it will probably generate less profit because costs are always going up. And if profits are decreasing then so should the value of the company.
Hard assets are slightly different, they will generally go up with inflation, but notably the same is true in the reverse. If you're very poor and have a lot of debt, inflation is great because the value of that debt will be devalued.
And for these two reasons I'm not sure it's as simple as saying inflation is good for the rich. Inflation is bad for companies with high variable costs.
Finally one of the core drivers of inflation is wages. It's very hard for inflation to rise without wages rising, because demand in an economy is ultimately a product of the purchasing power of consumers which is tightly coupled to wages. Without wage growth to get inflation you'd probably need some other driver of demand such as demographics (immigration, high birth rates, etc), fiscal deficits (more public borrowing), or accommodative interest rates (more private borrowing).
for inflation caused by external factors - such as a war and spiralling high energy prices - it can rise without wages rising.
But there are other useful reasons for inflation too. It enables stable expansion of currency and funding of deficits, money printing and overall economic expansion (or funding of wars for political ends) despite all the inconsistencies when allocating this added money supply, and particularly the outright morally bankrupt socialistic rescue of large ”systemically important” banks etc. The same governments that create and manage the money supply may also introduce millions of large deviations and problems with the price formation on goods and services or investment such as IRA sucking the world dry to get all the investment and manufacturing capacity back to the US.
It’s a complex topic, but you have to keep in mind that central banks are the mystical force that keeps this whole game running. If you corrupt this system too much it tends to fail and I’d like to remind that the US Fed is the third central bank attempt in the US alone. It’s just crazy how it is all set up this way and people remain fascinated by it.
In the end it comes down to trust and military firepower and compulsion (as well as tax collection in that currency, i.e. legal tender) to keep everything legitimate and workable… I could go on and on but you get the point. You are just a cog in the machine, so don’t worry too much if your salary buys you a tad less than before, we gotta work with it somehow and that’s the intention. If you upskill and work hard enough, you can ask for more salary. Or if you’re closer to the source, then you have have nothing to worry about (govt. contracts, even something like large venture capital during the zero interest rate time, or just close and cozy with banks).
First of all, a rate of zero would be ideal, but, lets face it, like any measurement, this is going to have some error. So, if you are going to err, on which side do you want to err? In favor of a little bit of inflation, or a little bit of deflation?
Well, inflation is painful, sure, but it's not nearly as bad as deflation. Let's exaggerate the numbers to make this point: if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value.
So all of a sudden, you'd be financing twice as much debt, in real terms. A Calamity. You'd lose your car, your house, your credit. Cf with 50% inflation. You'd be paying back your debts with inflated dollars, which is hard for banks--but remember, they are also paying back their creditors with inflated dollars too...
So, given that inflation is bad but deflation is worse, and given that the Fed probably can't measure and-or even control the inflation rate to a sub 1% precision, shooting to keep inflation at 2% is a good strategy.
Not necessarily. If the transition to a deflationary economy is slow and planned, then expected deflation would start to be considered in the interest rates of your car payment, mortgage, etc. i.e. interest rates would become negative not long after inflation becomes negative.
If employers are capable of negotiating deflation adjusted salaries, then market pressure is capable of forcing companies to adjust their prices and interest rates to deflation.
If your money is guaranteed to grow in value--and without the risk of actually investing it--that would starve the economy of investment, which would reduce economic growth. People would hold back on their consumption (why buy it today, when tomorrow it will be cheaper??), further reducing demand, which would further depress prices, etc in a doom cycle.
That conclusion wasn't reached by extensive investigation of economists belly-buttons. Its observed fact and lived experience in every deflational economy ever observed.
And if you think Banks are just going to forgive your debt if your salary decreases, you are nuts.
Whether something is good or bad depends on how well or how poorly you use it. Its not intrinsically good or bad.
Society doesn’t need to operate with so much debt. Usury is a financial tool that benefits the rich.
But that doesn't mean that debt is intrinsically bad, or must always benefit the rich at the expense of the poor. Like any other tool, it depends on how you use it.
If your contract says you make $5000/month in salary, then why would the number of dollars decrease? They wouldn't increase due to inflation unless the employer chose to "give you a raise" (just adjusting for inflation perhaps), but they can't unilaterally decrease your salary (in countries that don't suck, anyway).
Well, deflation means everything costs less. And "everything" includes wages and salaries, even yours. If we had 50% deflation, that means the boss could hire somebody who was as productive as you for 50% less. This is elementary, right? That's what deflation means.
So either you are going to renegotiate that contract, or the boss will just fire you and hire somebody else.
"But I have a contract--how can he fire me??" Do you have a contract with your employer? If so, take another look at it--it will say you can be fired at any time for any reason.
There was a time in America when unions were strong enough that they could demand contracts for you which limited the conditions under which you could be fired. But (thank you, Ronald Reagan) those days were half a century ago. Some call it bullshit, some call it "efficient capitalism".
But the more efficient capitalism is, the faster your salary would decrease in lockstep with deflation. You would very rapidly not be able to pay your car payment, mortgage and credit cards. And if you think the banks are going care about your sob story, remember in 2008, the last time that large numbers of people couldn't pay their mortgages, they were kicked out into the street by the millions.
> (in countries that don't suck, anyway).
Well, two points, 1) America is a country that sucks, in that sense, and 2) Countries that don't suck do not let themselves fall into a deflationary trap.
Regarding inflation, I would argue that younger people are more susceptible. Their free cash flow will drop, and at higher rates could lead to negative flow which over an extended period would be financially deadly especially for NEETs or other people at risk.
Well, first of all, let me heartily agree with you that the young adults are being and have been being screwed for about 20 years now.
But remember in 2008, when middle aged and old farts like myself were being thrown out of their houses by the millions? That had absolutely no ill effect on young adults?
> plus the fact they can change their living situation faster
Yeah....but isn't that pretty much saying "lets screw the younger generation--they can take it better than we can!!" I mean, the younger generation shouldn't be always scrambling to find a new job at a lower salary, moving out of apartments they can no longer afford, etc etc. They should have the security to enable them to build a wonderful future for themselves.
> Regarding inflation, I would argue that younger people are more susceptible.
True. Inflation is bad. But it's important to realize that the inflation we are currently suffering didn't come about by the Federal reserve mucking around with interest rates. It was caused by Trump adding $8.5 trillion to the deficit, and financing that largely by printing money.
The young, of course, are screwed both ways: they have to endure the present inflation, and then they have to pay back that debt, while they are trying to keep their parents in a decent nursing home at the same time they are trying to pay for their kids college education.
The only reason they aren't rioting in the streets demanding better from us is that most of them are too young to even remember an economy which works the way it should.
Deflation associated with debt deleveraging can be bad. But the problem is that we got into debt. Debt was not nearly as high in the 19th century. Debt addiction is relative modern.
Our inflationary 2%++ regime tends to encourage debt, and the Trumps of the world can leverage their lives to the hilt. Poor people have much more difficulty juggling debt and fail spectacularly. Debt growth increases economic instability.
On the other side, fiscal hawks have an incentive to overreport inflation.
It's hard to imagine a deflationary world where bosses had to negotiate with workers to reduce their salary annually, which kind of shows how powerful this idea is...
Did that actually happen? What's the evidence that Yellen told Greenspan that?
The price of typewriters, film or rotary phones are completely irrelevant to the cost of living today and would be meaningless to include.
You don’t substitute beef with beef. You substitute elk with beef, if elk used to be a stable but now isn’t.
Another interesting thing that happened under Greenspan is how inflation is computed (hedonics, replacements, etc... conceptually, think "if I can't buy a porterhouse steak anymore, I'll get the lesser hanger", meaning inflation is underreported). I'm not suggesting this was intentional or coordinated, but this had the huge benefit for federal and local governments that it lowered the benefits they had to pay out that were linked to inflation. Issue is it hurts the poor more.