3 ms·

Others severely overestimate inflation. Healthcare, for one - there are lifesaving treatments that are available at some price today that weren't available at a

Others severely overestimate inflation. Healthcare, for one - there are lifesaving treatments that are available at some price today that weren't available at any price in the year 2000. Per the textbook definitions, this is infinite deflation. Consumer electronics also arguably fits into this category. Fundamentally, though, the problem is that CPI does not track changes in the perceived minimal acceptable quality of the various baskets of goods. If the house you "need" to fulfill a specific lifestyle is twice as big and twice as expensive, this has zero impact on CPI. Same with healthcare quality - if your insulin works 10% better and costs 10% more, the CPI-centric view says that people are simply using more real dollars to buy a higher quality of life. Education has a similar problem, where job requirements shifts from high-school diplomas to undergrad degrees simply do not show up in any way in the CPI; we're just choosing to be better educated to end up working the same jobs. I think this all boils down to the CPI measuring things as if all goods were absolute goods, while nominal GDP per capita would be the appropriate measure if all goods were positional. I don't know what fraction of spending is on each, though, but you can reasonably put the "real" inflation number somewhere between the two.

tal8d 6y ago
> Healthcare, for one - there are lifesaving treatments... The correct metric would be life expectancy, as it sidesteps the zero priors problem. Using that, the healthcare you are talking about looks a lot more like the diminishing returns you get on higher priced modern cars. Before anyone says anything about "quality of life", I'd recommend looking at the way assisted living operations are run. Anyway, we really started to lose steam after dentistry... dunno what the analog would be for cars, power steering? > If the house you "need" to fulfill a specific lifestyle... This is another thing I've been dealing with recently. I've delayed entry into the housing market way past what I'd have liked because the pricing makes no sense to me, and I've found that usually if something doesn't make sense to me - it is because it is misrepresented. After watching the market for a few years in two very different parts of the country I noticed something interesting: sub-million dollar homes were quickly getting more expensive, and multi-million dollar mansions were relatively static. I wonder how much of that has to do with home-loan accessibility, similar to the cost of educating students magically increasing in lock step with student loan program scope and availability.
- MagnumOpus 6y ago
  > sub-million dollar homes were quickly getting more expensive, and multi-million dollar mansions were relatively static It's because the price of the average house is due to the cost of urban/suburban land - which is scarce and therefore tracks affordability (i.e. rises steeply with median incomes, population growth and especially falling mortgage rates). Meanwhile the price of multi-million dream homes are (a) often dominated by building costs which rise slower than incomes (b) don't rise due to falling mortgage rates as the NFL player/movie star/exiting startup founder pays in cash rather than over a 30yr mortgage term. > and I've found that usually if something doesn't make sense to me - it is because it is misrepresented That is a statement full of hubris. You might find that if something doesn't make sense, you might just not be in possession of all the relevant information. (In this case, the trajectory of mortgage rates and their effect on affordability of homes, demographics and population growth in a metro area, income growth and wealth distribution.)
  - tal8d 6y ago
    > It's because the price of the average house is due to the cost of urban/suburban land... That maybe true, but it would be unrelated to my observations. > ...rises steeply with median incomes... Whoops! For that to be true there would have to be a non-linear relation that would itself be far more interesting than the housing prices issue. > ...often dominated by building costs which rise slower than incomes... Not a lot of new mansion construction going on. Oh, and those construction costs are pretty ridiculous right now due to a jump in lumber and appliance costs - income would have had to nearly double to match construction's rate of increase. I collected bids a few months ago for a grading and paving, jobs dominated by labor costs. The quotes were laughably overpriced. > ...as the NFL player/movie star/exiting startup founder pays in cash... lol, your conception of today's millionaire is way off - it is a distinction that has never been more easily attained. > That is a statement full of hubris. No, that is - and presumptuous :) Also, that final sentence agrees with the mortgage issue I mentioned, gets the direction of migration wrong, and finally overlooks the steadily growing income disparity - which is somehow resulting in mansions doing poorly on the real estate market. So you did a pretty good job of unintentionally proving my point with regard to the situation being misrepresented.

tal8d 6y ago

> Healthcare, for one - there are lifesaving treatments... The correct metric would be life expectancy, as it sidesteps the zero priors problem. Using that, the healthcare you are talking about looks a lot more like the diminishing returns you get on higher priced modern cars. Before anyone says anything about "quality of life", I'd recommend looking at the way assisted living operations are run. Anyway, we really started to lose steam after dentistry... dunno what the analog would be for cars, power steering? > If the house you "need" to fulfill a specific lifestyle... This is another thing I've been dealing with recently. I've delayed entry into the housing market way past what I'd have liked because the pricing makes no sense to me, and I've found that usually if something doesn't make sense to me - it is because it is misrepresented. After watching the market for a few years in two very different parts of the country I noticed something interesting: sub-million dollar homes were quickly getting more expensive, and multi-million dollar mansions were relatively static. I wonder how much of that has to do with home-loan accessibility, similar to the cost of educating students magically increasing in lock step with student loan program scope and availability.

MagnumOpus 6y ago
> sub-million dollar homes were quickly getting more expensive, and multi-million dollar mansions were relatively static It's because the price of the average house is due to the cost of urban/suburban land - which is scarce and therefore tracks affordability (i.e. rises steeply with median incomes, population growth and especially falling mortgage rates). Meanwhile the price of multi-million dream homes are (a) often dominated by building costs which rise slower than incomes (b) don't rise due to falling mortgage rates as the NFL player/movie star/exiting startup founder pays in cash rather than over a 30yr mortgage term. > and I've found that usually if something doesn't make sense to me - it is because it is misrepresented That is a statement full of hubris. You might find that if something doesn't make sense, you might just not be in possession of all the relevant information. (In this case, the trajectory of mortgage rates and their effect on affordability of homes, demographics and population growth in a metro area, income growth and wealth distribution.)
- tal8d 6y ago
  > It's because the price of the average house is due to the cost of urban/suburban land... That maybe true, but it would be unrelated to my observations. > ...rises steeply with median incomes... Whoops! For that to be true there would have to be a non-linear relation that would itself be far more interesting than the housing prices issue. > ...often dominated by building costs which rise slower than incomes... Not a lot of new mansion construction going on. Oh, and those construction costs are pretty ridiculous right now due to a jump in lumber and appliance costs - income would have had to nearly double to match construction's rate of increase. I collected bids a few months ago for a grading and paving, jobs dominated by labor costs. The quotes were laughably overpriced. > ...as the NFL player/movie star/exiting startup founder pays in cash... lol, your conception of today's millionaire is way off - it is a distinction that has never been more easily attained. > That is a statement full of hubris. No, that is - and presumptuous :) Also, that final sentence agrees with the mortgage issue I mentioned, gets the direction of migration wrong, and finally overlooks the steadily growing income disparity - which is somehow resulting in mansions doing poorly on the real estate market. So you did a pretty good job of unintentionally proving my point with regard to the situation being misrepresented.