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In most people's mind, they see that some product that was $9.99 pre-pandemic is now $13.49 and conclude that "inflation is 35%". Educated people understand th

In most people's mind, they see that some product that was $9.99 pre-pandemic is now $13.49 and conclude that "inflation is 35%". Educated people understand that this is really four years of 7% average inflation. I think a good degree of this problem is political as well. People who hold unfavorable views of their leadership are more likely to think of inflation in cumulative terms, as well as ignoring wage growth.

floxy 2y ago
I think we need a word for "price levels are high". I think some people are using "inflation" in this sense. And then there are others who are using a strict, narrow definition of "inflation" as propaganda (as-in, news articles where the implication that you should be happy if inflation is down for a quarter, regardless of whether prices are still high). Maybe there is an appropriate loan word from a different language? Certainly there have been other countries which have experienced much worse bouts of inflation (and hyper-inflation). I'd like to hear some suggestions for possible replacement words or phrases. This still won't cure the problem, because even if you say something specific, like "prices are high", there will always be someone who comes around and says, "but inflation is low". Yeah, but that's not what we are talking about.
- sanderjd 2y ago
  The problem with this is that "the prices are high", on its own, is meaningless. There is not some ideal price level that prices fluctuate around such that they are "low" when beneath that level, and "high" when above it. That's just not a thing, it's not how economies work. So what do you mean when you say "price levels are high"? I think what you and I and most people mean when we say this sort of thing is something like, "I have an estimate anchored in my mind for what the prices of things are, and they are currently noticeably higher than that". But where do those price level "anchors" we all have in our minds come from? From recent experience, pretty much. But by introducing "recent experience" into this, we now have a time component. And that's where inflation - the change in price levels over time - comes in. This is why people immediately start talking about inflation when you say "price levels are high". It just doesn't make sense to talk about price levels without a baseline to compare to, and that is inevitably a comparison between price levels at different times, so now we're talking about a change over time, which means we're talking about inflation, not just price level. So what I think people really mean by a statement like "price levels are high" is something like "price levels have increased faster than I have mentally updated the price levels I'm anchored on". That is, there is some rate of inflation that gets lost in the noise of our mental estimates over time, but at some point, it becomes noticeable. (And of course this happens at a different point for different people and those people have difference "noise" tolerance across different things they buy.) Using everyone's favorite bad example of egg prices, if they cost $3 one year, am I going to notice if they cost a nickel or a dime more the next year? That's about 2% to 3% inflation, and no, I'm probably not going to notice; they still cost about $3. But if inflation is closer to 20% for that year, now they cost $3.60, and that's starting to feel more like $4, which is way more! Then the other thing is that I think maybe we actually should be reporting inflation in longer time horizons. Something I think I've learned from this period is that people don't update these mental "anchors" for price levels symmetrically; we notice more quickly when prices go up a lot, and take longer than that to "get used to" the new level. So maybe it's a 3 year comparison or even a 5 year comparison that would better reflect how people feel about price levels. For instance, we could say "the 5-year inflation is at about 23%, which is about 4% annualized", or "3-year inflation is at about 16%, which is about 5% annualized". Importantly, you can't directly compare the 5-year number to the 3-year number, only the annualized rates are comparable, but you can see how the long-range numbers each evolve over time. For instance, the 5-year inflation in 2020 was just 9.2% (using this calculator[0] for all of these), which is only 1.74% annualized! This is a huge difference from the current numbers, and I think that has a lot to do with how people are feeling about price levels. To complicate it even further, I think how people really anchor things - though this is useless for baseline comparisons over time - is not on a fixed time-range, but instead based on the most recent major event, like the pandemic, or the "great recession" before that, or 9/11 before that, etc. You can see that in most of the current discussions on this, where the word "pandemic" pretty much always comes up. We're coming up on 5 years since that, so I think the 5-year inflation comparison captures it well, but we may still be anchoring on price levels from before the pandemic another three or five years from now if that's still the big event we all have in our minds (and I certainly hope we don't have a new one to dislodge it anytime soon...). [0]: https://www.usinflationcalculator.com/ https://www.usinflationcalculator.com/
  - smeej 2y ago
    Doesn't debt, both national and personal, come into this equation in a big way, though, as far as anchors? Like, if I bought a house 10 years ago for $50k (which I actually did), paying off $50k with today's dollars seems like no big deal compared to yesterday's dollars. $50k today buys a new car, not a (admittedly on the inexpensive end even at the time) new house. If the prices of other things are growing a lot faster than the interest rate I got on that house (which I'd think of as the expected time value of that money over the life of the mortgage), it makes sems that the prices are "high" relative to that expectation. I think something similar happens on the scale of the national debt. Adding a trillion dollars now isn't nearly as big a deal as adding a trillion dollars the first time, because "prices are high" for both labor and goods (income and expenses, from the average citizen's perspective).
sanderjd 2y ago
> Educated people understand ... But this isn't higher education level material, is it? Is this not part of the curriculum in high school? I know it's possible to drop out of high school, but most people finish. Is "what does the word inflation mean?" really not something that it can be assumed everyone has been taught?
- baumy 2y ago
  Did you go to a public school? If you did, think back on all the kids that were your classmates. Not just the ones in the honors and AP courses you probably took, but all of them. Do you really find it surprising that they didn't learn or retain various bits of seemingly simple information? If you went to some kind of magnet school with only the smart kids, take my word for it - a huge percentage of 14-17 year olds have absolutely no interest in learning and remembering what inflation is and how it works. Some of them will find some internal curiosity later in life, but plenty will never change much. This is a minor pet peeve of mine developed from too much time spent reading internet comments years ago where young people would complain "why wasn't XYZ taught in school??". Very often the answer is - It was, but you were a bad student.
  - sanderjd 2y ago
    Yeah, fair enough.

floxy 2y ago

I think we need a word for "price levels are high". I think some people are using "inflation" in this sense. And then there are others who are using a strict, narrow definition of "inflation" as propaganda (as-in, news articles where the implication that you should be happy if inflation is down for a quarter, regardless of whether prices are still high). Maybe there is an appropriate loan word from a different language? Certainly there have been other countries which have experienced much worse bouts of inflation (and hyper-inflation). I'd like to hear some suggestions for possible replacement words or phrases. This still won't cure the problem, because even if you say something specific, like "prices are high", there will always be someone who comes around and says, "but inflation is low". Yeah, but that's not what we are talking about.

sanderjd 2y ago
The problem with this is that "the prices are high", on its own, is meaningless. There is not some ideal price level that prices fluctuate around such that they are "low" when beneath that level, and "high" when above it. That's just not a thing, it's not how economies work. So what do you mean when you say "price levels are high"? I think what you and I and most people mean when we say this sort of thing is something like, "I have an estimate anchored in my mind for what the prices of things are, and they are currently noticeably higher than that". But where do those price level "anchors" we all have in our minds come from? From recent experience, pretty much. But by introducing "recent experience" into this, we now have a time component. And that's where inflation - the change in price levels over time - comes in. This is why people immediately start talking about inflation when you say "price levels are high". It just doesn't make sense to talk about price levels without a baseline to compare to, and that is inevitably a comparison between price levels at different times, so now we're talking about a change over time, which means we're talking about inflation, not just price level. So what I think people really mean by a statement like "price levels are high" is something like "price levels have increased faster than I have mentally updated the price levels I'm anchored on". That is, there is some rate of inflation that gets lost in the noise of our mental estimates over time, but at some point, it becomes noticeable. (And of course this happens at a different point for different people and those people have difference "noise" tolerance across different things they buy.) Using everyone's favorite bad example of egg prices, if they cost $3 one year, am I going to notice if they cost a nickel or a dime more the next year? That's about 2% to 3% inflation, and no, I'm probably not going to notice; they still cost about $3. But if inflation is closer to 20% for that year, now they cost $3.60, and that's starting to feel more like $4, which is way more! Then the other thing is that I think maybe we actually should be reporting inflation in longer time horizons. Something I think I've learned from this period is that people don't update these mental "anchors" for price levels symmetrically; we notice more quickly when prices go up a lot, and take longer than that to "get used to" the new level. So maybe it's a 3 year comparison or even a 5 year comparison that would better reflect how people feel about price levels. For instance, we could say "the 5-year inflation is at about 23%, which is about 4% annualized", or "3-year inflation is at about 16%, which is about 5% annualized". Importantly, you can't directly compare the 5-year number to the 3-year number, only the annualized rates are comparable, but you can see how the long-range numbers each evolve over time. For instance, the 5-year inflation in 2020 was just 9.2% (using this calculator[0] for all of these), which is only 1.74% annualized! This is a huge difference from the current numbers, and I think that has a lot to do with how people are feeling about price levels. To complicate it even further, I think how people really anchor things - though this is useless for baseline comparisons over time - is not on a fixed time-range, but instead based on the most recent major event, like the pandemic, or the "great recession" before that, or 9/11 before that, etc. You can see that in most of the current discussions on this, where the word "pandemic" pretty much always comes up. We're coming up on 5 years since that, so I think the 5-year inflation comparison captures it well, but we may still be anchoring on price levels from before the pandemic another three or five years from now if that's still the big event we all have in our minds (and I certainly hope we don't have a new one to dislodge it anytime soon...). [0]: https://www.usinflationcalculator.com/ https://www.usinflationcalculator.com/
- smeej 2y ago
  Doesn't debt, both national and personal, come into this equation in a big way, though, as far as anchors? Like, if I bought a house 10 years ago for $50k (which I actually did), paying off $50k with today's dollars seems like no big deal compared to yesterday's dollars. $50k today buys a new car, not a (admittedly on the inexpensive end even at the time) new house. If the prices of other things are growing a lot faster than the interest rate I got on that house (which I'd think of as the expected time value of that money over the life of the mortgage), it makes sems that the prices are "high" relative to that expectation. I think something similar happens on the scale of the national debt. Adding a trillion dollars now isn't nearly as big a deal as adding a trillion dollars the first time, because "prices are high" for both labor and goods (income and expenses, from the average citizen's perspective).

sanderjd 2y ago

> Educated people understand ... But this isn't higher education level material, is it? Is this not part of the curriculum in high school? I know it's possible to drop out of high school, but most people finish. Is "what does the word inflation mean?" really not something that it can be assumed everyone has been taught?

baumy 2y ago
Did you go to a public school? If you did, think back on all the kids that were your classmates. Not just the ones in the honors and AP courses you probably took, but all of them. Do you really find it surprising that they didn't learn or retain various bits of seemingly simple information? If you went to some kind of magnet school with only the smart kids, take my word for it - a huge percentage of 14-17 year olds have absolutely no interest in learning and remembering what inflation is and how it works. Some of them will find some internal curiosity later in life, but plenty will never change much. This is a minor pet peeve of mine developed from too much time spent reading internet comments years ago where young people would complain "why wasn't XYZ taught in school??". Very often the answer is - It was, but you were a bad student.
- sanderjd 2y ago
  Yeah, fair enough.