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No, you're misinterpretating what the GP said. The linked Fed graph is showing that the median real earnings are at an all-time high. But how can that be true?
by rcme 3y ago
No, you're misinterpretating what the GP said. The linked Fed graph is showing that the median real earnings are at an all-time high. But how can that be true? Median workers in the past could easily afford health care, a house, and education. But they no longer can, so clearly the Fed's calculation of CPI does not accurately reflect reality.
And I agree with this. When we talk about "inflation adjusted", we need a benchmark to compare the value of dollars across time. Typically CPI is used, but it has major issues. One major issue for the "median worker" is that real estate values are not included. Obviously many workers want to buy a house to live in so this is a glaring omission. Similarly, things like stock values are not included, even though the value of equities has a massive impact on a dollar's buying power. E.g. if consumer prices at time A and B are the same, but the value of GOOG is X at time A and 2X at time B, doesn't the dollar at time A has more buying power than at time B? Finally, CPI heavily weights things like consumer electronics and automobile. These are important, but people buy these things once in a blue moon and movement in these prices generally doesn't impact people that much.
- laidoffamazon 3y agoExcept they absolutely can afford health care, houses, and an education today too. The claim just nonsensical catastrophism not based on any data. The only reason why college attendance is slightly lower today is because the college wage premium is lower today. It's not cost, which has slightly decreased recently. Housing is the only thing getting more expensive because we don't build enough but yet the median American is still a homeowner.
- rcme 3y agoThe cost of college tutoring is up like 700+% from the 80s. Also ask yourself how many people can afford a house on a single family income like was possible in the 60s. It’s not many. Certainly not the median worker.
- abeppu 3y ago> E.g. if consumer prices at time A and B are the same, but the value of GOOG is X at time A and 2X at time B, doesn't the dollar at time A has more buying power than at time B? To me, this seems like a misleading framing. When you say "consumer prices at time A and B are the same", you can point at a basket of concrete goods which we can agree are the same (a dozen eggs, a gallon of gas, etc). But if the value of GOOG is 2X at time B ... are shares the same? How would you know? Does GOOG at time B have more revenue or a different revenue growth trajectory, or is the competitive landscape different at time B, or did they buy a bunch of other firms? Absolute vs relative is not quite the right distinction, but a share is a portion of a whole whose value can change, and so not a clear unit for evaluating purchasing power. Perhaps slightly more concrete, shares of a REIT are going to change over time, but that can be because the stuff being held changed (they bought more property) or because the value of the stuff they already held changed.
- rcme 3y agoSure you would need to normalize the market value somehow, but that’s different than acting like such assets simply don’t exist. One way of thinking of share ownership is the price being paid for a share of future cash flows. That’s already kind of normalized across time.