5 ms·

They also likely use inflation statistics that are problematic, at best. When considering consumables, we've had pretty reasonable inflation and people are mak

They also likely use inflation statistics that are problematic, at best. When considering consumables, we've had pretty reasonable inflation and people are making more than their parents. But if you were to calculate inflation based on prices for things that don't benefit from advances in our production abilities (commodities, equities, housing, education, health care, etc), we'd be making nowhere near as much as previous generations when adjusted for inflation using that calculation. Affording a car, TV, computer and food to feed ourselves isn't that difficult for many people. It's the life-altering purchases that are slipping farther and farther from the reach of the middle class.

maxxxxx 8y ago
Exactly. Low inflation doesn't help much if your salary increases get eaten up by housing, education hand healthcare. Rent, health care and education should be counted into inflation numbers.
- onlyrealcuzzo 8y ago
  Wait. Aren't rent, healthcare, AND education all included in the eight components of CPI? Isn't that how the government measures inflation? I think one of the big things left off is housing prices. But I'm pretty sure rent, healthcare, and education are part of it: https://www.bls.gov/cpi/factsheets/medical-care.htm https://www.bls.gov/cpi/factsheets/medical-care.htm http://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=94 http://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=94
  - maxxxxx 8y ago
    I am not an expert but the way I have read about is that they also factor in better quality of items so even if your car costs 10000 more it's not counted as inflation because it's a better car compared to years ago and therefore has more value. I think the same is going on in health care and other areas. And excluding house prices is also a very questionable.
    - manofstick 8y ago
      Yes, it's Hedonic Quality Adjustment [1]. If you follow through the example on the link, you see the negative CPI component, even though a) you can't actually buy the old version anymore - so you can't reap the "real" price benefit and b) the subjective experience ultimately for lots of these things is the same. i.e. a mid-level TV from 40 years ago probably gave the same hedonistic pleasure as one today. Arguably the older one gave more because of less other gadgets! [1] https://www.bls.gov/cpi/quality-adjustment/questions-and-answers.htm https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...
  - frgtpsswrdlame 8y ago
    They are. The BLS puts together a 'market basket' that includes those items. However, it is the proportion that matters. Necessities like rent and healthcare are a larger proportions of expenses for the poor than they are for the middle and upper classes. When the market basket is created it takes consideration of everyone's expenses and so the weighting for healthcare costs say, falls below what it is that poor people spend on average and above what rich people spend on average (as a percent). Because these are a few of the spending categories that are inflating the fastest it is in this way that the CPI understates inflation for the poor and overstates it for the rich.
  - kwillets 8y ago
    Rent is not in the CPI. That's what made Shiller's work useful (comparing housing costs and CPI). Edit: Shiller was wrong (I asked him about this point after a lecture about his work on historical housing prices).
    - derekdahmer 8y ago
      Rent is definitely included in the US CPI as "Rent of Primary Residence". See all the weights here: https://www.bls.gov/cpi/tables/relative-importance/2017.pdf https://www.bls.gov/cpi/tables/relative-importance/2017.pdf
      - kwillets 8y ago
        I was wrong -- I see both rent and what appears to be ownership costs in there.
    - onlyrealcuzzo 8y ago
      I think Shiller's work was useful because housing prices (if I'm not mistaken) are not part of CPI. Housing prices go into much bigger bubbles than rent. If interest rates go up or down, it doesn't very much affect the average person's ability to pay rent. But it has a huge impact on how much the average person can borrow. My understanding for the reason that housing prices aren't included in CPI is because nobody buys houses in cash. So including mortgage payments in theory makes sense -- but it' tricky -- because everyone's mortgage originated at different times and under different circumstances.
      - NTDF9 8y ago
        > My understanding for the reason that housing prices aren't included in CPI is because nobody buys houses in cash But they should include the sale value of houses in CPI, otherwise its pointless. Just because the vast majority of people buy houses with a mortgage doesn't mean the sale price isn't a real price
      - kwillets 8y ago
        I think my original statement was wrong, but I may have misheard what he told me. Looking up references on housing and CPI I see a lot about how the housing component gives bad signal -- it was rising during the 2008 crash for example. It's easy to see how it lags since people usually only buy at multi-year intervals.
  - acover 8y ago
    They may not be calculating housing costs correctly. For example, in Toronto house prices have seemed to go crazy. Industry reports agree. However housing inflation in Toronto measured by Statistics Canada does not show that. Has anyone else noticed this or have an explanation? It's very strange. https://www.reddit.com/r/AskEconomics/comments/9haj6h/does_the_house_price_index_from_statistics_canada/ https://www.reddit.com/r/AskEconomics/comments/9haj6h/does_t...
  - skybrian 8y ago
    The inflation rate does include rent, or "imputed rent" for home owners. However, it's an average of what people actually pay, including people who somehow got a sweet deal on housing costs, through rent control or buying their house a long time ago or whatever. It's not going to match the prices you see advertised when you're looking to move.
    - gruez 8y ago
      >However, it's an average of what people actually pay, including people who somehow got a sweet deal on housing costs which is arguably the more accurate way of measuring consumer prices.
      - Gibbon1 8y ago
        That not accurate because important information about the spatial distribution gets filtered out. Economists are pretending their statistics are filtering out 'noise' when they are really filtering out data they don't want people to see.
        EADGBE 8y ago
        > Economists are pretending their statistics are filtering out 'noise' when they are really filtering out data they don't want people to see. You could really replace "Economist" with anything in this statement.
        skybrian 8y ago
        Inflation is an average. Newspapers usually report the national average, but there are a lot of other averages and they aren't being kept secret. This page has data for California: http://www.dof.ca.gov/Forecasting/Economics/Indicators/Inflation/ http://www.dof.ca.gov/Forecasting/Economics/Indicators/Infla... I don't think anyone is all that interested in a bunch of dry statistics. No conspiracy is needed.
        Gibbon1 8y ago
        The problem is while other statistics exist in practice policy makers, political leaders, businessmen, and economists in general have come ignore them. Rather than believing some small brained primate on the internet, here is Paul Volcker saying the same thing. https://www.bloomberg.com/opinion/articles/2018-10-24/what-s-wrong-with-the-2-percent-inflation-target https://www.bloomberg.com/opinion/articles/2018-10-24/what-s...
  - kurthr 8y ago
    Also note that when you're a single earner household you may only need 1 car, eat out less, and don't need day care. Even if the cost of all those items remains the same, your cost of "living" goes up. Now add to that the need for education to maintain an "average" salary, and your costs increase faster than inflation to stay with the average.
  - curun1r 8y ago
    They may factor those things in, but that doesn't mean they factor them in correctly or that their calculation ends up matching the realities of many middle-class people these days. From medical-illness-caused bankruptcies to crippling student loan debt to declining home ownership (by equity and age of first purchase), there are common realities that don't mesh with the CPI statistics that are calculated/released. You can argue that the CPI deals with averages and for every horror story of un-repayable student loan, savings-zapping cancer or hot housing market that makes purchasing a pipe dream for the majority of residents there are people who graduate college, get a job that pays well enough to repay their loans in time to save up and buy a home before starting a family and avoiding serious illnesses, but then is that statistic really useful in the face of so many people struggling? At a certain point, enough individual incedences of a problem becomes far more than isolated incidents and graduates to a problem for society.
    - EADGBE 8y ago
      This brings up a great point that many people overlook: Inflation is hyper-specific to the consumer. If the price of bread (and only the price of bread) went up 10x in price, then only consumers of bread would really be affected by it. You could argue all the hands that "touch" the bread, yes, but in the end the person paying $40 for a loaf of bread is actually affected by the inflation of it; for them to consider "inflation" in the large sense to have screwed them over. Similarly, people without student loan debt (or over-burdening student loan debt) couldn't really give two shits about the inflation of SLD. For me, guitars are a big deal. And I bring that up because there's a regulation now that effectively bans a type of wood used for guitars for centuries. If I were to want to buy a guitar with this type of wood that already exists, the price of it would be super inflated as the remaining safe-to-buy stock are grabbed up. This certainly only affects guitarists who favor a certain kind of tonewood; but is akin to my bread example above in demand/price.
- spectrum1234 8y ago
  Good point. Of these 3 which are truly free market? Zero.
  - jensv 8y ago
    What do people mean by truly free market? Can you provide an example of one?
qubax 8y ago
Anyone know if tuition costs are part of inflation?
Gibbon1 8y ago
Recently read someone also making an observation that smoothed statistics are hiding that 'life event' expenses hit all at once and threaten every last bit of accumulated savings. Have a baby and either daycare or one spouse off work for a couple of years. Main bread winner out of work for a year. Sending kids to college. Parents need support or assisted living. Major illness. End of like expenses.

maxxxxx 8y ago

Exactly. Low inflation doesn't help much if your salary increases get eaten up by housing, education hand healthcare. Rent, health care and education should be counted into inflation numbers.

onlyrealcuzzo 8y ago
Wait. Aren't rent, healthcare, AND education all included in the eight components of CPI? Isn't that how the government measures inflation? I think one of the big things left off is housing prices. But I'm pretty sure rent, healthcare, and education are part of it: https://www.bls.gov/cpi/factsheets/medical-care.htm https://www.bls.gov/cpi/factsheets/medical-care.htm http://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=94 http://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=94
- maxxxxx 8y ago
  I am not an expert but the way I have read about is that they also factor in better quality of items so even if your car costs 10000 more it's not counted as inflation because it's a better car compared to years ago and therefore has more value. I think the same is going on in health care and other areas. And excluding house prices is also a very questionable.
  - manofstick 8y ago
    Yes, it's Hedonic Quality Adjustment [1]. If you follow through the example on the link, you see the negative CPI component, even though a) you can't actually buy the old version anymore - so you can't reap the "real" price benefit and b) the subjective experience ultimately for lots of these things is the same. i.e. a mid-level TV from 40 years ago probably gave the same hedonistic pleasure as one today. Arguably the older one gave more because of less other gadgets! [1] https://www.bls.gov/cpi/quality-adjustment/questions-and-answers.htm https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...
- frgtpsswrdlame 8y ago
  They are. The BLS puts together a 'market basket' that includes those items. However, it is the proportion that matters. Necessities like rent and healthcare are a larger proportions of expenses for the poor than they are for the middle and upper classes. When the market basket is created it takes consideration of everyone's expenses and so the weighting for healthcare costs say, falls below what it is that poor people spend on average and above what rich people spend on average (as a percent). Because these are a few of the spending categories that are inflating the fastest it is in this way that the CPI understates inflation for the poor and overstates it for the rich.
- kwillets 8y ago
  Rent is not in the CPI. That's what made Shiller's work useful (comparing housing costs and CPI). Edit: Shiller was wrong (I asked him about this point after a lecture about his work on historical housing prices).
  - derekdahmer 8y ago
    Rent is definitely included in the US CPI as "Rent of Primary Residence". See all the weights here: https://www.bls.gov/cpi/tables/relative-importance/2017.pdf https://www.bls.gov/cpi/tables/relative-importance/2017.pdf
    - kwillets 8y ago
      I was wrong -- I see both rent and what appears to be ownership costs in there.
  - onlyrealcuzzo 8y ago
    I think Shiller's work was useful because housing prices (if I'm not mistaken) are not part of CPI. Housing prices go into much bigger bubbles than rent. If interest rates go up or down, it doesn't very much affect the average person's ability to pay rent. But it has a huge impact on how much the average person can borrow. My understanding for the reason that housing prices aren't included in CPI is because nobody buys houses in cash. So including mortgage payments in theory makes sense -- but it' tricky -- because everyone's mortgage originated at different times and under different circumstances.
    - NTDF9 8y ago
      > My understanding for the reason that housing prices aren't included in CPI is because nobody buys houses in cash But they should include the sale value of houses in CPI, otherwise its pointless. Just because the vast majority of people buy houses with a mortgage doesn't mean the sale price isn't a real price
    - kwillets 8y ago
      I think my original statement was wrong, but I may have misheard what he told me. Looking up references on housing and CPI I see a lot about how the housing component gives bad signal -- it was rising during the 2008 crash for example. It's easy to see how it lags since people usually only buy at multi-year intervals.
- acover 8y ago
  They may not be calculating housing costs correctly. For example, in Toronto house prices have seemed to go crazy. Industry reports agree. However housing inflation in Toronto measured by Statistics Canada does not show that. Has anyone else noticed this or have an explanation? It's very strange. https://www.reddit.com/r/AskEconomics/comments/9haj6h/does_the_house_price_index_from_statistics_canada/ https://www.reddit.com/r/AskEconomics/comments/9haj6h/does_t...
- skybrian 8y ago
  The inflation rate does include rent, or "imputed rent" for home owners. However, it's an average of what people actually pay, including people who somehow got a sweet deal on housing costs, through rent control or buying their house a long time ago or whatever. It's not going to match the prices you see advertised when you're looking to move.
  - gruez 8y ago
    >However, it's an average of what people actually pay, including people who somehow got a sweet deal on housing costs which is arguably the more accurate way of measuring consumer prices.
    - Gibbon1 8y ago
      That not accurate because important information about the spatial distribution gets filtered out. Economists are pretending their statistics are filtering out 'noise' when they are really filtering out data they don't want people to see.
      - EADGBE 8y ago
        > Economists are pretending their statistics are filtering out 'noise' when they are really filtering out data they don't want people to see. You could really replace "Economist" with anything in this statement.
      - skybrian 8y ago
        Inflation is an average. Newspapers usually report the national average, but there are a lot of other averages and they aren't being kept secret. This page has data for California: http://www.dof.ca.gov/Forecasting/Economics/Indicators/Inflation/ http://www.dof.ca.gov/Forecasting/Economics/Indicators/Infla... I don't think anyone is all that interested in a bunch of dry statistics. No conspiracy is needed.
        Gibbon1 8y ago
        The problem is while other statistics exist in practice policy makers, political leaders, businessmen, and economists in general have come ignore them. Rather than believing some small brained primate on the internet, here is Paul Volcker saying the same thing. https://www.bloomberg.com/opinion/articles/2018-10-24/what-s-wrong-with-the-2-percent-inflation-target https://www.bloomberg.com/opinion/articles/2018-10-24/what-s...
- kurthr 8y ago
  Also note that when you're a single earner household you may only need 1 car, eat out less, and don't need day care. Even if the cost of all those items remains the same, your cost of "living" goes up. Now add to that the need for education to maintain an "average" salary, and your costs increase faster than inflation to stay with the average.
- curun1r 8y ago
  They may factor those things in, but that doesn't mean they factor them in correctly or that their calculation ends up matching the realities of many middle-class people these days. From medical-illness-caused bankruptcies to crippling student loan debt to declining home ownership (by equity and age of first purchase), there are common realities that don't mesh with the CPI statistics that are calculated/released. You can argue that the CPI deals with averages and for every horror story of un-repayable student loan, savings-zapping cancer or hot housing market that makes purchasing a pipe dream for the majority of residents there are people who graduate college, get a job that pays well enough to repay their loans in time to save up and buy a home before starting a family and avoiding serious illnesses, but then is that statistic really useful in the face of so many people struggling? At a certain point, enough individual incedences of a problem becomes far more than isolated incidents and graduates to a problem for society.
  - EADGBE 8y ago
    This brings up a great point that many people overlook: Inflation is hyper-specific to the consumer. If the price of bread (and only the price of bread) went up 10x in price, then only consumers of bread would really be affected by it. You could argue all the hands that "touch" the bread, yes, but in the end the person paying $40 for a loaf of bread is actually affected by the inflation of it; for them to consider "inflation" in the large sense to have screwed them over. Similarly, people without student loan debt (or over-burdening student loan debt) couldn't really give two shits about the inflation of SLD. For me, guitars are a big deal. And I bring that up because there's a regulation now that effectively bans a type of wood used for guitars for centuries. If I were to want to buy a guitar with this type of wood that already exists, the price of it would be super inflated as the remaining safe-to-buy stock are grabbed up. This certainly only affects guitarists who favor a certain kind of tonewood; but is akin to my bread example above in demand/price.
spectrum1234 8y ago
Good point. Of these 3 which are truly free market? Zero.
- jensv 8y ago
  What do people mean by truly free market? Can you provide an example of one?

qubax 8y ago

Anyone know if tuition costs are part of inflation?

Gibbon1 8y ago

Recently read someone also making an observation that smoothed statistics are hiding that 'life event' expenses hit all at once and threaten every last bit of accumulated savings. Have a baby and either daycare or one spouse off work for a couple of years. Main bread winner out of work for a year. Sending kids to college. Parents need support or assisted living. Major illness. End of like expenses.