6 ms·

All the explanation you need in two graphs: https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8y https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8y http

All the explanation you need in two graphs: https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8y https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8y https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8A https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8A Cost of education over real median household income, and house price index over real median household income. Education is more than twice as expensive as the start of the century, and houses are almost twice as expensive as the start of the century.

metalliqaz 8y ago
They are good graphs, but I think explanation is better given by graphs of where wage growth has gone. I don't have it handy, but I recall a very nice graph that showed nearly all wage growth since the mid 70's has gone to the top 10%
- hectormalot 8y ago
  Since the graph is by median (not the mean), this should really disturb the graph. I think they are spot on: a person on the center of the income distribution has seen housing and education cost double when compared to his/her income. And probably healthcare as well. I’ll admit, income inequality has increased as well, but that by itself could be fine if the relative living cost for the average person had not increased that much
- tafycent 8y ago
  One interesting and slightly mitigating factor to consider is that during the same period of time far more people have moved from middle to upper class or lower to middle class than have moved down in income class. Part of the reason inequality is increasing is that as a whole we're largely moving up in standard of living, but the bottom tail of the distribution isn't really moving. And I'd argue that you wouldn't really expect it to. It's a lot more difficult to drag the destitute out of poverty than to increase the standard of living for most, but not all, people
coliveira 8y ago
You're forgetting health care costs, which have skyrocketed since the 80s. Interestingly, all of these costs are not part of official inflation numbers, so real inflation for middle class is much higher than the reports say.
- arethuza 8y ago
  Why wouldn't you include health care costs in inflation figures? Seems to be something that most people have to pay one way or another?
  - vivafrance 8y ago
    The Fed and the government in general are incentivized to make inflation appear much lower than it actually is. If you use the same calculation the Fed used in the 80s to measure inflation then we’d be at 10% today.
  - coliveira 8y ago
    It is a game played by the American government so the economy seems better than it really is. Another example is that large part of the GDP growth in the US is related to health care, so you get here a double effect: higher economy growth compared to other countries with socialized medicine, and lower inflation numbers when in fact it is the opposite.
- jaggederest 8y ago
  You're right. Here's the graph for that one. https://fred.stlouisfed.org/graph/fredgraph.png?g=kipg https://fred.stlouisfed.org/graph/fredgraph.png?g=kipg Another factor of two increase.
roenxi 8y ago
3 graphs. https://fred.stlouisfed.org/graph/fredgraph.png?g=ki91 https://fred.stlouisfed.org/graph/fredgraph.png?g=ki91 There is a vast quantity of new money being created, and it isn't appearing in household incomes. Something should be done.
- AnimalMuppet 8y ago
  Looks like about a factor of 8 in 38 years (1980-2018). What is the total inflation over the same years? The best source I could find said a factor of 3.18. And what is the inflation-adjusted GDP growth in the same years? The best number I could find is a factor of 2.66. And if you multiply those two numbers, you get 8.4588. That is, the increase in money supply is (unsurprisingly) showing up as real GDP growth and inflation. You could argue that, with less money supply growth, we'd have less inflation. But that works out to 3% inflation a year, which is... not much.
  - roenxi 8y ago
    I don't quite follow what point you are making, is it that [change-GDP] * [change-inflation] = [change-M2] is close to an identity and therefore everything is OK? Because I hadn't thought about that before, but it is actually quite a concerning identity - eg, looking at the price of gold, clearly asset prices are rising in response to increases in the money supply. A kilo of gold in 2017 has nearly the same utility as in 2000, but there is a substantial price rise. Since inflation doesn't measure things like that (only measuring changes in consumer goods EDIT - [1]) - wouldn't a substantial portion of the growth in GDP then be a response to the fact that the M2 is rising and there is trade in goods that are not included in the inflation indicies? Basically, if the central banks were forcing growth in the M2 (which they are), wouldn't that call into question the value of the real GDP as a measure of real economic growth? All it would take is that price rises in assets or business costs, caused by increases in the money supply, not be at the same percentage rate as price rises in consumer goods. EDIT - [1] - Obviously you can get the real price of gold after adjusting for inflation, but that is assuming that the impact of inflation on the price of gold is identical to the impact of inflation on the price of consumer goods. I hadn't realised that assumption was being made before, and I'm going to read up on it to see what evidence there is that it is true, because if the impact of monetary supply increases on business and asset prices is different, then that undermines GDP growth as a meaningful measure. Thanks for the thought, it is an interesting one.
flukus 8y ago
Enrollment rates are up too (long term). So it's not only taking a bigger bight but it's taking it out of more people: https://www.washingtonpost.com/national/higher-education/number-of-us-adults-with-college-degrees-hits-historic-high/2012/02/23/gIQAi80bWR_story.html?noredirect=on https://www.washingtonpost.com/national/higher-education/num... > three in 10 adult Americans held bachelor’s degrees in 2011. In 1947, just 5 percent of Americans 25 and older held degrees from four-year colleges. As recently as 1998, fewer than one-quarter of the adult population held college degrees.
geargrinder 8y ago
Higher education has figured out how to mortgage the future earnings of their students through the federally-subsidized student loan program. All while greatly increasing the number of administrators and squeezing real professors.
- jonathankoren 8y ago
  That’s a simplistic take, targetting favorite scapegoats. At most 25% of tuition costs can be attributed to administration and faculty. The remaining 75% is attributed to cuts in government funding of public universities. Ironically, cuts that are often justified as targetting college administrators. https://fivethirtyeight.com/features/fancy-dorms-arent-the-main-reason-tuition-is-skyrocketing/ https://fivethirtyeight.com/features/fancy-dorms-arent-the-m...
  - apsec112 8y ago
    Even taking that article completely at face value, it applies to public universities only. Quote from a later paragraph: "At private nonprofit colleges, the spending categories described above — student services and faculty and administrative salaries — together explain most of the tuition increase over the past two decades."
  - geargrinder 8y ago
    This article only addresses public schools. States have had to reduce funding to those schools because of rising healthcare and entitlement costs, along with lack of public will to spend more on them. We all can see there is a giant marketing machine at these universities and private schools which have convinced many students and parents that the only way to a successful life is to enter into a long-term debt commitment. The article you link to was written by one of these marketers. It is nearly impossible to be denied one of these parent-student loans. And these loans can never be dismissed by bankruptcy, unlike other loans (I am not advocating not paying your debts, but use this as a further illustration of the way education and government have conspired to create this situation).
    - 8y ago

metalliqaz 8y ago

They are good graphs, but I think explanation is better given by graphs of where wage growth has gone. I don't have it handy, but I recall a very nice graph that showed nearly all wage growth since the mid 70's has gone to the top 10%

hectormalot 8y ago
Since the graph is by median (not the mean), this should really disturb the graph. I think they are spot on: a person on the center of the income distribution has seen housing and education cost double when compared to his/her income. And probably healthcare as well. I’ll admit, income inequality has increased as well, but that by itself could be fine if the relative living cost for the average person had not increased that much
tafycent 8y ago
One interesting and slightly mitigating factor to consider is that during the same period of time far more people have moved from middle to upper class or lower to middle class than have moved down in income class. Part of the reason inequality is increasing is that as a whole we're largely moving up in standard of living, but the bottom tail of the distribution isn't really moving. And I'd argue that you wouldn't really expect it to. It's a lot more difficult to drag the destitute out of poverty than to increase the standard of living for most, but not all, people

coliveira 8y ago

You're forgetting health care costs, which have skyrocketed since the 80s. Interestingly, all of these costs are not part of official inflation numbers, so real inflation for middle class is much higher than the reports say.

arethuza 8y ago
Why wouldn't you include health care costs in inflation figures? Seems to be something that most people have to pay one way or another?
- vivafrance 8y ago
  The Fed and the government in general are incentivized to make inflation appear much lower than it actually is. If you use the same calculation the Fed used in the 80s to measure inflation then we’d be at 10% today.
- coliveira 8y ago
  It is a game played by the American government so the economy seems better than it really is. Another example is that large part of the GDP growth in the US is related to health care, so you get here a double effect: higher economy growth compared to other countries with socialized medicine, and lower inflation numbers when in fact it is the opposite.
jaggederest 8y ago
You're right. Here's the graph for that one. https://fred.stlouisfed.org/graph/fredgraph.png?g=kipg https://fred.stlouisfed.org/graph/fredgraph.png?g=kipg Another factor of two increase.

roenxi 8y ago

3 graphs. https://fred.stlouisfed.org/graph/fredgraph.png?g=ki91 https://fred.stlouisfed.org/graph/fredgraph.png?g=ki91 There is a vast quantity of new money being created, and it isn't appearing in household incomes. Something should be done.

AnimalMuppet 8y ago
Looks like about a factor of 8 in 38 years (1980-2018). What is the total inflation over the same years? The best source I could find said a factor of 3.18. And what is the inflation-adjusted GDP growth in the same years? The best number I could find is a factor of 2.66. And if you multiply those two numbers, you get 8.4588. That is, the increase in money supply is (unsurprisingly) showing up as real GDP growth and inflation. You could argue that, with less money supply growth, we'd have less inflation. But that works out to 3% inflation a year, which is... not much.
- roenxi 8y ago
  I don't quite follow what point you are making, is it that [change-GDP] * [change-inflation] = [change-M2] is close to an identity and therefore everything is OK? Because I hadn't thought about that before, but it is actually quite a concerning identity - eg, looking at the price of gold, clearly asset prices are rising in response to increases in the money supply. A kilo of gold in 2017 has nearly the same utility as in 2000, but there is a substantial price rise. Since inflation doesn't measure things like that (only measuring changes in consumer goods EDIT - [1]) - wouldn't a substantial portion of the growth in GDP then be a response to the fact that the M2 is rising and there is trade in goods that are not included in the inflation indicies? Basically, if the central banks were forcing growth in the M2 (which they are), wouldn't that call into question the value of the real GDP as a measure of real economic growth? All it would take is that price rises in assets or business costs, caused by increases in the money supply, not be at the same percentage rate as price rises in consumer goods. EDIT - [1] - Obviously you can get the real price of gold after adjusting for inflation, but that is assuming that the impact of inflation on the price of gold is identical to the impact of inflation on the price of consumer goods. I hadn't realised that assumption was being made before, and I'm going to read up on it to see what evidence there is that it is true, because if the impact of monetary supply increases on business and asset prices is different, then that undermines GDP growth as a meaningful measure. Thanks for the thought, it is an interesting one.

flukus 8y ago

Enrollment rates are up too (long term). So it's not only taking a bigger bight but it's taking it out of more people: https://www.washingtonpost.com/national/higher-education/number-of-us-adults-with-college-degrees-hits-historic-high/2012/02/23/gIQAi80bWR_story.html?noredirect=on https://www.washingtonpost.com/national/higher-education/num... > three in 10 adult Americans held bachelor’s degrees in 2011. In 1947, just 5 percent of Americans 25 and older held degrees from four-year colleges. As recently as 1998, fewer than one-quarter of the adult population held college degrees.

geargrinder 8y ago

Higher education has figured out how to mortgage the future earnings of their students through the federally-subsidized student loan program. All while greatly increasing the number of administrators and squeezing real professors.

jonathankoren 8y ago
That’s a simplistic take, targetting favorite scapegoats. At most 25% of tuition costs can be attributed to administration and faculty. The remaining 75% is attributed to cuts in government funding of public universities. Ironically, cuts that are often justified as targetting college administrators. https://fivethirtyeight.com/features/fancy-dorms-arent-the-main-reason-tuition-is-skyrocketing/ https://fivethirtyeight.com/features/fancy-dorms-arent-the-m...
- apsec112 8y ago
  Even taking that article completely at face value, it applies to public universities only. Quote from a later paragraph: "At private nonprofit colleges, the spending categories described above — student services and faculty and administrative salaries — together explain most of the tuition increase over the past two decades."
- geargrinder 8y ago
  This article only addresses public schools. States have had to reduce funding to those schools because of rising healthcare and entitlement costs, along with lack of public will to spend more on them. We all can see there is a giant marketing machine at these universities and private schools which have convinced many students and parents that the only way to a successful life is to enter into a long-term debt commitment. The article you link to was written by one of these marketers. It is nearly impossible to be denied one of these parent-student loans. And these loans can never be dismissed by bankruptcy, unlike other loans (I am not advocating not paying your debts, but use this as a further illustration of the way education and government have conspired to create this situation).
  - 8y ago