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).
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.