8 ms·

Inflation Truthers

65 points by throw0101a 6y ago

darepublic 6y ago
> You used to pay $14.99 for a single CD that may have had 2-3 songs at most that you enjoyed. Now you can pay $14.99 a month for literally all the music in history. Not if you picked the right album!
melling 6y ago
“Cars last longer, require less fuel to operate and are better for the environment.” That emissions chart looked good. Half as much as 1970. Too bad we have 5 times as many vehicles There were 250 million vehicles in the world in 1970. 1.3 billion today and we’re projected to go to 2 billion by 2035. https://en.m.wikipedia.org/wiki/Motor_vehicle#Ownership_trends https://en.m.wikipedia.org/wiki/Motor_vehicle#Ownership_tren...
- throwaway0a5e 6y ago
  Population has approximately doubled while simultaneously huge swaths of the globe have gone from "only the rich can afford cars" to "the middle class can afford cars." While the CO2 certainly isn't good one would need to do some Olympic level mental gymnastics to argue that an increase in wealth to the point where billions more people can afford an expensive complex good like a car is a bad thing overall.
- throw0101a 6y ago
  > That emissions chart looked good. Half as much as 1970. Too bad we have 5 times as many vehicles Yes, which is a problem environmentally, but from a basket-of-goods measure for the individual consumer, the number of cars is irrelevant: we as buyers are getting a better product.
- PhaedrusV 6y ago
  Also, all those changes were wrought by government fiat, and have been accomplished almost completely by reducing the weight of the cars, not by quality improvements as the article implies.
  - mrfredward 6y ago
    >have been accomplished almost completely by reducing the weight of the cars This is entirely false. All the work in materials to make cars lighter has been countered by added amenities (from power seats all the way to chilled cupholders), additional safety measures (extra airbags), and (in the U.S. at least) shifting preferences toward trucks and SUVs. From the first google result on the subject, slate: "The average new car weighed 3,221 pounds in 1987 but 4,009 pounds in 2010." Much of efficiency gains are coming from improved engines which have better control of the combustion process to make sure fuel burns more completely and less energy is wasted, or in other words, engines are better quality.
    - PhaedrusV 6y ago
      Fair enough, I was mistaken
maest 6y ago
Is the author debating a strawman or something? Actually, they just seem confused. At the start, they state asset price increase is not inflation, then, at the end, agree that there is some inflation going on in the real estate space. So the author is agreeing with the people they're supposedly countering. I don't understand the point of this piece.
- intotheabyss 6y ago
  Yeah, this article is strange. Not even a mention of the Cantillion Effect, which is what people point to when they're describing "asset inflation".
  - ItsMonkk 6y ago
    I'm saddened to see that while this post isn't down-voted, it is not the most up-voted post that it deserves to be so. I expect this to be because most people don't know what the Cantillion Effect is, so this post will attempt to show it. People think of inflation like they think of the oceans. If the ice caps melt and water melts in, the shore lines from New York to Tokyo rise slightly. If you track this rise, that's inflation. That's not how it works, and it's not what the CPI tracks. Inflation is much more analogous to inland water, you know, lakes and rivers. If you give the bottom 80% of the income distribution more money, they will spend it right away like a river. If you give the 81-90%, portion of it will be saved in their lake(say, a 401k) and they will spend some of it. And if you give the top 10% more money, they save all of it in their reservoir. The way that we have been introducing new money into the system is not by melting ice in the middle of the ocean. We also haven't been raining all over. The key way that new money has been introduced over the past 50 years is by lowering the interest rate. When you lower the interest rate, what happens is that people refinance, and suddenly they can pay less, but quickly realize, oh, I can also borrow more, so they do. I'll show you a few numbers, which I got by going to the zillow housing affordability page with default settings. I only modified the interest rate, all other values stay the same. Year | Average Interest Rate 30 Year Fixed | Home you can Afford 1981 | 18.39 | $124,797 1991 | 9.00 | $200,862 2010 | 6.26 | $244,531 2020 | 2.67 | $328,569 And so what we see people and REITs and companies doing is taking out larger and larger loans, and putting those dollars into assets. Companies take out a bond and buy back their own stock(which props up zombie companies). And why wouldn't they, it's profitable because the environment makes it so. And that money flows throughout the system. We can track the inflow of all of this money by looking at say.. the M3. This seems to be the crux of your point, if the amount of money in the M3 has gone up by 40x since 1971, why is inflation not out of control? The CPI is a measure for inflation that does not track the oceans water level. The M3 tracks that, and as you can see the M3 is out of control. The CPI doesn't track stock purchases, even though if you ask any personal finance person, they recommend that the average person put 15% of the money into retirement stocks, why is that? If the CPI were to track stocks weighted at 1971 levels, inflation WOULD be out of control. The CPI tracks, specifically, an average of tangible items that the bottom 80% spends their money on. Therefore the inflation number is based on the height of certain rivers. Now that's an important figure to keep in mind, after all if you get inflation in that bracket and income isn't rising, you quickly run into a revolution. And so that's what the FED has found, if you track the CPI you get the perfect amount of heating to boil the frog without them noticing. But when you introduce money into the system by lowering interest rates, you are in effect giving the money in proportion to the assets already owned. Someone bought that home in 1981, and someone with the same exact income would bid 328k for it today. You basically tripled that home owners asset, without any need to compare anything else, like actual income rises, or for instance SF has moved upmarket which would also effect prices. And so if you don't have much assets, it's a desert. If you do, it's a rain forest. And because the wealthy already have all that they want, demand for those items that the bottom 80% spend their money on doesn't change. So the supply and demand of those items don't change. So the CPI value stays the same. But money was introduced. If you take a look at the velocity of the M3, the M3V, you can see this take place. The wealthy get the gains of the new M3 dollars, and store it away. The more dollars created, the lower the velocity. So the question we have to ask ourselves, now that interest rates are at 0%, is that the FED has two options, they can continue to do they have been doing this year and dump the money straight into the reservoir by buying bonds and we'll get the same results, but it doesn't look like that is going to have popular support much longer. You see lowering interest rates is an implicit way to give wealth to the wealthy, and much like how CO-VID is implicitly killing more people per day than 9/11 did explicitly, but now that the FED is forced to explicitly give money out. What happens if it starts raining in the desert by printing money and handing it out fairly, say through a UBI? Will the rivers rise? If the CPI inflation indicator shows that the rivers are rising, what are we set to do?
rjmunro 6y ago
I'm not saying the article is wrong in general, but I don't get this last bit: > The government isn’t suppressing the “actual” inflation number. And if they were, they would also be suppressing reported economic growth... Surely by suppressing inflation they are increasing reported economic growth. If the dollar value of the economy increases 10% with no inflation, then that's 10% growth, but if inflation was also 10%, then that's 0% real growth. So if the economy grows at the same dollar rate, but you manipulate the inflation number lower, you get more apparent real growth.
- swiley 6y ago
  Isn't the federal reserve intentionally propping up markets? I thought in one of the reports they argued that there was higher inflation but it was restricted to certain markets like housing and so over all inflation was ~2%.
  - tomatocracy 6y ago
    Not sure it's a case of intentionally propping up equity markets (of course interest rate policy directly impacts on government bond markets although I don't think that would normally be described as propping them up). But the phenomenon has been around for a while - I've heard it called "biflation" - high inflation in some markets/products (asset markets in general, as well as some services), alongside deflation in others like imported goods with not many goods/services actually following the middle road which the official inflation statistics give as an average. It's exaggerated to some extent but it's definitely there.
- jdblair 6y ago
  I think his point is that the same source numbers are used to calculate both inflation and GDP. If you suppress inflation by undervaluing goods and services you also suppress GDP. You could get away with divergence if your didn't provide your data, but at least in the US, you can see all the input data.
allendoerfer 6y ago
One gotcha about how inflation is calculated (at least in Germany, I assume it to be the same in the US), is that they try to compare identical products. So if this years cars do not have air conditioning, but next years cars do, the prices can increase accordingly without showing up as inflation, because you are getting "more car for more money". The problem appears at the point, when there are no cars without air conditioning anymore: You actually have to pay more to get a car, while your inflation statistics still say, prices have not risen.
- aetherson 6y ago
  This is the same in the US, yes. And it's still the correct thing to do. Inflation can't be a measure of every dimension of economic hardship at once. As the article points out, healthcare has risen in cost dramatically more than most other things. Does that mean that somehow the inflation rate must reflect the pains of those households not in the average and aggregate? Less capable goods may no longer be available. You can no longer purchase a Model T, and must purchase a car that's faster, safer, more comfortable, and more reliable. Even if you don't particularly value that, your car objectively is faster, safer, more comfortable, and more reliable. The inflation rate can't change because your preferences are for a cheaper, but inferior good.
  - peteradio 6y ago
    The problem then is that "inflation" should not be used to argue that a large block of people aren't getting the shaft. That seems to be the most common exercise in citing inflation.
  - beagle3 6y ago
    But things are indexed to inflation assuming it represent the dynamics of “this is what you need to maintain your current quality of life”.
  - rozab 6y ago
    What about improvements linked to mandatory regulations (safety, emissions, efficiency, etc)?
iguy 6y ago
It's a bit confusing what he's arguing against. But his 2nd-last graph is the good one, [1]. That's only 20 years but [2] is the same thing since 1950. Some things have become much cheaper, other things have become more expensive. Attempting to summarize that in one number seems like it hides more than it exposes, no matter what number you pick. [1] https://awealthofcommonsense.com/wp-content/uploads/2021/01/Screenshot-2021-01-04-211959.jpg https://awealthofcommonsense.com/wp-content/uploads/2021/01/... [2] https://marginalrevolution.com/marginalrevolution/2019/05/why-are-the-prices-so-dmn-high.html https://marginalrevolution.com/marginalrevolution/2019/05/wh...
- mlthoughts2018 6y ago
  The final graph on median home mortgage payments is misleading too. That can be propped up by REITs and increasing institutional ownership of consumer homes. There’s also the issue of more millennials living with parents and relatives, unable to afford their own homes, which can be hidden in that. Definitely can’t conclude from it that wages and purchasing power have kept up with mortgage costs.
  - coredog64 6y ago
    Millennials can live at home because average home size has increased. My first house, built in the late 19th/early 20th century had indoor plumbing retrofitted and would fit in the garage of my current house.
    - mlthoughts2018 6y ago
      Even if that was purely true, that doesn’t say anything about relative purchasing power to afford mortgage costs though. Home sizes increasing doesn’t mean home prices, relative to purchasing power and technology changes, have stayed consistent with real wages. And it’s likely not purely true. Home sizes being larger is also a function of REITs and corporate ownership of more consumer real estate, as well as boomers using soaring retirement fund profits to finance remodels, etc. It’s way more complex than to draw any conclusion that this means purchasing power of homes has stayed close to wages. It hasn’t.
mlthoughts2018 6y ago
I found the “Price Changes” graph about 2/3 down the page really alarming. Virtually all of the gains in the form of lowered prices are purely in discretionary consumption and subsistence goods. Cheap entertainment, toys, staple foods. Meanwhile the insane price increases are in critical needs, medical care, housing, college education. In my mind that graph is pretty strong evidence that there really is massive inflation and the idea of “asset inflation” does exist, contrary to the author’s lead point that it should be seen as normal growth of value. For most people, if you show them this data and said, “see, low inflation, don’t worry...” they are rightfully going to be pissed off. “Low inflation” except in everything that really matters for health, home ownership and betterment for my children. I guess I should just thank the monetary policy overlords for my cheap Netflix while we all die of cancer under the thumb of landlords and all our economic participation from labor dwindles and continues to lose purchasing power for what we most need.
- nahname 6y ago
  All of the low inflation items are also goods that can be manufactured overseas.
- throwawayinflat 6y ago
  This is just it ; The author doesn't compare to CPI as calculated using the methodologies for the 1990s or the 1980s - he just builds a straw man and throws cheap consumer electronics at it. What he fails to realize, is that this is precisely the argument of those who believe real inflation to be higher than reported; Namely, that without including cheap electronics and luxury items the picture is much much worse - which it is. This article built a nice strawman and burnt it - what I'd like to see is the author actually tackle the claims of his opponents rather than gross mischaracterizations of them.
  - PhaedrusV 6y ago
    I can't imagine that would go any better. I think I'll just pass on reading the author's thoughts.
- PhaedrusV 6y ago
_Microft 6y ago
> https://awealthofcommonsense.com/wp-content/uploads/2021/01/Screenshot-2021-01-04-211959.jpg https://awealthofcommonsense.com/wp-content/uploads/2021/01/... Also: the items in the category with decreasing prices are almost all automatically mass-producable and will have the advantage of learning (i.e. increased production efficiency and decreased cost with increasing number of items produced) while the ones in the other category aren’t necessarily. Childcare/nursery isn’t going to become cheaper just because you’ve more experience with the job. College textbooks really stand out though. These should not have to become more expensive. They are written once and printed cheaply thereafter. I wonder what the curve for other types of books looks like but my guess is that other books have not seen these increases and this is purely money-making.
- rjmunro 6y ago
  I'm not sure that college textbooks are written once. It depends on the subject, but they are often replaced frequently e.g. as technology or laws are updated, and each one makes only a small number of sales. Yes, printing costs are relatively low, but they are also a relatively small part of the cost of many kinds of book.
BlueTie 6y ago
Isn't this entire article missing the difference between a luxury item and an essential item? A smartphone 10 years ago was a luxury for just about everyone who owned one (that is, bought with extra money) now it's a requirement. The luxury purchase folks are certainly getting a better deal as apples:apples prices go down; but if you're paycheck to paycheck and used to be able to not buy a smartphone but now have to - you're just running on tighter margins. I would imagine measuring economic well being directly through something like a "economic desperation index" makes more sense than doing a bunch of calculus on comparing the price and quality of items in two different years since the latter would only apply to people who own the item in both domains. Especially in the context of this article which is discussing if people have it better now or then.
- JoeAltmaier 6y ago
  Essential? Really? Many of us leave our phones off, leave them at home or in the car, and are only marginally impacted. The difference between 'any phone' and a smart phone is quite small. Except for folks addicted to them, who can't last a day without constant updates.
  - VBprogrammer 6y ago
    I think you are seriously underestimating the number of essential services which are now mostly been conducted online. Try finding a property to live in or a new job without using the internet.
  - shipman05 6y ago
    Hot water isn't essential either. Some of us prefer cold showers!
  - wing-_-nuts 6y ago
    As much as people like to dump on smart phones; yes, they really are essential. My having access to news, music, books, podcasts in the palm of my hand is revolutionary. Literally any curiosity about any subject can be indulged at a whim. Social media might be toxic if you let it take over your time, but the benefits to society cannot be overstated.
xibalba 6y ago
Others have claimed that the author buried the lede by placing the chart which shows runaway healthcare (hospital and medical care services) inflation at the end of the article. However, there are sound arguments for why healthcare costs have not actually inflated much. Essentially, the argument goes, you're not buying the same thing that was available in the past. It's an apples to oranges comparison. Cliff Asness has a great article touching on this topic: https://www.aei.org/articles/the-healthcare-myths-we-must-confront/ https://www.aei.org/articles/the-healthcare-myths-we-must-co... Higher education on the other hand...
benbenolson 6y ago
>Cars last longer Are there any studies showing the longevity of cars over time? I don't think this is necessarily true.
- mywittyname 6y ago
  There probably aren't publicly-available studies on the subject, but, in general it is true. 1. Material science has improved dramatically, even since the 90s. We now have oils that don't break down for years, even under extreme temperatures, and tolerances within engines are tight enough that oil can go 10,000 miles without meaninful gasoline contamination. Also, rust-proofing, rubbers, and plastics (!) are much, much better. 2. Solid state electronics have replaced mechanical systems. This is a big one: vacuum lines were a nightmare, carburetors were fickle, distributors wore out, etc. All of these systems have been replaced by maintenance-free electronic versions. 3. Better computer-aid modeling. This is kind of a good and bad, since now components aren't overbuilt like in the 90s, but they are also less likely to be underbuilt. There are absolutely manufactures who still make unreliable heaps, but generally, reliability has improved. Most of that reliability comes in the form of less maintenance: no car needs the valves adjusted every 30k miles anymore (except maaaybe exotics). Jay Leno likes to joke about how cars used to come with 90 day warranties in the 70s. 90 days!
jchook 6y ago
Supposedly the total M2 in the US was around $15T last year. The Federal Reserve dumped $4T more (or 26%) into the economy, bringing us up to $19T. How does this not impact inflation? If you have more dollars representing the same real value, doesn’t that make each dollar worth less of it?
- throw0101a 6y ago
  > How does this not impact inflation? Ask Japan. Their M1/2 has growth bigly over the last few decades and they've had next no inflation. Remember, the 'general' equation is: Inflation = Money_supply x Velocity. Yes, there's a big tank of money sitting around, but it's not sloshing around the economy that much. And if it does start, there's at least one tool to cool things down: raise interest rates.
- helen___keller 6y ago
  > If you have more dollars representing the same real value, doesn’t that make each dollar worth less of it? Strictly speaking, inflation is defined by price/quality of baskets of goods, not by a measure like M2.
d_burfoot 6y ago
There are many problems with mainstream ideas about inflation, but one key problem is that it does not take into account the disastrous decline in the quality of public services that Americans have experienced over the last couple of decades. How do you measure the inflationary impact of the fact that in many cities, the public schools have declined in quality so much that people are faced with the choice of either moving to the suburbs, or paying for private school? What about the impact of the transformation of the built landscape from nice walkable towns to disgusting exurban sprawl?
- valuearb 6y ago
  Yet, We are spending more on public schools than virtually any time in American history.
  - valuearb 6y ago
    Not sure why the downvotes, it’s just a fact. You may think we should spend more, or differently, but it’s a fact that the US has never spent more on public education in tan it has the last decade and its not even close. https://www.usgovernmentspending.com/education_spending https://www.usgovernmentspending.com/education_spending
valuearb 6y ago
Based on recent sales, our house has been appraised in the low $700,000 range for the last few years. We just put it up for sale and received three offers. $1,025,000, $1,030,000, and $1,050,000. I’d say something is going on with home prices.
- helen___keller 6y ago
  Austin?
  - valuearb 6y ago
    No
tekcyb-org 6y ago
I think the author is confused about what inflation is, vs the benefits reaped from the advancement of technology. The author also seems to have a bias against the people screaming "inflation". That is pretty obvious from the title. To show real inflation, I like using the Burger King whopper as an example. In the early 90's I remember being able to buy 4 whoppers for $1. With the advancement of farming technology, transportation technology, preservation technology, etc.... Why do we see the whopper cost over $7 now?
- nkurz 6y ago
  > In the early 90's I remember being able to buy 4 whoppers for $1. The simple answer is that your memory is wrong, and that at no point in the 1990's were you able to buy 4 Burger King Whoppers for $1. Other than your recollection, do you have any evidence that this price is correct? Or have I missed a layer of hyperbole in your argument?
  - deleted 6y ago
    [deleted]
- SamBam 6y ago
  In 1990 a whopper cost $0.99. In 2000 it still cost $0.99. In 2018 it cost $4.29. So that's a 4.3x change, not a 28x change as claimed, and represents an "inflation" of about 7.5%/yr over the past two decades (or 5.5%/yr since 1990). https://www.insider.com/fast-food-burgers-cost-every-year-2018-9#in-2018-your-burger-costs-an-average-of-264-25 https://www.insider.com/fast-food-burgers-cost-every-year-20...
saul_goodman 6y ago
On one hand, he's not wrong, overall inflation for 2020 was on par for a normal year, we're not headed into hyperinflation territory just yet. But you also have to realize that some people are affected quite a bit harder by the crazy shifts in deflated and inflated costs this year. https://inflationdata.com/articles/wp-content/uploads/2020/12/Monthly-Inflation-11-2020.png https://inflationdata.com/articles/wp-content/uploads/2020/1... Look at the breakdown of the line items that make up the US inflation rate for 2020 and you see that the massive drop in fuel cost (-19%) caused a massive offset to the overall number. Meanwhile food cost has gone up over 3%, medical expenses also went up over 3%. As we head out of this hell hole it will be interesting to see if inflated sectors return to more normal levels again.
motohagiography 6y ago
The big difference people need to understand is between "core" inflation, and consumer price index, and whether that index includes super volatile items like food and fuel, and how they are weighted. It's one of those torturing data until it gives you the policy you want exercises. You can make inflation say whatever you want it to say with selected goods and index weighting, so I don't get into arguments about it because it's mainly an obfuscation proxy for ideological conflicts.
jgalt212 6y ago
> to beat inflation and keep up with or improve your standard of living. He's being a big of a dullard here in that he's ignoring how inflation (or the expectation of inflation) can affect interest rates and how that can clobber asset prices.
jgalt212 6y ago
He's also ignoring how the substitution effect, which normally serves to tamp down realized inflation as folks change the composition of the basket of goods and services they consume, is not applicable or less applicable to most of the red lines (food, housing, medical care). On a long enough timeline if food and housing prices keep outpacing other prices, the proportion of consumer money devoted to such items will trend towards 100%. And if the basket is 100% stuff that keeps quickly going up in price, then CPI is also quickly going up in price (ipso fact).
covid21 6y ago
Isn't GDP also kind of subject to inflation, as it measures monetary value of things? If so, saying "it's OK, because GDP grew at the same rate" doesn't make much sense.
mywittyname 6y ago
The problem with measuring inflation is that you can cherry-pick the goods in your basket to paint the picture that you want to see. If I make a basket full of housing, healthcare, college education, and fresh produce, I can show you that inflation is out of control. If you look at the "price changes" chart, prices for the red line items have gone up 4-6% per year over 20 years. While it's nice that you can buy a 55" flatscreen for the price of a 15" crt from 1998, TVs (and cars, furniture, clothing) are occasional purchases and can be cost-controlled by choosing cheaper options. Unlike healthcare/insurance, where you're stuck with paying for what you can get.
baybal2 6y ago
You cannot eat your real estate, or your computer. Demand elasticity of food is near 0, either you eat more calories than you spend, or you die. That's very much a truth. Would some smart economic theory tell that's not the case? A grand lack of common sense.
biolurker1 6y ago
Strong language, name calling, no real argument. The conse sus is that inflation is not here now because of low money velocity but wil come next years inevitably.

65 points by throw0101a 6y ago

> You used to pay $14.99 for a single CD that may have had 2-3 songs at most that you enjoyed. Now you can pay $14.99 a month for literally all the music in history. Not if you picked the right album!

melling 6y ago

“Cars last longer, require less fuel to operate and are better for the environment.” That emissions chart looked good. Half as much as 1970. Too bad we have 5 times as many vehicles There were 250 million vehicles in the world in 1970. 1.3 billion today and we’re projected to go to 2 billion by 2035. https://en.m.wikipedia.org/wiki/Motor_vehicle#Ownership_trends https://en.m.wikipedia.org/wiki/Motor_vehicle#Ownership_tren...

throwaway0a5e 6y ago
Population has approximately doubled while simultaneously huge swaths of the globe have gone from "only the rich can afford cars" to "the middle class can afford cars." While the CO2 certainly isn't good one would need to do some Olympic level mental gymnastics to argue that an increase in wealth to the point where billions more people can afford an expensive complex good like a car is a bad thing overall.
throw0101a 6y ago
> That emissions chart looked good. Half as much as 1970. Too bad we have 5 times as many vehicles Yes, which is a problem environmentally, but from a basket-of-goods measure for the individual consumer, the number of cars is irrelevant: we as buyers are getting a better product.
PhaedrusV 6y ago
Also, all those changes were wrought by government fiat, and have been accomplished almost completely by reducing the weight of the cars, not by quality improvements as the article implies.
- mrfredward 6y ago
  >have been accomplished almost completely by reducing the weight of the cars This is entirely false. All the work in materials to make cars lighter has been countered by added amenities (from power seats all the way to chilled cupholders), additional safety measures (extra airbags), and (in the U.S. at least) shifting preferences toward trucks and SUVs. From the first google result on the subject, slate: "The average new car weighed 3,221 pounds in 1987 but 4,009 pounds in 2010." Much of efficiency gains are coming from improved engines which have better control of the combustion process to make sure fuel burns more completely and less energy is wasted, or in other words, engines are better quality.
  - PhaedrusV 6y ago
    Fair enough, I was mistaken

maest 6y ago

Is the author debating a strawman or something? Actually, they just seem confused. At the start, they state asset price increase is not inflation, then, at the end, agree that there is some inflation going on in the real estate space. So the author is agreeing with the people they're supposedly countering. I don't understand the point of this piece.

intotheabyss 6y ago
Yeah, this article is strange. Not even a mention of the Cantillion Effect, which is what people point to when they're describing "asset inflation".
- ItsMonkk 6y ago
  I'm saddened to see that while this post isn't down-voted, it is not the most up-voted post that it deserves to be so. I expect this to be because most people don't know what the Cantillion Effect is, so this post will attempt to show it. People think of inflation like they think of the oceans. If the ice caps melt and water melts in, the shore lines from New York to Tokyo rise slightly. If you track this rise, that's inflation. That's not how it works, and it's not what the CPI tracks. Inflation is much more analogous to inland water, you know, lakes and rivers. If you give the bottom 80% of the income distribution more money, they will spend it right away like a river. If you give the 81-90%, portion of it will be saved in their lake(say, a 401k) and they will spend some of it. And if you give the top 10% more money, they save all of it in their reservoir. The way that we have been introducing new money into the system is not by melting ice in the middle of the ocean. We also haven't been raining all over. The key way that new money has been introduced over the past 50 years is by lowering the interest rate. When you lower the interest rate, what happens is that people refinance, and suddenly they can pay less, but quickly realize, oh, I can also borrow more, so they do. I'll show you a few numbers, which I got by going to the zillow housing affordability page with default settings. I only modified the interest rate, all other values stay the same. Year | Average Interest Rate 30 Year Fixed | Home you can Afford 1981 | 18.39 | $124,797 1991 | 9.00 | $200,862 2010 | 6.26 | $244,531 2020 | 2.67 | $328,569 And so what we see people and REITs and companies doing is taking out larger and larger loans, and putting those dollars into assets. Companies take out a bond and buy back their own stock(which props up zombie companies). And why wouldn't they, it's profitable because the environment makes it so. And that money flows throughout the system. We can track the inflow of all of this money by looking at say.. the M3. This seems to be the crux of your point, if the amount of money in the M3 has gone up by 40x since 1971, why is inflation not out of control? The CPI is a measure for inflation that does not track the oceans water level. The M3 tracks that, and as you can see the M3 is out of control. The CPI doesn't track stock purchases, even though if you ask any personal finance person, they recommend that the average person put 15% of the money into retirement stocks, why is that? If the CPI were to track stocks weighted at 1971 levels, inflation WOULD be out of control. The CPI tracks, specifically, an average of tangible items that the bottom 80% spends their money on. Therefore the inflation number is based on the height of certain rivers. Now that's an important figure to keep in mind, after all if you get inflation in that bracket and income isn't rising, you quickly run into a revolution. And so that's what the FED has found, if you track the CPI you get the perfect amount of heating to boil the frog without them noticing. But when you introduce money into the system by lowering interest rates, you are in effect giving the money in proportion to the assets already owned. Someone bought that home in 1981, and someone with the same exact income would bid 328k for it today. You basically tripled that home owners asset, without any need to compare anything else, like actual income rises, or for instance SF has moved upmarket which would also effect prices. And so if you don't have much assets, it's a desert. If you do, it's a rain forest. And because the wealthy already have all that they want, demand for those items that the bottom 80% spend their money on doesn't change. So the supply and demand of those items don't change. So the CPI value stays the same. But money was introduced. If you take a look at the velocity of the M3, the M3V, you can see this take place. The wealthy get the gains of the new M3 dollars, and store it away. The more dollars created, the lower the velocity. So the question we have to ask ourselves, now that interest rates are at 0%, is that the FED has two options, they can continue to do they have been doing this year and dump the money straight into the reservoir by buying bonds and we'll get the same results, but it doesn't look like that is going to have popular support much longer. You see lowering interest rates is an implicit way to give wealth to the wealthy, and much like how CO-VID is implicitly killing more people per day than 9/11 did explicitly, but now that the FED is forced to explicitly give money out. What happens if it starts raining in the desert by printing money and handing it out fairly, say through a UBI? Will the rivers rise? If the CPI inflation indicator shows that the rivers are rising, what are we set to do?

rjmunro 6y ago

I'm not saying the article is wrong in general, but I don't get this last bit: > The government isn’t suppressing the “actual” inflation number. And if they were, they would also be suppressing reported economic growth... Surely by suppressing inflation they are increasing reported economic growth. If the dollar value of the economy increases 10% with no inflation, then that's 10% growth, but if inflation was also 10%, then that's 0% real growth. So if the economy grows at the same dollar rate, but you manipulate the inflation number lower, you get more apparent real growth.

swiley 6y ago
Isn't the federal reserve intentionally propping up markets? I thought in one of the reports they argued that there was higher inflation but it was restricted to certain markets like housing and so over all inflation was ~2%.
- tomatocracy 6y ago
  Not sure it's a case of intentionally propping up equity markets (of course interest rate policy directly impacts on government bond markets although I don't think that would normally be described as propping them up). But the phenomenon has been around for a while - I've heard it called "biflation" - high inflation in some markets/products (asset markets in general, as well as some services), alongside deflation in others like imported goods with not many goods/services actually following the middle road which the official inflation statistics give as an average. It's exaggerated to some extent but it's definitely there.
jdblair 6y ago
I think his point is that the same source numbers are used to calculate both inflation and GDP. If you suppress inflation by undervaluing goods and services you also suppress GDP. You could get away with divergence if your didn't provide your data, but at least in the US, you can see all the input data.

allendoerfer 6y ago

One gotcha about how inflation is calculated (at least in Germany, I assume it to be the same in the US), is that they try to compare identical products. So if this years cars do not have air conditioning, but next years cars do, the prices can increase accordingly without showing up as inflation, because you are getting "more car for more money". The problem appears at the point, when there are no cars without air conditioning anymore: You actually have to pay more to get a car, while your inflation statistics still say, prices have not risen.

aetherson 6y ago
This is the same in the US, yes. And it's still the correct thing to do. Inflation can't be a measure of every dimension of economic hardship at once. As the article points out, healthcare has risen in cost dramatically more than most other things. Does that mean that somehow the inflation rate must reflect the pains of those households not in the average and aggregate? Less capable goods may no longer be available. You can no longer purchase a Model T, and must purchase a car that's faster, safer, more comfortable, and more reliable. Even if you don't particularly value that, your car objectively is faster, safer, more comfortable, and more reliable. The inflation rate can't change because your preferences are for a cheaper, but inferior good.
- peteradio 6y ago
  The problem then is that "inflation" should not be used to argue that a large block of people aren't getting the shaft. That seems to be the most common exercise in citing inflation.
- beagle3 6y ago
  But things are indexed to inflation assuming it represent the dynamics of “this is what you need to maintain your current quality of life”.
- rozab 6y ago
  What about improvements linked to mandatory regulations (safety, emissions, efficiency, etc)?

iguy 6y ago

It's a bit confusing what he's arguing against. But his 2nd-last graph is the good one, [1]. That's only 20 years but [2] is the same thing since 1950. Some things have become much cheaper, other things have become more expensive. Attempting to summarize that in one number seems like it hides more than it exposes, no matter what number you pick. [1] https://awealthofcommonsense.com/wp-content/uploads/2021/01/Screenshot-2021-01-04-211959.jpg https://awealthofcommonsense.com/wp-content/uploads/2021/01/... [2] https://marginalrevolution.com/marginalrevolution/2019/05/why-are-the-prices-so-dmn-high.html https://marginalrevolution.com/marginalrevolution/2019/05/wh...

mlthoughts2018 6y ago
The final graph on median home mortgage payments is misleading too. That can be propped up by REITs and increasing institutional ownership of consumer homes. There’s also the issue of more millennials living with parents and relatives, unable to afford their own homes, which can be hidden in that. Definitely can’t conclude from it that wages and purchasing power have kept up with mortgage costs.
- coredog64 6y ago
  Millennials can live at home because average home size has increased. My first house, built in the late 19th/early 20th century had indoor plumbing retrofitted and would fit in the garage of my current house.
  - mlthoughts2018 6y ago
    Even if that was purely true, that doesn’t say anything about relative purchasing power to afford mortgage costs though. Home sizes increasing doesn’t mean home prices, relative to purchasing power and technology changes, have stayed consistent with real wages. And it’s likely not purely true. Home sizes being larger is also a function of REITs and corporate ownership of more consumer real estate, as well as boomers using soaring retirement fund profits to finance remodels, etc. It’s way more complex than to draw any conclusion that this means purchasing power of homes has stayed close to wages. It hasn’t.

mlthoughts2018 6y ago

I found the “Price Changes” graph about 2/3 down the page really alarming. Virtually all of the gains in the form of lowered prices are purely in discretionary consumption and subsistence goods. Cheap entertainment, toys, staple foods. Meanwhile the insane price increases are in critical needs, medical care, housing, college education. In my mind that graph is pretty strong evidence that there really is massive inflation and the idea of “asset inflation” does exist, contrary to the author’s lead point that it should be seen as normal growth of value. For most people, if you show them this data and said, “see, low inflation, don’t worry...” they are rightfully going to be pissed off. “Low inflation” except in everything that really matters for health, home ownership and betterment for my children. I guess I should just thank the monetary policy overlords for my cheap Netflix while we all die of cancer under the thumb of landlords and all our economic participation from labor dwindles and continues to lose purchasing power for what we most need.

nahname 6y ago
All of the low inflation items are also goods that can be manufactured overseas.
throwawayinflat 6y ago
This is just it ; The author doesn't compare to CPI as calculated using the methodologies for the 1990s or the 1980s - he just builds a straw man and throws cheap consumer electronics at it. What he fails to realize, is that this is precisely the argument of those who believe real inflation to be higher than reported; Namely, that without including cheap electronics and luxury items the picture is much much worse - which it is. This article built a nice strawman and burnt it - what I'd like to see is the author actually tackle the claims of his opponents rather than gross mischaracterizations of them.
- PhaedrusV 6y ago
  I can't imagine that would go any better. I think I'll just pass on reading the author's thoughts.
PhaedrusV 6y ago

_Microft 6y ago

> https://awealthofcommonsense.com/wp-content/uploads/2021/01/Screenshot-2021-01-04-211959.jpg https://awealthofcommonsense.com/wp-content/uploads/2021/01/... Also: the items in the category with decreasing prices are almost all automatically mass-producable and will have the advantage of learning (i.e. increased production efficiency and decreased cost with increasing number of items produced) while the ones in the other category aren’t necessarily. Childcare/nursery isn’t going to become cheaper just because you’ve more experience with the job. College textbooks really stand out though. These should not have to become more expensive. They are written once and printed cheaply thereafter. I wonder what the curve for other types of books looks like but my guess is that other books have not seen these increases and this is purely money-making.

rjmunro 6y ago
I'm not sure that college textbooks are written once. It depends on the subject, but they are often replaced frequently e.g. as technology or laws are updated, and each one makes only a small number of sales. Yes, printing costs are relatively low, but they are also a relatively small part of the cost of many kinds of book.

BlueTie 6y ago

Isn't this entire article missing the difference between a luxury item and an essential item? A smartphone 10 years ago was a luxury for just about everyone who owned one (that is, bought with extra money) now it's a requirement. The luxury purchase folks are certainly getting a better deal as apples:apples prices go down; but if you're paycheck to paycheck and used to be able to not buy a smartphone but now have to - you're just running on tighter margins. I would imagine measuring economic well being directly through something like a "economic desperation index" makes more sense than doing a bunch of calculus on comparing the price and quality of items in two different years since the latter would only apply to people who own the item in both domains. Especially in the context of this article which is discussing if people have it better now or then.

JoeAltmaier 6y ago
Essential? Really? Many of us leave our phones off, leave them at home or in the car, and are only marginally impacted. The difference between 'any phone' and a smart phone is quite small. Except for folks addicted to them, who can't last a day without constant updates.
- VBprogrammer 6y ago
  I think you are seriously underestimating the number of essential services which are now mostly been conducted online. Try finding a property to live in or a new job without using the internet.
- shipman05 6y ago
  Hot water isn't essential either. Some of us prefer cold showers!
- wing-_-nuts 6y ago
  As much as people like to dump on smart phones; yes, they really are essential. My having access to news, music, books, podcasts in the palm of my hand is revolutionary. Literally any curiosity about any subject can be indulged at a whim. Social media might be toxic if you let it take over your time, but the benefits to society cannot be overstated.

xibalba 6y ago

Others have claimed that the author buried the lede by placing the chart which shows runaway healthcare (hospital and medical care services) inflation at the end of the article. However, there are sound arguments for why healthcare costs have not actually inflated much. Essentially, the argument goes, you're not buying the same thing that was available in the past. It's an apples to oranges comparison. Cliff Asness has a great article touching on this topic: https://www.aei.org/articles/the-healthcare-myths-we-must-confront/ https://www.aei.org/articles/the-healthcare-myths-we-must-co... Higher education on the other hand...

benbenolson 6y ago

>Cars last longer Are there any studies showing the longevity of cars over time? I don't think this is necessarily true.

mywittyname 6y ago
There probably aren't publicly-available studies on the subject, but, in general it is true. 1. Material science has improved dramatically, even since the 90s. We now have oils that don't break down for years, even under extreme temperatures, and tolerances within engines are tight enough that oil can go 10,000 miles without meaninful gasoline contamination. Also, rust-proofing, rubbers, and plastics (!) are much, much better. 2. Solid state electronics have replaced mechanical systems. This is a big one: vacuum lines were a nightmare, carburetors were fickle, distributors wore out, etc. All of these systems have been replaced by maintenance-free electronic versions. 3. Better computer-aid modeling. This is kind of a good and bad, since now components aren't overbuilt like in the 90s, but they are also less likely to be underbuilt. There are absolutely manufactures who still make unreliable heaps, but generally, reliability has improved. Most of that reliability comes in the form of less maintenance: no car needs the valves adjusted every 30k miles anymore (except maaaybe exotics). Jay Leno likes to joke about how cars used to come with 90 day warranties in the 70s. 90 days!

jchook 6y ago

Supposedly the total M2 in the US was around $15T last year. The Federal Reserve dumped $4T more (or 26%) into the economy, bringing us up to $19T. How does this not impact inflation? If you have more dollars representing the same real value, doesn’t that make each dollar worth less of it?

throw0101a 6y ago
> How does this not impact inflation? Ask Japan. Their M1/2 has growth bigly over the last few decades and they've had next no inflation. Remember, the 'general' equation is: Inflation = Money_supply x Velocity. Yes, there's a big tank of money sitting around, but it's not sloshing around the economy that much. And if it does start, there's at least one tool to cool things down: raise interest rates.
helen___keller 6y ago
> If you have more dollars representing the same real value, doesn’t that make each dollar worth less of it? Strictly speaking, inflation is defined by price/quality of baskets of goods, not by a measure like M2.

d_burfoot 6y ago

There are many problems with mainstream ideas about inflation, but one key problem is that it does not take into account the disastrous decline in the quality of public services that Americans have experienced over the last couple of decades. How do you measure the inflationary impact of the fact that in many cities, the public schools have declined in quality so much that people are faced with the choice of either moving to the suburbs, or paying for private school? What about the impact of the transformation of the built landscape from nice walkable towns to disgusting exurban sprawl?

valuearb 6y ago
Yet, We are spending more on public schools than virtually any time in American history.
- valuearb 6y ago
  Not sure why the downvotes, it’s just a fact. You may think we should spend more, or differently, but it’s a fact that the US has never spent more on public education in tan it has the last decade and its not even close. https://www.usgovernmentspending.com/education_spending https://www.usgovernmentspending.com/education_spending

valuearb 6y ago

Based on recent sales, our house has been appraised in the low $700,000 range for the last few years. We just put it up for sale and received three offers. $1,025,000, $1,030,000, and $1,050,000. I’d say something is going on with home prices.

helen___keller 6y ago
Austin?
- valuearb 6y ago
  No

tekcyb-org 6y ago

I think the author is confused about what inflation is, vs the benefits reaped from the advancement of technology. The author also seems to have a bias against the people screaming "inflation". That is pretty obvious from the title. To show real inflation, I like using the Burger King whopper as an example. In the early 90's I remember being able to buy 4 whoppers for $1. With the advancement of farming technology, transportation technology, preservation technology, etc.... Why do we see the whopper cost over $7 now?

nkurz 6y ago
> In the early 90's I remember being able to buy 4 whoppers for $1. The simple answer is that your memory is wrong, and that at no point in the 1990's were you able to buy 4 Burger King Whoppers for $1. Other than your recollection, do you have any evidence that this price is correct? Or have I missed a layer of hyperbole in your argument?
- deleted 6y ago
  [deleted]
SamBam 6y ago
In 1990 a whopper cost $0.99. In 2000 it still cost $0.99. In 2018 it cost $4.29. So that's a 4.3x change, not a 28x change as claimed, and represents an "inflation" of about 7.5%/yr over the past two decades (or 5.5%/yr since 1990). https://www.insider.com/fast-food-burgers-cost-every-year-2018-9#in-2018-your-burger-costs-an-average-of-264-25 https://www.insider.com/fast-food-burgers-cost-every-year-20...

saul_goodman 6y ago

On one hand, he's not wrong, overall inflation for 2020 was on par for a normal year, we're not headed into hyperinflation territory just yet. But you also have to realize that some people are affected quite a bit harder by the crazy shifts in deflated and inflated costs this year. https://inflationdata.com/articles/wp-content/uploads/2020/12/Monthly-Inflation-11-2020.png https://inflationdata.com/articles/wp-content/uploads/2020/1... Look at the breakdown of the line items that make up the US inflation rate for 2020 and you see that the massive drop in fuel cost (-19%) caused a massive offset to the overall number. Meanwhile food cost has gone up over 3%, medical expenses also went up over 3%. As we head out of this hell hole it will be interesting to see if inflated sectors return to more normal levels again.

motohagiography 6y ago

The big difference people need to understand is between "core" inflation, and consumer price index, and whether that index includes super volatile items like food and fuel, and how they are weighted. It's one of those torturing data until it gives you the policy you want exercises. You can make inflation say whatever you want it to say with selected goods and index weighting, so I don't get into arguments about it because it's mainly an obfuscation proxy for ideological conflicts.

jgalt212 6y ago

> to beat inflation and keep up with or improve your standard of living. He's being a big of a dullard here in that he's ignoring how inflation (or the expectation of inflation) can affect interest rates and how that can clobber asset prices.

jgalt212 6y ago

He's also ignoring how the substitution effect, which normally serves to tamp down realized inflation as folks change the composition of the basket of goods and services they consume, is not applicable or less applicable to most of the red lines (food, housing, medical care). On a long enough timeline if food and housing prices keep outpacing other prices, the proportion of consumer money devoted to such items will trend towards 100%. And if the basket is 100% stuff that keeps quickly going up in price, then CPI is also quickly going up in price (ipso fact).

covid21 6y ago

Isn't GDP also kind of subject to inflation, as it measures monetary value of things? If so, saying "it's OK, because GDP grew at the same rate" doesn't make much sense.

mywittyname 6y ago

The problem with measuring inflation is that you can cherry-pick the goods in your basket to paint the picture that you want to see. If I make a basket full of housing, healthcare, college education, and fresh produce, I can show you that inflation is out of control. If you look at the "price changes" chart, prices for the red line items have gone up 4-6% per year over 20 years. While it's nice that you can buy a 55" flatscreen for the price of a 15" crt from 1998, TVs (and cars, furniture, clothing) are occasional purchases and can be cost-controlled by choosing cheaper options. Unlike healthcare/insurance, where you're stuck with paying for what you can get.

baybal2 6y ago

You cannot eat your real estate, or your computer. Demand elasticity of food is near 0, either you eat more calories than you spend, or you die. That's very much a truth. Would some smart economic theory tell that's not the case? A grand lack of common sense.

biolurker1 6y ago

Strong language, name calling, no real argument. The conse sus is that inflation is not here now because of low money velocity but wil come next years inevitably.