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Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

362 points by robertn702 2y ago

deleted 2y ago
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jeffbee 2y ago
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- jfengel 2y ago
  It is at least a bipartisan hobby, to go searching for any alternative numbers whenever there's good news for your opponent. Though this is an impressive amping up: "previous" is 1983. This isn't some dastardly bit of math by the present administration. This dates back to Reagan. Of more interest is that consumer sentiment is indeed grumpy, and that is a big deal with an election coming up. They don't really need this guy coming up with mendacious explanations for it.
  - dash2 2y ago
    Searching for alternative numbers to explain an anomaly, e.g. that consumer sentiment hasn't improved even though inflation is down, is what scientists do, although it is certainly not immune to partisan bias. Have you got a critique of the paper's explanation and an example of how you think it's mendacious? The original is here: https://www.nber.org/papers/w32163 https://www.nber.org/papers/w32163. I don't have access, but the Forbes story says they check their result in Europe and it continues to hold.
  - WillPostForFood 2y ago
    mendacious explanations What specific lie are you calling out here?
    - jfengel 2y ago
      The fact that he hasn't described all possible formulas, but instead included exactly the one that affirms his known preconceptions. He would not have published this thesis had it not supported him. He'd have looked around for some other metric.
      - WillPostForFood 2y ago
        So you didn't mean mendacious? https://paulgraham.com/simply.html https://paulgraham.com/simply.html
- gjsman-1000 2y ago
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  - popf1 2y ago
    I want to be able to read flagged comments.... why is it no longer possible, /u/DANG? Because most of the time I don't agree with the flagging anyways.... and it is important to look at opposing views.
    - Phiwise_ 2y ago
      Yeah the moderation is absolutely atrocious these days. I got flagged for quoting the IMF a few weeks ago lmao.
      - popf1 2y ago
        I guess they are taking example from the LLMs.. I would call it censorship though
- fullshark 2y ago
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  - BobaFloutist 2y ago
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    - gjsman-1000 2y ago
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      - queuebert 2y ago
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- deleted 2y ago
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- Phiwise_ 2y ago
  This absolutely reads like a reasoned counterpoint to a dubious claim and totally not at all like an unhinged, partisan knee-jerk rejection of additional information that's bad news for your preferred platform.
- black_13 2y ago
  [dead]
- WillPostForFood 2y ago
  You can read it directly from Secretary of the Treasury to Bill Clinton, and the Director of the National Economic Council to Barak Obama. https://twitter.com/LHSummers/status/1762607548828360798 https://twitter.com/LHSummers/status/1762607548828360798 So the number still looks like 18%, even when you take out the attacks on the author of the article who was accurately reporting what Summers said.
slibhb 2y ago
It's interesting that consumer sentiment apparently tracks the older formula more closely. Presumably we have data that could allow us to include "the price of money" in inflation metrics, perhaps weighed based on how much the average American borrows.
- jeffbee 2y ago
  Headline consumer sentiment is polluted by junk like this article. People report their personal household situation is fine and they expect it to continue being at least this good or better in 1 and 5 years. But they've heard so much shadowstats horseshit on the radio that they are compelled to stake out a negative view on the economy as a whole. In the latest UMich consumer survey majority of respondents expect their incomes to grow faster than prices, in fact the reported probability of real personal income rising has never been higher in the history of the survey. And, with respect to inflation, consumers expect incomes to rise about 2.5% per year, and that expectation is higher than the expected increase in prices. During times of very high inflation respondents reported expectations of 6% nominal income increases. So this is all consistent with the idea that inflation as people actually experience it has been moderate. But, further down the February results, you can see that record numbers of people report hearing negative news stories about prices, way way way higher than in 1980! Which is totally crazy if you were here in 1980! You can also read further and see that expectation of rising unemployment have been consistently high for the last 5 years, and reports of having heard news stories about unemployment have been at record highs, while responses about the probability of losing their own job are at record lows and of course objective unemployment is almost dangerously low.
  - PKop 2y ago
    What does any of this have to do with ignoring the price of money, a real cost that people have to pay?
  - Phiwise_ 2y ago
    >But, further down the February results, you can see that record numbers of people report hearing negative news stories about prices, way way way higher than in 1980! Which is totally crazy if you were here in 1980! If you had taken a moment to consider the data presented in the article instead of dismissing it out of hand because it offends your sensibilities, you would realize it states that it obviously implies it is not crazy to hear more news about inflation nowadays than in the 1980s, because it shows inflation is worse nowadays than in the 1980s. Feel free keep raving about how you get a much better vibe from the economy today despite the info if that's what matters more to you, though.
082349872349872 2y ago
I invoice in USD and have expenses in a different currency, and while I've seen a few (~5) percent decline in the exchange rate since then, it's been nowhere near 18%.
- refulgentis 2y ago
  It's really funny math, based solely on the idea I borrow enough with floating interest rates, pegged to treasuries. <sarcasm>but it confirms I am suffering, therefore it is correct</sarcasm>
- jeffbee 2y ago
  Have you tried just ignoring your calculator and going all-in on vibes?
- arduanika 2y ago
  The pandemic was worldwide, and every other central bank has been printing, too. Depending on which currency you're trading against, that could be a factor. For a while in 2021-2, non-dollar currencies were inflating even faster, so DXY actually went up even as the dollar weakened against goods and services. Even if the tables have turned and the dollar is weakening faster now, it's not like everybody else has actually reigned in their own printing.
  - cruffle_duffle 2y ago
    The pandemic didn’t cause this inflation. The governments response to it did. Governments love when people blame an infectious respiratory virus for their idiotic response.
    - throw0101c 2y ago
      > The pandemic didn’t cause this inflation. Have you tried buying a car, new or used, recently? Supply chain issues caused by the pandemic certainly caused (parts of) inflation. Then there's geopolitics (energy/oil, food/wheat), also not helping with inflation. Supply-driven inflation looks to be the cause of at least half the run-up: * https://www.frbsf.org/research-and-insights/publications/economic-letter/2022/06/how-much-do-supply-and-demand-drive-inflation/ https://www.frbsf.org/research-and-insights/publications/eco... * https://www.frbsf.org/research-and-insights/data-and-indicators/supply-and-demand-driven-pce-inflation/ https://www.frbsf.org/research-and-insights/data-and-indicat... * https://en.wikipedia.org/wiki/Cost-push_inflation https://en.wikipedia.org/wiki/Cost-push_inflation
Animats 2y ago
Short version: if you include interest rates in the inflation metric, 2022 looked bad.
- tonymet 2y ago
  Also food and housing costs
- Phiwise_ 2y ago
  It's more than just interest: 2022 just might have been the worst non-recession year in (modern, meaning years with acceptable stats) US economic history. Every tranche of net worth FRED tracks fell off a cliff that year, declining in (CPI, so we don't even need this competing metric to come to these conclusions) real terms by more than they did even during the 2020 recession [1], with the rich almost always losing more in absolute terms and the poor almost always losing more relative to their losses in 2020 [2]. If you look closely, you'll even notice that some of the rich lost more during these supposed business-as-usual days than they did during the 2008 meltdown of their moneymaking sector. It's been pretty shocking to watch this happen, see the months roll on, and still hear basically no wideapread discussion on it in proportion to what has actually happened. We're coming up on two years of just not having an average of ~9% of our wealth we all worked hard to make from recovering from an economic equivalent of universal house arrest any more, and the best one can get a mainstream platform for is something like "possible cost of living concerns". Sure 2008 was worse for specifically the working class, but the working class are also much more sensitive to small changes in prosperity because they're not even in the same order of magnitude of diminishing returns (not to mention that it's pretty much as big a drop for them as the 2001 recession, which was also a quite painful time historically and was certainly seen as a moderate travesty before the perspective of 2008). How long can this dissatisfaction go on without starting a serious effort for acknowledgement and recovery? [1] https://fred.stlouisfed.org/graph/?graph_id=1317969 https://fred.stlouisfed.org/graph/?graph_id=1317969 [2] https://fred.stlouisfed.org/graph/?graph_id=1326338&rn=637 https://fred.stlouisfed.org/graph/?graph_id=1326338&rn=637
stevenae 2y ago
I usually dislike Forbes but this was a great article.
- bryanlarsen 2y ago
  Forbes is more like Medium, than it is like the business oriented newsmagazine it used to be. It's just a random assortment of bloggers.
tonymet 2y ago
I recommend people use many different indicators to get a mental model of inflation, and you will notice that CPI does not represent inflation well. The memes of Arby’s 5 for $5 becoming 4 for $10 are more informative than the CPI numbers. Don’t let the shock at the grocery store wear off – it’s real and painful despite what the news tells you. True inflation would measure the amount of prosperity achieved per hour worked. Take 1963 as an Example. Sears sold entire two story home kits with all materials for $1600. An Italian rifle in 1963 was $20. McDonalds burgers were 15¢ . Postage was 5¢ and had only increased 5 times in the previous 100 years. You might retort that average household income is $70000 now vs $6200 in the early 60s– a tremendous boon. Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home. In other words you had 1 man working 50 hours a week afford a house and support 5-6 other people. Today you have 2 people working 100 hours a week to support 1-2 additional people , while living in an apartment and living in a run down and crime infested neighborhood. In case you think this is academic, look at the occupations for those who lived in today’s wealthiest neighborhoods. Today Palo Alto, Menlo Park, and other super zips are exclusively $500k incomes and up. In the 1960 census records you will find these good neighborhoods occupied with plumbers, painters and other blue collar workers. My point is that inflation isn’t abstract and it isn’t a law of nature. It’s a deliberate approach to stealing your prosperity while you cheer it on. Summers is right more than he’s wrong. Real inflation has always been higher than the bogus CPI numbers, and the past 5 years it’s been accelerating.
- adriand 2y ago
  But it’s not like our standard of living has remained static while we need to work more. A lot has changed. In 1960 the average single family home was 1300 square feet, now it’s more than double that, and it’s packed with amazing amenities and entertainment options. What would an iPad cost in 1960? Obviously the question is kind of nonsensical and yet on the other hand, if you were to try and quantify the price of our ability to work from home, for instance, we have a way better deal going than they did in 1960. You could retort that this is the inevitable march of technological progress, but could it be the result of hard work and innovation including the hard work and innovation of women in the work force?
DarkmSparks 2y ago
Inflation expectations are one of the key elements that determine next years inflation. The main reason they have always "fiddled" the public inflation numbers is if they reported actual inflation people would set their expectations on that - and it would make next years inflation worse/more volatile. insiders generally dont care about the public figures - they have their own in house statisticians to give them the real picture.
- willcipriano 2y ago
  > they have their own in house statisticians to give them the real picture. I wonder if that is behind some price increases blamed on inflation that are larger than inflation. They mean inflation not CPI.
  - DarkmSparks 2y ago
    exactly.
ein0p 2y ago
That seems subjectively accurate, looking at my grocery store receipts and $13/lb meat. Certainly more accurate than “3.5%” bullshit the “free press” is asking us to believe.
- jeffbee 2y ago
  If you have fancy meat tastes, that's on you. https://www.ers.usda.gov/webdocs/DataFiles/52160/cuts.xls?v=717.1 https://www.ers.usda.gov/webdocs/DataFiles/52160/cuts.xls?v=...
  - ein0p 2y ago
    Those aren’t fancy cuts or prime grade beef. Just regular steak at Kroger or Costco. Go see for yourself if you’re in the US. It really feels like the bottom is about to fall out from US economy. I don’t know how the low income families deal with a 30% increase in their grocery bills which were a significant chunk of their spending even a few years ago. Nor how they pay rent which has also increased massively.
    - ejstronge 2y ago
      > Those aren’t fancy cuts or prime grade beef. Just regular steak... I don’t know how the low income families deal with a 30% increase in their grocery bills I don't think low income families are buying steak - and price increases in luxury goods can understandably grow faster than in staples like non-steak beef.
      - deleted 2y ago
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      - ein0p 2y ago
        But _all_ cuts of beef went up by a lot as far as I can tell. So did chicken, fish, and all other sources of protein. It’s not just protein though, everything across the board is on average 25-30% more expensive now than it was 3-4 years ago. A cart of foodstuffs that used to cost $100 give or take is now $130-140. This isn’t some Whole Foods kind of situation, this is a run of the mill Kroger normal people shop at
caesil 2y ago
I don't really understand the argument at the heart of this article, which is "we should include interest rates in CPI". How do interest rates effect everyday people exactly, other than price inflation on goods and services (which is included separately in CPI)? The only way seems to be interest rates on personal loans and mortgages. So if anything, we should only include interest rates in proportion to how many people are taking out major loans during the sampled period (and maybe some additional amount based on the effect on adjustable-rate mortgages, etc). Blindly stacking interest rates on top of CPI doesn't really make sense as a measure of personal inflation, and "it feels like stuff got more expensive" (as a lot of other comments here argue) isn't so much an argument for this strategy so much as an argument that the CPI 'basket of goods' needs to be rebalanced in other ways.
- mtneglZ 2y ago
  Interest rates impact the cost of everything you buy. Almost all large businesses are financing their operations on credit, not by spending down a war chest replenished with revenue. Large public companies borrow money against their remaining held stock to finance their operation. It is true that inflation impacts the base cost of the raw materials and labor but those costs are also more expensive because of the higher business loan interest rate to finance an operation. The extra financing cost is passed to the consumer. The higher cost of financing drives layoffs too, companies will layoff when financing costs rise so they can stay cost neutral.
- woodruffw 2y ago
  The argument is bunk, and your observation is correct: inflation can be higher than the current CPI predicts, but this does not somehow imply that the CPI basket should factor instruments that do not disproportionately affect ordinary Americans' finances (or double-count ones already accounted for more directly).
- PKop 2y ago
  What is confusing? The argument for including them is that people pay them. >Blindly stacking Stawman nonsense that literally no one suggested
- 2y ago
olliej 2y ago
It remains absurd to me that the many ways inflation is measured and presented for the purpose of its impact on regular people is based almost entirely on its impact on funds with no meaningful component reflecting the impact on the overwhelming majority of distinct legal entities impacted by it. My opinion is that if there are changes to monetary policy based on the effect of inflation, the policy should be centered on maximizing the outcome for the majority of distinct legal entities (ie overwhelmingly individuals) not maximizing the outcome for capital. Because wtf are you optimizing policy for the wealth generation of an overwhelming minority of the entities impacted by that policy?
- hackable_sand 2y ago
  This might help. Idk enough about the topic to really interpret this in a helpful way. "When people talk about inflation, they usually refer to ordinary goods and services, which is tracked by the Consumer Price Index (CPI). This index excludes most financial assets and capital assets. Inflation of such assets should not be confused with inflation of consumer goods and services, as prices in the two categories are usually disconnected. The prices of some goods and services such as housing, energy, and food do track closely with some financial assets." https://en.m.wikipedia.org/wiki/Asset_price_inflation#:~:text=Asset%20price%20inflation%20is%20the,government%20bonds%20or%20savings%20accounts https://en.m.wikipedia.org/wiki/Asset_price_inflation#:~:tex...
  - olliej 2y ago
    I understand how inflation is measured vs things like the CPI or "basic costs for the overwhelming majority of entities and tax payers". What I am saying is that it does not make sense that the measurement that influences policy, is the one that only meaningfully measures a subset of the economy that is the minority of the all people impacted by that policy, and as a result the policy decisions are made to benefit entities that represent a minority of participants in the economy, that already have a disproportionately large amount of capital, and for whom the real world impact of bad policy changes is negligible. If a government wants to make policy choices that impact economic outcomes for everyone, the measurement used to control that policy should reflect the actual economic reality of the majority of entities impacted that policy, and the policy choices should be based on ensuring the best outcome for the majority of those impacted by the policy. The current use of "inflation" as a driver for fiscal and monetary policy, is BS: the definition of inflation that is being used to drive policy is one that does not reflect real world costs for the overwhelming majority of entities impacted by the policy, and the targeted outcome is "best outcome for a minority subset of the economy that are not subject to any the monetary or financial stressors or margins experienced by the majority". If we insist on a definition of "inflation" that does not reflect cost inflation for the majority of entities, then monetary policy should not be determined by "inflation".
alephnerd 2y ago
Here is the actual paper - https://www.nber.org/papers/w32163 https://www.nber.org/papers/w32163 Fundamentally, the argument is "The Cost of Money is Part of the Cost of Living" (as the paper's title states). The trillion dollar question is whether it really does. Based on the backtesting done the paper, it spiked extremely high in late 2023, and then drastically fell to 1980s levels. If we use Summers' argument, then the Reagan era was a high inflation era as well (as the paper itself shows). Tbf, this is the very reason the CPI was changed. The rate of change of Cost of Goods has fallen, and incomes at the median level has risen, but housing remains expensive. That said, lower interest rates aren't going to change squat, as the number of houses built has basically crashed to nil after 2008. There is a supply issue and it's not because of zoning - it's because financing dried up after the entire real estate financial sector collapsed in the 2008-11 period. The Forbes contributer themselves is not a good source, as they gloss over a significant portion of the paper, and their think tank (FREOPP) is partisan [0] P.S. I am opposed to partisan shilling on both sides of the aisle on policy related subjects. We are all on the same team - America - and we better darn act like it. Screw the EPI and screw FREOPP. [0] - https://www.c-span.org/video/?529864-3/avik-roy-freedom-conservatism-future-republican-party https://www.c-span.org/video/?529864-3/avik-roy-freedom-cons...
throwaway22032 2y ago
I feel as if some variant of this argument pops up constantly and it just comes down to definitions. Inflation in almost all major economies does not represent the return rate at which your savings will maintain the same value from year to year. I don't know what it does track - it seems that often there are "corrections" for people lowering their standards (e.g. buying cheaper/less meat, watching movies at home instead of in the cinema, etc). To me that makes it kind of like some average of how much everyone is spending. I don't personally see any use in knowing that.
talkingtab 2y ago
The big problem here is the breakdown in trust. If the government uses a figure for inflation that differs dramatically from what common Americans experience, the people conclude that the government is working against them instead of for them. Many, perhaps most Americans have lost or are losing trust. The problem with this is where do people turn? Biden represents the government as manipulator. Where is the alternative? The truth is that in a choice between Biden and Trump many people have turned to Trump. It is interesting in a sick way because the human reaction to betrayal is extremely strong. I find in myself a remarkable distaste for Biden. I find myself comparing Biden to President Snow. Not rational, but betrayal will do that to you. And most concerning is that the problem is not really Biden or Trump. It is about corporations that have taken over our democracy. The most insightful question is: Cui Bono. Who benefits from the laws that are enacted? Corporations. Who uses the courts? Corporations because average citizens cannot afford a lawyer. [If you doubt this, ask yourself how much Microsoft owes in taxes to the American people]. And the Supreme Court? These are the people who decided that Corporations can buy and sell politicians and elections. The disparity between the profits of Corporations and the daily lives of common American citizens is breathtaking. Who benefits from convincing Americans there is no inflation problem?
- thebigman433 2y ago
  What specifically would you have preferred Biden do differently? The rest of the world also dealt with massive inflation, and most other economies have not. There is no magic formula that would've made our economy recover with insanely good labor statistics without causing some inflation. After the 2008 recession, it took 6 years (!!!) for U-1 unemployment to get under 3%, while it took just over a year for that to happen after 2020! The extra inflation is absolutely worth this tradeoff, but the absolutely insane response to it has basically guaranteed that next time a major event happens, we will be stuck with years of elevated unemployment. "The governments number is different than what I experience" is not why people are mad. They just see prices go up and get mad immediately, even though statistically, wages have also risen a good amount, especially at the low end! The difference is that people think they worked hard for the raise and deserve it for their own work, and dont see it as a byproduct of the economy changing.
abeppu 2y ago
> “Alternative measures of inflation that include borrowing costs” account for most of the gap between the experts’ rosy pictures and Americans’ skeptical assessment. I think the article doesn't actually cover support for this (though I have not read the actual paper), because part of people's skepticism is not based in them doing a parallel calculation. Even people who aren't taking out a large loan often have the sense that inflation has been much worse than official sources state -- and I think part of it is related to cognitive biases where when we're shocked by the high price of a good, it becomes a salient example to us, and it skews our assessment of overall price increases. E.g. I've seen the recent stat that food prices have increased a total of ~25% since before the pandemic -- but if you have a few grocery items that you buy regularly that have doubled in price, you're likely to be skeptical of this.
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enragedcacti 2y ago
It's interesting how throughout the paper they discuss the actual borrowing cost as the driver of low sentiment but that when it comes time to explain the jump in sentiment for January despite flat borrowing costs they quickly switch to talking about the derivative of borrowing costs: > In January, after most of the research for this paper was completed, consumer sentiment jumped to its highest level since 2021. Although this is just one month of data, it appears consistent with our hypothesis. If high borrowing costs explain the consumer sentiment anomaly of 2023, then the recent moderation of the growth rate of borrowing costs in recent months could help consumers significantly in 2024, but further rises could prolong consumer dissatisfaction. Am I misreading this?
worstspotgain 2y ago
Beware any election-year stories that just happen to elicit a deep sense of things being astray. Larry Summers in particular has a long track record of playing complex angles in his public policy views. The technical argument in the paper is totally separate from the headline here. The headline is what matters. You can think of macroeconomic policy as having been trained on economic history, probably more so than any other hard-science discipline. The effect of the pandemic was ridiculously unlike any history on record, times a factor of 10. The null hypothesis is that the inflation wave came and went. You won't find a credible economist that can prove otherwise. Furthermore, the wave could not be avoided by any amount of conventional intervention, such as massive tightening. You'd have to get into war-time tools like price controls to manually constrain the massive shifts in supply and demand as people came in and out of the labor force, switched from demanding services to goods and back, etc.
- Phiwise_ 2y ago
  >Beware any election-year stories that just happen to elicit a deep sense of things being astray. Larry Summers in particular has a long track record of playing complex angles in his public policy views. The technical argument in the paper is totally separate from the headline here. The headline is what matters. ... The null hypothesis is that the inflation wave came and went. You won't find a credible economist that can prove otherwise. This is an almost deceptively bad characterization of Summers' data. Your comment implies Summers said inflation is still rising, when his proposed adjusted CPI also says inflation "came and went", as it is also just as far below its peak as the inflation of the official CPI is below its own. The difference is just that Summers' peaked later (plus higher, like the headline does mention) because of his inclusion of interest; while offical increase was declining his continued to rise just because during the increase of rates that increase offset the decrease in the increase of prices. Once rates stopped increasing this naturally also stopped, and his proposed inflation has been falling faster than official inflation did in order to close with it since [1]. Thus, no ultimate difference in failure to reject your null hypothesis. [1] https://imageio.forbes.com/specials-images/imageserve/65fec84b473f3a97489810d6/Summers-CPI-recalc/1960x0.png https://imageio.forbes.com/specials-images/imageserve/65fec8...
jameslevy 2y ago
Goodhart's law applies to how inflation measures have ceased to be an accurate measure: "when a measure becomes a target, it ceases to be a good measure."
sega_sai 2y ago
It's a bit of a strange article. It's kind a obvious that in the case where prices of different goods/services increase by different amounts, there is not a single metric that would reflect the price increase. Also it is clear if we're trying to make some kind of weighted mean, the weights will differ for different groups of people, reflecting different consuptions. So depending on what we want to measure we'd chose different weights. If say for low income population interest rates play a bigger role (i.e. due credit card debt), than that may have significant weight.
hintymad 2y ago
Honest question: Paul Graham said that inflation was over if we exclude food, rent, gas, and used cars. Was this his intellectually honest thinking about economy or him being partisan?
- ctrw 2y ago
  The economy is doing great if we ignore the people.
- hintymad 2y ago
  Paul Krugman. Damn…
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kalkin 2y ago
Interesting that the article doesn't mention what seems to be an obvious takeaway if you believe that interest rates explain the gap between CPI and sentiment: raising interest rates to fight inflation will make people feel inflation is worse. I'm suspicious that this isn't mentioned because Summers and Roy are inflation hawks who've advocated the Fed raise rates and the alleged fact that people will experience this as increased inflation at least in the short term is politically inconvenient for them, even as they'd like to claim inflation is worse than the CPI says so they can claim vindication for their hawkishness...
- mike_hearn 2y ago
  It does seem to say that: As the debt increases, the federal government has to borrow more money from U.S. and foreign investors. But as would-be lenders to the U.S. see America as increasingly insolvent, investors will demand higher interest rates to lend us that money. Higher rates of government borrowing lead to higher rates for home mortgages, credit cards, student loans, car loans, and every other form of borrowing. And, as we’ve seen, these higher interest rates lead to higher price inflation, whether or not the Bureau of Labor Statistics recognizes it as such.
  - kalkin 2y ago
    This talks about higher interest rates due to investors being reluctant to purchase US government debt, which is not something we've observed recently. It doesn't talk about higher interest rates due to deliberate action by the Federal Reserve, which is something we've observed recently. Mortgage rates aren't up because of debt, they're up because the Fed raised rates sharply 2022-3, as you can find on a different portion of the Forbes website: https://www.forbes.com/advisor/investing/fed-funds-rate-history/ https://www.forbes.com/advisor/investing/fed-funds-rate-hist... I'd actually missed or forgotten the paragraph you quote, but in context it seems pretty disingenuous, using a hypothetical which smoothly transitions to present tense to imply that the debt bogeyman is to blame for what Roy knows very well are actually, in the last few years, consequences of attempts to combat inflation. This only makes me more doubtful of his intellectual honesty.
seaourfreed 2y ago
The reason the government lies on inflation isn't 2024 politics. Much older reason: 1) High inflation in 1960-1970s from stagflation 2) 1973 "COLAs" Law was passed, forcing increases in social security when inflation happens 3) By 1983, the US gov mathematically couldn't give those increases. Inflation raged across 1970s. So the government rigged CPI (inflation) numbers, by changing models 4) ShadowStats.com gives details and historic numbers 5) Lying about inflation numbers helped every politician from 1983 until now. 6) But citizens know the truth when they run out of money paying bills mid-month when they used to be able to pay for everything.
linuxhansl 2y ago
Why bring this us up now? This formula was changed in 1983, when Ronald Reagan was president and the interest rate was 9.09% (down from 12.24% in 1982). I'll note that Steve Forbes supported Trump in 2016, and claimed last year that Joe Biden is "not up to the job anymore" - although this is not necessarily relevant. We can't change how we look at inflation based on the perception we want to achieve. This is what we have measured since 1983. And what if the change the formula back? Then we have a new number. And now what? The article claims that the previous formula correlates better with sentiment. Maybe so. Sure, ever increasing money supply might make you feel rich, when in fact you are not. Did we think we will never have to be pay the bill for over a decade of near-zero interest rates? The current sentiment seems to be as much influenced by what people want to believe or what their peer group on social media believes.
- ajkjk 2y ago
  > Why bring this us up now? Because it's relevant
dzink 2y ago
Government makes its money from a share every transaction between members of its society and others. Salaries, income, capital gains, and property taxes add on top of that. Inflation happens when supply can’t keep up with demand or when supply is restricted to increase the costs on demand by retailers / manufacturers / suppliers of energy, etc. Putin’s war on Ukraine triggered an energy shortage which jumped prices on everything worldwide. When that happens retailers have an excuse to raise prices and the excess cash in the system meant consumers didn’t really resist for a while (didn’t reduce spending, and won’t until credit tightened and people start filing for bankruptcy en masse). Instead of resisting higher prices with less consumption, the excess cash in the system is still so superfluous that it’s going back into crypto and stock market excess. Now the expanding war in the middle east is going to raise energy prices even more and re-boost the inflation on everyday goods. The accumulating high interest consumer and commercial real estate debt is a ticking time-bomb and when that puts tension on the banks, the ever increasing liquidity ratios allowed by Trump will come back with a vengeance. One way to fight back is to move massively to EVs and Solar - which is already happening. The decreases impact of oil prices and foreign conflicts on the economy would reduce inflation. Another way is to increase supply of goods that are inflating. Lower tariffs or provide subsidies for new supply in each area with an increase in prices and see how incumbents would be incentivized to keep their prices at bay. Housing is kind of a big chunk of the wallet share. Increase supply - provide a massive incentive for families who built their first home or buy a new home. Provide incentive for empty homes or unused investment properties to be put back to use - many fear squatting or rent control laws, eliminate or reduce those and see how quickly the rentable supply increases, lowering costs of rent. Interest rates are a blunt tool. Increase supply and lower prices organically. If interest rates and the costs of capital are added into the equation that determines interest rates by proxi of inflation, you’d get a recurrent function (an infinite loop). You want signal in the data, not noise. The problem is the current signal is employment, not supply. Incentivize supply.
alkibiades 2y ago
itt a bunch of cs undergrads thinking they know more about economics then one of the greatest economic minds of our lifetimes
EVa5I7bHFq9mnYK 2y ago
What is CPI used for? Mostly to index the Social Security payments, and, to a lesser effect, adjust tax brackets. Retirees don't use much credit, on the contrary, they benefit from higher borrowing rates, because they are those that lend money. So it makes sense that borrowing costs are not included in the CPI. Otherwise it would be double-tap for retirees - they get greater SS increases and greater income from safe investments.
ic_fly2 2y ago
It should be noted that the previous formula was from before 1983 when it was changed and it was changed because it overstated inflation. So a better headline should be, academic sour about being wrong all the time uses outdated formula to calculate higher inflation number. People are angry about inflation now because they compare prices to before the pandemic, so cumulative inflation over a longer period than one year. Also given most mortgages are 30year fixed, the change in 1983 was the correct thing to do, though it could be updated to use internet data on rents more.
bjornsing 2y ago
In Sweden we measure inflation both with and without interest rate changes. The latter measure is called KPIF (“konsumentprisindex med fast ränta” / “consumer price index with fixed interest rate”). The central bank inflation target of 2% is formally for this KPIF. As I understand it KPIF includes borrowing costs (e.g. car loans), but at a fixed fake / interest rate. It sounds complicated, but I think this is actually the right approach.
csomar 2y ago
The CPI is kinda fine and should not include interest rates. The CPI is used to measure price inflation and not individual misery and should be left to do just that. Wait, there is actually a misery index: https://en.wikipedia.org/wiki/Misery_index_(economics) https://en.wikipedia.org/wiki/Misery_index_(economics) It would have been better to invest in such an index. Here is a simplified example: The US is made of two cities; NYC and midland. Inflation rate is 0% for both and misery is non-existent. midland now has no jobs. None. So people move to NYC and inflate prices there. Inflation in NYC is 20% while deflation in midland is 30%. The Fed works the numbers and says that overall inflation is around 2% for the whole country and so everything is fine. The reality is that misery is sky high; people are being burnt by prices in NYC and can't find jobs/buyers in midland. They have to move at high personal costs or close their businesses in the midland. On the other hand, they struggle to make a living in the new NYC town.
- trts 2y ago
  CPI doesn't measure things like healthcare properly (17% of GDP) as those prices are not paid by consumers. the insurers get their cut straight out of your paycheck. College either. Tuition is priced as is, but what about people who pay many multiples of the original tuition in interest expenses over the years? not counted in CPI. Tuition inflation for a person with the means to pay out of pocket is much lower than someone who finances their education.
blackeyeblitzar 2y ago
Most mainstream discussions of inflation also ignore the effect of government spending and public debt on inflation.
fnordpiglet 2y ago
This is why I think raising interest rates to deal with inflation rather than working on increasing supply / reducing supply bottlenecks is absurd. Making money cost more isn’t reducing inflation, it’s reducing supply’s ability to produce while reducing demands ability to finance by making everything more expensive. That’s a dumb way to treat supply scarcity relative to demand - which is what makes inflation happen. The other way is reduce interest rates further and invest heavily in infrastructure and production targeting areas of specific demand. You might see a short term spike in inflation as more money enters pocketbooks but you’ll also see a dramatic drop as supply floods the market in response. The wild card is housing, but making it more expensive to finance construction or purchase, interest rate hikes don’t help that either. It just makes more homeless.
huntoa 2y ago
"Inflation, the wrong concept is to think of it as a single number, it is a multi-dimensional number. You have inflation for stock, real estate, food, energy. The policy makers bundle this into a single number, which is very misleading." - Didier Sornette; Oct 11, 2023; https://www.youtube.com/watch?v=IbU70IA4Z_w https://www.youtube.com/watch?v=IbU70IA4Z_w

362 points by robertn702 2y ago

deleted 2y ago

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jeffbee 2y ago

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jfengel 2y ago
It is at least a bipartisan hobby, to go searching for any alternative numbers whenever there's good news for your opponent. Though this is an impressive amping up: "previous" is 1983. This isn't some dastardly bit of math by the present administration. This dates back to Reagan. Of more interest is that consumer sentiment is indeed grumpy, and that is a big deal with an election coming up. They don't really need this guy coming up with mendacious explanations for it.
- dash2 2y ago
  Searching for alternative numbers to explain an anomaly, e.g. that consumer sentiment hasn't improved even though inflation is down, is what scientists do, although it is certainly not immune to partisan bias. Have you got a critique of the paper's explanation and an example of how you think it's mendacious? The original is here: https://www.nber.org/papers/w32163 https://www.nber.org/papers/w32163. I don't have access, but the Forbes story says they check their result in Europe and it continues to hold.
- WillPostForFood 2y ago
  mendacious explanations What specific lie are you calling out here?
  - jfengel 2y ago
    The fact that he hasn't described all possible formulas, but instead included exactly the one that affirms his known preconceptions. He would not have published this thesis had it not supported him. He'd have looked around for some other metric.
    - WillPostForFood 2y ago
      So you didn't mean mendacious? https://paulgraham.com/simply.html https://paulgraham.com/simply.html
gjsman-1000 2y ago
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- popf1 2y ago
  I want to be able to read flagged comments.... why is it no longer possible, /u/DANG? Because most of the time I don't agree with the flagging anyways.... and it is important to look at opposing views.
  - Phiwise_ 2y ago
    Yeah the moderation is absolutely atrocious these days. I got flagged for quoting the IMF a few weeks ago lmao.
    - popf1 2y ago
      I guess they are taking example from the LLMs.. I would call it censorship though
fullshark 2y ago
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- BobaFloutist 2y ago
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  - gjsman-1000 2y ago
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    - queuebert 2y ago
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Phiwise_ 2y ago
This absolutely reads like a reasoned counterpoint to a dubious claim and totally not at all like an unhinged, partisan knee-jerk rejection of additional information that's bad news for your preferred platform.
black_13 2y ago
[dead]
WillPostForFood 2y ago
You can read it directly from Secretary of the Treasury to Bill Clinton, and the Director of the National Economic Council to Barak Obama. https://twitter.com/LHSummers/status/1762607548828360798 https://twitter.com/LHSummers/status/1762607548828360798 So the number still looks like 18%, even when you take out the attacks on the author of the article who was accurately reporting what Summers said.

slibhb 2y ago

It's interesting that consumer sentiment apparently tracks the older formula more closely. Presumably we have data that could allow us to include "the price of money" in inflation metrics, perhaps weighed based on how much the average American borrows.

jeffbee 2y ago
Headline consumer sentiment is polluted by junk like this article. People report their personal household situation is fine and they expect it to continue being at least this good or better in 1 and 5 years. But they've heard so much shadowstats horseshit on the radio that they are compelled to stake out a negative view on the economy as a whole. In the latest UMich consumer survey majority of respondents expect their incomes to grow faster than prices, in fact the reported probability of real personal income rising has never been higher in the history of the survey. And, with respect to inflation, consumers expect incomes to rise about 2.5% per year, and that expectation is higher than the expected increase in prices. During times of very high inflation respondents reported expectations of 6% nominal income increases. So this is all consistent with the idea that inflation as people actually experience it has been moderate. But, further down the February results, you can see that record numbers of people report hearing negative news stories about prices, way way way higher than in 1980! Which is totally crazy if you were here in 1980! You can also read further and see that expectation of rising unemployment have been consistently high for the last 5 years, and reports of having heard news stories about unemployment have been at record highs, while responses about the probability of losing their own job are at record lows and of course objective unemployment is almost dangerously low.
- PKop 2y ago
  What does any of this have to do with ignoring the price of money, a real cost that people have to pay?
- Phiwise_ 2y ago
  >But, further down the February results, you can see that record numbers of people report hearing negative news stories about prices, way way way higher than in 1980! Which is totally crazy if you were here in 1980! If you had taken a moment to consider the data presented in the article instead of dismissing it out of hand because it offends your sensibilities, you would realize it states that it obviously implies it is not crazy to hear more news about inflation nowadays than in the 1980s, because it shows inflation is worse nowadays than in the 1980s. Feel free keep raving about how you get a much better vibe from the economy today despite the info if that's what matters more to you, though.

082349872349872 2y ago

I invoice in USD and have expenses in a different currency, and while I've seen a few (~5) percent decline in the exchange rate since then, it's been nowhere near 18%.

refulgentis 2y ago
It's really funny math, based solely on the idea I borrow enough with floating interest rates, pegged to treasuries. <sarcasm>but it confirms I am suffering, therefore it is correct</sarcasm>
jeffbee 2y ago
Have you tried just ignoring your calculator and going all-in on vibes?
arduanika 2y ago
The pandemic was worldwide, and every other central bank has been printing, too. Depending on which currency you're trading against, that could be a factor. For a while in 2021-2, non-dollar currencies were inflating even faster, so DXY actually went up even as the dollar weakened against goods and services. Even if the tables have turned and the dollar is weakening faster now, it's not like everybody else has actually reigned in their own printing.
- cruffle_duffle 2y ago
  The pandemic didn’t cause this inflation. The governments response to it did. Governments love when people blame an infectious respiratory virus for their idiotic response.
  - throw0101c 2y ago
    > The pandemic didn’t cause this inflation. Have you tried buying a car, new or used, recently? Supply chain issues caused by the pandemic certainly caused (parts of) inflation. Then there's geopolitics (energy/oil, food/wheat), also not helping with inflation. Supply-driven inflation looks to be the cause of at least half the run-up: * https://www.frbsf.org/research-and-insights/publications/economic-letter/2022/06/how-much-do-supply-and-demand-drive-inflation/ https://www.frbsf.org/research-and-insights/publications/eco... * https://www.frbsf.org/research-and-insights/data-and-indicators/supply-and-demand-driven-pce-inflation/ https://www.frbsf.org/research-and-insights/data-and-indicat... * https://en.wikipedia.org/wiki/Cost-push_inflation https://en.wikipedia.org/wiki/Cost-push_inflation

Animats 2y ago

Short version: if you include interest rates in the inflation metric, 2022 looked bad.

tonymet 2y ago
Also food and housing costs
Phiwise_ 2y ago
It's more than just interest: 2022 just might have been the worst non-recession year in (modern, meaning years with acceptable stats) US economic history. Every tranche of net worth FRED tracks fell off a cliff that year, declining in (CPI, so we don't even need this competing metric to come to these conclusions) real terms by more than they did even during the 2020 recession [1], with the rich almost always losing more in absolute terms and the poor almost always losing more relative to their losses in 2020 [2]. If you look closely, you'll even notice that some of the rich lost more during these supposed business-as-usual days than they did during the 2008 meltdown of their moneymaking sector. It's been pretty shocking to watch this happen, see the months roll on, and still hear basically no wideapread discussion on it in proportion to what has actually happened. We're coming up on two years of just not having an average of ~9% of our wealth we all worked hard to make from recovering from an economic equivalent of universal house arrest any more, and the best one can get a mainstream platform for is something like "possible cost of living concerns". Sure 2008 was worse for specifically the working class, but the working class are also much more sensitive to small changes in prosperity because they're not even in the same order of magnitude of diminishing returns (not to mention that it's pretty much as big a drop for them as the 2001 recession, which was also a quite painful time historically and was certainly seen as a moderate travesty before the perspective of 2008). How long can this dissatisfaction go on without starting a serious effort for acknowledgement and recovery? [1] https://fred.stlouisfed.org/graph/?graph_id=1317969 https://fred.stlouisfed.org/graph/?graph_id=1317969 [2] https://fred.stlouisfed.org/graph/?graph_id=1326338&rn=637 https://fred.stlouisfed.org/graph/?graph_id=1326338&rn=637

stevenae 2y ago

I usually dislike Forbes but this was a great article.

bryanlarsen 2y ago
Forbes is more like Medium, than it is like the business oriented newsmagazine it used to be. It's just a random assortment of bloggers.

tonymet 2y ago

I recommend people use many different indicators to get a mental model of inflation, and you will notice that CPI does not represent inflation well. The memes of Arby’s 5 for $5 becoming 4 for $10 are more informative than the CPI numbers. Don’t let the shock at the grocery store wear off – it’s real and painful despite what the news tells you. True inflation would measure the amount of prosperity achieved per hour worked. Take 1963 as an Example. Sears sold entire two story home kits with all materials for $1600. An Italian rifle in 1963 was $20. McDonalds burgers were 15¢ . Postage was 5¢ and had only increased 5 times in the previous 100 years. You might retort that average household income is $70000 now vs $6200 in the early 60s– a tremendous boon. Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home. In other words you had 1 man working 50 hours a week afford a house and support 5-6 other people. Today you have 2 people working 100 hours a week to support 1-2 additional people , while living in an apartment and living in a run down and crime infested neighborhood. In case you think this is academic, look at the occupations for those who lived in today’s wealthiest neighborhoods. Today Palo Alto, Menlo Park, and other super zips are exclusively $500k incomes and up. In the 1960 census records you will find these good neighborhoods occupied with plumbers, painters and other blue collar workers. My point is that inflation isn’t abstract and it isn’t a law of nature. It’s a deliberate approach to stealing your prosperity while you cheer it on. Summers is right more than he’s wrong. Real inflation has always been higher than the bogus CPI numbers, and the past 5 years it’s been accelerating.

adriand 2y ago
But it’s not like our standard of living has remained static while we need to work more. A lot has changed. In 1960 the average single family home was 1300 square feet, now it’s more than double that, and it’s packed with amazing amenities and entertainment options. What would an iPad cost in 1960? Obviously the question is kind of nonsensical and yet on the other hand, if you were to try and quantify the price of our ability to work from home, for instance, we have a way better deal going than they did in 1960. You could retort that this is the inevitable march of technological progress, but could it be the result of hard work and innovation including the hard work and innovation of women in the work force?

DarkmSparks 2y ago

Inflation expectations are one of the key elements that determine next years inflation. The main reason they have always "fiddled" the public inflation numbers is if they reported actual inflation people would set their expectations on that - and it would make next years inflation worse/more volatile. insiders generally dont care about the public figures - they have their own in house statisticians to give them the real picture.

willcipriano 2y ago
> they have their own in house statisticians to give them the real picture. I wonder if that is behind some price increases blamed on inflation that are larger than inflation. They mean inflation not CPI.
- DarkmSparks 2y ago
  exactly.

ein0p 2y ago

That seems subjectively accurate, looking at my grocery store receipts and $13/lb meat. Certainly more accurate than “3.5%” bullshit the “free press” is asking us to believe.

jeffbee 2y ago
If you have fancy meat tastes, that's on you. https://www.ers.usda.gov/webdocs/DataFiles/52160/cuts.xls?v=717.1 https://www.ers.usda.gov/webdocs/DataFiles/52160/cuts.xls?v=...
- ein0p 2y ago
  Those aren’t fancy cuts or prime grade beef. Just regular steak at Kroger or Costco. Go see for yourself if you’re in the US. It really feels like the bottom is about to fall out from US economy. I don’t know how the low income families deal with a 30% increase in their grocery bills which were a significant chunk of their spending even a few years ago. Nor how they pay rent which has also increased massively.
  - ejstronge 2y ago
    > Those aren’t fancy cuts or prime grade beef. Just regular steak... I don’t know how the low income families deal with a 30% increase in their grocery bills I don't think low income families are buying steak - and price increases in luxury goods can understandably grow faster than in staples like non-steak beef.
    - deleted 2y ago
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    - ein0p 2y ago
      But _all_ cuts of beef went up by a lot as far as I can tell. So did chicken, fish, and all other sources of protein. It’s not just protein though, everything across the board is on average 25-30% more expensive now than it was 3-4 years ago. A cart of foodstuffs that used to cost $100 give or take is now $130-140. This isn’t some Whole Foods kind of situation, this is a run of the mill Kroger normal people shop at

caesil 2y ago

I don't really understand the argument at the heart of this article, which is "we should include interest rates in CPI". How do interest rates effect everyday people exactly, other than price inflation on goods and services (which is included separately in CPI)? The only way seems to be interest rates on personal loans and mortgages. So if anything, we should only include interest rates in proportion to how many people are taking out major loans during the sampled period (and maybe some additional amount based on the effect on adjustable-rate mortgages, etc). Blindly stacking interest rates on top of CPI doesn't really make sense as a measure of personal inflation, and "it feels like stuff got more expensive" (as a lot of other comments here argue) isn't so much an argument for this strategy so much as an argument that the CPI 'basket of goods' needs to be rebalanced in other ways.

mtneglZ 2y ago
Interest rates impact the cost of everything you buy. Almost all large businesses are financing their operations on credit, not by spending down a war chest replenished with revenue. Large public companies borrow money against their remaining held stock to finance their operation. It is true that inflation impacts the base cost of the raw materials and labor but those costs are also more expensive because of the higher business loan interest rate to finance an operation. The extra financing cost is passed to the consumer. The higher cost of financing drives layoffs too, companies will layoff when financing costs rise so they can stay cost neutral.
woodruffw 2y ago
The argument is bunk, and your observation is correct: inflation can be higher than the current CPI predicts, but this does not somehow imply that the CPI basket should factor instruments that do not disproportionately affect ordinary Americans' finances (or double-count ones already accounted for more directly).
PKop 2y ago
What is confusing? The argument for including them is that people pay them. >Blindly stacking Stawman nonsense that literally no one suggested
2y ago

olliej 2y ago

It remains absurd to me that the many ways inflation is measured and presented for the purpose of its impact on regular people is based almost entirely on its impact on funds with no meaningful component reflecting the impact on the overwhelming majority of distinct legal entities impacted by it. My opinion is that if there are changes to monetary policy based on the effect of inflation, the policy should be centered on maximizing the outcome for the majority of distinct legal entities (ie overwhelmingly individuals) not maximizing the outcome for capital. Because wtf are you optimizing policy for the wealth generation of an overwhelming minority of the entities impacted by that policy?

hackable_sand 2y ago
This might help. Idk enough about the topic to really interpret this in a helpful way. "When people talk about inflation, they usually refer to ordinary goods and services, which is tracked by the Consumer Price Index (CPI). This index excludes most financial assets and capital assets. Inflation of such assets should not be confused with inflation of consumer goods and services, as prices in the two categories are usually disconnected. The prices of some goods and services such as housing, energy, and food do track closely with some financial assets." https://en.m.wikipedia.org/wiki/Asset_price_inflation#:~:text=Asset%20price%20inflation%20is%20the,government%20bonds%20or%20savings%20accounts https://en.m.wikipedia.org/wiki/Asset_price_inflation#:~:tex...
- olliej 2y ago
  I understand how inflation is measured vs things like the CPI or "basic costs for the overwhelming majority of entities and tax payers". What I am saying is that it does not make sense that the measurement that influences policy, is the one that only meaningfully measures a subset of the economy that is the minority of the all people impacted by that policy, and as a result the policy decisions are made to benefit entities that represent a minority of participants in the economy, that already have a disproportionately large amount of capital, and for whom the real world impact of bad policy changes is negligible. If a government wants to make policy choices that impact economic outcomes for everyone, the measurement used to control that policy should reflect the actual economic reality of the majority of entities impacted that policy, and the policy choices should be based on ensuring the best outcome for the majority of those impacted by the policy. The current use of "inflation" as a driver for fiscal and monetary policy, is BS: the definition of inflation that is being used to drive policy is one that does not reflect real world costs for the overwhelming majority of entities impacted by the policy, and the targeted outcome is "best outcome for a minority subset of the economy that are not subject to any the monetary or financial stressors or margins experienced by the majority". If we insist on a definition of "inflation" that does not reflect cost inflation for the majority of entities, then monetary policy should not be determined by "inflation".

alephnerd 2y ago

Here is the actual paper - https://www.nber.org/papers/w32163 https://www.nber.org/papers/w32163 Fundamentally, the argument is "The Cost of Money is Part of the Cost of Living" (as the paper's title states). The trillion dollar question is whether it really does. Based on the backtesting done the paper, it spiked extremely high in late 2023, and then drastically fell to 1980s levels. If we use Summers' argument, then the Reagan era was a high inflation era as well (as the paper itself shows). Tbf, this is the very reason the CPI was changed. The rate of change of Cost of Goods has fallen, and incomes at the median level has risen, but housing remains expensive. That said, lower interest rates aren't going to change squat, as the number of houses built has basically crashed to nil after 2008. There is a supply issue and it's not because of zoning - it's because financing dried up after the entire real estate financial sector collapsed in the 2008-11 period. The Forbes contributer themselves is not a good source, as they gloss over a significant portion of the paper, and their think tank (FREOPP) is partisan [0] P.S. I am opposed to partisan shilling on both sides of the aisle on policy related subjects. We are all on the same team - America - and we better darn act like it. Screw the EPI and screw FREOPP. [0] - https://www.c-span.org/video/?529864-3/avik-roy-freedom-conservatism-future-republican-party https://www.c-span.org/video/?529864-3/avik-roy-freedom-cons...

throwaway22032 2y ago

I feel as if some variant of this argument pops up constantly and it just comes down to definitions. Inflation in almost all major economies does not represent the return rate at which your savings will maintain the same value from year to year. I don't know what it does track - it seems that often there are "corrections" for people lowering their standards (e.g. buying cheaper/less meat, watching movies at home instead of in the cinema, etc). To me that makes it kind of like some average of how much everyone is spending. I don't personally see any use in knowing that.

talkingtab 2y ago

The big problem here is the breakdown in trust. If the government uses a figure for inflation that differs dramatically from what common Americans experience, the people conclude that the government is working against them instead of for them. Many, perhaps most Americans have lost or are losing trust. The problem with this is where do people turn? Biden represents the government as manipulator. Where is the alternative? The truth is that in a choice between Biden and Trump many people have turned to Trump. It is interesting in a sick way because the human reaction to betrayal is extremely strong. I find in myself a remarkable distaste for Biden. I find myself comparing Biden to President Snow. Not rational, but betrayal will do that to you. And most concerning is that the problem is not really Biden or Trump. It is about corporations that have taken over our democracy. The most insightful question is: Cui Bono. Who benefits from the laws that are enacted? Corporations. Who uses the courts? Corporations because average citizens cannot afford a lawyer. [If you doubt this, ask yourself how much Microsoft owes in taxes to the American people]. And the Supreme Court? These are the people who decided that Corporations can buy and sell politicians and elections. The disparity between the profits of Corporations and the daily lives of common American citizens is breathtaking. Who benefits from convincing Americans there is no inflation problem?

thebigman433 2y ago
What specifically would you have preferred Biden do differently? The rest of the world also dealt with massive inflation, and most other economies have not. There is no magic formula that would've made our economy recover with insanely good labor statistics without causing some inflation. After the 2008 recession, it took 6 years (!!!) for U-1 unemployment to get under 3%, while it took just over a year for that to happen after 2020! The extra inflation is absolutely worth this tradeoff, but the absolutely insane response to it has basically guaranteed that next time a major event happens, we will be stuck with years of elevated unemployment. "The governments number is different than what I experience" is not why people are mad. They just see prices go up and get mad immediately, even though statistically, wages have also risen a good amount, especially at the low end! The difference is that people think they worked hard for the raise and deserve it for their own work, and dont see it as a byproduct of the economy changing.

abeppu 2y ago

> “Alternative measures of inflation that include borrowing costs” account for most of the gap between the experts’ rosy pictures and Americans’ skeptical assessment. I think the article doesn't actually cover support for this (though I have not read the actual paper), because part of people's skepticism is not based in them doing a parallel calculation. Even people who aren't taking out a large loan often have the sense that inflation has been much worse than official sources state -- and I think part of it is related to cognitive biases where when we're shocked by the high price of a good, it becomes a salient example to us, and it skews our assessment of overall price increases. E.g. I've seen the recent stat that food prices have increased a total of ~25% since before the pandemic -- but if you have a few grocery items that you buy regularly that have doubled in price, you're likely to be skeptical of this.

deleted 2y ago

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enragedcacti 2y ago

It's interesting how throughout the paper they discuss the actual borrowing cost as the driver of low sentiment but that when it comes time to explain the jump in sentiment for January despite flat borrowing costs they quickly switch to talking about the derivative of borrowing costs: > In January, after most of the research for this paper was completed, consumer sentiment jumped to its highest level since 2021. Although this is just one month of data, it appears consistent with our hypothesis. If high borrowing costs explain the consumer sentiment anomaly of 2023, then the recent moderation of the growth rate of borrowing costs in recent months could help consumers significantly in 2024, but further rises could prolong consumer dissatisfaction. Am I misreading this?

worstspotgain 2y ago

Beware any election-year stories that just happen to elicit a deep sense of things being astray. Larry Summers in particular has a long track record of playing complex angles in his public policy views. The technical argument in the paper is totally separate from the headline here. The headline is what matters. You can think of macroeconomic policy as having been trained on economic history, probably more so than any other hard-science discipline. The effect of the pandemic was ridiculously unlike any history on record, times a factor of 10. The null hypothesis is that the inflation wave came and went. You won't find a credible economist that can prove otherwise. Furthermore, the wave could not be avoided by any amount of conventional intervention, such as massive tightening. You'd have to get into war-time tools like price controls to manually constrain the massive shifts in supply and demand as people came in and out of the labor force, switched from demanding services to goods and back, etc.

Phiwise_ 2y ago
>Beware any election-year stories that just happen to elicit a deep sense of things being astray. Larry Summers in particular has a long track record of playing complex angles in his public policy views. The technical argument in the paper is totally separate from the headline here. The headline is what matters. ... The null hypothesis is that the inflation wave came and went. You won't find a credible economist that can prove otherwise. This is an almost deceptively bad characterization of Summers' data. Your comment implies Summers said inflation is still rising, when his proposed adjusted CPI also says inflation "came and went", as it is also just as far below its peak as the inflation of the official CPI is below its own. The difference is just that Summers' peaked later (plus higher, like the headline does mention) because of his inclusion of interest; while offical increase was declining his continued to rise just because during the increase of rates that increase offset the decrease in the increase of prices. Once rates stopped increasing this naturally also stopped, and his proposed inflation has been falling faster than official inflation did in order to close with it since [1]. Thus, no ultimate difference in failure to reject your null hypothesis. [1] https://imageio.forbes.com/specials-images/imageserve/65fec84b473f3a97489810d6/Summers-CPI-recalc/1960x0.png https://imageio.forbes.com/specials-images/imageserve/65fec8...

jameslevy 2y ago

Goodhart's law applies to how inflation measures have ceased to be an accurate measure: "when a measure becomes a target, it ceases to be a good measure."

sega_sai 2y ago

It's a bit of a strange article. It's kind a obvious that in the case where prices of different goods/services increase by different amounts, there is not a single metric that would reflect the price increase. Also it is clear if we're trying to make some kind of weighted mean, the weights will differ for different groups of people, reflecting different consuptions. So depending on what we want to measure we'd chose different weights. If say for low income population interest rates play a bigger role (i.e. due credit card debt), than that may have significant weight.

hintymad 2y ago

Honest question: Paul Graham said that inflation was over if we exclude food, rent, gas, and used cars. Was this his intellectually honest thinking about economy or him being partisan?

ctrw 2y ago
The economy is doing great if we ignore the people.
hintymad 2y ago
Paul Krugman. Damn…

deleted 2y ago

[deleted]

kalkin 2y ago

Interesting that the article doesn't mention what seems to be an obvious takeaway if you believe that interest rates explain the gap between CPI and sentiment: raising interest rates to fight inflation will make people feel inflation is worse. I'm suspicious that this isn't mentioned because Summers and Roy are inflation hawks who've advocated the Fed raise rates and the alleged fact that people will experience this as increased inflation at least in the short term is politically inconvenient for them, even as they'd like to claim inflation is worse than the CPI says so they can claim vindication for their hawkishness...

mike_hearn 2y ago
It does seem to say that: As the debt increases, the federal government has to borrow more money from U.S. and foreign investors. But as would-be lenders to the U.S. see America as increasingly insolvent, investors will demand higher interest rates to lend us that money. Higher rates of government borrowing lead to higher rates for home mortgages, credit cards, student loans, car loans, and every other form of borrowing. And, as we’ve seen, these higher interest rates lead to higher price inflation, whether or not the Bureau of Labor Statistics recognizes it as such.
- kalkin 2y ago
  This talks about higher interest rates due to investors being reluctant to purchase US government debt, which is not something we've observed recently. It doesn't talk about higher interest rates due to deliberate action by the Federal Reserve, which is something we've observed recently. Mortgage rates aren't up because of debt, they're up because the Fed raised rates sharply 2022-3, as you can find on a different portion of the Forbes website: https://www.forbes.com/advisor/investing/fed-funds-rate-history/ https://www.forbes.com/advisor/investing/fed-funds-rate-hist... I'd actually missed or forgotten the paragraph you quote, but in context it seems pretty disingenuous, using a hypothetical which smoothly transitions to present tense to imply that the debt bogeyman is to blame for what Roy knows very well are actually, in the last few years, consequences of attempts to combat inflation. This only makes me more doubtful of his intellectual honesty.

seaourfreed 2y ago

The reason the government lies on inflation isn't 2024 politics. Much older reason: 1) High inflation in 1960-1970s from stagflation 2) 1973 "COLAs" Law was passed, forcing increases in social security when inflation happens 3) By 1983, the US gov mathematically couldn't give those increases. Inflation raged across 1970s. So the government rigged CPI (inflation) numbers, by changing models 4) ShadowStats.com gives details and historic numbers 5) Lying about inflation numbers helped every politician from 1983 until now. 6) But citizens know the truth when they run out of money paying bills mid-month when they used to be able to pay for everything.

linuxhansl 2y ago

Why bring this us up now? This formula was changed in 1983, when Ronald Reagan was president and the interest rate was 9.09% (down from 12.24% in 1982). I'll note that Steve Forbes supported Trump in 2016, and claimed last year that Joe Biden is "not up to the job anymore" - although this is not necessarily relevant. We can't change how we look at inflation based on the perception we want to achieve. This is what we have measured since 1983. And what if the change the formula back? Then we have a new number. And now what? The article claims that the previous formula correlates better with sentiment. Maybe so. Sure, ever increasing money supply might make you feel rich, when in fact you are not. Did we think we will never have to be pay the bill for over a decade of near-zero interest rates? The current sentiment seems to be as much influenced by what people want to believe or what their peer group on social media believes.

ajkjk 2y ago
> Why bring this us up now? Because it's relevant

dzink 2y ago

Government makes its money from a share every transaction between members of its society and others. Salaries, income, capital gains, and property taxes add on top of that. Inflation happens when supply can’t keep up with demand or when supply is restricted to increase the costs on demand by retailers / manufacturers / suppliers of energy, etc. Putin’s war on Ukraine triggered an energy shortage which jumped prices on everything worldwide. When that happens retailers have an excuse to raise prices and the excess cash in the system meant consumers didn’t really resist for a while (didn’t reduce spending, and won’t until credit tightened and people start filing for bankruptcy en masse). Instead of resisting higher prices with less consumption, the excess cash in the system is still so superfluous that it’s going back into crypto and stock market excess. Now the expanding war in the middle east is going to raise energy prices even more and re-boost the inflation on everyday goods. The accumulating high interest consumer and commercial real estate debt is a ticking time-bomb and when that puts tension on the banks, the ever increasing liquidity ratios allowed by Trump will come back with a vengeance. One way to fight back is to move massively to EVs and Solar - which is already happening. The decreases impact of oil prices and foreign conflicts on the economy would reduce inflation. Another way is to increase supply of goods that are inflating. Lower tariffs or provide subsidies for new supply in each area with an increase in prices and see how incumbents would be incentivized to keep their prices at bay. Housing is kind of a big chunk of the wallet share. Increase supply - provide a massive incentive for families who built their first home or buy a new home. Provide incentive for empty homes or unused investment properties to be put back to use - many fear squatting or rent control laws, eliminate or reduce those and see how quickly the rentable supply increases, lowering costs of rent. Interest rates are a blunt tool. Increase supply and lower prices organically. If interest rates and the costs of capital are added into the equation that determines interest rates by proxi of inflation, you’d get a recurrent function (an infinite loop). You want signal in the data, not noise. The problem is the current signal is employment, not supply. Incentivize supply.

alkibiades 2y ago

itt a bunch of cs undergrads thinking they know more about economics then one of the greatest economic minds of our lifetimes

EVa5I7bHFq9mnYK 2y ago

What is CPI used for? Mostly to index the Social Security payments, and, to a lesser effect, adjust tax brackets. Retirees don't use much credit, on the contrary, they benefit from higher borrowing rates, because they are those that lend money. So it makes sense that borrowing costs are not included in the CPI. Otherwise it would be double-tap for retirees - they get greater SS increases and greater income from safe investments.

ic_fly2 2y ago

It should be noted that the previous formula was from before 1983 when it was changed and it was changed because it overstated inflation. So a better headline should be, academic sour about being wrong all the time uses outdated formula to calculate higher inflation number. People are angry about inflation now because they compare prices to before the pandemic, so cumulative inflation over a longer period than one year. Also given most mortgages are 30year fixed, the change in 1983 was the correct thing to do, though it could be updated to use internet data on rents more.

bjornsing 2y ago

In Sweden we measure inflation both with and without interest rate changes. The latter measure is called KPIF (“konsumentprisindex med fast ränta” / “consumer price index with fixed interest rate”). The central bank inflation target of 2% is formally for this KPIF. As I understand it KPIF includes borrowing costs (e.g. car loans), but at a fixed fake / interest rate. It sounds complicated, but I think this is actually the right approach.

csomar 2y ago

The CPI is kinda fine and should not include interest rates. The CPI is used to measure price inflation and not individual misery and should be left to do just that. Wait, there is actually a misery index: https://en.wikipedia.org/wiki/Misery_index_(economics) https://en.wikipedia.org/wiki/Misery_index_(economics) It would have been better to invest in such an index. Here is a simplified example: The US is made of two cities; NYC and midland. Inflation rate is 0% for both and misery is non-existent. midland now has no jobs. None. So people move to NYC and inflate prices there. Inflation in NYC is 20% while deflation in midland is 30%. The Fed works the numbers and says that overall inflation is around 2% for the whole country and so everything is fine. The reality is that misery is sky high; people are being burnt by prices in NYC and can't find jobs/buyers in midland. They have to move at high personal costs or close their businesses in the midland. On the other hand, they struggle to make a living in the new NYC town.

trts 2y ago
CPI doesn't measure things like healthcare properly (17% of GDP) as those prices are not paid by consumers. the insurers get their cut straight out of your paycheck. College either. Tuition is priced as is, but what about people who pay many multiples of the original tuition in interest expenses over the years? not counted in CPI. Tuition inflation for a person with the means to pay out of pocket is much lower than someone who finances their education.

blackeyeblitzar 2y ago

Most mainstream discussions of inflation also ignore the effect of government spending and public debt on inflation.

fnordpiglet 2y ago

This is why I think raising interest rates to deal with inflation rather than working on increasing supply / reducing supply bottlenecks is absurd. Making money cost more isn’t reducing inflation, it’s reducing supply’s ability to produce while reducing demands ability to finance by making everything more expensive. That’s a dumb way to treat supply scarcity relative to demand - which is what makes inflation happen. The other way is reduce interest rates further and invest heavily in infrastructure and production targeting areas of specific demand. You might see a short term spike in inflation as more money enters pocketbooks but you’ll also see a dramatic drop as supply floods the market in response. The wild card is housing, but making it more expensive to finance construction or purchase, interest rate hikes don’t help that either. It just makes more homeless.

huntoa 2y ago

"Inflation, the wrong concept is to think of it as a single number, it is a multi-dimensional number. You have inflation for stock, real estate, food, energy. The policy makers bundle this into a single number, which is very misleading." - Didier Sornette; Oct 11, 2023; https://www.youtube.com/watch?v=IbU70IA4Z_w https://www.youtube.com/watch?v=IbU70IA4Z_w